Office of Monitoring & Internal Controls 2 CFR 200 Issues Presented by: William Addison, CPA Director Office of Monitoring & Internal Controls

Current Issues Related to 2 CFR 200 §200.205 Federal awarding agency review of risk posed by applicants. b) In addition, for competitive grants or cooperative agreements, the Federal awarding agency must have in place a framework for evaluating the risks posed by applicants before they receive Federal awards. This evaluation may incorporate results of the evaluation of the applicant's eligibility or the quality of its application. If the Federal awarding agency determines that a Federal award will be made, special conditions that correspond to the degree of risk assessed may be applied to the Federal award.

(c) In evaluating risks posed by applicants (1) Financial stability; (2) Quality of management systems and ability to meet the management standards prescribed in this part; (3) History of performance. (4) Reports and findings from audits (5) The applicant's ability to effectively implement

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Cash vs Accrual Basis of Billing And, Methods to Bill for Employee Paid Time Off (PTO)

Cash vs Accrual Basis This discussion does not apply to fee for services activities. Vendor (contractor) relationships usually do not have compensation requirements

Methods of Billing - Cash vs. Accrual Cash vs Accrual Basis Methods of Billing - Cash vs. Accrual

Cash vs. Accrual – Billing Funding agency - Federal funding) Not-for-Profit – Sub-recipient Employees’ of Not-for-Profit

Cash vs. Accrual Basis of Billing for PTO Not-for-Profit Employees’ of Not-for-Profit Employees usually earn several types of compensation: Wages Paid time off in accordance with policy Other benefits

Cash vs Accrual Basis §200.34 Expenditures. Expenditures means charges made by a non-Federal entity to a project or program for which a Federal award was received. (a) The charges may be reported on a cash or accrual basis, as long as the methodology is disclosed and is consistently applied.

Cash vs Accrual Basis Cash basis of accounting Definition: The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.

Cash vs Accrual Basis Accrual Basis of Accounting Accrual basis - incurred but not paid

Cash vs Accrual Basis The DHHS contract buys into the agency’s compensation plan for employees: Compensation per position Types of compensation for each employee Usually buys into agency’s PTO policy

Cash vs Accrual Basis The contractor elects a billing method - Cash or Accrual (2 CFR 200 guidance)

Cash vs. Accrual Basis of Billing for Paid Time Off Month One Month Two Worked 10 Days Pay period $100 @ 10 days = $1,000 PTO $100 Pay Date

Accrual Basis of Billing Funding agency Not-for-Profit Employees’ of Not-for-Profit Bill DHHS for $1,100 Liability of $100 (GAAP defined liability) Subject to DHHS contract line item

Cash Basis of Billing Funding agency Not-for-Profit Employees’ of Not-for-Profit Bill DHHS for $1,000 Liability of $100 (GAAP)

Cash vs. Accrual Basis of Billing for Paid Time Off Month One Month Two Worked 10 Days Pay period Contract Discontinued $100 @ 10 days = $1,000 PTO $100 Pay Date

Cash Basis of Billing Funding agency Not-for-Profit Employees’ of Not-for-Profit Unfunded $100 liability not the responsibility of DHHS

Accrual Basis – Recording a liability Recording your paid time off in your accounting ledgers is identical to the way that you would record other liabilities. Paid time off is entered as a debited expense (expenditure) and an accrued liability.

Accrual Basis of Billing Year 1 Year 2 Year 3 After 3 years Employee Liability of $7,800 Accrual basis - fully funded liability for $7,800

Cash Basis of Billing Year 1 Year 2 Year 3 After 3 years Employee Liability of $7,800 Amount funded -0-

Switching from Cash to Accrual If billing on the cash basis, cannot switch to accrual basis in the final month of (See consistently followed)

UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS   200.431   Compensation—fringe benefits. …administrative leave, and other similar benefits, are allowable if all of the  following criteria are met: (1) They are provided under established written leave policies….. (2) The costs are equitably allocated to all related activities, including Federal  awards; and, (3) The accounting basis (cash or accrual) selected for costing each type of leave  is consistently followed by the nonfederal entity…

UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS   200.431 Compensation—fringe benefits. When a non-Federal entity uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. (ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists when the leave is earned.

Example Billing DHHS Programs for PTO Year 1 Year 2 Year 3 Employee works on same program

Example - Billing to DHHS Programs PTO Year 1 Year 2 Year 3 Program 1 Program 2 Program DHHS Employee works on several programs Has $7,800 in PTO earned from non-DHHS funding Works on DHHS program the last week before taking extended PTO

Cash vs Accrual Basis Employee has $7,800 of PTO Last pay period: Program 1 5 hours Program 2 5 hours DHHS program 70 hours Billed to DHHS .875% of $7,800 = $6,800 over the next several pay periods (The costs are equitably allocated to all related activities, including Federal  Awards).

Cash vs Accrual Basis §200.430 Compensation—personal services. Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity PTO = The costs are equitably allocated to all related activities, including Federal  Awards)

Cash vs Accrual Basis Note 1: Activity sheets have been used to equitably allocate PTO to funding sources. This method may be used even if the employee worked on one federal program all year. It provides proof that the federal program can be charged PTO.

James Mueller Financial Monitor Bureau of Community Action Economic Opportunity

200.313 Equipment & CSPM 404 Property & Inventory Requirements

What is Equipment according to Uncle Sam? Tangible personal property Useful life of more than one year Per-unit acquisition cost which equals or exceeds $5,000.

(d) Management requirements (d) Management requirements. Procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum, meet the following requirements: Property records must be maintained that include: description of the property a serial number or other identification number the source of funding for the property (including the FAIN) who holds title the acquisition date and cost of the property percentage of Federal participation in the project costs for the Federal award under which the property was acquired the location use and condition of the property and any ultimate disposition data including the date of disposal and sale price of the property.

(2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. Also, per CSPM 404, the inventory must be signed and dated by the person conducting the inventory.

I no longer need the equipment. What do I do with it? (e) Disposition. When original or replacement equipment acquired under a Federal award is no longer needed for the original project or program or for other activities currently or previously supported by a Federal awarding agency, except as otherwise provided in Federal statutes, regulations, or Federal awarding agency disposition instructions, the non-Federal entity must request disposition instructions from the Federal awarding agency if required by the terms and conditions of the Federal award.

§200.313 Equipment. (e) Disposition (continued) Disposition of the equipment will be made as follows, in accordance with Federal awarding agency disposition instructions: Items of equipment with a current per unit fair market value of $5,000 or less may be retained, sold or otherwise disposed of with no further obligation to the Federal awarding agency. If the equipment fair market value is over $5,000 and the equipment is sold, the Federal awarding agency may permit the non-Federal entity to deduct and retain from the Federal share $500 or ten percent of the proceeds, whichever is less, for its selling and handling expenses. The non-Federal entity may transfer title to the property to the Federal Government or to an eligible third party provided that, in such cases, the non-Federal entity must be entitled to compensation for its attributable percentage of the current fair market value of the property. In cases where a non-Federal entity fails to take appropriate disposition actions, the Federal awarding agency may direct the non-Federal entity to take disposition actions.

200.317 - 326 Procurement Standards

5 Procurement Methods Method #1: Micro-Purchase – Under OLD $3,000 NEW $3,500 Purchases are not to exceed $3,500 No quotations necessary if price is reasonable If possible, distribute purchases equitably among qualified suppliers Method #2: Small Purchase – Under $150,000 Purchases up to $150,000 (simplified acquisition threshold) Get rate quotations from an adequate number of qualified sources This mean more than one Still required to follow your agency’s internal policies Method #3: Sealed Bid – Over $150,000 Purchases are over $150,000 Primarily used in construction projects, such as a firm fixed price contract Price is a major factor and a formal process for bidding is usually required

Method #4: Competitive Proposals – Over $150,000 Purchases are over $150,000 Use contracts such as fixed price or cost reimbursement Formal Request for Proposal (RFP) with pre-determined evaluation methods for an adequate number of qualified sources Method #5: Sole Source– Any size purchase Any size purchase May only be used when the following circumstances apply: Item is only available from one source Emergency Federal awarding agency or pass-through entity approval After solicitation from a number of sources, competition is determined inadequate

The following rules apply to all procurement activity. You must follow your own established procurement policies Purchase be necessary to carry out the Federal award Purchase must be conducted in a free and open competition to the extent required You follow your internal conflict of interest policies You must detail the history of the purchase Rationale for method of procurement Selection of contract type Contractor selection or rejection Basis for contract price