Presented by David Fields, CPA, Senior Manager October 9, // experience perspective Pennsylvania Association of Community Health Centers PIN – Health Center Budgeting and Accounting Requirements

PIN  Purpose:  Clarification & documentation?  Who?  All CHCs including look-a-likes  What?  Budgeting  Documentation & accounting records  Accounting for CHC scope of project funding  Other lines of business outside of scope 2

PIN  Why?  GAO & OIG pressure to improve program integrity measures  Warnings?  Your organization  Who knows  Who is responsible  Ignorance of law is no excuse  NACHC & BKD responses  To do… 3

HEADLINE ISSUE – COMPLIANCE  OIG audits of CHCs  New era of accountability – phrase spoken with ARRA bill  Seeing fruits of change – OIG est. 57 reports for 2013  Accountability, not new rules  HRSA scrutinized by OIG  OIG audits of CHCs  Significant questioned costs 4

THE RULES  Federal laws & regulations  Section 330 of the Public Health Services Act (42 U.S.C. 254b)  Program specific: CHC (42 CFR 51c) & Migrant (42 CFR 56)  Grant administrative regulations (OMB Circular A-110) :  45 CFR 74 ~ Non-profits  45 CFR 92 ~ State, Local, Tribal Government  Cost principles: 2 CFR part 230 (OMB Circular A-122)  Audit requirements: OMB Circular A-133

THE RULES  Awarding agency guidance  HHS Grants Policy Statement  BPHC Policy Information Notices (“PINs”) & Program Assistance Letters (“PALs”)  Notice of grant award (“NGA”) terms & conditions 6

FEDERAL REGULATION MAP HHS / HRSA / BPHC Section 330 CHC Grant Non-Profit CHC Organization (PRIVATE) Local / Tribal Government CHC Department (PUBLIC) 501(c)(3) Non-Profit Requirements A-110 – Grants Management Standards Agriculture 7 CFR 3019 HHS 45 CFR 74 HUD 24 CFR 84 A-122 – 2 CFR, Part 230 – Cost Principles Standards A-133 – Single Audit Local / Tribal Government Requirements A-102 –Grants Management Standards Agriculture 7 CFR 3016 HHS 45 CFR 92 HUD 24 CFR 85 A-87 – 2 CFR, Part 225 – Cost Principles Standards A-133 – Single Audit Office Supply Company Gov’t Contract - Paper Gov’t Contract - Staples Federal Contractor Requirements Federal Acquisition Regulation - FAR 7

PIN A GAME CHANGER  Expectations gap  How CHCs are doing things?  How the Bureau & OIG want CHCs to do things?  Documentation  Segregate grant expenditures from non-grant funds  Clarification needed: definition of non-grant funds  Program income  Other income 8 // experience perspective

BUDGETING REQUIREMENTS  Section IV addresses budgeting requirements and requires that “appropriate HRSA approvals are requested and received”  Is this just for 330 grants funds or for all funds?  How will this approval be documented – a separate form? EHB?  Budget revisions required for all funds or just 330 grant funds?  Timing of approvals a concern 9 // experience perspective

GRANT FUNDS VS. NON-GRANT FUNDS  All Section 330 grant expenditures have to be documented in your accounting records  There are different requirements for grant expenditures vs. non-grant expenditures as OMB Circulars, CFRs, etc. generally do not apply to non- grant expenditures  This PIN adds new requirements for documentation of expenditures of non-grant funds 10 // experience perspective

GRANT FUNDS VS. NON-GRANT FUNDS  Some CHCs feel like:  We spent the money  Trust us its all in there  If asked we can “come up with the expenses”  No one ever asked before  The reality is:  What do the rules say?  Someone is asking 11 // experience perspective

NON-GRANT EXPENDITURES  New PIN could conflict with other grant rules or donor intentions  HRSA approval for such activity?  PIN requires that every expenditure be matched with a corresponding revenue stream  This is required to be documented  All expenditures require a price or cost analysis to be performed  What does that mean? 12 // experience perspective

NON-GRANT EXPENDITURES  Is the expectation that the new PIN requirements on non-grant fund expenditures be tested by the Health Center’s external auditors and if so, are violations questioned costs?  PIN requires all non-grant funds be fully covered by a revenue stream – no more deficits? 13 // experience perspective

ACCEPTABLE NON-GRANT FUND EXPENDITURES  Repair or minor renovations of physical plant not to exceed $100,000  Building financial reserves up to 3 months  Interest payments on cash shortfalls  Salary cost over HRSA cap  Fundraising  Meals to board or employees in special situations  Incentives valued at $20 or less  Special one-time costs 14 // experience perspective

OTHER LINES OF BUSINESS  Health centers are prohibited by the PIN to transfer benefits received from being a Section 330 grantee (e.g. program income) to out of scope activities  All out of scope activities must be self sufficient and have adequate revenue streams to cover expenditures, including a reasonable allocation of overhead, if applicable 15 // experience perspective

PUBLIC COMMENTS - BKD  Financial perspective  Outlines significant administrative & grants management changes  Raises significant questions about implementation  If implemented as published will have significant and far reaching impact 16 // experience perspective

PUBLIC COMMENTS - NACHC  Provides legislative context for PIN issues  Strongly worded objections: 1.“It is contrary to law” 2.“It changes agency practice without explanation” 3.“It is a legislative rule that should be issue by regulation”  Challenges elements of the public & non-public parts of the PIN 17 // experience perspective

CONTEXT OF PUBLIC COMMENTS  Not a license to ignore PIN  Recognize the environment of more program integrity measures not less  Many of the concepts are not being debated  The level of documentation may be argued, but more documentation will be required 18 // experience perspective

ITEMS NOT BEING DEBATED  That A-110 & A-122 rules that apply to federal grant dollars including time & effort reporting  Must have plan & budget that meets requirements of PHS Act section 330(k)(3)(I)(i), even if disagreement about having two budgets  That program integrity measures have been increased  “New Era of Accountability” 19 // experience perspective

ACTION PLAN  Know the rules…really know the rules  Who in your Organization is responsible for which rules?  Where & to whom do you go for answers?  Document your compliance  What are your policies?  Where is you documentation maintained?  How well is your activity documented? 20 // experience perspective

ACTION PLAN  Stay informed & connected  Be aware of NACHC & PACHC updates  Look for final PIN  Take action  Prioritize your weaknesses & fix now  Despite dispute over some elements of PIN, address items not up for debate 21 // experience perspective

ACTION PLAN  Track CHC grant funds closely  Even if two budgets is challenged, identifying & documenting grant expenditures is necessary  Develop a game plan to ensure time and effort reporting is in compliance  Begin to consider the recording requirements of the new PIN and develop a game plan to account for non- grant funds 22 // experience perspective

THANK YOU FOR MORE INFORMATION // For a complete list of our offices and subsidiaries, visit bkd.com or contact: Please feel free to contact David Fields

24 The information in BKD seminars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these seminars.