1. Brustein & Manasevit, PLLC Charter Schools: Allowability and Grants Management Compliance NYSED – May 2013 Tiffany R. Winters, Esq. Brustein & Manasevit, PLLC twinters@bruman.com www.bruman.com Twitter: @Trwinters

2. Brustein & Manasevit, PLLC Agenda Allowability ◦ Basic Cost Principles ◦ Time and Effort Documentation Grants Management Systems ◦ Financial Management ◦ Procurement ◦ Inventory Internal Controls 2

3. Brustein & Manasevit, PLLC HOW TO DETERMINE IF A COST IS ALLOWABLE 3

4. Brustein & Manasevit, PLLC Helpful Questions to Ask Is the proposed cost allowable under the relevant program? Is the proposed cost consistent with program specific fiscal rules? Is the proposed cost consistent with federal cost principles? Is the proposed cost consistent with EDGAR? 4

5. Brustein & Manasevit, PLLC Additional Questions 5 Is the proposed cost consistent with special conditions imposed on the grant? Is the proposed cost consistent with the underlying needs of the program

6. Brustein & Manasevit, PLLC Federal Cost Principles  A-21 Educational Institutions  A-87 State, Local & Indian Tribal Governments  A-122 Non-Profit Organizations  48 CFR pt. 31 For-Profit Organizations 6

7. Brustein & Manasevit, PLLC Cost Principles: Basic Guidelines All Costs Must Be: 1.Necessary 2.Reasonable 3.Allocable 4.Legal under state and local law 5.Conform with federal law & grant terms 6.Consistently treated 7.In accordance with GAAP 8.Not included as match 9.Net of applicable credits 10.Adequately documented 7

8. Brustein & Manasevit, PLLC Necessary & Reasonable Necessary and Reasonable ◦ Must be necessary for the performance or administration of the grant ◦ Must follow sound business practices:  Arms length bargaining (hint: procurement processes)  Follow federal, state and local laws  Follow terms of the grant award ◦ Fair market prices ◦ Act with prudence under the circumstances ◦ No significant deviation from established prices 8

9. Brustein & Manasevit, PLLC Necessary & Reasonable (cont.) Practical aspects of “necessary” ◦ Do I really need this? ◦ Is this the minimum amount I need to spend to meet my need? Practical aspects of “reasonable” ◦ Is the expense targeted to valid programmatic/administrative considerations? ◦ Do I have the capacity to use what I am purchasing? ◦ Did I pay a fair rate? Can I prove it? ◦ If I were asked to defend this purchase, would I be comfortable? 9

10. Brustein & Manasevit, PLLC Allocable Allocable ◦ Can only charge in proportion to the value received by the program  Example: LEA purchases a computer to use 50% in the Title I program and 50% in a state program – can only charge half the cost to Title I 10

11. Brustein & Manasevit, PLLC Basic Guidelines (cont.) Legal under state and local law ◦ If you can’t do it under state law, you can’t pay for it with federal funds Conform with federal law & grant terms ◦ Example: Match Requirements 11

12. Brustein & Manasevit, PLLC Basic Guidelines (cont.) 12 Consistently treated ◦ Must follow uniform policies that apply equally to federal and non-federal activities ◦ Cannot assign cost as direct cost if indirect under state programs

13. Brustein & Manasevit, PLLC Basic Guidelines (cont.) In accordance with GAAP Not included as match Net of applicable credits ◦ Examples: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, adjustments of overpayments 13

14. Brustein & Manasevit, PLLC Basic Guidelines (cont.) Adequately documented ◦ Amount of funds under grant ◦ How the funds are used ◦ Total cost of the project ◦ Share of costs provided by other sources ◦ Records that show compliance ◦ Records that show performance ◦ Other records to facilitate an effective audit 14

15. Brustein & Manasevit, PLLC Federal Cost Principles 15 OMB Circulars 43 specific costs detailed Listed in alphabetical order

16. Brustein & Manasevit, PLLC Selected Items of Cost Advertising/PR ◦ Generally not allowable, except as specified in Attachment B Alcohol ◦ Not allowable Audit Costs ◦ Allowable to the extent provided under A- 133 ◦ Other audit costs are allowable if included in a cost allocation plan 16

17. Brustein & Manasevit, PLLC Time and Effort Documentation

18. Brustein & Manasevit, PLLC Time Distribution Records Must be maintained for all employees whose salaries are: ◦ Paid in whole or in part with federal funds ◦ Used to meet a match/cost share requirement 18

19. Brustein & Manasevit, PLLC Required Time Distribution Documentation Type of documentation depends on how many “cost objectives” the employee worked on These cost objectives must be connected to the employee’s salary source What is a cost objective? ◦ A specific grant award, or other category of costs, that requires the grantee to track specific cost information 19

20. Brustein & Manasevit, PLLC Examples.... A Minimum Set-Aside or Maximum Cap: ◦ Title I- LEA Parent Involvement minimum (at least 1%); ◦ Title III – Cap on administration (no more than 2%) Program services: ◦ Title I program services ◦ 21 st CCLC program services 20

21. Brustein & Manasevit, PLLC OCFO clarifications re: “single cost objective” OCFO: “The criteria for whether an employee may document time and effort using a semiannual certification or must fill out a monthly PAR can be confusing. 21

22. Brustein & Manasevit, PLLC OCFO Guidance It is possible for multiple programs to have the same cost objective, which creates confusion over whether the presence of a single cost objective or being funded by multiple programs should determine what time-and-effort documentation and employee must complete. 22

23. Brustein & Manasevit, PLLC OCFO Guidance (cont.) It is possible to work on a single cost objective even if an employee works on more than one Federal award or on a Federal award and a non- Federal award. The key to determining whether it is a single cost objective is whether the employee’s salary and wages can be supported in full from each of the Federal awards on which the employee is working or from the Federal award alone if the employee’s salary is also paid with non-Federal funds. 23

24. Brustein & Manasevit, PLLC A-87 Single Cost Objectives – Semi-Annual Certification If an employee works on a single cost objective: ◦ Semi-Annual Certification ◦ Signed by employee or supervisor ◦ Every six months (at least twice a year) ◦ After the Fact ◦ Account for 100% of the activity Example: “I, Tiffany Winters, hereby certify that for the period January 1, 2012 through June 30, 2012 one-hundred percent (100%) of my time and effort was spent on 21stCCLC Administration.” 24

25. Brustein & Manasevit, PLLC A-87 Multiple Cost Objectives – Personnel Activity Report (PAR) If an employee works on multiple cost objectives: ◦ Personnel Activity Report (PAR) or equivalent documentation  After the fact  Account for total activity  Signed by employee  Prepared at least monthly and coincide with one or more pay periods 25

26. Brustein & Manasevit, PLLC Grant Management Systems Three major “systems” in grants management: Financial Management, Inventory and Procurement

27. Brustein & Manasevit, PLLC 27 Financial Management System

28. Brustein & Manasevit, PLLC Financial Management System: Common Problems Controlling allowable costs Clear record trail Cash management 28

29. Brustein & Manasevit, PLLC Financial Management System (FMS) 7 requirements: ◦ Financial Reporting ◦ Accounting Records ◦ Internal Control ◦ Budget Control ◦ Allowable Cost ◦ Source Documentation ◦ Cash Management 29

30. Brustein & Manasevit, PLLC Financial Reporting Accurate, current and complete disclosure of financial information ◦ All financial reports required by ED ◦ Consistent with GASB Rule 34 30

31. Brustein & Manasevit, PLLC Accounting Records Must identify source and application of funds (expenditure level detail) Must contain information related to: ◦ Award amount ◦ Authorizations ◦ Obligations ◦ Unobligated balances ◦ Assets ◦ Liabilities ◦ Outlays or expenditures ◦ Income 31

32. Brustein & Manasevit, PLLC Internal Controls Internal controls are tools to help program and financial managers achieve results and safeguard the integrity of their programs ◦ Includes processes for planning, organizing, directing, controlling, and reporting on agency operations 32

33. Brustein & Manasevit, PLLC Budget Control 33 Must compare actual expenditures to budgeted amounts on a routine basis Make sure all obligations are timely!! ◦ Payment Process  Obligation  Liquidation  Drawdown  Payment Obligation = Transaction that requires payment

34. Brustein & Manasevit, PLLC Obligations Type of ObligationWhen Obligation Occurs Acquisition of PropertyDate of binding written commitment Personal Services by Employee When services are performed Personal Services by Contractor Date of binding written commitment TravelWhen travel is taken 34

35. Brustein & Manasevit, PLLC Allowable Costs Must follow applicable cost principle to determine reasonableness, allowability, and allocability of all costs ◦ A-21 Educational Institutions ◦ A-87 State, Local & Indian Tribal Governments ◦ A-122 Non-Profit Organizations ◦ 48 CFR pt. 31 For-Profit Organizations 35

36. Brustein & Manasevit, PLLC Source Documentation Type of documents: ◦ Canceled checks (or similar bank record) ◦ Paid bills ◦ Payrolls ◦ Time and attendance records ◦ Contract and subaward documents Electronic copies ok Must retain for at least 5 years ◦ (Statute of Limitations under GEPA = 5 years) 36

37. Brustein & Manasevit, PLLC 37 Procurement

38. Brustein & Manasevit, PLLC Procurement: Common Problems 38 Controls over purchase orders Lack of descriptions in contracts/invoices Lack of approval over payment process

39. Brustein & Manasevit, PLLC Open Competition All procurement transactions must be conducted with full and open competition: ◦ Must have written code of conduct for all employees engaged in the award and administration of contracts (must address conflicts of interest) ◦ Must have protest procedures to handle disputes 39

40. Brustein & Manasevit, PLLC Open Competition (cont.) Situations that restrict competition: ◦ Unreasonable requirements on vendors to qualify to do business  Pre-qualified lists should not limit competition ◦ Requiring unnecessary experience or excessive bonding ◦ Noncompetitive pricing practices ◦ Noncompetitive awards to consultants on retainer ◦ Organizational conflicts of interest ◦ Specifying a brand name ◦ In-state or local preferences 40

41. Brustein & Manasevit, PLLC Vendor Selection Process Must have written selection procedures Procedures must ensure all solicitations: ◦ Include a clear and accurate description of technical requirements ◦ Identify all requirements vendor must fulfill ◦ Identify evaluation factors 41

42. Brustein & Manasevit, PLLC Vendor Selection Process (cont.) Can only contract with responsible contractors possessing the ability to perform successfully: ◦ Contractor integrity ◦ Compliance with public policy ◦ Record of past performance ◦ Financial and technical resources 42

43. Brustein & Manasevit, PLLC Vendor Selection Process (cont.) 43 As a practical matter, noncompetitive contract raises “red flags” ◦ Ensure persuasive and adequate documentation to facilitate audit

44. Brustein & Manasevit, PLLC Vendor Selection Process (cont.) Noncompetitive proposals appropriate only when: ◦ The good or services is available only from a single source (sole source) ◦ There is a public emergency ◦ The awarding agency authorizes ◦ After soliciting a number of sources, competition is deemed inadequate 44

45. Brustein & Manasevit, PLLC Vendor Selection Process (cont.) 45 Cannot contract with vendor who has been suspended or debarred Must verify if contract is $25,000 or more ◦ http://www.epls.gov/ http://www.epls.gov/ ◦ www.sam.gov www.sam.gov

46. Brustein & Manasevit, PLLC Vendor Selection Process (cont.) Retain records to document: ◦ Rationale for the method of procurement ◦ Selection of contract type ◦ Contractor selection or rejection ◦ Basis for contract price 46

47. Brustein & Manasevit, PLLC Contract Administration (cont.) 47 Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract

48. Brustein & Manasevit, PLLC 48 Inventory Management

49. Brustein & Manasevit, PLLC Inventory Management: Common Problems 49 Determining between “equipment” and “supply” Determining level of control over item Tracking non-equipment items

50. Brustein & Manasevit, PLLC Inventory Management Different rules for equipment and supplies Equipment ◦ Federal Definition of Equipment  Tangible personal property  Useful life of more than one year  Acquisition cost of $5,000 or more ◦ State may use another definition as long as it includes all property described above 50

51. Brustein & Manasevit, PLLC Equipment Must have adequate controls in place to account for: ◦ Location of equipment ◦ Custody of equipment ◦ Security of equipment 51

52. Brustein & Manasevit, PLLC Equipment (cont.) Property records ◦ Description, serial number or other ID, title info, acquisition date, cost, percent of federal participation, location, use and condition, and ultimate disposition Physical inventory ◦ At least every two years Control system to prevent loss, damage, theft ◦ All incident must be investigated 52

53. Brustein & Manasevit, PLLC Equipment (cont.) Must protect against unauthorized use ◦ May use for other projects as long as use is incidental and does not interfere When property no longer needed, must follow disposition rules: ◦ Transfer to another federal program ◦ Over $5,000 – pay federal share ◦ Under $5,000 – no accountability 53

54. Brustein & Manasevit, PLLC Supplies Supplies = Everything Else Must maintain effective control and accountability Must adequately safeguard all such property Must assure that it is used solely for authorized purposes 54

55. Brustein & Manasevit, PLLC Supplies (cont.) EDGAR does not set out any specific tracking requirements But, as a practical matter, ED expects subgrantees to track all property purchased with federal funds in order to prove there has been an allocable benefit to the federal program 55

56. Brustein & Manasevit, PLLC Internal Controls 56

57. Brustein & Manasevit, PLLC Internal Controls Objectives of Internal Controls ◦ Effectiveness and efficiency of operations ◦ Reliability of financial reporting ◦ Compliance with applicable laws and regulations ◦ Safeguarding assets 57

58. Brustein & Manasevit, PLLC Components of Internal Controls Risk Assessment Control Activities Information and Communications Monitoring Control Environment 58

59. Brustein & Manasevit, PLLC Internal Controls – Control Environment Goal: Sets the tone for the organization – allows management and employees to maintain a positive and supporting attitude toward compliance. Maintaining a level of competence that allows personnel to accomplish their assigned duties Clearly defined organizational structure Proper amounts of supervision Maintaining a good relationship with oversight agencies (like ED and OIG for example!) 59

60. Brustein & Manasevit, PLLC Internal Controls – Control Environment (cont.) Examples: ◦ Well-written policies and procedures manuals addressing employee responsibilities, limits to authority, performance standards, control procedures, and reporting relationships. ◦ Discuss ethical questions. ◦ Make sure all personnel comply with Conflict of Interest policies. ◦ Clear job descriptions so all personnel understand their responsibilities. ◦ Adequate training programs. ◦ Performance evaluations. 60

61. Brustein & Manasevit, PLLC Internal Controls – Risk Assessment Every Agency Has Problems and Risks!! First Establish clear and consistent objectives ◦ Operation objectives – pertain to achievement of efficiency of operations, performance standards and safeguarding resources. ◦ Financial reporting objectives – pertain to preventing fraudulent financial reporting. ◦ Compliance objectives – pertain to adherence with applicable laws and regulations. 61

62. Brustein & Manasevit, PLLC Internal Controls – Risk Assessment Then determine internal and external risks to obtaining those objectives: ◦ What could go wrong? ◦ What assets do we need to protect? ◦ How could someone steal or disrupt operations? ◦ What information do we rely on? Examples: ◦ Changes in operating environment ◦ New personnel ◦ New or updated information systems or technology ◦ Rapid growth ◦ New programs, activities or grants ◦ Lack of personnel 62

63. Brustein & Manasevit, PLLC Internal Controls – Risk Assessment (cont.) Once risks are identified, conduct risk analysis: ◦ Assess the likelihood (or frequency) of risk occurring ◦ Estimate the potential impact if the risk were to occur ◦ Determine how the risk should be managed 63 Risk High Low Judgment Required Low High Impact

64. Brustein & Manasevit, PLLC Internal Controls – Control Activities Goal: Help ensure that management’s directives are carried out. Examples: ◦ Segregating Key Responsibilities Among Different People ◦ Restricting Access to Systems and Records  Authorizations / Passwords ◦ Implementing Clear Written Policies in Key Areas ◦ Performance Reviews ◦ Maintaining Physical Control Over Valuable Assets  Maintenance of Security 64

65. Brustein & Manasevit, PLLC Internal Controls – Control Activities (cont.) Examples (cont.) ◦ Maintaining Appropriate Documentation  Approvals  Record Retention ◦ Data System Checks  Check for accounting of transactions in numerical sequence. ◦ Accurate and Timely Recording of Information 65

66. Brustein & Manasevit, PLLC Internal Controls – Information and Communications Goal: Ensure personnel receive relevant, reliable and timely information that enables them to carry out their responsibilities. Develop procedures for identifying pertinent information and distributing it in a form and timeframe that permits people to perform their duties efficiently. All personnel must receive a clear message from top down that control responsibilities must be taken seriously. Personnel must understand how they relate to one another in the system. 66

67. Brustein & Manasevit, PLLC Internal Controls – Monitoring Goal: Assess the quality of internal controls over time and ensure any findings are promptly resolved. Ongoing program and fiscal monitoring Regular oversight by supervisors Record reconciliation Formal program reviews / audits OMB Circular A-133 audits Include policies and procedures for correcting any findings in a timely manner. 67

68. Brustein & Manasevit, PLLC QUESTIONS? 68

69. Brustein & Manasevit, PLLC 69 This presentation is intended solely to provide general information and does not constitute legal advice or a legal service. This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct. Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.