Advanced Allowable
Costs Issues
Difficult Issues of Cost
Allocation
Leigh Manasevit
Brustein & Manasevit, PLLC
[email protected]
Spring Forum 2011
Costing Options:
1.
2.
3.
Direct Charge
Cost Allocation Plan (CAP)
Indirect Costs
2
OMB Circular A-87

Allocable benefit to federal program

Chargeable or assignable to the federal
program in accordance with the relative
benefits received
3
Direct Charges:
Salaries and Wages
How can grantee show
allocable benefit to specific
federal program??
Time Distribution
Records!
Support of Salaries and Wages


Payroll must be documented in
accordance with SEA/LEA’s generally
accepted accounting practice
Charges must be approved by a
“responsible official” of the SEA/LEA
6
Time Distribution
OMB Circular A-87



If federal funds are used for salaries “time
and effort records” must be kept
Must demonstrate that employees paid
with federal funds actually worked on the
specific federal program
Applies to all employees who are paid with
federal funds
7
General Requirement



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
What is not a cost objective?

Source of funding
8
Who must participate?

Any employee working on a
federal program
◦
Not contractors

All employees paid with federal
funds

Some employees paid with nonfederal funds
◦ Matching
9
Cost Objective

Single cost objectives:
 Consolidated
administration
 Schoolwide programs
10
Cost Objective (cont.)

Multiple cost objectives:
 More than one Federal award
 A Federal award and a non-Federal award;
 A Federal award with specific earmarking (setasides) or matching requirements;
 An indirect cost activity and a direct cost activity;
 Two or more indirect activities which are allocated
using different allocation bases; or
 An unallowable activity and a direct or indirect cost
activity.
11
Single Cost Objective

If an employee works on a single cost objective:
 Semi-Annual Certification
 Signed by employee or supervisor every six
months
 Example: “I hereby certify that for the period
January 1, 2010 through June 30, 2010 onehundred percent (100%) of my time and effort
was spent on Title III Administration.”
12
Single Cost Objective (cont.)
Flexibility


Payroll certification in lieu of semi-annual
certification
1. Single cost objective
2. Supervisor cannot assign multiple
functions
3. Employee coded to dedicated function
not benefiting multiple functions
Blanket certification
13
Multiple Cost Objectives

If an employee works on multiple cost
objectives:
 Personnel Activity Report (PAR) or equivalent
documentation
 Signed by employee
 Example: “I hereby certify that for the period
January 1, 2011 through January 31, 2011
50% of my time and effort was spent on Title I
School Improvement and 50% on
Consolidated Administration.”
14
Multiple Cost Objectives
(cont.)

PAR must be:
 After the fact
 Account for total
activity
 Signed by
employee
 Prepared at least
monthly and
coincide with one or
more pay periods
15
Multiple Cost Objectives
(cont.)

Time increments reported on PARs should
be sufficient to recognize:
 Number of different activities performed
 The dynamics of these responsibilities
16
Multiple Cost Objective (cont.)
Flexibility

Equivalent Documentation
 DRAFT Guidance from ED (may not be accepted by
auditors)
 Instructional staff may use lesson plans to confirm that
their written schedules were followed, in lieu of PARS, if:
 After-the-fact notes are made on those plans to
indicate the completion of each scheduled activity
 The lesson plans account for the total time the
employee is compensated
 The lesson plans are prepared at least monthly and
coincide with one or more pay periods
 The completed lesson plans are signed by the
employee
17
Flexibility

Substitute systems


Must be approved by state (if ED has
approved state procedures)
Can include:



Random moment sampling
Case counts
Other quantifiable measures of employee
effort
18
Salaries



10 month teacher
12 monthly paychecks
Can pay over the summer but cannot draw
until salary paid
19
Salaries

Activities allowable under more than one
program




Can be funded in part by both
Can be funded 100% under either
Coach provides professional development
services
Eligible under Title I or Title II

The cost objective is professional development
20
Compensation for
Personal Services

Fringe Benefits Allowable
Provided:
 Reasonable
 Required by law, agreement, policy
21
Consolidated
Administration






Combine administration for all
NCLB programs
NOT non-administrative activities
Single Cost Objective
Semi-annual certification
SEA: majority of operating funds from
non-federal sources
LEA: approval of SEA
22
Schoolwide Consolidation Use
of Funds

State, Local and Federal Consolidated


Any purpose in the school
A-87 does not apply – can include operational
costs
23
Schoolwide Consolidation Use
of Funds
Federal Only
 Can be used only to address specific
educational needs identified in needs
assessment / Schoolwide Plan
 Activities do not have to be supplemental
 A-87 applies
24
Schoolwide Consolidation Use
of Funds
Title I Only – no consolidation
 Specific education needs as with Federal
only
 Activities do not have to be supplemental
 Can serve all students
 A-87 applies
 Other federal funds must follow program
rules
25
How does supplanting
apply in a schoolwide
program?
Supplement not Supplant

Statute 1114(a)(2)(B): Title I must
supplement the amount of funds that
would, in the absence of Title I, be
made available from non-federal
sources.
 E-18 in schoolwide guidance

The actual service need not be
supplemental.
27
SNS: NEW!!


Guidance: School must receive all the
state and local funds it would otherwise
need to operate in the absence of
Federal funds
 Includes routine operating expenses
such as building maintenance and
repairs, landscaping and custodial
services
Question E-8 2008 Fiscal Guidance
http://www.ed.gov/programs/titleiparta/fi
scalguid.doc
28
Subawards




Treatment for indirect cost
$25,000 limitation – exclusion of
amounts above
Applies to each subaward separately
Applies annually
29
Subawards



If exclusion applies
Exclude from indirect cost subaward
amounts over $25,000
Process:



$25,000 in denominator
Apply rate to denominator
Balance of subaward excluded
30
Subawards

Process Continued…



Amount of subaward over $25,000
Excluded from base
No indirect is recorded against the
overage
31
Subawards
Not all awards subject to exclusion
Greenbook
http://www2.ed.gov/about/offices/list/ocfo/fipao/
guideigcwebsite.pdf

Example #1




Grantee contracts with speech
pathologist - $50,000
Professional service – usually in-house
Not subject to exclusion
Entire amount in denominator – indirect
recovered
32
Subawards

Example #2




Grantee contracts with software vendor
for technical support and enhancement
If organization wide
indirect cost
Not subject to exclusion
Entire amount in denominator –
indirect recovered
33
Subawards

Example # 3



School nurse – no instruction
Not subject to the exclusion
Entire amount in denominator – indirect
recovered
34
Subawards


ED Informal Internal Document:
Further Examples
Example #4



Students court ordered to facility
Subaward – Exclusion applies
First $25,000 in denominator: balance
excluded
35
Subawards

Example #5




State funded grant to LEA for mentoring
LEA pays Boys & Girls club the full
amount as pass-through
Subaward – Exclusion applies
First $25,000 only in denominator
36
Subawards

Where exclusion applies:

$25,000 is annual limit
37
Fringe Benefits,
Special Rules
Post Retirement Health Benefits
Pay as you go (actual payment)
Accrued as they are earned
Accrued leave
Post Retirement Health
Benefits (PRHB)
Accrued, not funded
GASB 45
Must be shown as a liability
DOES NOT REQUIRE FUNDING –
only reporting
PRHB
GASB45
Effective Dates



Phase I Employers
(Annual Revenue $100M or
More)
Phase 2 Employers
(Annual Revenue $10M to
100M)
Phase 3 Employers
(Annual Revenue Under
$10M)
Period Begins After
December 1, 2006
December 1, 2007
December 1, 2008
40
PRHB
Pay As You Go:
Means: NO CHARGES until costs
are incurred
Indirect Cost
PRHB
Currently – i.e. reserve funds now
for future payments
Option to fund
How to Fund
Funding PRHB
Current Employees
•
•
Current Service
Past Service
Retirees
Funding PRHB
Current Employee
Current Service
Direct Per Salary Distribution
Funding PRHB

Current Employee



Past Service
Aggregate all employee past service
liability
Distribute direct / proportional to present
salary distribution
 i.e.
10% Federal, 90% State / Local
45
Funding PRHB
Retirees
Indirect
Funding PRHB
Restricted Indirect Cost Rates
PRHB Restricted Rate
Must eliminate unallowable
salary related fringes
PRHB Restricted Rate

PRHB Restricted Indirect Cost Rate

Excludes salary costs of Chief
Executive Officer, Chief Executive
Officer of components, immediate
offices
49
PRHB Restricted Rate
PRHB


The fringe benefit associated in
these salaries are unallowable in a
restricted rate
50
PRHB Restricted Rate
PRHB in restricted rate calculation:

Total state agency salaries: $24,000,000

State agency salaries that are unallowable
(Chiefs, etc) $600,000

% of total salaries unallowable
600,000/24,000,000 = 2.5%

PRHB Total Cost = $1,000,000
51
PRHB Restricted Rate
PRHB in restricted rate calculation:



Unallowable PRHB = 2.5% of
$1,000,000 = $25,000
Allowable PRHB for restricted rate
$975,000
52
Early Retirement Incentives

Regular turnover severance


Allowable – indirect
Abnormal – mass severance


Must have prior approval and usually indirect
Exception – ED Jobs

Prior approval by state/direct
53
A-87 : Unused Leave Upon
Retirement or Termination

Allowable but must be



“…allocated as a general administrative expense
to all activities of the governmental unit or
component.”
Translation: Indirect Cost
Caution: In Restricted Rate Programs –

Cannot include leave cost for ineligible
employees
54
New Programs




SFSF
RTT
SIG
ED Jobs
55
New Programs
SFSF
http://www2.ed.gov/programs/statestabilizatio
n/auditor-guidance.pdf
 No non supplant
 A-87 does not apply but
 Necessary and reasonable does
 No time and effort under A-87 but

Support time and effort as with
Non federal employees
56
New Programs
RTT
http://www2.ed.gov/programs/racetothetop/fa
q.pdf
 Must implement plan
 Must meet



ED administrative regulations (EDGAR)
A-87 – includes time and effort
No non supplant
57
New Programs
SIG
http://www2.ed.gov/programs/sif/sigguidance
02232011.pdf
 References A-87
 Will require regular time and effort
documentation
 Non supplant required
58
New Programs
ED Jobs
http://www2.ed.gov/programs/educationjobsfund/go
vernors-ed-jobs-guidance-final-8-13-10.doc
 School level positions only
 ED – A-87 applies but




Limited non supplant i.e. –



Early retirement “mass severance”
Allowable (within confines of eligible positions)
Approval by state
No rainy day fund
No debt
No time and effort unless school site and district
level cost objective
59
Equipment


Useful life of more than a year
Acquisition cost of $5,000 or more


Unless State uses lower
Everything else = “supplies”
60
Equipment

Must be inventoried











Description
Serial or other ID #
Source
Title
Acquisition Date
Cost
% Paid in Federal Funds
Location
Use and Condition
Ultimate Disposition (if any)
Inventory

At least once every 2 years
61
Applying the Threshold

Ex 1:





LEA updates computer network
Cost total $50,000
Includes software, monitors,
computers, servers, etc.
Each item is less than $5,000
The components make a usable system – i.e. cost
is $50,000=Equipment
62
Applying the Threshold

Ex 2:




15 Computers are purchased for an after school
program
Individual cost $850 each
Total cost $12,750
Each computer functions
Individually

Not equipment
63
Applying the Threshold

Small and attractive items:





iPods
iPads
Cell phones
Computers
Under $5,000 each
Meets definition of supplies however

OIG and ED – Position




Great risk of “disappearance”
Good internal control requires tracking
More than supplies? – Yes
Less than equipment?
Same as equipment?
64
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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
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presentation, a later review of any printed or
electronic materials, or any follow-up questions or
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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.
65
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