Terminal Leave
&
Other Grave Matters
Terminal Leave & Other Grave Matters
Resurrection
Terminal Leave & Other Grave Matters
OVERVIEW PART 1
RESURRECTION
OVERVIEW PART 2
Ted’s Resurrection
OVERVIEW PART 3
DISCUSSION TOPICS
• Terminal Leave – A killer accounting issue
• Cognizance – who is responsible for what
• Standard 10% indirect cost rate allowance –
why and who can use it
INTRODUCING MY “CO-CHAIR”
Gil Tran
Part I
Accounting for Terminal Leave
by Ted Mueller
9
A-87-Appendix B
• Unallowable Costs: Alcohol, Entertainment, Lobbying, Governance,
Prosecuting claims against the government, etc.
• Question - Where is "terminal leave" on the basic allowable,
unallowable, allowable with prior approval cost grid?
• Terminal Leave not a selected item of cost
• Where does it say that?
10
Fringe benefit Section -- Appendix B.
Section 8.d.3
• "Payments for unused leave after an employee has retired or terminates
employment, are allowable in the year if payment, provided they are
allocated as a general administrative expense to all activities of the
governmental unit as component"
• Cost Allocation Art of Deductive Inference
• If it is only allowable as indirect then ...
• What if an employee worked on the same program their whole career?
• A-87 Implementation Guide Q&As
• Consistent treatment and retracing employment history deterrents
11
Why?
• The old re-assignment and "cash out" routine – an accounting bait & switch
• Fringe benefit distinction in accounting treatment
1. Active Employee under current programs (Compensated Absences, employee
insurance, pensions, unemployment benefit plans) "equitably allocated to all related activities
including Federal awards"
• Relationship to an Active Employee and the cost objectives
2. Exiting Employee and Fringe benefits (unused leave, payment, normal severance,
post retirement health benefits). Exiting employee benefits are removed from the cost objective(s)
the employee last worked on
So:
• Active/Current = Direct
• Exiting/Distant = Indirect
12
State and Local Laments
• What if I do not have indirect cost rate?
• Answer: SOL (not Statute of Limitations)
• What if I have a Pre-determined Rate
• Answer: SOL again
• What if I have a fixed with carry-forward rate?
• SOL for 2 years
• Rates based on actual costs 2 years prior or budget estimate
• Allowable in the year of payment
13
What about the Restricted Rate?
Answer:
• Double whammy
• Fringe follows labor
• Re-classified employee costs, plus unused leave, goes in the base
Result:
Non-recovery and lower rate
14
Let’s Do The Stroll…
Can an agency permit an employee to:
• Stop coming in to work, stay on the books and be paid while using up
unused leave balance
Result:
• No work
• No relative benefit received
• Leave direct charged to the cost objective where the employee last worked
on
• Practice not addressed in A-87
15
In Search of the Lost Policy
Issue raised in a cost policy summit with OMB
Question: Does stroll accounting result in an intentional circumvention of
the A-87 provisions?
• Leave balance under 80 hours = No
• Leave balance over 80 hours = Yes
• Dust in the Wind
16
Audit Findings Continue
Commonwealth of Pennsylvania
The auditors identified unused leave payments over $10,000 charged to Federal programs/clusters
during the fiscal years covered by the audit. The following list reflects the impacted ED programs
and questioned costs:
FY 07
CFDA
Program Name
84.010 Title I Grants to Local Education Agencies
FY 08
FY 09
Finding 07-74 Finding 08-70 Finding 09-75
$72,078.00
$20,493.00
84.002 Adult Education-Basic Grants to States
$25,357.00
84.027 Special Education Cluster
$57,714.50
$47,479.00
$6,153.50
84.173 Special Education Cluster
$57,714.50
$47,479.00
$6,153.50
84.048 Vocational Education-Basic Grants to States
$43,953.00
$36,695.00
84.126 Rehabilitation Services-Vocational Rehabilitation Grants to States
$1,551,705.00
84.181 Special Education Grants for Infants and Families with Disabilities
$46,376.00
84.186 Safe and Drug-Free Schools and Communities-State Grants
$18,406.00
84.287 Twenty-First Century Community Learning Centers
$16,092.00
84.298 State Grants for Innovative Programs
84.369 Grants for State Assessments and Related Activities
Total
$120,325.00
$17,279.00
$2,001,643.00
$152,146.00
17
$37,664.00
Audit Findings Continue
Innovative Take on Proportionality
In response to our queries, the Commonwealth provided documentation verifying
that the Pennsylvania Department of Labor and Industry (the State agency
responsible for rehabilitation programs) had posted an adjustment to its
accounting system. The adjustment effectively ensured no terminal leave
expenditures were charged to the Vocational Rehabilitation (VR) Grants to States
for FY 2007. The amount charged to the VR programs represented 78 percent of
the total questioned costs in FY 2007.
We analyzed the remaining question costs in FY s 2007 through 2009, as well as the
Commonwealth’s revised methodology for treating unused leave payments. Based
on our review, an allocation of unused leave payments would have ultimately
resulted in charges to various ED programs during FYs 2007 through 2009.
Additionally, the Commonwealth’s change in methodology results in charging
unused leave payments in accordance with OMB Circular A-87. We accept the
Commonwealth’s responses that corrective actions have been taken to prevent a
recurrence of the findings, and we consider the findings resolved.
18
Innovative Corrective Action – The Leave Payout Rate
Year 1 of Implementation - FY 2009
[A] Anticipated Salary & Wage Expenses
Anticipated Leave payouts
Plus: Associated Social Security @ 7.65%
Plus: Associated SWIF @ 2.20%
[B] Total AnticipatedLeave Payout Expenses
[C] Leave Payout Rate in Year 1 [B]/[A]
FYE 6/30/10
$4,045,000,000
$62,000,000
$4,743,000
$1,364,000
$68,107,000
1.6837%
Rate is calculated in
August 2008 for use in
the 2009-10 Budget
Process
Year 2 of Implementation - FY 2010
[A] Anticipated Salary & Wage Expenses
Anticipated Leave payouts
Plus: Associated Social Security @ 7.65%
Plus: Associated SWIF @ 2.20%
Total AnticipatedLeave Payout Expenses
Less: Restricted Account Balance 6/30/09
[B] Total Anticipated Leave Payout Funding Required
[C] Leave Payout Rate in Year 2 [B]/[A]
FYE 6/30/11
$4,247,250,000
$58,000,000
$4,437,000
$1,276,000
$63,713,000
$0
$63,713,000
1.5001%
Rate is calculated in August
2009 for use in the 2010-11
Budget Process. Funding into
the RRA began un July, 2009;
therefore the RA balance at
6/30/09 is still at -0-
Year 3 of Implementation - FY 2011
[A] Anticipated Salary & Wage Expenses
Anticipated Leave payouts
Plus: Associated Social Security @ 7.65%
Plus: Associated SWIF @ 2.20%
Total AnticipatedLeave Payout Expenses
Less: Restricted Account Balance 6/30/10
[B] Total Anticipated Leave Payout
Funding Required
[C] Leave Payout Rate in Year 2 [B]/[A]
FYE 6/30/12
$4,459,612,500
$65,000,000
$4,972,500
$1,430,000
$71,402,500
$430,000
$70,972,500
1.5914%
Rate is calculated in
August 2010 for use in
the 2011-12 Budget
Process. This will be the
first year for the RA
Account to have a
balance.
19
Leave Payout Rate
• Section II SWCAP
• Accrue and Fund Estimated Liability vs. Pay-as-You-Go (P-A-Y-G)
• Interest and Internal Service Funds.
20
Part II
Cognizance Conundrum – Who is
Responsible for What?
21
Overview
•
•
•
•
•
•
State-wide Cost Allocation Plans (SWCAPS)
State Agency Grantees
Local Education Agency Grantees and Other Local Agency Grantees
Non-Profit Grantees
Educational Institutions - Non-Profit and For-Profit
Sub-recipients
22
Cognizance
A single Federal Agency who speaks for all Federal
awarding agencies in reviewing, negotiating and
approving indirect cost rates and Cost Allocation
Plans (CAPS).
23
A-87 (2 CFR Part 225)
Two separate levels of cognizance
• State/Local Governments
• State/Local Grantee Departments or Agencies
Definitions
• State/Local Governments = Governmental Unit
• State/Local Departments or Agencies = Components of the
governmental
unit
24
Components
Administers grants that generate or a benefit from
indirect costs
25
SWCAPS
The Federal Department of Health and Human
Services (DHHS) is cognizant for all SWCAPS
• SWCAPS are cost allocation plans and not indirect
cost rates
26
Section I of the SWCAP
• Allocated Central Services (State-wide indirect
costs)
• They can be added to the State Agency/Department
indirect costs when computing their indirect cost
rates
• SWCAP only rate
• Need SWCAP information?
27
Section II of the SWCAP = Direct Billed Services
• Fringe Benefits and leave payout rates
28
Local Governments and LOCAPS
• Same as SWCAP - but retained on file and
documented via audits
29
Second Level of Cognizance under A-87
• Individual State and Local Agency Grantees
• OMB Cognizant Agency Assignment List was in 1986
• A-87 implementation guide says cognizance is determined
based on which Federal agency provides the most direct dollar
subject to indirect cost support
• Direct is the operative word
• Excludes pass-through dollars and other costs not subject to
indirect cost support
30
How?
• Schedule of Federal Expenditure by CFDA number
• Or other similar report that can be certified
Colleges and Universities
• Either ONR or DHHS - based on funding for the most recent 3 years
• Neither - Defaults to DHHS
For-Profit Colleges
• Federal Acquisition Regulations?
31
Non-Profit Organizations
• No cognizance listing
• Case by case - no change unless there is a "major" shift in funding
• Major not defined
What about Local Education Agencies?
• If XYZ School District receives the most Federal Direct Dollars from
the Department of Agriculture is Agriculture cognizant?
• EDGAR controlling -75.561 and 76.561
• SEA/Federal Department of Education relationship
• ED approves the methodology, not the rates
32
Sub-recipients
• Indirect cost rates
• What is a sub-recipient?
• An entity who: Receives an award made to a prime
grantee to carry out some part of a program or
activities on behalf of the prime grantee
• What about a lower tier/higher tier relationship?
• i.e., component within a component
33
What about sub-recipients who are stand alone
agencies or components?
• No direct Federal dollars = Prime Recipient
• A-87 is silent on how
• A-87 implementation Guide alternatives discussion
• Same concept applies to non-profit sub-recipients
34
Finally cost negotiation cognizance is not the same
as Audit cognizance
• Audit Cognizance = A-I33 = $50 million in Direct
Funding
• Cost Negotiation = no $ threshold
• Indirect Funding = oversight agency
Let’s look at the chart…
35
FY 2011 Funding
Agency
Direct or PT
CFDA
Program
Amount
Nat’l Science Foundation Direct
47.076
Human Resources
$50,000
Dept. of Ed.
Direct
84.031
Higher Ed
$35,000
Dept. of Ed.
Direct
84.047
Upward Bound
$35,000
State DOT
Pass-Through
20.234
SDIP
$1,200,000
Student Fin. Ass. Cluster
Direct
-
-
-
Dept. of Ed.
Direct
84.007
Ed. Opp.
$200,000
84.033
Work Study
$200.000
$200,000
Dept. of Ed.
Dept. of Ed.
Direct
84.063
Pell Grants
DHHS
Direct
93.069
Public Health Preparedness $20,000
36
Quiz
1.
Who provides the most Federal funds to the college?
• State Department of Transportation
2.
Who provides the least amount of Federal funds to the college?
• The DHHS
3.
Who provides the most “direct” Federal funds to the college?
• The US Department of Education
4.
Are pass-through funds counted in either the direct or indirect
cost cognizance determination?
• No
5.
Are Student Financial Assistance funds counted in the indirect cost
cognizance determination?
• No
6.
Who is the cognizant/oversight agency for audit for the college?
• US Department of Education
7.
Who is the cognizant agency for indirect cost negotiation for the
college?
• The DHHS – OMB Circular A-21 (2 CFR Part 220) Section G. 11. A. 11
37
Part III
Standard Indirect Cost Rate
of 10%
38
Flat Indirect Cost Rate of 10%
Background:
• 2 CFR Part 225 (formerly OMB Circular A-87) Appendix A. Section G Inter- Agency
Services, discusses the use of a standard indirect cost rate of 10% Salaries & Wages (less
overtime, shift premiums, and fringe benefits)
Policy Clarification:
• Who can use the standard 10% indirect cost rate allowance?
• An Independent State/Local government agency that does not receive Federal awards (directly
or indirectly) and does not need to obtain an indirect cost rate from a cognizant agency; and
who
• Provides a service to another independent State/local government agency within the
governmental unit.
• Example: The Department of Public Works provides and puts up highway signs for the
Department of Transportation
39
Flat Indirect Cost Rate of 10%
Policy Clarification Continued:
• Who cannot use the flat indirect cost rate?
– Operating agencies in lieu of Department/Agency indirect cost rates under
Federal programs
– Local government agencies who perform work for State agencies and vice
versa
– Non profit sub-grantees under Federal awards
• Example: XYZ Nonprofit Organization receives a sub award from a FMCSA
grant and a direct federal award from the Department of Justice. A flat
indirect cost rate of 10% may not be used under the FMCSA sub grant in
lieu of an indirect cost rate from the cognizant agency: Department of
Justice
40