West Virginia Department of Education
Office of Assessment and Accountability
Title I Program
Threshold System Requirements for Recipients of Federal Grants
Introduction
Recipients of federal education grant funds must meet certain threshold
requirements before spending federal funds. These “threshold” requirements are
designed to ensure that grantees and subgrantees can retain proper control over
federal funds. Though federal fiscal requirements are contained in a variety of
sources, the basic threshold system requirements are derived primarily from the
Education Department General Administrative Regulations (EDGAR). The three
important systems that are critical for effective grants management are:
A.
B.
C.
financial management (74.21 and 80.20);
procurement (74.41-48 and 80.36); and
equipment/inventory management (74.34 and 80.32).
Recent monitoring reports by the U.S. Department of Education (ED) program
offices (particularly the office responsible for administering Title I, the Student
Achievement and School Accountability Program (SASA), as well as audit and
management reports issued by ED’s Office of Inspector General (OIG) are
increasingly focusing on these threshold requirements, such as fiscal management
systems, internal controls, contracting, procurement and payment. Programmatic
monitoring reports have also identified deficiencies in states’ inventory and property
management systems, and in contracting and procurement systems.
All grantees and subgrantees must be familiar with the threshold system
requirements contained in EDGAR. State educational agencies (SEA) have the
responsibility to ensure that local educational agency (LEA) subgrantees comply
with state and local threshold system requirements and comply with specific EDGAR
requirements.
A. Financial Management
The first threshold system that grantees and subgrantees must have in place
is a financial management process.
Financial management is the process of controlling and accounting for federal funds
and other assets.
A financial management system allows districts to track the data necessary to: (1)
make informed decisions about running and supporting federal programs, and (2)
substantiate decisions in order to avoid problematic audit findings or other
compliance problems.
Reviewed and revised by the Committee of Practitioners – October 2008
All recipients of federal funds are responsible for ensuring that fiscal controls and
fund accounting procedures are utilized to ensure the proper disbursement of and
accounting for federal funds, including assets purchased with those funds.
There are seven specific standards set out in Section 80.20(b) of EDGAR for
management systems:
1. Accurate, Current, and Complete Financial Reporting
All LEAs must maintain sufficient information about fiscal activities to make complete
and accurate reports to SEA throughout the grant cycle (e.g. percentage of
carryover; use of carry over funding).
2. Detailed Accounting Records
Grantees and subgrantees must maintain records that adequately identify where
funds came from and how they were spent. These records must contain information
showing:
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current obligations;
unobligated balances;
assets;
liabilities;
expenditures;
income; and
the amount of money authorized under a grant or subgrant.
The accounting system must be capable of accounting for individual expenditures of
federal funds. For example, it is not sufficient to simply record that $50,000 was
spent on equipment. Rather, a recipient of federal funds must be able to note that it
spent $50,000 on a copier from XYZ Office Supply Company as well as document
the funding source supporting the expenditure and how the copier was used, in
order to demonstrate an appropriate benefit to the supporting program.
Finance officers submit a monthly report to the WVDE Office of School Finance.
A LEA should be able to document the utilization of indirect costs.
3. Effective Internal Controls
All subgrantees must maintain effective control and accountability for all cash, real
and personal property, and other assets. This means grantees must implement
controls that adequately safeguard grant property and ensure such property is used
solely for authorized purposes.
Reviewed and revised by the Committee of Practitioners – October 2008
4. Budget Controls to Compare Projected Amounts to Outlays
Subgrantees must compare budgeted amounts to actual expenditures. Having a
budget is not enough.
Subgrantees must routinely reconcile their actual
expenditures to ensure they are spending more in accordance with the budget and
allowable activities. WVDE recommends that this is done at a minimum quarterly for
Title I expenditures.
5. Allowable Costs Under Cross-Cutting and Program-Specific Rules
Grantees and subgrantees must ensure costs are allowable under general crosscutting principles that apply to all grantees or subgrantees under federal programs;
these include OMB Circular A-87 for state and local governments, OMB Circular A21 for education institutions and OMB Circular A-122 for nonprofits. The entities
must also be sure to comply with rules on allowable costs contained in the specific
program statutes, regulations or guidance.
6. Source Documentation
Grantees and subgrantees must maintain appropriate documentation to support
expenditures. Accounting records must be supported by source documentation
such as:
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cancelled checks;
paid bills;
time and attendance records; and
contracts.
7. Cash Management to Minimize Time Between Drawdown and Disbursement
In general, the term “cash management” refers to the process of requesting and
receiving funds from the federal government (i.e., “drawing down” funds), and
disbursing the funds to employees, vendors and other payees.
B. Standards for Procurement Systems
The second threshold system that grantees and subgrantees must have in
place is a procurement system for goods or services.
In 2005 and 2006, ED program offices made important changes to their monitoring
instruments, adding a new fiscal indicator concerning procurement and
disbursement controls. As a result, in April 2006 ED’s Office of the Chief Financial
Officer’s Internal Control and Evaluation Group announced that procurement and
disbursement control findings represented over 50 percent of all findings in Title I
monitoring reports issued during the 2005-2006 monitoring cycle. The revised
monitoring plans and number of findings make clear that ED intends to
continue its formal examination of procurement and disbursement as part of
its program monitoring.
General Procurement Principles Under EDGAR
Reviewed and revised by the Committee of Practitioners – October 2008
Grantees and LEAs receiving federal education funds must follow the procurement
rules contained in the Education Department General Administrative Regulations
(EDGAR). Some federal program statutes also contain procurement guidelines (for
example, Title I Part A contains contract requirements for SES contracts). In general,
when procuring goods or services with federal funds, Section 80.36(a), allows states
and local educational agencies (LEAs) in state-administered programs to use the
same procurement policies and procedures they use for procurements made with
state funds.
For state-administered program funds, it is the state’s responsibility to ensure that
local government subgrantees, such as school districts, meet state and local
procurement requirements. ED program monitors have issued negative findings
against states with subgrantees that could not demonstrate compliance with state
and local procurement requirements. In addition, ED’s Office of Inspector General
(OIG) has recommended that states repay funds when funds have been expended
improperly by subgrantees because subgrantees did not meet federal procurement
standards or did not have appropriate internal controls.
Settlement of Issues Arising out of Procurements
Subgrantees alone are responsible for the settlement of all contractual and
administrative issues arising out of procurement disputes.
Protest Procedures to Resolve Disputes
Protest procedures must be maintained to handle and resolve disputes by bidders
and contractors. Subgrantees must in all instances disclose information regarding
the protest in the awarding agency state is the awarding agency (SEA).
Competition
EDGAR requires that all procurement transactions (with limited exceptions) be
conducted with full and open competition. In general, grantees and subgrantees
should ensure that their procurement systems maximize competition so they can
demonstrate that a good value was obtained by the federal program under which the
service or item was procured. Some of the situations that could be considered
restrictive of competition include, but are not limited to:
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placing unreasonable requirements on firms in order for them to qualify to do
business;
requiring unnecessary experience or excessive bonding;
noncompetitive awards to consultants that are on retainer contracts;
organizational conflicts of interest;
specifying only a “brand name” product instead of allowing an “equal” product
to be offered and describing the performance of other relevant requirements
of the procurement; and
any arbitrary action in the procurement process.
Methods of Procurement to Be Followed
Reviewed and revised by the Committee of Practitioners – October 2008
Subgrantees must have formal methods to procure goods or services with federal
funds. Specifically outlined in EDGAR Sections 80.36(d) and 74.44 are the baseline
requirements for procurements by small purchase procedures, sealed bids and
competitive proposals. In general, grantees and subgrantees can follow their state’s
methods of procurement if they meet the baseline requirements. WVDE
procurement procedures meet the baseline requirements. Therefore, all LEAs shall
follow the purchasing and procurement procedures specified in State Board of
Education Policy 8200 and prescribed in the WVDE PURCHASING POLICIES
AND PROCEDURES MANUAL FOR LOCAL EDUCATIONAL AGENCIES. This
policy and procedures manual prescribes the minimum requirements and
procedures established by the WV State Board of Education that are to be followed
by county boards of education, regional education service agencies, and multicounty vocational centers, collectively described as local educational agencies
(LEAs), in the purchase of goods and services necessary for their operations. When
purchases are made with a credit card utilizing Title I funds, the LEA must obtain
written preauthorization for the purchase from the Title I Director. A copy of the table
of contents for this manual is included in appendix section of this document. (page 9)
Contracting With Faith-Based Organizations
In 2004, ED revised EDGAR, adding new regulations that pertain to contracting with
faith-based organizations.
The new regulations establish that faith-based
organizations are eligible to contract with grantees and subgrantees, including
states, on the same basis as any other private organization. Grantees and
subgrantees may not discriminate for or against an entity solely based on its
religious character or affiliation.
In general, a faith-based organization that participates in a contract supported with
federal funds may retain its independence and religious character. For example, the
organization may continue to carry out its mission, use its facilities to provide
services without removing or altering religious symbols, and include religious
references in its mission statement. The organization must, however, carry out any
inherently religious activities (such as religious worship, instruction or proselytizing)
separately in time or location from any programs or services supported by the
contract.
C. Standards for Inventory Management Systems
The third threshold system that grantees and subgrantees must have in place
is an inventory management system to track items purchased with federal
funds.
Inventory items purchased with federal funds are divided into three categories:
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real property;
equipment; and
Reviewed and revised by the Committee of Practitioners – October 2008
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supplies.
1) Real Property
Real property is land, including land improvements, and structures. Before using
federal funds to purchase any real property, grantees or subgrantees must ensure
the cost is allowable under the relevant grant program and the purchase complies
with federal cost principles. Assuming the cost is allowable, title to real property
vests with the grantee or subgrantee; however, the grantee or subgrantee may not
encumber the property (e.g., use the property for collateral on a loan). Grantees and
subgrantees may use real property for allowable program purposes.
2) Equipment
Equipment is tangible, nonexpendable, personal property that has a useful life of
more than one year and an acquisition cost of $5,000 or more.
Property Management System–Inventory
Subgrantees must keep very specific records to document the location and use of
equipment purchased with federal funds. A grantee or subgrantee that cannot
produce a piece of equipment purchased with federal funds during a review
conducted by the Office of Inspector General, risks an audit finding, even if the
purchase was allowable under the relevant federal program.
Under Section 80.32(c) of EDGAR, grantees and subgrantees must maintain
specific property records that include:
1.
2.
3.
4.
5.
6.
a description of the property;
a serial number or other identification number;
the acquisition date and cost of the property;
the percentage of federal participation in the cost of the property;
the location, use and condition of the property, and
any ultimate disposition data including the date of disposal and sale
price of the property.
These property records should be updated frequently so that subgrantees can
account for every piece of equipment purchased with federal funds at any given
time.
Control System
As part of an inventory management system, subgrantees must develop a control
system to ensure adequate safeguards to prevent loss, damage or theft of the
property. Any loss, damage or theft must be investigated by the grantee or
subgrantee.
Physical Inventories
Reviewed and revised by the Committee of Practitioners – October 2008
Subgrantees must take a physical inventory of their equipment at least every two
years and must reconcile the results. If any equipment is missing, the grantee or
subgrantee must indicate on an inventory form.
Adequate Maintenance of Equipment
Grantees and subgrantees must ensure adequate maintenance procedures to keep
equipment purchased with federal funds in good condition. Assuming they are
necessary, reasonable and properly allocated, maintenance costs can generally be
charged to federal grants if they:
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keep property in efficient operating condition;
do not add to the permanent value of the property or appreciably
prolong its intended life; and
are not otherwise included in rental fees or other charges for space.
Disposition of Equipment
EDGAR establishes specific rules for disposing of equipment, depending on what the
equipment will be used for and the value of the equipment. If the equipment has a
current fair market value of less than $5,000, the grantee or subgrantee may keep the
equipment, sell it, or otherwise dispose of it with no further obligation to ED. If the
equipment has a current fair market value in excess of $5,000, the grantee or
subgrantee may keep or sell the equipment but must pay ED a share based on the
percentage of federal participation in the initial acquisition. For example, if a grantee
purchased a copier with $5,000 of state funds and $5,000 of federal funds, the federal
participation is 50 percent. If the grantee sells the copier for $5,000, the grantee must
pay $2,500 to ED.
3) Supplies
Supplies are tangible personal property that is not considered equipment. Generally,
supplies do not cost very much and are consumed quickly (e.g., pens, paper, toner,
etc.). Generally, supplies do not have to be recorded in an inventory management
system; however, grantees and subgrantees must maintain enough information about
their purchases to prove all costs are necessary, reasonable and allocable, as required
under OMB Circular A-87.
Reviewed and revised by the Committee of Practitioners – October 2008