Michigan Association of State and Federal Program
Specialists
“Federal Grants Management”
Traverse City, Michigan
November 11, 2007
Leigh Manasevit
Brustein & Manasevit
3105 South Street NW
Washington, DC 20007
lmanasevit@bruman.com
(202) 965-3652
1
Agenda
Overview of EDGAR
 How to analyze allowable costs



Time distribution
Grants management systems



Financial management
Procurement
Inventory management
2
Legal Structure of Federal Programs

Statutes



Program statutes (NCLB, IDEA, Perkins)
General Education Provisions Act (GEPA)
Regulations


Program regulations
Education Department General Administrative
Regulations (EDGAR)
OMB Circulars
 Guidance

3
General Management Rules

Education Department General Administrative
Regulations: 34 CFR pts. 74-99





Part 74: Administration of Grants to Institutions of
Higher Education, Hospitals, and other Nonprofit
Organizations
Part 75: Direct Grant Programs
Part 76: State-Administered Programs
Part 77: Definitions
Part 80: Uniform Administrative Requirements for
Grants and Cooperative Agreements to State and Local
Governments
4
How to Analyze Allowable costs
5
Helpful Questions to Ask
Is the proposed cost consistent with
federal cost principles?
 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
EDGAR?

6
Additional Question

Is the proposed cost
consistent with special
conditions imposed on
the grant?
7
Practical Question

Is the proposed cost
consistent with the
underlying needs of
the program


Data driven decision
making
Target funds to areas of
weakness
8
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
9
Cost Principles: Basic Guidelines

All Costs Must Be:




Necessary
Reasonable
Allocable
Legal under state and local law
10
Basic Guidelines (cont.)

In addition, all costs must:






Conform with federal law & grant terms
Consistently treated
In accordance with GAAP
Not included as match
Net of applicable credits
Adequately documented
11
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
12
Necessary & Reasonable (cont.)

Data driven decision making
Critical
Needs
Strategic
Goal
Current
Performance
(based on data)
Measurable
Objective
13
Necessary & Reasonable (cont.)

Practical aspects of “necessary”

Do I really need this?



Surplus property/existing resources
Lease vs. purchase
Is this the minimum amount I need to spend
to meet my need?
14
Necessary & Reasonable (cont.)

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?
15
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 IV program and 50% in a state program –
can only charge half the cost to Title IV
2 Methods of allocating costs:


Direct cost allocation
Indirect cost allocation
16
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
17
Basic Guidelines (cont.)

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
18
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
19
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
20
Federal Cost Principles: Selected Items
of Costs
43 specific costs detailed
 Listed in alphabetical order

21
Selected Item of Cost (cont.)

Salaries and Wages


Fringe Benefits


Allowable if proper time distribution records
Allowable if: (1) established written leave policies; (2) cost
equitably allocated to all related activities; and (3)
accounting basis consistently followed
Severance Pay/Terminal Leave


Normal: Allowable as indirect cost
Abnormal: Allowable if approved by cognizant federal
agency
22
Compensation for Personal Services

Overview of process:




Estimate how employee will work
Pay based on estimate
Reconcile estimates to how actually worked
Necessary documentations


Payroll records
Time and effort records
23
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

24
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

25
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
26
Cost Objective

For example:

Federal Program:




Title I, Part A
Reading First
IDEA
Federal Program Cost Objective:




Title I, Part A School Improvement
Title I, Part A Program
Reading First Administration
IDEA, Early Intervening Services
27
Cost Objective (cont.)

Single cost objectives:


Consolidated
administration
Schoolwide programs
28
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 (set-asides) 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.
29
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, 2005 through June 30, 2005 onehundred percent (100%) of my time and effort
was spent on Title III Administration.”
30
Single Cost Objective (cont.)
Flexibility

Payroll certification in lieu of semi-annual
certification
1.
2.
3.

Single cost objective
Supervisor cannot assign multiple functions
Employee coded to dedicated function not
benefiting multiple functions
Blanket certification
31
Multiple Cost Objectives

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
32
Multiple Cost Objectives (cont.)

Time increments reported on PARs should
be sufficient to recognize:


Number of different activities performed
The dynamics of these responsibilities
33
Sample PAR
34
Sample PAR
35
Distributing Payroll Costs
1.
Estimate how employee will work

2.
Must produce reasonable approximations of
the activity actually performed
Quarterly comparison of estimates to
actual costs


If difference is less than 10% - annual
adjustment
If difference is more than 10% - quarterly
adjustment
36
Special Rules for Schoolwide Programs

New fiscal guidance May 2006


If a school consolidates its funds into a single
account it is not required to keep any time
distribution records
If a school does not consolidate its funds into a
single account, it must follow the normal rules


Single cost objective – semi-annual certification
Multiple cost objective - PAR
37
Schoolwide programs (etc.)

What does it mean to consolidate funds
into a single account?



Single bank account?
Single accounting code?
Single cost objective?
38
Grant Management Systems
39
Grant Administration
 Three
major “systems” in grants
management:
 Financial
Management
 Inventory Management
 Procurement
40
What Rules Apply?

State and local agencies must use fiscal
control and fund accounting procedures
that will ensure the proper disbursement
of, and accounting for, federal funds



Section 441 of GEPA (general assurances)
Section 9306 of NCLB (program assurances)
Section 76.702 of EDGAR
41
Systems Requirements (cont.)
EDGAR §§ 80.20, 80.32, 80.36
 State
may follow own laws and
procedures
42
Systems Requirements (cont.)

“All other grantees
and subgrantees”
must implement
systems that meet
specific
requirements



FMS = 80.20(b)
Inventory = 80.32(c)(e)
Procurement =
80.36(b)-(i)
43
System Requirements (cont.)

Where does an LEA fall?



Part of state?
Subgrantee?
Other grantee?
44
Rules for LEAs

Direct grants


LEA is considered grantee – specific EDGAR
rules apply
State-administered grants

1988 preamble to A-102



Defer to principles of Federalism
LEA must follow state law and procedures
However, in practice, ED holding LEAs to very
high standards
45
Financial Management
46
FMS Rules for LEAs (cont.)

7 requirements:







Financial Reporting
Accounting Records
Internal Control
Budget Control
Allowable Cost
Source Documentation
Cash Management
47
FMS Rules for LEAs (cont.)
Financial Reporting

Accurate, current and complete disclosure of
financial information



All financial reports required by ED
Consistent with GASB Rule 34
NCES Manual: Financial Accounting for Local and
State School Systems


Chapter 5: Financial Reporting
http://nces.ed.gov/pubs2004/h2r2/ch_5_1.asp
48
FMS Rules for LEAs (cont.)
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
49
FMS Rules for LEAs (cont.)
Internal Controls

ED is subject to laws requiring it
to monitor internal controls



Improper Payment Act of 2002
Federal Managers’ Financial
Integrity Act of 1982
Single auditors are required to
test internal controls
50
FMS Rules for LEAs (cont.)
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
51
FMS Rules for LEAs (cont.)
Objectives of Internal Control
Effectiveness and efficiency of operations
 Reliability of financial reporting
 Compliance with applicable laws and
regulations
 Safeguarding assets

52
FMS Rules for LEAs (cont.)
Components of Internal Control





Control Environment
Risk Assessment
Control Activities
Information and
Communications
Monitoring
53
FMS Rules for LEAs (cont.)
Budget Control

Must compare actual
expenditures to
budgeted amounts on
a routine basis
54
FMS Rules for LEAs
Allowable Cost

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
55
FMS Rules for LEAs (cont.)
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 3 years, but statute of
limitations = 5 years
56
Cash Management
57
Cash Management

Payment Process




Obligation
Liquidation
Drawdown
Payment
58
Obligations
34 CFR 76.707, 34 CFR 80.23

Obligation = Transaction that
requires payment
59
Obligations (cont.)
Acquisition of Property
Date of binding
written commitment
Personal Services
by Employee
When services
are performed
Personal Services
by Contractor
Date of binding
written commitment
Travel
When travel is taken
60
Obligations (cont.)
Every grant has a “period of availability” =
period in which grantee can obligate funds
 In general, ED cannot extend the period of
availability


But – NCLB waiver authority
61
Obligations (cont.)

Grantees and subgrantees
may begin to obligate
funds when:


Awarding agency approves
application; or
Awarding agency
determines application is
“substantially approvable”

Reimbursement subject to
final approval
62
Obligations (cont.)

Tydings Amendment



Allows extra year to obligate funds
Does not apply to all grants
Under Tydings, funds are available for 24-27
months:


12-15 months under the grant award
(July 1, 2006 – September 30, 2007)
Plus 12 months
(October 1, 2007 – September 30, 2008)
63
Obligations (cont.)

In order to have a valid “obligation” there must
be:



A transaction giving rise to an obligation within the
period of availability; and
A “linking” of the transaction with funds that were
available during the period of availability.
“Linking” a transaction to particular grant funds
can occur long after the period of availability
ends
64
Obligations (cont.)

“Linking” example:


Transaction occurs on August 1, 2005
Available funds include:




2003-2004 Funds (became available 7/1/03)
2004-2005 Funds (became available 7/1/04)
2005-2006 Funds (became available 7/1/05)
But keep in mind the concept of
allocability
65
Obligations (cont.)
Under Tydings, unobligated funds can
usually be “carried over” from first year
 Generally, no limit on “carryover” unless
stated



Title I, Part A = 15%, SEA may waive every 3
years
Perkins = No carryover
66
Liquidations
34 CFR 80.23

Liquidation = Settle an
obligation by paying funds
67
Liquidations (cont.)

State must liquidate all obligations within
90 days after the end of the period of
availability

Example:



Period of availability: July 1 – September 30
Liquidation period ends: December 30
State may impose shorter deadline on
subgrantee
68
Payments

Special rules if receive advance payment



Must expend funds within 3-days
Must maintain written procedures for timing
drawdowns and payments
Interest must be paid back to ED (over $100)
69
Procurement
70
Ensuring Purchases are Necessary


All costs have to be necessary for the
performance or administration of the federal
grant
Therefore, must review all proposed purchases
to avoid unnecessary or duplicative items




Surplus property
Structure procurement to obtain most economical purchase
Intergovernmental agreement for common goods or services
Lease vs. purchase
71
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
72
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
73
Role of Cost/Price

All costs must be reasonable:



Fair market value
Arms length bargaining
Act with prudence under the circumstances
74
Role of Cost/Price (cont.)

Must perform a cost or price analysis in
connection with every procurement action,
including contract modifications


Cost analysis generally means evaluating the
separate cost elements that make up the total
price (including profit)
Price analysis generally means evaluating the
total price
75
Role of Cost/Price (cont.)

Method and degree of cost or price
analysis depends on the particular facts
and circumstances

Must make independent estimate before
receiving bids or proposals

Goal of analysis is to determine
reasonableness
76
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
77
Vendor Selection Process (cont.)

Method of procurement:




Small purchase procedures
Competitive sealed bids
Competitive proposals
Noncompetitive proposals
78
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
79
Vendor Selection Process (cont.)

Must perform a cost analysis in
connection with every
noncompetitive contract


Must ensure contractor price is reasonable
Must ensure contractor not using market
power to force higher price
80
Vendor Selection Process (cont.)

As a practical matter,
noncompetitive contract raises “red
flags”

Ensure persuasive and adequate documentation
to facilitate audit
81
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
82
Vendor Selection Process (cont.)


Cannot contract with vendor who
has been suspended or debarred
Must verify if contract is $25,000 or
more
 http://www.epls.gov/
83
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
84
Contract Administration

All contracts supported with federal funds must
contain certain required provisions:








Remedies for breach, sanctions, penalties
Termination for cause and convenience
Compliance with federal statutes and executive orders
Reporting requirements
Patent rights
Copyrights
Access by federal agency, Comptroller General of US to
records of contractor
Retention of records for 3 years after final payment
85
Contract Administration (cont.)

Must maintain a contract
administration system that
ensures contractors perform in
accordance with the terms,
conditions, and specifications of
the contract
86
Contract Administration (cont.)

As a practical matter:
 Must have written contracts (purchase order ok)
 Contract should include clearly defined deliverables




Description of services to be performed or goods to be
delivered
Description of dates when services will be performed or
goods delivered
Description of locations where services will be performed or
goods delivered
Description of number of students/teachers/etc. to be
served (if applicable)
87
Contract Administration (cont.)

As a practical matter (cont.)

Must have written invoice





Description
Description
delivered
Description
delivered
Description
of services performed or goods delivered
of dates services were performed or goods
of location services were performed or goods
of students/teachers/etc. served (if applicable
Invoice should be reviewed & approved before payment


Segregation of duties
Documented approvals
88
Inventory Management
89
Inventory Management
34 CFR 80.32


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
Supplies

Everything else
90
Inventory Management (cont.)

ED expectations


Track all tangible personal property regardless
of acquisition cost
Generally not consumables – but:


Still need to verify systems ensure sufficient level of
control
Still need to show that program received the item
(recent OIG audit of composition notebooks)
Strategies?
 Emerging issues – personally identifiable
information

91
Equipment

Must have adequate controls in place to
account for:



Location of equipment
Custody of equipment
Security of equipment
92
Equipment (cont.)

Property records


Physical inventory


Description, serial number or other ID, title info,
acquisition date, cost, percent of federal participation,
location, use and condition, and ultimate disposition
At least every two years
Control system to prevent loss, damage, theft

All incident must be investigated
93
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
94
Supplies
Must maintain effective control and
accountability
 Must adequately safeguard all such
property
 Must assure that it is used solely for
authorized purposes

95
This presentation is intended solely to
provide general information and does not
constitute legal advice. Attendance at the
presentation or later review of these printed
materials does not create an attorney-client
relationship with Brustein & Manasevit. You
should not take any action based upon any
information in this presentation without first
consulting legal counsel familiar with your
particular circumstances.
96