1. Complying with Federal Grant
Regulations: Allowable vs.
Unallowable Expenses

2. • Micro vs. macro view on regulations
• Funding Statistics & Grant Issues and Uniqueness
• OMB Circular A-133 audit surveillance
• Proposed Updates to A-133 thresholds & grants
• What an Inspector General auditor looks for
• OMB Circular A-110 grants management
• Financial management diagrams – illustrations
• Sample cost ledger report
• Cost Principles and Unallowable Expenses
2

3. • By the end of this module, you will increase your
knowledge of and be able to identify:
– Fundamentals of federal grants management:
• Certain HHS agency-specific requirements
• Cost reimbursable grants, obligation period
• Cost sharing / match requirements
• Program income
• Procurement procedures
• Sub-recipient monitoring program
• Time reporting requirements
3

4. All Federal v. Agency Regulation
• Macro view: • Micro view:
• OMB Circular A-110 • 45 CFR 74
Admin / Financial DHHS version of A-110
• OMB Circular A-122 • Grants Policy Statement
Cost • Grant agreement
principles, allocations, • Solicitation
rates
• Congressional intent of
• OMB Circular A-133 program 93.918 Capacity
Federal audit Development via
requirements www.cfda.gov
4

5. 5

6. GRANT FUNDING STATISTICS

7. Distribution of Federal Grants
8% States
Locals
7%
4%
Universities
1%
Non-Profits
80%
Tribes, For-
Profit, Others
2009 US BUDGET - $3.1 TRILLION GRANTS- $500 BILLION
7

8. 8

9. – Planning for Agency Operations During a Lapse
in Government Funding
– OMB, April 7, 2011, Ref: M-11-13
9

10. BEST PRACTICES:
Components of a
Compliance Program of a
Nonprofit w/Federal Grants

11. • Procurement contract
– Good and services for the direct benefit of
the federal government
– Governed by the Federal Acquisition
Regulation

12. • Grant
– Award of financial assistance for the principle
purpose to transfer something of value from
Federal agency to a recipient to carry out a public
purpose of support or stimulation
– Governed by OMB Circular A-110
• Cooperative agreement
– Collaborative effort with significant government
input and/or monitoring
12

13. • Cost Reimbursable
– You cannot make money, no residual per
OMB A-110, §71(d)
– At best, you can break-even
– Public – partnership, government does not expect
to cover 100% of org. cost, e.g. match
– “Cost – Justified”
• Need supporting documents, e.g. time
records, receipts to support reimbursement

14. • Allotment: agency records debt on books
• Obligation: orders placed, services performed
• Expenditures: spend down of grant funds (90
days after obligation period)
• Disbursements: payments from Treasury to
liquidate expense incurred by grantee
– 90 days after obligation period

15. • Obligation period (accomplish grant):
– 10/1/2010 to 9/30/2011
• Award date: 12/01/2010 is start date
– Awardee performs “at risk” if starts before
12/1/2010
• Expenditures (spend down funds):
– 10/1/2010 to 12/29/2011
• Liquidation of payments (for draw downs):
– 10/1/2010 to 12/29/2011

16. • Pre-award cost or condition
• No cost extension
– NLT 30 before end of grant (9/30/2010)
– Up to a year extension
• Reasons for extension
– Late start due to award date (12/1/2010)
– Equipment ordered during obligation period is
received late in need of repair

17. OMB Circular A-133 with
Proposed Rule Changes for
Grants & OMB Circulars
Single Audit Act –
External Surveillance
and Reporting
17

18.  A-133 audit
• Awarded expenses > $500,000 per year
• Single audit or program specific audit
• Financial statement audit per GAGAS, Generally
Accepted Government Auditing Standards
• Understand and test internal control sys.
• Schedule of deficiencies & questioned cost
• Follow-up on prior audit findings
18

19.  Purpose of Reform
 Strengthen the oversight of federal grant funds
by aligning existing administrative requirements
 To better address ongoing and emerging risks to
program outcomes and integrity
 Eliminate unnecessary, duplicative requirements
 To standardize info collection across
agencies, adopt a risk-based model for single
audits, new admin approaches for
determining, monitoring and allocation of
Federal funds. 19

20.  New $1 Million (M) threshold vs. $500,000
 Limited A-133 audits between $1 and $3 M
 Major program testing for allowable /
unallowable + (1) other compliance
determined by agency
 Silent on level testing of internal controls over
compliance
 Full A-133 audits over $3M
• Agencies set compliance requirements
• Don’t have to be universal to a program 20

21.  Audit follow-up by agencies
 Digitize reports into a searchable database
 Pass-Through Entities and Sub-Recipients
• If most funds direct from gov’t v. pass-
thru, Government will do audit follow-up of all
funds that are not specific to program delivery
of sub-awards
• Once “general” findings are cleared, PTE
ensures that sub-recipient complies with audit
resolution. *GAQC Alert #190, AICPA 21

22.  Changes to the Cost Principles
 Consolidating all cost principles into a single
document with limited variations by entity
 Use of “flat” rates discounted below negotiated
rates
 Option of accepting a flat or negotiated rate
 Flat rates maintained up to 4 years with minimal
documentation
 Negotiated rates require full documentation
 DHHS DCA develop discount factors
22

23.  Alternatives to Time-and-Effort Reporting
 Identify risks associated with support of salary
cost and identify possible alternative
mechanisms
 New pilot programs to account for salary costs
that is allocable and allowable
 Computing devices not subject to inventory
controls less than capitalization threshold, would
be considered direct cost supplies but have to be a
separate line item in their budget
23

24.  Eliminating restrictions on the use of indirect costs
recovered for depreciation or use allowances
 Eliminating the requirement for lease-vs. buy
analysis relating to mortgage interest cost
 Eliminate printed help-wanted ads specifications
 Budget for contingency funds for construction or
upgrade of a large facility or IT systems
 Allow idle capacity for certain facilities in
anticipation of usage increases
 Gain/loss on derivatives/hedges unallowable in
financing arrangements 24

25.  Increasing the CAS D/S threshold for Universities
 Provide examples of certificate of indirect costs
and indirect cost proposal documentation
requirements
 Combine OMB Circular A-102 and A-110 into one
consolidate document with few exceptions by
recipient type
25

26. – SAS 115 communicating internal controls
relating to an audit (AU-325):
• State in writing to management significant
deficiencies and material weaknesses in internal
controls
– Must submit timely performance reports, SF
269 and 272, and indirect cost rates
– Documenting eligibility requirements
– No procurement procedures §40 of A-110
26

27. INDICATORS of Internal Control
significant deficiency or material
weakness
“Employees or management that lack
the qualifications or training to fulfill
their assigned functions.”
27

28. What Inspector General Looks For
 Evidence of Indirect Cost Rates
• Negotiated/provisional indirect rates
• Cost accounting structure for indirect costs
 Time reporting system to allocate labor
 Procedure to distinguish between allowable and
unallowables w/training
 Sub-recipient monitoring
• HHS OIG: fraud, waste, abuse for grants/funds
– 800-377-4950 OIG Hotline [HHS GPS I-7]
– HHSTips@oig.hhs.gov
– OIG, DHHS, 330 Independence Ave, SW
– Washington, DC 20201 28

29. What Inspector General Looks For
 Internal Controls
• Journal entries documented & approved
• Timesheet record
• Payment request form
• Expenses reviewed for allowability
• Monthly travel & expense reports prepared
• Annual budget with revised projections
• Budget-to-actual variances analyzed
• Aware of grantee procurement procedures
• Sub-recipient monitoring
29

30. OMB Circular A-110
Compliant Financial Management
Systems

31. • Procurement standards
• Government property standards
• Record keeping requirements
• Sub-recipient monitoring
• Excluded parties list
– Prohibition against suspended/debarred
vendors; http://epls.arnet.gov/
– [HHS GPS I-13 and I-14]
31

32.  Equal employment opportunity
 Affirmative Action Plan
 Certification of NO lobbying [HHS GPS I-15]
 Drug-free workplace [HHS GPS II-22]
 Business enterprise preferences [HHS GPS II-80]
– Woman-owned enterprises
– Minority-owned enterprises
• Public Policy Requirements [HHS GPS, Exhibit 3
table, II-3 through II-9]
32

33.  Maintain accurate equipment records,
including description, award, percentage paid
with Federal funds, location, condition,
acquisition date & cost, and disposition.
 Establish control system to minimize loss &
damage.
 Provide adequate maintenance.
 Managing government property is like a
trustee relationship
 Threshold is $5,000 for title / ownership

34. • Must have written procurement policy
• Must have Code of Conduct to manage
conflicts of interest.
– Avoid appearance of family, financial or other
interest in vendor
– Anti-kickback policy
– Don’t accept gratuities
– No gratuities to federal officials
– Don’t misuse proprietary information
• HHS GPS II-78 to II-80
• 45 CFR 74 §40 - 48 34

35. • Must maximize free and open competition
among vendors.
– Over “simplified acquisition threshold of $100,000
– Alert to practices that would restrain trade
– Awards made to most responsive bidder:
price, quality, technical capability, experience
– Reject all bids if not in org’s best interest
– Solicitations should have clear requirements to
permit evaluation (next slide)
35

36. • Criteria included in Solicitations – Formal RFP
– Clear description of goods and services to be
procured or work statement
– Mandatory requirements that all bidders must
fulfill and factors for evaluation
– A description of technical requirements: functions
to be performed, milestones, range of acceptable
or unacceptable criteria
– Small business, minority-own preferences
– Add federal agency terms and conditions
36

37. • Must perform cost/price analysis for each
procurement.
– Cost & price analysis performed when unit price >
$100,000, the simple acquisition threshold
– OpDiv approval if > $100,000 , awarded without
competition (sole source) or only 1 bid received
– Levels: < $5,000 Dept. Head, Officer Manager
- $5,000 to $25,000 (3) written price quotes
- $25,000 to $100,000, IFB (3) quotes-qualified
- >$100,000 formal RFP to (3) Technical & Price
37

38. • Procurement procedures
– Avoid purchasing unnecessary items
– Initiate process w/ purchase request or P.O.
– If necessary, perform lease vs. buy analysis to
ascertain the lowest cost method
– Stipulate the type of procurement: FP, T&M
– Ensure vendors aren’t on excluded parties list
– Contracts awarded based on contractor
integrity, record of past performance, and
financial & technical capability
38

39. • State and Local Units of Government
– 45 CFR 92 §36
– Follow their rules so long as they conform to Federal
– Foster greater economy and efficiency, to enter state
and local intergovernmental agreements for use of
common goods and services
– Maintain records sufficient to detail history of
procurement: rationale for method of
procurement, contract type, selection or
rejection, basis of price
– Limit the use of Time & Material contracts: only use
when no other contract is suitable
39

40. • Full and open competition – restrictive practices:
– Unreasonable requirements to qualify to do business
– Unnecessary experience and excessive bonding
– Noncompetitive pricing practices between firms/affiliates
– Noncompetitive awards to consultants on retainer
– Specify only brand names
• Avoid the use of geographic preference laws
• RFP publicized and solicited from an adequate
number of qualified sources
40

41. • Procurement by noncompetitive proposals when:
– The item is available only from a single source
– Public emergency will be delayed by competition
– Awarding agency authorizes noncompetitive proposals
– After solicitation of a number of sources, competition is
determined inadequate
41

42. • Association must retain award/contract records
for at least three years.
• Association’s records are open to inspection by
the Federal agency.
• Association must allow Federal
agency to perform on-site
inspections.
• Association’s records are open
to public inspection.

43. Compliance Model
Cost
Recovery
Financial
Managment
System
Compliance
43

44. • Standards for financial mgmt systems
• Methods for making payments
• Rules for cost sharing/match
• Accounting for program income
• Budget revision approvals
• Sub-recipient monitoring A-133 audits
• Determining allowability of costs; A-122
• Establish fund availability
44

45. 45

46. 46

47. 47

48. 48

49. 49

50. 50

51. • Accounting and cost accounting records are
supported by source documentation
– General ledger, by budget line item
– Unique program designation, tracking
– Direct or indirect classification
– Nature or purpose of expenditure
– Attach any supporting documentation
– Approval for payment (next)
51

52. Payment Request Form
• Purpose / nature of
expense
• Supporting doc’s
• Approval block
• Grant designation
• G/L account no.
52

53.  Match is the statutory, specified %
of non-federal participation in
allowable program cost that must
be contributed by the recipient to
be eligible to receive federal funds.
 “Cost sharing” is when the recipient
shares in project costs other than as
statutorily required in the
budget, i.e. voluntary.
53

54.  All contributions including:
Cash
Third party in-kind
Volunteer services
Donated goods and space
 Must be included in the budget
 Must follow recordkeeping
requirements 54

55.  Recipients cost sharing and matching
when meets the following criteria:
1. Verifiable from recipient’s records
2. Not a part of another federal-assisted effort
3. Are necessary and reasonable to accomplish
project objectives
4. Are allowable under OMB A-122
5. Not paid by gov’t under another project
6. Included in approved budget by agency
55

56.  Value of Volunteer Services and
Donated Goods
Is not reimbursable as either direct
or indirect cost
56

57. • Program Income 2(x) definitions & 24:
• Gross income earned by the recipient that is
directly generated as a result of the award
– Income from fees earned or services performed
– Real or personal property acquired under grant
– Sale of commodities (e.g. publications, reports)
– Royalties on patents and copyrights
– Interest on loans w/award funds and advances of
federal funds
57

58. • Program income retained per awarding agency
regulations or terms of grant 24
• Methodology of tracking program income:
– Added to Federal grant funds awarded
– Used to finance non-Federal share of program
– Deducted from the total program allowable cost in
determining net allowable cost, as an offset
• Obligation to gov’t ends after project period.
58

59. • Recipient is responsible for project, program, sub-
award, function, activity supported by the award.
• Monitor sub-recipient awards to ensure
compliance with audit requirements – rules are
under Section “M” of A-133 compliance
supplement – sanctions to SRE for not complying
• Federal agency prescribes frequency of
reporting…quarterly to yearly
59

60. • Performance reports contain:
1. Comparison of actual accomplishments with
goals and objectives established for the grant
period
2. Notify the agency of any development that
has significant impact on award activities and
if assistance is needed
60

61. Best Practices:
Sub-Recipient 51(a) Monitoring
Procedures [HHS GPS II-81]

62. A Pass-Through Entity (PTE): non-federal
entity provides awards to sub-recipient to
carry out a federal program
Federal award to subrecipient vs. payment
of goods and services to a vendor per A-
133 .210
62

63. Federal award identification to subrecipient:
CFDA title and number
Award name and number
Award year
Name of award agency
Flow down clauses
2nd tier subrecipient identification
Recovery Act fund identification
63

64. Audits of SRE
A-133 audits > $500,000
Audits completed within 9 months of year-end
PTE issues a management decision on findings within 6
months of receipt of report
SRE must provide corrective action on findings
If SRE does not respond timely to findings, recommend
sanctions
64

65. Protect the Government’s interest
Compliance Committee is the nexus
Compliance program for all fed. grants
When there are problems with the
internal system, how org. fixed them
The need to document via a
committee, actions to fix items and
training of personnel to show gov’t
65

66. Monitoring Activities
1. Reporting involves the receipt and review of
financial and performance reports, correspond.
2. Regular contact involves on-going, interactive
communication with SRE to include appropriate
inquiries and feedback regarding all facets of
financial and program activities
3. Site visits performed at SRE’s facility; to perform
thorough review of financial and programmatic
records and observe operations
Desk Review = [1] and [2]
66

67. • New online Federal Financial Report, SF 425
replaced the SF 269 and SF 272
– Report on grant funds authorized and
expenditures
– Report on recipient share (non-federal
contribution / match)
– Report on program income
– Quarterly reports, due 30 days after quarter
– Final report, due 90 days after end of grant
67

68. • Documentation
–Grantee retain 3 years from submission
of final expenditure report per OMB
Circular A-110, --53(b)
68

69. PENALTIES & SANCTIONS

70. Consequences of Non-Compliance
• Withholding of
disbursements or further
awards;
• Disallowance of cost;
• Suspension/ Termination of
award;
• Suspension/ Debarment of
Association;
• Civil lawsuit; or
• Criminal prosecution.

71. 1. Read award/contract documents
carefully.
2. Ask for explanation.
3. Request deviation (though
unlikely).
4. Document transactions, agency
guidance, performance
evaluations, etc., in writing.
5. Keep documentation at hand.

72. TIME REPORTING REQUIREMENTS
72

73.  Salary Documentation Requirements
 After-the-fact actual time charges, not budgeted
to estimate time charges
 Timesheet must show total activity to org.
 Signed by employee and supervisor
 Activity reports prepared monthly and
reconciled to payroll
 Labor reports should also show hours to
conform with the Fair Labor Standards Act
 Same requirements volunteers under cost
sharing or matching arrangements
73

74. • Time charges cannot be manipulated or changed
by supervisors or management
• Fully understands the implications of their actions:
• When employee signs their timesheet, they
are certifying to the accuracy of their time
charge
• Employees’ time charges billed as a claim to
the government is subject to fraud statutes
• Misrepresentation is a false claim which is
fraud and is subject to severe sanctions
under cost type grants & contracts
74

75.  Advance authorization of overtime premium
 Identifying and correcting timekeeping errors
 Distributing valid charge numbers for direct
effort
 Direct personnel not knowing the correct grant
or indirect account number for special training
(EEO), holiday party, or “all hands meeting”
 Forcing actual labor charges to conform with
artificially established budgets (e.g. charge your
time 40% to job “A” and 60% to job “B”)
75

76. • Multiple Source Funders for 1 Program
– Pro-active work statement definition for
each unique funding source
– Pro-active advanced understanding with
each funding source to approve a
particular mechanism for an equitable
allocation of units of time in lieu of time
sheets
– Pro-active means before you start!
76

77. • Record time charges daily
• Post them on the timesheet in ink
• Do not enter time charges before the
date, except for planned leave
• Do not sign timesheet until end of week
• Electronic time reporting systems are okay
77

78. Time Sheet Record Serial Number: 2007-01-31-001
Week Ending: January 17, 2006
William B. Jones
Employee Signature __________________________ Approval Signature: _____________________
SUN MON TUES WEDS THUR FRI SAT TOTAL DESCRIPTION
01/11/06 01/12/06 01/13/06 01/14/06 01/15/06 01/16/06 01/17/06 DATE
Direct Hours:
0
0
0
0
0
Indirect Hours:
0
0
0 Administrative
0 Vacation
0 Holiday
0 Sick
0 0 0 0 0 0 0 0 Total Hours
78

79. – Segregate cost for each government grant
– Distinguish between direct and indirect cost
– Consistent cost allocation of indirect cost
– Identify unallowable, non-recoverable cost
– Assign cost to the appropriate accounting period
79

80. – Sufficient accounting controls to ensure
compliance with government grant regulations
• OMB Circular A-110 for Non-Profit Organizations
– Capable of performance measurement, such as
provisional vs. actuals for indirect burden rates
– Facilitate the development of indirect cost rates
80

81. OMB Circular A-122,
Attachment B
Individual Cost
Principles

82. • Agency-specific HHS grant cost principles:
II-31 through II-44, Exhibit 4 table
• Conference grants cost principles: II-98
to101, Exhibit 10 and 11 tables
• Construction grants cost principles, II-103
to II-105, Exhibit 12 and 13 tables
• Fellowships cost principles, II-111 to II-
112, Exhibit 14 table
82

83. 1. Advertising and public relations cost. (UWE)
2. Advisory councils. (A)
3. Alcoholic beverages. (UA)
4. Audit costs and related services. (A)
5. Bad debts. (UA)
6. Bonding costs. (A)
7. Communications. (A)
8. Compensation for personal services. (AWR)
f. Overtime, extra-pay shift, multi-shift premiums. (AWR)
g. Fringe benefits. (A)
h. Organizational-furnished automobiles. (UWE)
i. Pension plan costs. (AWR)
RED FONT for Unallowable Expenses 83

84. 8. Compensation for personal services. (AWR)
j. Incentive compensation. (A)
k. Severance pay. (AWR)
9. Contingency provisions. (UA)
10. Defense and prosecution of criminal and civil proceedings,
claims, appeals, and patent infringement. (UWE)
11. Depreciation. (AWR)
12. Donations and contributions (UA)
a. Contributions. (UA)
b. Donated services received. (UA)
c. Donated goods or space. (UA)
13. Employee morale, health, and welfare costs. (A)
14. Entertainment costs. (UA)
15. Equipment and other capital expenditures. (AWR)
16. Fines and penalties. (UA)
84

85. 17. Fund raising and investment management costs. (UA)
18. Gains and losses on depreciable assets. (AWR)
19. Goods and services for personal use. (UA)
20. Housing and personal living expense. (UWE)
21. Idle facilities and idle capacity. (AWR)
22. Insurance and indemnification. (AWR)
23. Interest. (UWE)
24. Labor relations costs. (A)
25. Lobbying. (UWE)
26. Losses on other sponsored agreements or contracts. (UA)
27. Maintenance and repair costs. (A)
28. Materials and supplies costs. (A)
85

86. 29. Meetings and conferences. (A)
30. Memberships, subscriptions, and professional activity cost. (AWR)
31. Organization costs. (UWE)
32. Page charges in professional journals. (AWR)
33. Participant support costs. (AWR)
34. Patent costs. (AWR)
35. Plant and homeland security costs. (A)
36. Pre-agreement costs. (A)
37. Professional services costs. (AWR)
38. Publication and printing costs. (AWR)
39. Rearrangement and alteration costs. (AWR)
40. Re-conversion costs. (A)
86

87. 41. Recruiting costs. (AWR)
42. Relocation costs. (AWR)
43. Rental costs of buildings and equipment. (AWR)
44. Royalties and other cost for use of patents and copyrights. (AWR)
45. Selling and marketing. (UWE)
46. Specialized service facilities. (AWR)
47. Taxes. (AWR)
48. Termination costs applicable to sponsored agreements. (AWR)
49. Training costs. (AWR)
50. Transportation costs. (A)
51. Travel costs. (AWR)
52. Trustees. (A)
87

88. Questions?