Difficult Issues of Cost Allocation Carryover, Linkage. Leigh Manasevit Brustein & Manasevit, PLLC Fall Forum 2011

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1 Difficult Issues of Cost Allocation Carryover, Linkage Leigh Manasevit Brustein & Manasevit, PLLC Fall Forum Direct Charge 2. Cost Allocation Plan (CAP) 3. Indirect Costs 2 Allocable benefit to federal program Chargeable or assignable to the federal program in accordance with the relative benefits received 3 1

2 How can a grantee show an allocable benefit to a specific federal program?? A Brief Review 4 5 Payroll must be documented in accordance with SEA s/lea s generally accepted accounting practice Charges must be approved by a responsible official of the SEA/LEA 6 2

3 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 Any employee working on a federal program Not contractors All employees paid with federal funds Some employees paid with non-federal funds Matching 8 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 9 3

4 Single cost objectives: Consolidated administration Schoolwide programs 10 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 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 one-hundred percent (100%) of my time and effort was spent on Title III Administration. 12 4

5 Payroll certification in lieu of semiannual certification 1. Single cost objective 2. Supervisor cannot assign multiple functions 3. Employee coded to dedicated function not benefiting multiple functions Blanket certification 13 Activities allowable under more than one program single cost objective Can be funded in part by both Can be funded 100% under either Reading Coach provides professional development services Eligible under Title I or Title II The cost objective is professional development 14 An LEA supports a supplemental math teacher to serve low-achieving students with 50% Title I, Part A funds and 50% state compensatory education funds 15 5

6 A teacher works with low-achieving students and is supported with 60% Title I, Part A funds and 40% CEIS (comprehensive early intervening services) funds from IDEA 16 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. 17 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 18 6

7 Time increments reported on PARs should be sufficient to recognize: Number of different activities performed The dynamics of these responsibilities 19 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 20 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 21 7

8 10 month teacher 12 monthly paychecks Can pay over the summer, but cannot draw down until salary paid 22 Fringe Benefits Allowable Provided: Reasonable Required by law, agreement, policy 23 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 24 8

9 State, Local and Federal Consolidated Any purpose in the school OMB Circular A-87 does not apply can include operational costs 25 Federal Only Can be used only to address specific educational needs identified in needs assessment/schoolwide Plan Activities do not have to be supplemental OMB Circular A-87 applies 26 Title I Only No Consolidation Specific education needs -- as with Federal only Activities do not have to be supplemental Can serve all students OMB Circular A-87 applies Other federal funds must follow program rules 27 9

10 28 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 nonfederal sources. E-18 in schoolwide guidance The actual service need not be supplemental. 29 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 Fiscal Guidance parta/fiscalguid.doc 30 10

11 Post Retirement Health Benefits Pay as you go (actual payment) Accrued as they are earned Accrued leave 31 Accrued, not funded GASB 45 Must be shown as a liability DOES NOT REQUIRE FUNDING only reporting 32 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,

12 Pay As You Go: Means: NO CHARGES until costs are incurred Indirect Cost 34 Currently i.e., reserve funds now for future payments Option to Fund How to Fund 35 Current Employees Current Service Past Service Retirees 36 12

13 Current Employee Current Service Direct - Per Salary Distribution 37 Current Employee Past Service Aggregate all employee past service liability Distribute direct/proportional to present salary distribution i.e., 10% Federal, 90% State/Local 38 Retirees Indirect 39 13

14 Restricted Indirect Cost Rates 40 Must eliminate unallowable salary related fringes 41 PRHB Restricted Indirect Cost Rate Excludes salary costs of Chief Executive Officer, Chief Executive Officer of components, immediate offices 42 14

15 PRHB The fringe benefits associated in these salaries are unallowable in a restricted rate 43 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, PRHB in restricted rate calculation: Unallowable PRHB = 2.5% of $1,000,000 = $25,000 Allowable PRHB for restricted rate $975,

16 Regular turnover severance Allowable indirect Abnormal mass severance Must have prior approval and usually indirect Exception ED Jobs Prior approval by state/direct 46 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 47 RTT faq.pdf Must implement plan Must meet ED general administrative regulations (EDGAR) OMB Circular A-87 includes time and effort No non-supplant 48 16

17 SIG ce pdf References OMB Circular A-87 Will require regular time and effort documentation Non-supplant required 49 ED Jobs /governors-ed-jobs-guidance-revised doc School level positions only ED OMB Circular A-87 applies, but Early retirement mass severance Allowable (within confines of eligible positions) Approval by state Limited non-supplant, i.e.: No rainy day fund No debt No time and effort unless school site and district level cost objective 50 Useful life of more than one year Acquisition cost of $5,000 or more Unless State uses lower Everything else = supplies 51 17

18 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 52 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 53 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 54 18

19 Small and attractive items: ipods ipads Under $5,000 each Cell phones Computers Meets definition of supplies however OIG and ED take the position - Great risk of disappearance Good internal control requires tracking More than supplies? Yes Less than equipment? Same as equipment? 55 Funds in most State Administered Programs are available for 27 months Example: Funds first available July 1, 2012 First 15 months available to September 30, 2013 Tydings Amendment allows obligation for another 12 months That is Until September 30, From July 1, 2014 until September 30, 2014, it is possible to have 3 FYs of funding available Funds carried over available until September 30, Funds (first 15 months end September 30, 2014) Funds became available July 1,

20 Obligation Periods July 1, 2012 July 1, 2013 July 1, 2014 September 30, Funds Funds Until Sept 30, Funds Until Sept 30, How do you identify which funds are being used? Linkage

21 Where LEA must spend a set amount Example 10% PD for LEA in improvement: And the full amount not spent The balance carried over Remains in setaside Plus new 10% allocation 61 Exception: Some setasides specify an amount but say unless a lesser amount is needed Example: 5% for all teachers HQT 62 Special Rules for spending less than the specified amount Example: 20% for Choice/SES 63 21

22 Equitable Services If equitable services not provided carry over as setaside If provided reverts to general Title I available funds (subject to equitable services) 64 Title I, Part A Rule Limits carryover to 15% Can be waived by State Once per 3 years ED can and has waived this limitation Perkins LEA No carryover 65 Funds must be obligated within the time periods described Obligation Disclosure 66 22

23 Obligation EDGAR 34CFR Property: Employee: Binding written commitment When services performed Contractor: Binding written commitment 67 Obligations must be liquidated within 90 days of the end of period of availability Funds obligation no later than September 30, 2014 Liquidation by December 30, 2014 (may be extended ED has specific rules on extensions) months after end of obligation period program office After 18 months OFCO rarely granted 69 23

24 When an obligation is paid = Liquidation Liquidation involves the use of actual funds These funds must be identified to the year they were available 70 Example: A contract is signed on August 15, 2014 Invoice submitted October 15, 2014 Funds available to liquidate carryover st year ending st year beginning 71 Utilize oldest funds first (FIFO) Why they are going to expire How to utilize Accounting entry assign to Cost to funds by a clear accounting entry indicating payment from funds 72 24

25 LEA has paid the contract with newest funds (14-15) Realizes there is an unpaid balance of funds Deobligate funds increasing balance of funds Obligate (by accounting entry) funds 73 Was the obligation incurred during the period of availability of the grant? Was the obligation for an allowable expense? Does the State/LEA have an established accounting policy covering linkage?

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