SuperCircular and Budget and Accounting PIN

SuperCircular and Budget and Accounting PIN Presented by: Gil Bernhard, CPA October 31, 2015 HMA

Overview New Federal Grants Management Requirements OMB SuperCircular Budget and Accounting PIN 2

New Federal Grants Management Requirements OMB SuperCircular 3

Overview OMB SuperCircular On December 26, 2013, OMB released Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards 2 CFR Part 200 (OMB SuperCircular ) The SuperCircular supersedes and combines the requirements of 8 OMB Circulars, namely - Administrative Requirements: A-89, A-102 and A-110 Cost Principles: A-21, A-87 and A-122 Audit Requirements: A-133 and A-50 DHHS codified the OMB SuperCircular, with adjustments, into 45 CFR Part 75 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards 45 CFR Parts 74 and 92 are superseded for new funding initiatives and will be eventually rescinded 4

Overview OMB SuperCircular Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (2 CFR Part 200) as codified by DHHS at 45 CFR Part 75 Previous OMB Circulars OMB Circular A-110 Administrative Requirements OMB Circular A-122 Cost Principles OMB Circular A-133 Audit Requirements OMB SuperCircular Subpart A Acronyms and Definitions Subpart B General Provisions Subpart C Pre-award & Award Subpart D Post Award Subpart E Cost Principles Subpart F Audit Requirements Appendices I - Xi 5

Subpart B: General Provisions 75.100s - Selected sections: 75.110 Effective/Applicability Date 75.112 Conflict of Interest 75.113 Mandatory Disclosures 6

75.110 Effective/Applicability Date Administrative requirements and cost principles will apply to new awards and to additional funding (funding increments) to existing awards made after December 26, 2014 Procurement Standards: Non-Federal entities previously subject to OMB Circular A-110 may delay implementation of the new procurement standards for one additional fiscal year If such an election is utilized, this decision must be documented in the entity s internal procurement policies Audit requirements will apply to audits of fiscal years beginning on or after December 26, 2014! 7

Conflict of Interest and Mandatory Disclosures Two new requirements that strengthen oversight: 75.112, Conflict of interest HHS awarding agencies must establish conflict of interest policies for their Federal awards The non-federal entity must disclose in writing any potential conflict of interest to the respective HHS awarding agency (or pass-through entity) in accordance with applicable HHS awarding agency policy 75.113, Mandatory disclosures Non-Federal entities (and applicants) must disclose, in a timely manner, in writing to the HHS awarding agency or pass-through entity all violations of Federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award 8

Subpart C: Pre- Federal Award Requirements And Contents Of Federal Awards 75.200s - Selected sections: 75.201 Use of Grant agreements, Cooperative agreements and contracts 75.203 Notices of funding opportunities 75.204 HHS funding agency review of merit of proposals 75.205 HHS awarding agency review of risk posed by applicants 75.206 Standard application requirements 75.210 Information contained in a Federal award 9

75.201 Use of Grant Agreements, Cooperative Agreements and Contracts Federal Awarding Agencies must determine appropriate award instrument Incorporates new coverage on fixed amount awards: Payments are based on meeting specific requirements of the Federal Award Accountability is based on performance and results Award amount is negotiated using cost principles as a guide Review of the costs are done upfront No governmental review of the actual costs incurred Periodic reports may be established for each Federal award Significant changes (i.e., new project leader/partner, scope, etc.) must receive prior HHS awarding agency or pass-through entity written approval 10

75.204 Federal Agency Review of Merit of Proposals New Requirement For competitive grants or cooperative agreements HHS awarding agencies must design and execute a merit review process for applications Process must be described (or incorporated by reference) in funding opportunity Reference to Appendix I 11

75.205 HHS Awarding Agency Review of Risk Posed by Applicants Use of the OMB-designated repositories of government-wide eligibility information HHS awarding agencies must have a framework for evaluating the risks posed by applicants prior to receipt of a Federal award Items that MAY BE considered by Federal awarding agencies include: Financial stability Quality of management systems History of performance Reports and findings from audits performed under Subpart F Applicant s ability to effectively implement statutory, regulatory or other requirements 12

Subpart D: Post Federal Award Requirements 75.300s - Selected sections: 75.301 Performance management 75.302 Financial management and standards for financial management systems 75.303 Internal controls 75.305 Payment 75.308 Revision to budget and program plans 75.316-323 Property standards 75.326-335 Procurement standards 75.341-343 Performance and financial monitoring and reporting 75.351-353 Subrecipient monitoring and management 75.361-375 Retention requirements and access 75.371-375 Remedies for noncompliance 75.381 Closeout 13

75.301 Performance Management Provides more robust guidance to Federal agencies to measure performance Will help the HHS awarding agency and other non-federal entities to improve program outcomes, share lessons learned, and spread the adoption of promising practices HHS awarding agencies must require recipients to use OMBapproved standard government-wide information collections to provide financial and performance information Recipients must be required to relate financial data to performance accomplishments Recipients must be required to provide cost information to demonstrate cost effective practices The Federal awarding agencies are required to provide recipients with clear performance goals, indicators and milestones 14

75.302 Financial Management and Standards for Financial Management Systems The financial management systems of non-federal entities must provide the following: Identification, in the accounts, of all Federal awards received and expended and the Federal programs under which they were received Accurate, current and complete disclosure of the financial results of each Federal award or program in accordance with 75.341-342 Records that adequately identify the source and application of funds for Federally-funded activities Effective control over, and accountability for, all funds, property and other assets Comparison of expenditures with budget amounts for each Federal award Written procedures to implement the requirements of 75.305 (Payment) Written procedures for determining the allowability of costs in accordance with Subpart E and the terms and conditions of the Federal award 15

75.303 Internal Controls For Federal awards Non-Federal entities must: Establish and maintain effective internal controls There is no expectation by the regulator that entities document and evaluate internal controls (i.e., Sarbanes-Oxley) There is no expectation that auditors will need to reconcile short-falls and express opinions (i.e., SOX 404 reports) Entities must exercise judgment from a cost-effective approach that yields reasonable assurance on Federal compliance Comply with Federal statutes, regulations, and terms and conditions Evaluate and monitor compliance Take prompt action on audit findings Safeguard protected personally identifiable information 16

75.305 Payment Coverage largely replicates existing payment coverage from OMB Circular A-110 Non-Federal entities must be paid in advance, provided that it maintains and demonstrates the willingness to maintain both Written procedures that minimize the time elapsing between the transfer of funds and disbursement, and Financial management systems that meet the standards for fund control and accountability Advance payments must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements for direct program or project costs and the proportionate share of indirect costs Non-Federal entities must maintain advance payments of Federal awards in interest-bearing accounts (with a few exceptions) Interest earned on advance payments deposited in interest-bearing accounts must be remitted annually to HHS, less $500 per year to be retained for administrative expense 17

75.308 Revision to Budget and Program Plans Recipients are required to report deviations from budget or project scope or objective, and request prior approvals from HHS awarding agencies for budget and program plan revisions For non-construction Federal awards, recipients must request prior approvals from HHC awarding agencies for: Change in the scope or objective of the project or program (even if there is no associated budget revision requiring prior written approval) Change in key person specified in the application or Federal award The inclusion, unless waived by the HHS awarding agency, of costs that require written prior approval in accordance with Subpart E The recipient wishes to dispose of, replace, or encumber title to real property, equipment, or intangible property that are acquired or improved with a Federal award Others 18

75.308 Revision to Budget and Program Plans (continued) The HHS awarding agency may, at its option, restrict the transfer of funds among direct cost categories or programs, functions and activities for Federal awards in which the Federal share of the project exceeds the Simplified Acquisition Threshold (e.g. $150,000) and the cumulative amount of such transfers exceeds or is expected to exceed 10% of the total budget as last approved by the HHS awarding agency Per recent HRSA Notice of Awards: HRSA requires grantees to seek prior approval for significant re-budgeting Significant re-budgeting occurs when, under a grant where the Federal share exceeds $100,000, cumulative transfers among direct cost budget categories for the current budget period exceed 25% of the total approved budget (inclusive of direct and indirect costs and Federal funds and required matching or cost sharing) for that budget period, or $250,000, whichever is less This requirements is in lieu of that in 45 CFR Part 75 which permits and agency to require prior approval for specified cumulative transfers within a grantee s approved budget. [As noted above!] 19

75.326-335 Procurement Standards Non-Federal entities, including subrecipients of a state, must have and follow written procurement procedures that reflect the procurement standards Highlights: Maintain oversight to ensure contractors perform in accordance with the terms, conditions and specifications of the contract or purchase order Must maintain written standards of conduct covering conflicts of interest NEW organizational conflict of interest : if the non-federal entity has a parent, affiliate or subsidiary organization, the entity must also maintain written standards of conduct covering such organizational conflicts of interest NEW procurement by noncompetitive proposals (sole source) NEW expansion of types of procurements and thresholds ( 75.329) 20

General Procurement Requirements 75.329 Description of the five methods of procurement and the characteristics for each Source: Council on Financial Assistance Reform Frequently Asked Questions (2 CFR 200) 21

General Procurement Requirements Add the five overarching standards required for all organizations purchasing goods and services with federal funds Source: Council on Financial Assistance Reform Frequently Asked Questions (2 CFR 200) 22

75.329(f) Procurement Procedures Noncompetitive proposals Revised to clarify that solicitation of a proposal from only one source may be used only when one or more of the following apply: The item is available only from a single source The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation The Federal awarding agency (or pass-through entity) expressly authorizes this method in response to a written request from the non-federal entity After solicitation of a number of sources, competition is determined inadequate Whichever method is utilized, there is a presumption that documentation and support for decision, especially for those with noncompetitive proposals, is a must! 23

Subpart E: Cost Principles 75.400s - Selected sections: 75.400-401 General provisions 75.402-411 Basic Considerations 75.412-415 Direct and indirect costs 75.420-475 General provisions for selected items of cost 75.430 Compensation personal services 24

Selected Items of Cost 75.430 Compensation Personal Services New language intended to reduce the administrative burden of documenting time and effort Less prescriptive on documentation places greater emphasis on internal controls However, there is a requirement that charges must be based on records Will allow entities to replace detailed time and effort reports with performance - based reporting (based on milestones) - (agency approval required) Comply with established accounting policies and practices of the non- Federal entity 25

Selected Items of Cost 75.430 Compensation Personal Services (cont d) Support the distribution of the employee s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-federal award; an indirect cost activity and a direct cost activity; tow or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity Budget estimates alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes provided that: The estimates produce reasonable approximations of the actual activity Significant changes in the corresponding work activity (as defined by the non- Federal entity s written policies) are identified and entered into the records in a timely manner System of internal controls includes processes to review after-the-fact interim charges made to Federal awards with adjustments made such that the final amount charged to the Federal award is accurate, allowable and properly allocated 26

Selected Items of Cost 75.430 Compensation Personal Services (cont d) Because practices vary as to the activity constituting a full workload, records may reflect categories of activities expressed as a % distribution of total activities Salaries and wages of employees used in meeting cost sharing or matching requirements on Federal awards must be supported in the same manner as salaries and wages claimed for reimbursement from Federal awards For a non-federal entity where the records do not meet the standards, the Federal Government may requires personnel activity reports, including prescribed certifications, or equivalent documentation that support the records as required 27

Selected Items of Cost 75.430 Compensation Personal Services (cont d) Unallowable costs the allowable compensation for certain employees is subject to a ceiling in accordance with statute Per recent HRSA Notice of Awards The Consolidated Appropriations Act, 2012 (P.L. 112-74) enacted December 23, 2011 limits the salary amount that may be awarded and charged to HRSA grants and cooperative agreements. HRSA funds may not be used to pay the salary of an individual at a rate in excess of $183,300 (the 2015 Executive Level II salary of the Federal Executive Pay scale) 28

Subpart F: Audit Requirements ( 75.500s) AUDIT THRESHOLD AUDIT FINDINGS New threshold is $750,000 of federal expenditures (increased from $500,000) The threshold for reporting questioned costs was raised from $10,000 to $25,000. This level will maintain oversight over 99.7% of federal award dollars and 81% of entities subject to the requirement. Eliminates the requirement for approximately 5,000 of the 37,500 entities that currently undergo a single audit 29

Single Audit Reports Single Audit (A-133) Opine on SEFA and Compliance with Major Programs Yellow Book Audit (GAGAS) Report on Internal Controls and Laws and Regulations Financial Audit (GAAP) Opine on financial statement presentation 30

Single Audit Reports Yellow Book Audit (GAGAS) Report on Internal Controls Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Government Auditing Standards A report based on our understanding of the controls over financial reporting. Required to disclose significant deficiencies and material weakness in internal controls as well as any fraud, illegal actions, violations of provisions of contracts or grant agreements and abuse. Control deficiency design or operation of a control does not allow the organization to prevent, detect and correct a misstatement (f/s) or noncompliance (single audit) in a timely manner. Significant deficiency is a control deficiency or combination of deficiencies that is less severe than a material weakness yet important enough to merit attention by those charged with governance. Material weakness is a control deficiency or combination of deficiencies such that there is a reasonable possibility that a material misstatement (f/s) or non compliance (single audit) will not be prevented, detected and corrected. 31

Single Audit Reports A-133 An opinion on compliance based upon our audit of the types of compliance requirements that apply to each major federal award that could have a direct and material effect on each of its major programs. A report based on the understanding of the controls over the compliance requirements referred to above and are required to disclose significant deficiencies and material weakness in these internal controls. SEFA An opinion which states that the SEFA is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Audit the SEFA for completeness and accuracy (balances and CFDA #, etc.) Single Audit (A-133) Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 32

Single Audit Reports Compliance Testing Fourteen Compliance Requirements! Are auditors required to test all applicable compliance requirements? Only compliance requirements that have a direct and material effect on the major program Primary source is the OMB Compliance Supplement Part 2 Auditor uses judgment to determine the direct and material compliance requirements (based upon risk assessment) Refer to Part 3 of the OMB Compliance Supplement for general procedures OMB Compliance Supplement can be found at - https://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2015 33

Single Audit Reports Compliance Testing ACTIVITIES ALLOWED OR UNALLOWED (A) ALLOWABLE COSTS / COST PRINCIPLES (B) CASH MANAGEMENT (C) DAVIS BACON (D) ELIGIBILITY (E) EQUIPMENT & REAL PROPERTY MANAGEMENT (F) MATCHING, LEVEL OF EFFORT & EARMARKING (G) PERIOD OF AVAILABILITY (H) PROCUREMENT, SUSPENSION & DEBARMENT (I) PROGRAM INCOME (J) REAL PROPERTY ACQUISITON AND RELOCATION ASSIST (K) REPORTING (L) SUB-RECIPIENT MONITORING (M) SPECIAL TESTS (N) (330 grant governance requirements) 34

Single Audit Reports Reporting Summary of Auditors Results Schedule of Findings Report over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Yellow Book Report Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Single Audit Opinion Data Collection Form Due date 9 months (30 days from issuance of FS) 35

OMB SuperCircular Meets PIN 2013-01 36

HRSA PIN 2013-01: Budgeting and Accounting Policy Information Notice (PIN) 2013-01: Health Center Budgeting and Accounting Requirements Clarifies budgeting and accounting requirements for all Health Center Program grantees (e.g. Section 330(e), (g), (h) and (i) grantees and FQHC Look-Alikes (in particular, which requirements apply to Section 330 grant funds versus non-330 grant funds/program income) Majority of sections were issued in final and not available for comment because, in HRSA s opinion, they reflect clarification of existing requirements, but were subsequently amended. Includes requirement for separate budgets for grant funds and non-grant funds (defined as non-330 sources of revenue that are budgeted and accounted for under the Federal scope of project) 37

HRSA PIN 2013-01: Budgeting and Accounting Definitions/Terms Total Budget includes Section 330 grant funds and all other sources of revenue in support of the approved health center scope of project Non-grant Funds refers to the sources of revenue other than the Section 330 grant funds, including program income, that are budgeted and accounted for under the approved health center scope of project Other Lines of Business activities that are not part of the health center s approved scope of project and thus, are not subject to the Health Center Program requirements and related benefits Scope of Project approved service sites, services, providers, service area(s) and target population which are supported (wholly or in part) under the total budget 38

HRSA PIN 2013-01: Budgeting and Accounting Budgeting requirements Starting with FY 2014, all applicants must submit Total budget, which includes a budget breakdown by object class of the health center s scope of project from all funding sources (Section 330 funds and non-grant funds) AND Separate budget breakdowns showing which projected costs are supported by the grantee s Section 330 funds and which are supported by non-grant funds Grantees have discretion regarding how to allocate the total budget between Section 330 grant funds and non-grant funds (among the federal object class categories in SF 424), provided that the project budgeting complies with all applicable HHS policies and other federal requirements 45 CFR Part 75 39

HRSA PIN 2013-01: Budgeting and Accounting Accounting requirements Section 330 funds (Health Center Program grantees only) Must account for Section 330 funds separately Demonstrate that requirements of 45 CFR Part 75 were followed and allowable per Federal cost principles (Subpart E) Accounting systems and records must also adequately ensure that assets purchased with federal funds are appropriately recorded and used for their approved purpose HRSA Operational Site Visit Guide: Program Requirement No. 12 states - Specifically, does the health center s accounting system provide for: (1) separate identification of Federal and non- Federal transactions? and (2) a chart of accounts that reflects the general ledger accounts? 40

HRSA PIN 2013-01: Budgeting and Accounting Accounting requirements non-grant funds (Health Center Program grantees and FQHC-LAs) Health centers are provided discretion to use their non-grant funds either as permitted under Section 330 or for such other purposes that are not specifically prohibited under Section 330 if such use furthers the objectives of the project Health centers can meet the standard of furthering the objectives of the project by ensuring that the uses of non-grant funds benefit the individual health center s target population Health center s governing board must approve the health center s annual budget and the Health Center Program application as well as provide oversight and monitoring of health center expenditures to ensure consistency with the health center s mission, goals and objectives, and the board-approved budget and project Governing board s responsibilities also extend to assuring that application budgets and actual expenditures reflect appropriate uses of both the Section 330 grant funds and non-grant funds 41

Practical Implications of HRSA PIN 2013-01 The new PIN impacts numerous aspects of a health center s financial management system Budget preparation Cost allocations Time and effort reporting General ledger systems and separate accounting of Section 330 grant funds Allowable costs (Subpart E) Procurement standards Property management standards Monitoring of Federal grant budget Drawdowns of Federal grant funds Federal Financial Report (FFR) preparation 42

Practical Implications of HRSA PIN 2013-01 So, what should we do? Develop appropriate allocation methodologies: Section 330 Scope of Project Section 330 Grant Funds Non-grant funds i. State and local government funding (grants/contracts) ii. Other (private/corporate foundations) iii. Other Federal grants that are part of the Section 330 scope of project iv. Patient services revenue Non-Federal Section 330 scope of project activities ( Other Lines of Business ) Allocate all direct and indirect costs These programs should be self-sustaining 43

Practical Implications of HRSA PIN 2013-01 So, what should we do? For costs allocated to the Section 330 scope of project, develop an allocation plan for allocating costs to the Section 330 Federal grant: Step 1 - Start with your total costs and then allocate to appropriate revenue sources Step 2 - Remove unallowable costs (to be covered by non-grant funds) including salaries over the Federal salary cap Step 3 - Remove costs that are restricted and covered by non-grant funds Step 4 Following steps 1-3, the total costs remaining will be a pool of dollars to be allocated between Section 330 grant funds and non-grant funds; within this pool: 1 st - Allocate those costs that may be 100% covered by Section 330 funds (e.g., O&E, Expanded Services or appropriate enabling services) 2 nd - The balance can then be allocated to the Section 330 grant based on a reasonable and justifiable basis and consistent with HHS policies and other federal requirements 44

Practical Implications of HRSA PIN 2013-01 So, what should we do? Decide on an allocation method for apportioning shared costs between Section 330 grant and non-grant funds: Self-pay visits as a percentage of total visits Comment: Section 330 grant pays for more than just services to self-pay patients Section 330 grant revenue as a percentage of total revenue Factor in order of spending concept Allocate entire Section 330 grant to one specific item of expense within the Federal scope of project utilizing the total budget concept Comment: FQHC Medicare and Medicaid cost based rates are paying, indirectly, for all types of expenses Allocate only to personnel costs Support by time-and-effort reporting Whatever methodology selected must be reasonable and justifiable! 45

Practical Implications of HRSA PIN 2013-01 So, what should we do? Develop monthly budget versus actual monitoring procedures: Health Center Program grantees must track their Section 330 grant spending to ensure that: Expenditures are consistent with the HRSA approved budget and utilized for allowable costs As necessary, HRSA approvals are requested and received consistent with 45 CFR 75.308 (applies to re-budgeting among federal object budget class categories) HRSA Operational Site Visit Guide: Program Requirement No. 14 states - Are there budgetary controls in effect (e.g., comparison of budget with actual expenditures on a monthly basis) to preclude drawing down Federal funds in excess of: (1) Total funds authorized on the Notice of Award? and (2) Total funds available for any cost category, if restricted, on the Notice of Award? 46

HRSA PIN 2013-01: Budgeting and Accounting So, what should we do? Develop Federal grant drawdown procedures that are consistent with the various requirements of the new PIN: Per 45 CFR 75.305 cash management principles, drawdowns must be supported by actual expenses that have been disbursed as reasonably soon as possible (e.g. within 3 days) The expenses that the Section 330 grant drawdown is being used to cover need to be tracked separately and be consistent with the accounting of Section 330 grant funds in the accounting records Consider the impact of the order of spending in the determination of Excess Program Income versus Unobligated Balance of Federal Funds 47

HRSA PIN 2013-01: Budgeting and Accounting So, what should we do? Develop procedures to ensure the annual FFR for grant reporting is consistent with the requirements of the new PIN: Tracking of specific expenses relative to the Section 330 Federal grant conflicts with the long-standing order of spending concept relative to the earning of the Section 330 Federal grant The new PIN reiterates the concept of Excess Program Income The proposed amount of Federal Section 330 grant funding to support the scope of project may not exceed the amount by which the projected cost of operations exceeds the projected non-grant revenue sources In preparing the annual FFR, health centers need to consider both the specific expenses charged to the Section 330 Federal grant as well as the order of spending and Excess Program Income concepts 48

HRSA PIN 2013-01: Budgeting and Accounting Other Considerations? Budgeting for reserves utilizing non-grant funds in the Section 330 grant application What ever you charge to the Federal grant funds must be allowable and administered consistent with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards Follow the logic The Section 330 Federal grant provides reimbursement for allowable costs under 45 CFR Part 75 HRSA PIN 2013-01 requires health centers to separately identify (in the budget and accounting records) which costs are being funded by the Section 330 grant Therefore, the expenses charged to the Section 330 grant must comply with 45 CFR Part 75! 49

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CONTACT INFORMATION Gil Bernhard, CPA, Partner Healthcare Industry Practice CohnReznick LLP 646.254.7479 gil.bernhard@cohnreznick.com 51