Rehabilitation Services Commission

1. Rehabilitation Services Commission Finance Division Top 10 Common Findings

2. Presenters Scott Blake, External Auditor 3 Lisa Charlton, External Auditor 2

3. Today’s ObjectivesTo provide assistance by communicating information that will ensure all costs invoiced to RSC are reimbursable.

4. Objectives (cont.) To help you develop efficient and effective financial management and accounting systems.

5. Objectives (cont.) Build better relationships with our partners. “We are people helping people.”

6. How may RSC better assist you? • Questions • Recommendations • Comments

7. RSC wants to help you achieve: • A clean audit! No findings are the best findings! • Programmatic and financial objectives. • Efficient reimbursement of costs. • Empowerment! Knowledge is power.

8. Tips to a clean audit • Know your RSC contract (what does it require) • Reference applicable Federal circulars (found in your agency’s RSC contract) and RSC Contract Management Handbook • A financial system that provides accurate, current & complete disclosure

9. Accounting Basics

10. A Review of the Basics • Accrual Basis of Accounting v. Cash Basis of Accounting – must choose one and apply consistently. For Federal contracts and grants, accrual basis must be used to ensure all costs are applied to the contract year. • Accounting Procedures Manual– processes should be defined, helps maintain continuity. Can someone new or outside your agency understand how your books are maintained? • GAAP – seek the advice and opinions of an accountant, preferably knowledgeable with Federal grants.

11. Basics, cont’d • Internal Controls- a process designed to help the organization accomplish specific goals or objectives (ex. policies and procedures, workflows, purchase orders, etc.). • Program Budget – RSC requires budget proposals prior to start of grant period. Stay within cost category/line item budgets, or request a revised budget. • Revenue/Expenses– must be able to extract revenue and expenditure line items specific to each Federal funding source from agency general ledger. • General Ledger– should not have a positive or negative balance (zero-out).

12. General Ledger Book of final entry summarizing all of company’s financial transactions, through offsetting debit and credit accounts. (This is double-entry accounting.)

13. Fiscal Regulations & Cost Allocation Plans

14. Invoiced costs to RSC should be: • Allowable • Allocable • Reasonable

15. Allocable & Allowable does not mean Reimbursement Costs are Allowable if: • Reasonable for the award’s performance • Adequately documented • Consistent • In accordance with GAAP • Conform to cost limitations / exclusions • Time frame appropriate to contract

16. Allocable Process of assigning a cost, or group of costs, to one or more cost objectives, in realistic proportion to the benefit provided or other equitable relationship. Is the RSC contract paying its “fair share”?

17. Reasonable Consider these when making judgments about reasonableness: • Prevailing circumstances • Ordinary & necessary • Laws & contracts • Responsible & prudent person test

18. Cost Allocation Plan (CAP) OMB A-110, A-87, A-122 (approved by cognizant agency) “Designed to provide that the Federal Government bear its fair share of the costs except where restricted or prohibited by law”

19. Cost Allocation Plan (CAP) • Used for costs benefiting two or more grants (ex. rent, utilities, copiers, and IT maintenance), ensures fair share is charged to each grant • Methodology is in accordance with Federal cost accounting principles. • Explainable and reasonable (ex. FTE ratio method, square footage basis) • Consistently applied across all funding sources

20. Cost Allocation Plan (CAP) Cost Computation Methodologies • Ratio of salaries • Ratio of FTE’s • Ratio of program expenses • Ratio of program square footage

21. Internal Controls

22. Benefit of Internal Controls Circular A-110 Assure fiscal prudence: • Safeguard assets • Assure fiscal compliance & viability • Create checks and balances • Required by funding sources

23. Internal Controls (cont.) OMB Standards (federal circulars) • Segregation of duties - Limits amount of fiscal activity controlled by any one person. Priority control for approving purchases, check signing, checks & balances. • Conflict of interest awareness

24. Internal Controls Policies • Authorizing signatories • Separating accounts receivable from accounts payable • Balance cash and checking accounts • Credit cards • Cellular phones • Purchasing schedule

25. Internal Control Policies • Inspecting payroll reports • Recording cash: journal & general ledger • Passwords whenever possible • Petty cash limits • Using P.O.s (purchase orders) • Regular computer backups - offsite

26. Accounting Procedures Manual • Excellent Internal Control tool • Explains how books are maintained • Effective training tool • Needs Board of Directors approval • Updated annually (at least) • Must be used!

27. Specific Cost Items

28. Personnel • Salary or Rate of Pay • Fringe Benefits

29. Payroll • Which employees are paid salary vs. hourly, and are full-time vs. part-time? • Policies and procedures should document differences. • Allsplit funded employees regardless of status must document actual time spent on each Federal funding source (i.e. personal activity reports, aka PARs).

30. Payroll (cont.) • Costs invoiced to RSC must be actual, not budgeted, costs. • RSC requires semi-annual certifications for fully funded staff. They should be after the fact, dated, and signed by employee and supervisor. • Supporting documentation: timesheets, PARs, payroll journal, requests for leave, cancelled checks, bank statements, and general ledger, etc.

31. Fringe Benefits • As with payroll costs, fringe costs should be invoiced based on actual costs and be reflective of the general ledger. • Fringe benefits invoiced must have source documentation including calculations of costs.

32. Fringe (cont.) • Testing of fringe benefit costs will include a comparison of the costs paid to those outlined in your payroll policy. • All fringe benefits should be outlined in your payroll policies, if not it should be updated immediately.

33. General Operating Costs directly related to program: • Telephone • Staff travel (mileage and overnight travel) • Office supplies ($300 or less) • Equipment (more than $300) • Staff Development • Occupancy

34. Occupancy • Office Rent (leased vs. owned) • Utilities • Property Insurance • Capital Improvements • Service Maintenance • Minor Maintenance • Allowance Use • Janitorial Services

35. Top 10 Common Findings Payroll – lack of Personal Activity Reports, expenses based on budgeted vs. actual costs Lack of Supporting Documentation Cost Allocation Plan (for shared costs)- no methodology, not uniformly applied 4. Unallowable Costs

36. Top 10 Findings (cont.) 5. Budget – expending grant funds for non- budget costs 6. Equipment and Inventory 7. Internal Control 8. Board of Directors – lack of involvement and properly maintained minutes

37. Top 10 Findings (cont.) 9. Conflict of Interest – board member or employee holds a personal financial interest 10. Independent Audits (A-133)

38. Quiz time! 1. Personal Activity Reports are NOT required for split-funded employees. True or False 2. Photocopier paper was purchased with a credit card. Which of the following supporting documentation is required to support the expenditure? a. Credit card statement b. Receipt c. Cancelled check d. A and B e. All of the above 3. Bethany Griswold is a case worker who traveled all day (8:00 a.m. to 5:30 p.m.) providing services to consumers in her personal car. Which expenses can she be reimbursed for? a. Breakfast b. Mileage and parking c. Lunch d. All of the above

39. Quiz cont. 4. Per Circular A-110, which of the following is/are true about policies and procedures? a. Are an internal control b. Should be periodically reviewed and updated c. Are oral d. Are required by A-110 e. All of the above 5. Dell Griffith deposits cash and checks, completes journal entries, writes checks, has access to an agency credit card, and reconciles the agency’s bank statements. This is an example of: a. Sound fiscal management b. Due diligence c. Lack of segregation of duties d. Fraud

40. Quiz cont. 6. The Agency for Differently-Abled People has a Federal grant through the Ohio Dept. of Health, three Federal contracts through RSC, and a non-federal grant through the United Way. According to Circular A-110, how many extractable general ledgers are they required to have: a. Four b. One c. Three d. Five 7. A phone bill is received on November 15, 2012 for a service period of September 21, 2012 thru October 20, 2012, in the amount of $60.00. How much should be invoiced to the 2013 contract commenced on October 1, 2012? a. $20.00 b. $30.00 c. $60.00 d. $40.00

41. Quiz cont. 8. Which of the following expenditures are unallowable: a. Credit card interest b. Lobbying c. Alcohol d. Meat tray for holiday party e. Late fee f. All of the above 9. Supplies and materials costing more than $300 is considered “equipment”? True or False 10. Cost allocation plans (CAPs) should be used for shared costs and: a. Be the same for all types of expenditures b. Have written methodologies c. A and B d. None of the Above

42. Quiz cont. 11. Please indicate which of the following are true or false: a. Purchases for non-budgeted items are allowable costs. T F b. An inventory log for equipment costing more than $300 T F must be maintained. c. All single audits must be received by RSC no later than T F nine months after the auditee receives the report. d. Circular A-87 is applicable to non-profit organizations. T F e. Yellow Pages advertising is an allowable cost. T F f. A physical inventory must be performed every two years. T F g. The Board of Directors is required to have a quorum and T F and document meeting minutes. h. Semi-annual certifications for employees funded 100% to T F the RSC contract must be after-the-fact determinations, dated, and signed by the employee and his/her supervisor.

43. Quiz cont. 12. MaryAnn Brandt is split-funded and budgeted 50% to a RSC contract and 50% elsewhere. For pay period 1/1/13 to 1/14/13, she was reimbursed $2,000.00 for 80 hours of work. Her personal activity report (PAR) indicated 32 hours (40%) worked on the RSC contract and 48 hours (60%) for elsewhere. Her agency invoiced RSC $1,000.00. Which of the following is/are true? a. A PAR was not required b. Her agency charged RSC the budgeted amount c. Invoicing based on budgeted costs is allowable as long as PARs track actual time d. Questioned costs are $200.00

44. Wrap up • Please review your accounting systems to ensure the basics are being addressed. Extractable general ledgers, zero balances, segregation of duties, and reasonable cost allocation plans will go a long way to ensuring proper financial management of your RSC contract(s). • If you avoid the “Top 10 Common Findings”, your agency is well on its way to a clean audit! • Please contact your RSC Program for questions. • The RSC Internet site has links to tools and resources!http://rsc.ohio.gov/

45. Internal Control Questionnaire • The Internal Control Questionnaire (ICQ) is a tool RSC uses to assess your agency’s control environment. • You will find a link to ICQ on the RSC Internet site. • Please submit to RSC according the schedule provided.

46. Questions?