Charter Schools: Allowability and Grants Management Compliance NYSED – May 2013

1. Charter Schools: Allowability and Grants Management ComplianceNYSED – May 2013 Tiffany R. Winters, Esq. Brustein & Manasevit, PLLC twinters@bruman.com www.bruman.com Twitter: @Trwinters

2. Agenda • Allowability • Basic Cost Principles • Time and Effort Documentation • Grants Management Systems • Financial Management • Procurement • Inventory • Internal Controls

3. How to Determine if a Cost is Allowable

4. Helpful Questions to Ask • 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 federal cost principles? • Is the proposed cost consistent with EDGAR?

5. Is the proposed cost consistent with special conditions imposed on the grant? Is the proposed cost consistent with the underlying needs of the program Additional Questions

6. 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

7. Cost Principles: Basic Guidelines All Costs Must Be: • Necessary • Reasonable • Allocable • Legal under state and local law • Conform with federal law & grant terms • Consistently treated • In accordance with GAAP • Not included as match • Net of applicable credits • Adequately documented

8. 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

9. Necessary & Reasonable (cont.) • Practical aspects of “necessary” • Do I really need this? • Is this the minimum amount I need to spend to meet my need? • 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?

10. 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 I program and 50% in a state program – can only charge half the cost to Title I

11. 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

12. 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 Basic Guidelines (cont.)

13. 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

14. 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

15. OMB Circulars 43 specific costs detailed Listed in alphabetical order Federal Cost Principles

16. Selected Items of Cost • Advertising/PR • Generally not allowable, except as specified in Attachment B • Alcohol • Not allowable • Audit Costs • Allowable to the extent provided under A-133 • Other audit costs are allowable if included in a cost allocation plan

17. Time and Effort Documentation

18. Time Distribution Records • Must be maintained for all employees whose salaries are: • Paid in whole or in part with federal funds • Used to meet a match/cost share requirement

19. Required Time Distribution Documentation • 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

20. Examples . . . . • A Minimum Set-Aside or Maximum Cap: • Title I- LEA Parent Involvement minimum (at least 1%); • Title III – Cap on administration (no more than 2%) • Program services: • Title I program services • 21st CCLC program services

21. OCFO clarifications re: “single cost objective” OCFO: “The criteria for whether an employee may document time and effort using a semiannual certification or must fill out a monthly PAR can be confusing.

22. OCFO Guidance • It is possible for multiple programs to have the same cost objective, which creates confusion over whether the presence of a single cost objective or being funded by multiple programs should determine what time-and-effort documentation and employee must complete.

23. OCFO Guidance (cont.) • It is possible to work on a single cost objective even if an employee works on more than one Federal award or on a Federal award and a non-Federal award. • The key to determining whether it is a single cost objective is whether the employee’s salary and wages can be supported in full from each of the Federal awards on which the employee is working or from the Federal award alone if the employee’s salary is also paid with non-Federal funds.

24. A-87 Single Cost Objectives – Semi-Annual Certification • If an employee works on a single cost objective: • Semi-Annual Certification • Signed by employee or supervisor • Every six months (at least twice a year) • After the Fact • Account for 100% of the activity • Example: “I, Tiffany Winters, hereby certify that for the period January 1, 2012 through June 30, 2012 one-hundred percent (100%) of my time and effort was spent on 21stCCLC Administration.”

25. A-87 Multiple Cost Objectives – Personnel Activity Report (PAR) • 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

26. Grant Management Systems Three major “systems” in grants management: Financial Management, Inventory and Procurement

27. Financial Management System

28. Financial Management System: Common Problems • Controlling allowable costs • Clear record trail • Cash management

29. Financial Management System (FMS) • 7 requirements: • Financial Reporting • Accounting Records • Internal Control • Budget Control • Allowable Cost • Source Documentation • Cash Management

30. Financial Reporting • Accurate, current and complete disclosure of financial information • All financial reports required by ED • Consistent with GASB Rule 34

31. 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

32. 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

33. Must compare actual expenditures to budgeted amounts on a routine basis Make sure all obligations are timely!! Payment Process Obligation Liquidation Drawdown Payment Obligation = Transaction that requires payment Budget Control

34. Obligations

35. Allowable Costs • 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

36. 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 5 years • (Statute of Limitations under GEPA = 5 years)

37. Procurement

38. Controls over purchase orders Lack of descriptions in contracts/invoices Lack of approval over payment process Procurement: Common Problems

39. 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

40. 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

41. 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

42. 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

43. As a practical matter, noncompetitive contract raises “red flags” Ensure persuasive and adequate documentation to facilitate audit Vendor Selection Process (cont.)

44. 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

45. Cannot contract with vendor who has been suspended or debarred Must verify if contract is $25,000 or more http://www.epls.gov/ www.sam.gov Vendor Selection Process (cont.)

46. 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

47. Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract Contract Administration (cont.)

48. Inventory Management

49. Determining between “equipment” and “supply” Determining level of control over item Tracking non-equipment items Inventory Management: Common Problems

50. Inventory Management 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