Terminal Leave & Other Grave Matters

1. Terminal Leave &Other Grave Matters

2. Terminal Leave &Other Grave Matters Resurrection

3. Terminal Leave &Other Grave Matters

4. Overview Part 1

5. resurrection

6. Overview Part 2 Ted’s Resurrection

7. Overview Part 3Discussion Topics • Terminal Leave – A killer accounting issue • Cognizance – who is responsible for what • Standard 10% indirect cost rate allowance – • why and who can use it

8. Introducing my “Co-Chair” Gil Tran

9. Part I Accounting for Terminal Leave by Ted Mueller

10. A-87-Appendix B • Unallowable Costs: Alcohol, Entertainment, Lobbying, Governance, Prosecuting claims against the government, etc. • Question - Where is "terminal leave" on the basic allowable, unallowable, allowable with prior approval cost grid? • Terminal Leave not a selected item of cost • Where does it say that?

11. Fringe benefit Section -- Appendix B. Section 8.d.3 • "Payments for unused leave after an employee has retired or terminates employment, are allowable in the year if payment, provided they are allocated as a general administrative expense to all activities of the governmental unit as component" • Cost Allocation Art of Deductive Inference • If it is only allowable as indirect then ... • What if an employee worked on the same program their whole career? • A-87 Implementation Guide Q&As • Consistent treatment and retracing employment history deterrents

12. Why? • The old re-assignment and "cash out" routine – an accounting bait & switch • Fringe benefit distinction in accounting treatment 1. Active Employee under current programs (Compensated Absences, employee insurance, pensions, unemployment benefit plans) "equitably allocated to all related activities including Federal awards" • Relationship to an Active Employee and the cost objectives 2. Exiting Employee and Fringe benefits (unused leave, payment, normalseverance, post retirement health benefits). Exiting employee benefits are removed from the cost objective(s) the employee last worked on So: • Active/Current = Direct • Exiting/Distant = Indirect

13. State and Local Laments • What if I do not have indirect cost rate? • What if I have a Pre-determined Rate • What if I have a fixed with carry-forward rate? • Rates based on actual costs 2 years prior or budget estimate • Allowable in the year of payment • Answer: SOL (not Statute of Limitations) • Answer: SOL again • SOL for 2 years

14. What about the Restricted Rate? Answer: • Double whammy • Fringe follows labor • Re-classified employee costs, plus unused leave, goes in the base Result: Non-recovery and lower rate

15. Let’s Do The Stroll… Can an agency permit an employee to: • Stop coming in to work, stay on the books and be paid while using up unused leave balance Result: • No work • No relative benefit received • Leave direct charged to the cost objective where the employee last worked on • Practice not addressed in A-87

16. In Search of the Lost Policy Issue raised in a cost policy summit with OMB Question: Does stroll accounting result in an intentional circumvention of the A-87 provisions? • Leave balance under 80 hours = No • Leave balance over 80 hours = Yes • Dust in the Wind

17. Audit Findings Continue Commonwealth of Pennsylvania The auditors identified unused leave payments over $10,000 charged to Federal programs/clusters during the fiscal years covered by the audit. The following list reflects the impacted ED programs and questioned costs:

18. Audit Findings Continue Innovative Take on Proportionality In response to our queries, the Commonwealth provided documentation verifying that the Pennsylvania Department of Labor and Industry (the State agency responsible for rehabilitation programs) had posted an adjustment to its accounting system. The adjustment effectively ensured no terminal leave expenditures were charged to the Vocational Rehabilitation (VR) Grants to States for FY 2007. The amount charged to the VR programs represented 78 percent of the total questioned costs in FY 2007. We analyzed the remaining question costs in FY s 2007 through 2009, as well as the Commonwealth’s revised methodology for treating unused leave payments. Based on our review, an allocation of unused leave payments would have ultimately resulted in charges to various ED programs during FYs 2007 through 2009. Additionally, the Commonwealth’s change in methodology results in charging unused leave payments in accordance with OMB Circular A-87. We accept the Commonwealth’s responses that corrective actions have been taken to prevent a recurrence of the findings, and we consider the findings resolved.

19. Innovative Corrective Action – The Leave Payout Rate Rate is calculated in August 2008 for use in the 2009-10 Budget Process Rate is calculated in August 2009 for use in the 2010-11 Budget Process. Funding into the RRA began un July, 2009; therefore the RA balance at 6/30/09 is still at -0- Rate is calculated in August 2010 for use in the 2011-12 Budget Process. This will be the first year for the RA Account to have a balance.

20. Leave Payout Rate • Section II SWCAP • Accrue and Fund Estimated Liability vs. Pay-as-You-Go (P-A-Y-G) • Interest and Internal Service Funds.

21. Part II Cognizance Conundrum – Who is Responsible for What?

22. Overview • State-wide Cost Allocation Plans (SWCAPS) • State Agency Grantees • Local Education Agency Grantees and Other Local Agency Grantees • Non-Profit Grantees • Educational Institutions - Non-Profit and For-Profit • Sub-recipients

23. Cognizance A single Federal Agency who speaks for all Federal awarding agencies in reviewing, negotiating and approving indirect cost rates and Cost Allocation Plans (CAPS).

24. A-87 (2 CFR Part 225) Two separate levels of cognizance • State/Local Governments • State/Local Grantee Departments or Agencies Definitions • State/Local Governments = Governmental Unit • State/Local Departments or Agencies = Components of the governmental unit

25. Components Administers grants that generate or a benefit from indirect costs

26. SWCAPS The Federal Department of Health and Human Services (DHHS) is cognizant for all SWCAPS • SWCAPS are cost allocation plans and not indirect cost rates

27. Section I of the SWCAP • Allocated Central Services (State-wide indirect costs) • They can be added to the State Agency/Department indirect costs when computing their indirect cost rates • SWCAP only rate • Need SWCAP information?

28. Section II of the SWCAP = Direct Billed Services • Fringe Benefits and leave payout rates

29. Local Governments and LOCAPS • Same as SWCAP - but retained on file and documented via audits

30. Second Level of Cognizance under A-87 • Individual State and Local Agency Grantees • OMB Cognizant Agency Assignment List was in 1986 • A-87 implementation guide says cognizance is determined based on which Federal agency provides the most direct dollar subject to indirect cost support • Direct is the operative word • Excludes pass-through dollars and other costs not subject to indirect cost support

31. How? • Schedule of Federal Expenditure by CFDA number • Or other similar report that can be certified Colleges and Universities • Either ONR or DHHS - based on funding for the most recent 3 years • Neither - Defaults to DHHS For-Profit Colleges • Federal Acquisition Regulations?

32. Non-Profit Organizations • No cognizance listing • Case by case - no change unless there is a "major" shift in funding • Major not defined What about Local Education Agencies? • If XYZ School District receives the most Federal Direct Dollars from the Department of Agriculture is Agriculture cognizant? • EDGAR controlling -75.561 and 76.561 • SEA/Federal Department of Education relationship • ED approves the methodology, not the rates

33. Sub-recipients • Indirect cost rates • What is a sub-recipient? • An entity who: Receives an award made to a prime grantee to carry out some part of a program or activities on behalf of the prime grantee • What about a lower tier/higher tier relationship? • i.e., component within a component

34. What about sub-recipients who are stand alone agencies or components? • No direct Federal dollars = Prime Recipient • A-87 is silent on how • A-87 implementation Guide alternatives discussion • Same concept applies to non-profit sub-recipients

35. Finally cost negotiation cognizance is not the same as Audit cognizance • Audit Cognizance = A-I33 = $50 million in Direct Funding • Cost Negotiation = no $ threshold • Indirect Funding = oversight agency Let’s look at the chart…

36. FY 2011 Funding

37. Quiz • State Department of Transportation • Who provides the most Federal funds to the college? • Who provides the least amount of Federal funds to the college? • Who provides the most “direct” Federal funds to the college? • Are pass-through funds counted in either the direct or indirect cost cognizance determination? • Are Student Financial Assistance funds counted in the indirect cost cognizance determination? • Who is the cognizant/oversight agency for audit for the college? • Who is the cognizant agency for indirect cost negotiation for the college? • The DHHS • The US Department of Education • No • No • US Department of Education • The DHHS – OMB Circular A-21 (2 CFR Part 220) Section G. 11. A. 11

38. Part III Standard Indirect Cost Rate of 10%

39. Flat Indirect Cost Rate of 10% Background: • 2 CFR Part 225 (formerly OMB Circular A-87) Appendix A. Section G Inter- Agency Services, discusses the use of a standard indirect cost rate of 10% Salaries & Wages (less overtime, shift premiums, and fringe benefits) Policy Clarification: • Who can use the standard 10% indirect cost rate allowance? • An Independent State/Local government agency that does not receive Federal awards (directly or indirectly) and does not need to obtain an indirect cost rate from a cognizant agency; and who • Provides a service to another independent State/local government agency within the governmental unit. • Example: The Department of Public Works provides and puts up highway signs for the Department of Transportation

40. Flat Indirect Cost Rate of 10% Policy Clarification Continued: • Who cannot use the flat indirect cost rate? • Operating agencies in lieu of Department/Agency indirect cost rates under Federal programs • Local government agencies who perform work for State agencies and vice versa • Non profit sub-grantees under Federal awards • Example: XYZ Nonprofit Organization receives a sub award from a FMCSA grant and a direct federal award from the Department of Justice. A flat indirect cost rate of 10% may not be used under the FMCSA sub grant in lieu of an indirect cost rate from the cognizant agency: Department of Justice