Michael Brustein, Esq. Brustein & Manasevit



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Florida Department of Education
Division of Vocational Rehabilitation
Grants Management Workshop

Michael Brustein, Esq.

Brustein & Manasevit

3105 South Street, NW

Washington, DC 20007

mbrustein@bruman.com

www.bruman.com

Federal Rules That Apply to the State Vocational Rehabilitation Program

  • EDGAR

  • VR Program Regulations

  • WIA Regulations

EDGAR
http://www.ed.gov/policy/fund/reg/edgarReg/edgar.html

  • Part 74 – Administration of Grants with Nonprofits

  • Part 76 – State-Administered Programs

  • Part 77 – Definitions

  • Part 79 – Intergovernmental Review

  • Part 80 – Uniform Administrative Requirements*

EDGAR cont…

  • Part 81 – Enforcement

  • Part 82 – Lobbying

  • Part 85 – Debarment and Suspension

  • Part 86 – Drug and Alcohol Abuse

EDGAR Part 80

  • High Risk Grantees

  • Standards for Financial Management

  • Payments

  • Allowable Costs

  • Availability of Funds

  • Cost Sharing

  • Program Income

  • Non-Federal Audit

  • Changes

  • Real Property

  • Equipment

  • Supplies

  • Copyright

  • Debarment

  • Procurement

  • Monitoring

  • Financial Reporting

  • Retention of Records

VR Program Regulations

  • Part 361 – State VR Services Program

  • Part 363 – State Supported Employment Services

  • Part 364 – General Provisions

  • State Independent Living Services Program

  • Centers for Independent Living Programs

VR Program Regulations cont…

  • Part 365 – State Independent Living Services

  • Part 366 – Centers for Independent Living

  • Part 367 – Independent Living Services for Older Individuals who are Blind

  • Part 369 – VR Service Projects

  • Part 370 – Client Assistance Program

WIA Regulations

  • 20 CFR Part 662

  • One-Stop Service Delivery System

  • 29 CFR Part 37

  • DOL Non-discrimination Regulations If VR activities are conducted as part of the One-Stop System

Legal Structure of
Federal Programs

  • Statutes

  • Program statutes (VR, WIA)

  • General Education Provisions Act (GEPA)

  • Regulations

  • Program regulations

  • Education Department General Administrative Regulations (EDGAR)

  • OMB Circulars

  • Guidance

VR/WIA Crosswalk
State VR unit must carry out the following:

  • Make core services available to VR participants through the One-Stop System

  • Use a portion of the VR funds to

  • Create and maintain the One-Stop service delivery system

  • Provide core services

  • Enter into MOU with WIB

  • Participate in the organization of the One-Stop System consultant with MOU

  • Provide representation on local WIB

300 CFR 361.23

Resource Sharing / Cost Sharing under VR/WIA

The One-Stop is not a direct recipient of federal funds. It is a location through which several federal programs operate their programs

One-Stop partner programs must maintain appropriate accounting of federal funds.

In the One-Stop environment, some costs benefit more than one program or organization.

Costs must be allocated to the benefiting program – based on benefits received, not availability of funds.

No one partner should pay a disproportionate share of the One-Stop costs.

Cost Pooling- distributes both shared direct and indirect costs, and involves the accumulation of costs to pools for later allocation to final cost objectives.

Appropriate to use cost pooling if direct charging requires disproportionate effort to determine the precise charge to the individual cost objective
used for common costs in a One-Stop.

Once costs are accumulated in the One-Stop, they must be allocated to the benefiting programs.

e.g. -

  • % of salary costs / time assigned to activities

  • % of units of service provided

  • % of usage of space

Application of A-87
Attachment A, paragraph C.3

  • When an item of cost is allowable under and allocable to two or more awards, the costs may be charged to:

  • Any one of the awards

  • All of the awards based on benefits received

  • Awards based on mutually agreeable methodology

A program that does not benefit from the cost cannot pay for it

Cost Shifting

Helpful Questions to Ask

  • Is the proposed cost consistent with federal cost principles?

  • 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 EDGAR?

Federal Cost Principles


http://www.whitehouse.gov/omb/circulars/

  • A-21 Educational Institutions

  • A-87 State, Local & Indian Tribal Governments

  • A-122 Non-Profit Organizations

  • 48 CFR pt. 31 For-Profit Organizations

Cost Principles: Basic Guidelines

  • All Costs Must Be:

  • Necessary

  • Reasonable

  • Allocable

  • Legal under state and local law

Basic Guidelines (cont.)

  • In addition, all costs must:

  • Conform with federal law & grant terms

  • Consistently treated

  • In accordance with GAAP

  • Not included as match

  • Net of applicable credits

  • Adequately documented

Basic Guidelines (cont.)

  • 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

Basic Guidelines (cont.)

  • Allocable

  • Can only charge in proportion to the value received by the program

  • Example: One-Stop purchases a computer to use 50% in the VR program and 50% WIA Title I Program – can only charge half the cost to VR

  • Legal under state and local law

  • If cannot do under state law, cannot pay with federal funds

Basic Guidelines (cont.)

  • Conform with federal law & grant terms

  • Example: Match Requirements

  • 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.)

  • 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

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

Federal Cost Principles: Selected Items of Costs

  • 43 specific costs detailed

  • Listed in alphabetical order

Selected Items of Cost (cont.)

  • 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


Selected Item of Cost (cont.)

  • Salaries and Wages

  • Allowable if proper time distribution records

  • Fringe Benefits

  • Allowable if: (1) established written leave policies; (2) cost equitably allocated to all related activities; and (3) accounting basis consistently followed

  • Severance Pay/Terminal Leave

  • Normal: Allowable as indirect cost

  • Abnormal: Allowable if approved by cognizant federal agency

Compensation for Personal Services

  • Overview of process:

  • Estimate how employee will work

  • Pay based on estimate

  • Reconcile estimates to how actually worked

  • Necessary documentations

  • Payroll records

  • Time and effort records

Support of Salaries and Wages

  • Payroll must be documented in accordance with grantee/subgrantee’s generally accepted accounting practice

  • Charges must be approved by a “responsible official” of the grantee/subgrantee

Time Distribution
OMB Circular A-87

  • 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

General Requirement

  • 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

Cost Objective

  • Multiple cost objectives:

  • More than one Federal award

  • A Federal award and a non-Federal award;

  • A Federal award with specific earmarking (set-asides) 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.

Single Cost Objective

  • 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, 2005 through June 30, 2005 one-hundred percent (100%) of my time and effort was spent on VR Administration.”

Definition of “Administrative Costs Under the State Plan”

  • Quality Assurance

  • Budgeting, Accounting, Financial Management, Information Systems, Data Processing

  • Providing Information to Public

  • T/A to other state agencies, nonprofits, businesses, except those not subject to ADA

Definition of “Administrative Costs Under the State Plan” cont…

  • State Rehab Council and Other Advisory Committees

  • Professional Organization Membership Dues for Designated State Unit Employees

  • Removal of Architectural Barriers in State VR Facilities

  • Operating and maintaining State unit facilities, equipment , grounds

Definition of “Administrative Costs Under the State Plan” cont…

  • Supplies

  • Personnel Development

  • Admin Salaries

  • Travel costs related to carrying out the program, other than travel costs related to provision of services

  • Costs of Eligibility Determinations, Mediations, Due Process Hearings

  • Legal Expenses

Single Cost Objective (cont.)
Flexibility

  • Payroll certification in lieu of semi-annual certification

  • Single cost objective

  • Supervisor cannot assign multiple functions

  • Employee coded to dedicated function not benefiting multiple functions

Multiple Cost Objectives

  • 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

Multiple Cost Objectives (cont.)

  • Time increments reported on PARs should be sufficient to recognize:

  • Number of different activities performed

  • The dynamics of these responsibilities

Sample PAR

Sample PAR

Flexibility

  • 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

Distributing Payroll Costs

  • Estimate how employee will work

  • Must produce reasonable approximations of the activity actually performed

  • Quarterly comparison of estimates to actual costs

  • If difference is less than 10% - annual adjustment

  • If difference is more than 10% - quarterly adjustment

Selected Items of Cost (cont.)

  • Defense and Prosecution of Criminal and Civil Proceedings, and Claims

  • Legal expenses required in the administration of federal programs are allowable

  • Legal expenses for “prosecution of claims” against the federal government are not allowable

Selected Items of Cost (cont.)

  • Employee Morale, Health and Welfare

  • Health or first aid clinics, recreational activities, employee counseling services are allowable

  • Entertainment

  • Amusement, diversion, and social activities are not allowable

  • Fines and Penalties

  • Not allowable

Selected Items of Cost (cont.)

  • Lobbying

  • Costs of activities that are meant to influence the grant process are unallowable

  • Maintenance, Operations & Repairs

  • Utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance, normal repairs & alterations are allowable if:

  • Keep property in efficient operating condition

  • Do not add to permanent value or appreciably prolong property’s intended life

Select Items of Cost (cont.)

  • Memberships, Subscriptions and Professional Activities

  • Meetings and conference where the primary purpose is dissemination of technical information are allowable

  • Includes costs of meals, transportation, facility rental, and speakers’ fees

Selected Items of Cost (cont.)

  • Training

  • Training for employee development is allowable

  • Travel costs, including transportation, lodging, subsistence, and related items, when traveling on business are allowable with certain restrictions

Financial Management

Understanding the Nature of the Federal Funding

  • Cooperative Agreement

  • Direct Grant

  • Subgrant

  • Contract

Nature of Funding

  • Cooperative Agreement

  • Very similar to a grant

  • Substantial involvement is expected between the executive agency and recipient

Nature of Funding (cont.)

  • Direct Grant (e.g., funds received directly from ED)

  • Very similar to a cooperative agreement

  • No substantial involvement between agency and recipient – allowable activities based on applicable statute, approved project plan

Nature of Funding (cont.)

  • Subgrant (e.g., pass-through funds from state administered program)

  • Allowable activities based on applicable statute, local plan, state rules

Nature of Funding (cont.)

  • Contract

  • Allowable activities based on terms and conditions of contract

  • Management rules:

  • Terms of the contract

  • State contract law

Subgrant vs. Contract

  • Sugrantee

  • Determines who is eligible to participate in a federal program

  • Has its performance measured against whether the objectives of the federal program are met

  • Is responsible for programmatic decision making

  • Is responsible for complying with federal program requirements

  • Uses the federal funds to carry out a program as compared to providing goods or services for a program

Subgrant vs. Contract (cont.)

  • Contractor

  • Provides the goods and services within normal business operations

  • Provides similar goods or services to many different purchasers

  • Operates in a competitive environment

  • Provides goods or services that are ancillary to the operation of the federal program

  • Is not subject to compliance requirements of the federal program

What rules apply to matching under VR?

The Commissioner shall pay to a state an amount equal to the federal share of the cost of VR services under the plan, including expenditures for administration of the plan.

Sec. 111(a) of

Rehabilitation Act

The Federal Share is

78.8%

Nonfederal share –
Subject to:
34 CFR 80.24 of EDGAR

But third party in-kind contribution may not be used

Cash contributions by private entities generally may be used as match

361.60

FMS Rules for States
34 CFR 80.20(a)

  • State may follow own laws and procedures, as long as FMS sufficient to:

  • Permit preparation of all required reports

  • Permit tracing of funds to specific expenditures

FMS Rules for Grantees/Subgrantees
34 CFR 80.20(b)

  • “All other grantees and subgrantees” must implement an FMS that meets 7 specific requirements

FMS Rules for grantees/subgrantees

  • 7 requirements:

  • Financial Reporting

  • Accounting Records

  • Internal Control

  • Budget Control

  • Allowable Cost

  • Source Documentation

  • Cash Management

Financial Reporting

  • Accurate, current and complete disclosure of financial information

  • All financial reports required by ED

  • Consistent with GASB Rule 34


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


Internal Controls

  • ED is subject to laws requiring it to monitor internal controls

  • Improper Payment Act of 2002

  • Federal Managers’ Financial Integrity Act of 1982

  • Single auditors are required to test internal controls


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

Objectives of Internal Control

  • Effectiveness and efficiency of operations

  • Reliability of financial reporting

  • Compliance with applicable laws and regulations

  • Safeguarding assets


Budget Control

  • Must compare actual expenditures to budgeted amounts on a routine basis

Allowable Cost

  • 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


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 3 years, but statute of limitations = 5 years

Cash Management


Cash Management

  • Payment Process

  • Obligation

  • Liquidation

  • Drawdown

  • Payment

Obligations
34 CFR 76.707, 34 CFR 80.23

  • Obligation = Transaction that requires payment

Obligations (cont.)

Obligations (cont.)

  • Every grant has a “period of availability” = period in which grantee can obligate funds

  • In general, ED cannot extend the period of availability

Obligations (cont.)

  • Grantees and subgrantees may begin to obligate funds when:

  • Awarding agency approves application; or

  • Awarding agency determines application is “substantially approvable”

  • Reimbursement subject to final approval

  • Pre-award costs

  • Only for obligations made after the period of availability begins but before application approved

  • Must have prior approval from awarding agency

Obligations (cont.)

  • Tydings Amendment

  • Allows extra year to obligate funds

  • Does not apply to all grants

  • Under Tydings, funds are available for 24-27 months:

  • 12-15 months under the grant award

(July 1, 2006 – September 30, 2007)

  • Plus 12 months

(October 1, 2007 – September 30, 2008)

Obligations (cont.)

  • In order to have a valid “obligation” there must be:

  • A transaction giving rise to an obligation within the period of availability; and

  • A “linking” of the transaction with funds that were available during the period of availability.

  • “Linking” a transaction to particular grant funds can occur long after the period of availability ends

Obligations (cont.)

  • “Linking” example:

  • Transaction occurs on August 1, 2005

  • Available funds include:

  • 2003-2004 Funds (became available 7/1/03)

  • 2004-2005 Funds (became available 7/1/04)

  • 2005-2006 Funds (became available 7/1/05)

Liquidations
34 CFR 80.23

  • Liquidation = Settle an obligation by paying funds

Cash Management (cont.)

  • State must liquidate all obligations within 90 days after the end of the period of availability

  • Example:

  • Period of availability: July 1 – September 30

  • Liquidation period ends: December 30

  • State may impose shorter deadline on subgrantee

Liquidations (cont.)

  • Lapsed funds is a risk factor

  • To avoid lapsing:

  • Obligate oldest funds first

  • First In First Out (FIFO) method of accounting

  • Remember – “linking”

Payments

  • Special rules if receive advance payment

  • Must expend funds within 3-days

  • Must maintain written procedures for timing drawdowns and payments

  • Interest must be paid back to ED (over $100)

Procurement

Rules for States
34 CFR 80.36(a)

  • States may use their own policies and procedures to procure goods and services

  • But, must include required provisions in all contracts supported with federal funds

Rules for Grantees/Subgrantees

  • All other grantees and subgrantees must follow policies and procedures that meet the standards set out in 34 CFR 80.36(b)-(i)

Ensuring Purchases are Necessary

  • All costs have to be necessary for the performance or administration of the federal grant

  • Therefore, must review all proposed purchases to avoid unnecessary or duplicative items

  • Surplus property

  • Structure procurement to obtain most economical purchase

  • Intergovernmental agreement for common goods or services

  • Lease vs. purchase

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

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

Role of Cost/Price

  • All costs must be reasonable:

  • Fair market value

  • Arms length bargaining

  • Act with prudence under the circumstances

Role of Cost/Price (cont.)

  • Must perform a cost or price analysis in connection with every procurement action, including contract modifications

  • Cost analysis generally means evaluating the separate cost elements that make up the total price (including profit)

  • Price analysis generally means evaluating the total price

Role of Cost/Price (cont.)

  • Method and degree of cost or price analysis depends on the particular facts and circumstances

  • Must make independent estimate before receiving bids or proposals

  • Goal of analysis is to determine reasonableness

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

Vendor Selection Process (cont.)

  • Method of procurement:

  • Small purchase procedures

  • Competitive sealed bids

  • Competitive proposals

  • Noncompetitive proposals

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


Vendor Selection Process (cont.)

  • Must perform a cost analysis in connection with every noncompetitive contract

  • Must ensure contractor price is reasonable

  • Must ensure contractor not using market power to force higher price

Vendor Selection Process (cont.)

  • As a practical matter, noncompetitive contract raises “red flags”

  • Ensure persuasive and adequate documentation to facilitate audit

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

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

Contract Administration

  • All contracts supported with federal funds must contain certain required provisions:

  • Remedies for breach, sanctions, penalties

  • Termination for cause and convenience

  • Compliance with federal statutes and executive orders

  • Reporting requirements

  • Patent rights

  • Copyrights

  • Access by federal agency, Comptroller General of US to records of contractor

  • Retention of records for 3 years after final payment

Contract Administration (cont.)

  • Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract

Contract Administration (cont.)

  • As a practical matter:

  • Must have written contracts (purchase order ok)

  • Contract should include clearly defined deliverables

  • Description of services to be performed or goods to be delivered

  • Description of dates when services will be performed or goods delivered

  • Description of locations where services will be performed or goods delivered

  • Description of number of students/teachers/etc. to be served (if applicable)

Contract Administration (cont.)

  • As a practical matter (cont.)

  • Must have written invoice

  • Description of services performed or goods delivered

  • Description of dates services were performed or goods delivered

  • Description of location services were performed or goods delivered

  • Description of students/teachers/etc. served (if applicable

  • Invoice should be reviewed & approved before payment

  • Segregation of duties

  • Documented approvals

Inventory Management

Rules for States
34 CFR 80.32(b)

  • States may use their own policies and procedures to use, manage, and dispose of equipment

Inventory Management
34 CFR 80.32

  • 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

  • Supplies

  • Everything else

Equipment

  • Must have adequate controls in place to account for:

  • Location of equipment

  • Custody of equipment

  • Security of equipment

Equipment (cont.)

  • Property records

  • Description, serial number or other ID, title info, acquisition date, cost, percent of federal participation, location, use and condition, and ultimate disposition

  • Physical inventory

  • At least every two years

  • Control system to prevent loss, damage, theft

  • All incident must be investigated

Equipment (cont.)

  • Must protect against unauthorized use

  • May use for other projects as long as use is incidental and does not interfere

  • When property no longer needed, must follow disposition rules:

  • Transfer to another federal program

  • Over $5,000 – pay federal share

  • Under $5,000 – no accountability

Supplies

  • Must maintain effective control and accountability

  • Must adequately safeguard all such property

  • Must assure that it is used solely for authorized purposes

This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.




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