EDGAR Implementation and Utilizing Internal Controls Tiffany R. Winters, Esq. Brustein & Manasevit, PLLC Spring Forum 2016

Effective Dates December 26, 2014 – 2 CFR Part 200 Effective Date March 12, 2015 – USDE Releases FAQ June 25, 2015 – USDE Updates FAQ July 1, 2015 – Applicability date for state-administered programs July 1, 2017 – Part 200 procurement rules apply ONLY IF two year grace period is taken by agencies Now What? Brustein & Manasevit, PLLC © All rights reserved 2

EDGAR Implementation Questions Brustein & Manasevit, PLLC © All rights reserved 3

Administrative Implementation Issues Brustein & Manasevit, PLLC © All rights reserved 4

Fixed Amount Awards (b) A fixed amount award is a grant or subgrant that provides a specific level of support with regard to actual costs incurred It reduces some administrative burden and record- keeping requirements. Accountability based primarily on performance. With prior approval from Federal awarding agency, a pass-through may provide subawards based on fixed amounts up to $150, Brustein & Manasevit, PLLC © All rights reserved 5

Can we as the SEA award fixed amount subawards? No. “The Department does not administer programs that authorize fixed amount awards to grantees or subgrantees….” Letter, dated June 5, 2015 Brustein & Manasevit, PLLC © All rights reserved 6

Prior Written Approval To avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-federal entity may seek prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs. Brustein & Manasevit, PLLC © All rights reserved 7

Prior Written Approval Required by the Federal Awarding Agency Use unrecovered indirect costs towards cost sharing/matching Adding program income to a federal award (for SEAs/LEAs) or using program income for matching/cost sharing Revision of budgets: incurring costs after 90 days prior to award Equipment and other Capital Expenditures Compensation: fringe benefits Equipment Organization costs Participant support costs Pre-award costs Travel costs for dependents for 6 or more months Etc. Brustein & Manasevit, PLLC © All rights reserved 8

Can SEA give approval/ prior approval when required by Federal awarding agency? In a state-administered program, the state had this authority previously… does the state still retain this right or only USDE? USDE: “ ED is currently working on guidance that will address prior approval requirements, and my best suggestion is to wait for this guidance. ” Letter dated, June 15, 2015 Brustein & Manasevit, PLLC © All rights reserved 9

Federal Audit Clearinghouse (b) The Federal Audit Clearinghouse (FAC) is the repository of record for Single Audits under Subpart F. All Federal agencies and pass-through entities and others interested in a reporting package and data collection form must obtain it by accessing the FAC. Brustein & Manasevit, PLLC © All rights reserved 10

Can the SEA require LEAs to submit their single audits to the State? Yes. The LEA must submit their audit reports electronically to the FAC. However, if the State needs to receive reports directly from LEAs to comply with state laws, the LEAs can submit the reports to the state in addition to electronic submission to the FAC. Letter, dated June 11, 2015 Brustein & Manasevit, PLLC © All rights reserved 11

Are SEAs required to assess risks of subgrantees before awarding subgrants? No. There is no requirement for grantees to assess risks before making subgrants. Grantees must assess risks to inform monitoring priorities. However, grantees have discretion to make risk assessments before awarding subgrants. Factors for grantees to consider when developing their risk tools can be found at 2 CFR § ED considers pre-award risk reviews to be a best practice. ED FAQ, Subpart D Question 20, March 17, 2016 Brustein & Manasevit, PLLC © All rights reserved 12

Allowability Implementation Questions Brustein & Manasevit, PLLC © All rights reserved 13

What written procedures do we need? Cash management procedures (b)(6) Allowability procedures (b)(7) Procedures for managing equipment (d) Written standards of conduct covering conflicts of interest (c) Procurement procedures (c) Written method for conducting technical evaluations of the proposals received and for selecting recipients (d)(3) Written compensation and leave policies Travel policies (including relocation costs) and Brustein & Manasevit, PLLC © All rights reserved 14

Does ED have any guidance for developing written procedures for determining allowable costs? How the entity will determine if a cost is allowable. Letter, dated May 13, 2015 All grant recipients must have financial management systems that include written procedures for ensuring all expenditures conform to the terms and conditions of the grant as well as the UGG principles. ED FAQ, Subpart E Question 6, March 17, 2016 Brustein & Manasevit, PLLC © All rights reserved 15

What rules apply to reimbursing non- employees, like parents or contractors? Travel rules apply to employees who travel on official business (a) NEW Participant support costs are allowable with prior approval of Federal awarding agency. Includes stipends, subsistence allowances, travel allowance and registration fees paid to or on behalf of participants or trainees in connection with conferences, trainings or projects Brustein & Manasevit, PLLC © All rights reserved 16

Procurement Implementation Issues Brustein & Manasevit, PLLC © All rights reserved 17

Conflict of Interest (c)(1) Must maintain written standard of conduct, including conflict of interest policy. A conflict of interest arises when any of the following has a financial or other interest in or tangible personal benefit from the firm considered for a contract: Employee, officer, or agent Any member of that person’s immediate family That person’s partner An organization which employs, or is about to employ, any of the above or has a financial interest in the firm selected for award Brustein & Manasevit, PLLC © All rights reserved 18

What is a “tangible personal benefit”? Includes other non-financial benefits that result in a personal benefit for the employee (such as improved employment opportunities, business referrals, political influence, etc.) ED FAQ, Subpart D Question 11, March 17, 2016 Brustein & Manasevit, PLLC © All rights reserved 19

Competition (a) All procurement transactions must be conducted with full and open competition. To eliminate unfair advantage, contractors that develop or draft specifications, requirements, statement of work, and invitations for bids or RFPs must be excluded from competing for such procurements. Brustein & Manasevit, PLLC © All rights reserved 20

Does the new EDGAR impact vendor’s ability to play a role in helping draft specifications for RFPs? Yes! A vendor that is a contactor involved in the drafting or development of specifications for an RFP has an organizational conflict of interest that excludes the vendor. Soliciting input from 1-2 vendors would, in most cases, create an unfair competitive advantage (would have to solicit input so broadly so that any potential vendor may participate). ED FAQ, Subpart D Question 10, March 17, 2016 Brustein & Manasevit, PLLC © All rights reserved 21

Micro-Purchase (a) NEW: Acquisition of supplies or services, the aggregate dollar amount of which does not exceed $3,500. $2,000 for construction subject to the Davis-Bacon Act Updated per Federal Acquisition Regulations (FAR) 48 CFR Subpart 2.1 on October 1, 2015 (200.67) May be awarded without soliciting competitive quotations if nonfederal entity considers the cost reasonable. To the extent practicable must distribute micro-purchases equitably among qualified suppliers. Brustein & Manasevit, PLLC © All rights reserved 22

What documentation or process is required to demonstrate the price is reasonable? A documented review of websites would be sufficient to procure the product. ED FAQ, Subpart D Question 19, March 17, 2016 Brustein & Manasevit, PLLC © All rights reserved 23

Indirect Costs Implementation Issues Brustein & Manasevit, PLLC © All rights reserved 24

Can I use the de minimis indirect cost rate of 10%? NEW: De minimis rates ( (f)) Non-federal entities may receive a de minimis indirect cost rate of 10% of MTDC if the non-federal entity never had a negotiated indirect cost rate Received without any review of actual costs De minimis rate is allowable for use indefinitely But: State or Local Government and Indian Tribe receiving over $35M - Not eligible (Appendix VII) Some agencies argue state/local governments are never eligible Brustein & Manasevit, PLLC © All rights reserved 25

Ineligible to use the de minimis rate, according to ED: State and local governments EDGAR and requires States to negotiate rates with LEAs; accordingly, these entities have a negotiated rate. What about new LEAs/charters? – must negotiate rate. Restricted rate programs De minimis rate is an “unrestricted” rate. Cannot be used for programs with supplement not supplant provisions Training rate programs, as defined under EDGAR Brustein & Manasevit, PLLC © All rights reserved 26

Can the pass-through entity further restrict my indirect rate? NEW: Consistent Application of Negotiation ( (c)) Federal agencies must accept a non-federal entity’s negotiated indirect cost rate A different rate may be used for a class of Federal awards or single Federal award only if: Required by statute or regulation (e.g. ED Restricted Rates), or Approval of Federal awarding agency head (per delegations authority) based on documented justification Brustein & Manasevit, PLLC © All rights reserved 27

NEW: Requirements for Pass-through Entities Pass-through entities must provide an indirect cost rate to subrecipients, which may be the de minimis rate. Section (a)(4) Brustein & Manasevit, PLLC © All rights reserved 28

COFAR FAQs: Q. [P]ass-through entities are expected to honor a subrecipient’s negotiated indirect rate agreement, or use a 10% MTDC de minimis rate, or negotiate a rate with the subrecipient. Is it acceptable to require a subrecipient to accept a rate lower than 10% MTDC, or in lieu of their negotiated indirect rate? A. If the subrecipient already has a negotiated indirect rate with the federal government, the negotiated rate must be used. It also is not permissible for pass-through entities to force or entice a proposed subrecipient without a negotiated rate to accept less than the de minimis rate. COFAR FAQ: Q&A Pass-through Entities and Indirect Cost Rate Negotiation Brustein & Manasevit, PLLC © All rights reserved 29

COFAR FAQs: Q. Can Federal awarding agencies and pass-through entities permit this practice when it is truly voluntary? A. Yes. If a non-Federal entity receiving a direct Federal award or a subrecipient voluntarily chooses to waive indirect costs or charge less than the full indirect cost rate, Federal awarding agencies and pass-through entities can allow this. The decision must be made solely by the non-Federal entity or subrecipient and must not be encouraged or coerced in any way by the Federal awarding agency or pass-through entity. COFAR FAQ: Q&A Federally negotiated indirect cost rates – voluntary under-charging or waiving IDC Brustein & Manasevit, PLLC © All rights reserved 30

What does this mean? Under the new rules, the pass-through entity cannot require a subgrantee to use a lower rate than what is available to them. What is available? LEAs: Restricted/unrestricted rates negotiated with SEA. SEA must negotiate unrestricted rates for LEAs that want them. Post-secondary institutions/nonprofits: SEA may negotiate restricted rate or require use of flat restricted rate of 8% of MTDC. (EDGAR (c)) SEA cannot cap restricted rate below 8%. Negotiated unrestricted rate (with HHS, DOL, etc.) may be used for programs without supplanting provisions. Brustein & Manasevit, PLLC © All rights reserved 31

What if state law restricts the rate? Brustein & Manasevit, PLLC © All rights reserved 32

Resources ED Letters and Responses re: UGG: ED Questions and Answers Regarding 2 CFR Part 200 (Updated March 2016): guidance/edfaqs0416.pdf guidance/edfaqs0416.pdf COFAR FAQs (September 2015): Asked-Questions.pdf Asked-Questions.pdf USDE Internal Control Use of Funds Guidance: guidance/fundsguidance.pdf guidance/fundsguidance.pdf Brustein & Manasevit, PLLC © All rights reserved 33

~ Legal Disclaimer ~ This presentation is intended solely to provide general information and does not constitute legal advice or a legal service. This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct. Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. Brustein & Manasevit, PLLC © All rights reserved 34