1. Presented by David Fields, CPA, Senior Manager October 9, 2013 1 // experience perspective Pennsylvania Association of Community Health Centers Time & Effort Reporting

2. HEADLINE ISSUE – TIME & EFFORT REPORTING  Significant buzz surrounding cost principles & allowable cost rules & time & effort reporting  What have you heard?  What are your thoughts regarding issues?  Is room for improvement & if so what are most significant areas? 2

3. HEADLINE ISSUE – TIME & EFFORT REPORTING  OIG audits of CHCs  New era of accountability – phrase spoken with ARRA bill  Seeing fruits of change  Accountability, not new rules  HRSA scrutinized by OIG  OIG audits of CHCs  Significant questioned costs 3

4. WHY ARE AUDITORS CONCERNED?  The risk that  An “unallowable” cost is paid for with federal grant dollars  Costs charged to the grant are not properly supported  Unreasonable costs are incurred  A CHC expense is charged to wrong federal grant or wrong amount is allocated 4

5. OIG AUDIT TIME & EFFORT REPORTING FINDING  Pursuant to 2 CFR pt. 230, Appendix B, §§ (8)(m)(1) & (8)(m)(2)(a), the distribution of salaries and wages to awards must be supported by personnel activity reports. The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards 5

6. OIG AUDIT TIME & EFFORT REPORTING FINDING  Continued - Contrary to these Federal requirements, CHC calculated NAP & IDS payroll costs on basis of budget estimates & not on basis of actual time employees worked on grant-approved activities  Specifically, in lieu of tracking actual time employees worked on grant-approved activities, CHC multiplied each employee’s salary & benefit cost by pre- determined grant FTE allocation. Use of budget estimates rather than actual costs could result in improper allocation of Recovery Act grant funding 6

7. OIG FINDINGS 2012 – TIME & EFFORT  Most common & frequent  Some six & seven-figure questioned costs  Examples  Did not work outside of normal hours – IDS  Salaries not supported by personnel activity reports & improperly allocated  $87,000, $700,000, $785,000, $1.6m, $3m (part of $3m on next page), $5.2m  No time & attendance approval – $120,000 7

8. OIG FINDINGS 2012  Documentation of expenditures  No separate system to track expenditures  Multiple instance exceeding $3m, $2m, $2m & $350,000  More than half of the 18 reports in 2012 had some finding  Expected new PIN draft to remind, clarify & address documentation of & cost principles for CHCs  It did not address time & effort reporting  Why not? 8

9. BLAME GAME – CHC EXCUSES  “No one told me”  Auditor, HRSA site visit, HRSA grant or project officer  “No one else is doing it either…” 9

10. BLAME GAME – CHC EXCUSES  “We take care of indigent population in our community”  Bad Debt & Sliding Fee more than grant  Grant funds were used for grant purposes  Response from OIG 10

11. WHAT ARE WE GOING TO DO?  Take it seriously  Knowledge is power – understand regulations  Review policies  Reconsider processes  Accept this as a cost of doing business, but adjust as efficiently & painlessly as possible 11

12. 8. COMPENSATION FOR PERSONAL SERVICES  Definition – includes all compensation paid currently or accrued by organization for services of employees rendered during the period of award  Fringe, overtime, retirement, bonus, etc.  It must be reasonable, conform with established policies & be applied consistently 12

13. 8. COMPENSATION FOR PERSONAL SERVICES  Costs unallowable under other paragraphs of this appendix shall not be allowable under this paragraph just because it is personal compensation (e)  Nonallowable costs addressed in other areas of appendix B are not allowable just because you call them compensation 13

14. 8. COMPENSATION FOR PERSONAL SERVICES  Overtime, shift premiums, etc., are only allowable with awarding agency approval unless (f)  Necessary due to emergencies  Indirect functions – admin., maint., & accounting  Continuous nature of job & cannot be reasonably interrupted or otherwise completed  When lower federal costs to federal government will result 14

15. 8. COMPENSATION FOR PERSONAL SERVICES  Fringe benefits are permitted as long as allocated proportionately to relative amount of time or effort actually devoted to each cost objective (g)  Pension costs (i) as long as they meet the reasonable, fair & consistent rules  Personal use automobiles are unallowable fringe benefit cost, direct or indirect (h) 15

16. 8. COMPENSATION FOR PERSONAL SERVICES  Incentive compensation is permissible under criteria mentioned (j)  Severance pay is only allowable if it is required by law, employer/employee agreement, established policy creating an implied agreement or circumstances of particular employment (k)  Two categories – see terms 16

17. 8. SUPPORT OF SALARIES & WAGES (M)  Time & effort reporting  Maintained for all staff members whose compensation is charged in whole or in part directly to awards or if needed to facilitate determination of indirect cost rate (2)  Includes hourly & salary  Uses term “personnel activity report”  See required elements on PAR slide 17

18. 8. SUPPORT OF SALARIES & WAGES (M)  How is overtime handled?  Charges for salaries & wages of nonexempt employees, in addition to other supporting documentation, must also be supported by records indicating total number of hours worked each day (3) e.g., Hours worked by hourly employees must be captured & allocated 18

19. Know the rules... Documentation is key!

20. NO TIME AND EFFORT REPORTING GUIDANCE  Anticipated PIN would address  Lack of explanation implies there will be no relief  Response to PIN has requested guidance on applying time and effort reporting in a CHC  The OIG has been very critical of the lack of adequate time and effort reporting in the industry  Hope? – OMB is working on “Super Circular” 20 // experience perspective

21. PERSONNEL ACTIVITY REPORTS (PARS)  After the fact  Actual  Not budget  Total activity  Signed as accurate  Employee or  Supervisor with firsthand knowledge  Prepared monthly  Coincide with at least one pay period 21

22. MyTown Community Health Center Personnel Activity Report Employee Name: Dr. John Smith DateAdult MedHIVIDSAdminTotal Monday 5/2628 Tuesday 5/3628 Wednesday 5/4628 Thursday 5/588 Friday 5/6448 Saturday 5/70 Monday 5/9628 Tuesday 5/10628 Wednesday 5/1144 Thursday 5/1288 Friday 5/13448 Saturday 5/1444 Total 342414880

23. PRACTICAL THOUGHTS  The rules are the same, but the approach will vary based on facts & circumstances  What is your risk profile? Variables to consider:  Out of scope services  Indirect cost rate  How many federal grants  Size of federal grants relative to budget  Others 23 // experience perspective

24. FINAL THOUGHTS  What are my risks?  Do I have policies in place?  Are existing systems/accounts adequate?  Establish an action plan & execute soon

25. THANK YOU FOR MORE INFORMATION // For a complete list of our offices and subsidiaries, visit bkd.com or contact: Please feel free to contact David Fields dfields@bkd.comdfields@bkd.com 417.865.8701

26. 26 The information in BKD seminars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these seminars.