1. 1 DEPARTMENT OF ENERGY

2. 2 AGENDA u Overview Financial Management Systems u Financial Management Standards u Payment u Cost Sharing and Matching u Program Income u Revision of Budget and Program Plans u Property and Equipment u Supplies u Procurement u Cost Allocation u Indirect Cost u Elements of Cost u Budgeting u DOE Cost Categories

3. 3 u Budget process. Budgeting is the appropriating of fiscal resources to accomplish program goals within a single year’s period of time. u Accounting of these resources. The purpose for accounting is to identify and report all revenues and expenditures that occur during the current year and reporting this information to all interested parties. u Auditing. An audit examines the year’s activities to ensure compliance to the regulations regarding how money was expended and if there were proper controls in operation to safeguard these assets. A Total Financial Management System is Comprised of Three Major Elements or Functions.

4. 4 Good Internal Controls Knowledge of Regulations, Documentation of Policies & Procedures and an Efficient Accounting System Grantees Financial Management Systems Should Have: Effective Cash Management & Budgetary Controls Documentation to Support Employees Documentation to Support Expenditures Documentation to Meet Matching Requirement

5. 5 10 CODE OF FEDERAL REGISTRATIONS 600 MAJOR SUBPARTS t Subpart A - General t Subpart B - Grants to Other Than State and Local Governments (A-110) t Subpart C - Grants to State and Local Governments t Subpart D - Cooperative Agreement t Subpart E - Audits

6. 6 10 CFR 600 SECTIONS SECTION10 CFR 600 (Non-Profits) 10 CFR 600 (State/Local) General Requirements101-104200-205 Pre-Award Requirements110-117210-212 Financial Admin./Management120-128220-226 Property Standards130-137230-235 Procurement Standards140-148236 Reports and Records150-153240-242 Termination & Enforcement160-162243-244 After-the-Award170-173250-252

7. 7 GRANT APPLICATION REQUIREMENTS This section prescribes the forms and instructions to be used in applying for federal assistance. Applicants are not required to submit more than the original and two copies of preapplications and applications. For amendments to a previously submitted application only the affected pages need be submitted.

8. 8 SPECIAL RESTRICTIVE CONDITIONS REQUIREMENTS Defines under what circumstances a grantee will be considered high-risk: history of unsatisfactory performance, financially unstable, management system that does not meet standards, nonconformance in prior awards, or not otherwise responsible. Awarding agency will provide written explanation of conditions and corrective action.

9. 9 FINANCIAL MANAGEMENT STANDARDS REQUIREMENTS Financial management systems must meet the following minimum standards: t Provide for accurate, current, and complete disclosure for all financial activities. t Maintain records that identify the source and application of funds. t Maintain effective control and accountability for all grant cash, property, and other assets. t Compare actual expenditures with budgeted amounts on a periodic basis. t Determine allowable costs by OMB cost principles, program regulations, and grant agreement t Have accounting records supported by source documentation. t Have procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the subgrantee.

10. 10 PAYMENT REQUIREMENTS All methods and procedures for payment shall minimize the time elapsing between the transfer of funds and disbursement by the subgrantee. The methods that can be used are: t Advances (for grantees if they meet standards) t Reimbursements (when requirements are not met or for construction contracts.) t Working capital advances (if a subgrantee cannot meet the criteria for advance payments.)

11. 11 Recipients must also expend program income, refunds, and audit recoveries before requesting additional federal cash payments. Payments cannot be withheld unless: t Recipient has failed to comply with grant award conditions. t Recipient is indebted to the United States. Recipients are encouraged to use minority owned banks. PAYMENT REQUIREMENTS (CONT.)

12. 12 ALLOWABLE COST REQUIREMENTS The allowable costs referenced in 10 CFR 600 are detailed in separate OMB Circulars: t OMB Circular A-87 -Cost Principles for State and Local Governments. t OMB Circular A-122 -Cost Principles for Non-Profit Organizations.

13. 13 PERIOD AVAILABILITY OF FUNDS REQUIREMENTS Where a funding period is specified, a grantee may charge to the award only costs resulting form obligations during the funding period.

14. 14 COST SHARING REQUIREMENTS All Contributions, including cash and in-kind, shall be accepted as part of recipient’s cost sharing or matching if they: t are verifiable through records, t are not counted for other federal programs t are necessary for completion of the project, t are allowable under the cost principles, t are not paid by other federal funds (unless approved by statute), t are provided for in the approved budget, and t conform to other provisions of the financial management circulars.

15. 15 PROGRAM INCOME REQUIREMENTS Program income is gross income generated by a grant supported activity, or earned only as a result of the grant agreement during the grant period. The methods for treatment of program income include: t Addition t Deduction t Cost Sharing

16. 16 PROGRAM INCOME REQUIREMENTS (CONT.) Unless authorized by Federal regulations or the grant agreement, program income will be treated as gross program income. Unless authorized, program income shall be deducted from the total allowable costs. There are no Federal requirements governing the disposition of program income earned after the end of the award period unless the regulations or agreement states differently.

17. 17 NON-FEDERAL AUDIT REQUIREMENTS State and local governments and non-profit organizations will be subject to the audit requirements in OMB A-133.

18. 18 BUDGET AND PROJECT REVISIONS REQUIREMENTS Recipients are permitted to rebudget within the approved direct cost budget to meet unanticipated requirements and make very limited program changes. The applicable cost principles which require prior approval shall apply. Prior approval is required based on specific clauses within the grant agreement and in the following instances where t a revision would result in the need for additional funds; t Cumulative transfers would exceed 10% of the total budget if the grant is over $100,000; t Funds allotted for training were transferred; t There is a revision in the scope of objectives;

19. 19 BUDGET AND PROJECT REVISIONS REQUIREMENTS t There is a need to extend the period of availability of funds; or t There is a change in key persons who are central to the purpose of the project. Requests for prior approval will be in the same format as used in the application. The approval must be in writing.

20. 20 REAL PROPERTY AND EQUIPMENT REQUIREMENTS Real property means land and structures. Title to real property will vest with the grantee or subgrantee. The awarding agency will provide instructions for disposition of real property when it is no longer needed.

21. 21 REAL PROPERTY AND EQUIPMENT REQUIREMENTS (CONT.) Equipment is defined as tangible, nonexpendable personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. Title to equipment acquired under a grant or subgrant will vest with the grantee or recipient unless specified. Equipment shall be used for the program or project it was acquired. The equipment may be used for other Federally supported projects if it does not interfere with the project for which it was originally acquired.

22. 22 REAL PROPERTY AND EQUIPMENT REQUIREMENTS (CONT.) If replacement equipment is needed the equipment to be replaced may be used as a trade-in. The property management requirements include the following: t Property records must include a description, serial number, source, title, cost, acquisition date, percent of Federal participation, location, use, condition, and ultimate disposition. t Physical inventory must be done at least every two years. t A control system to ensure safeguards against loss, damage, or theft. t Adequate maintenance procedures. t Proper sales procedures. Items with a fair market value (F.M.V.) of $5,000 or less that are no longer needed can be disposed of with no further obligations. Items over $5,000 F.M.V. require the awarding agency to receive its fair share.

23. 23 REAL PROPERTY AND EQUIPMENT REQUIREMENTS (CONT.) Federally owned equipment requires a recipient to submit an annual inventory listing. When the equipment is no longer needed a subgrantee will request disposition instructions from the Federal agency.

24. 24 SUPPLIES REQUIREMENTS Title to supplies acquired under an award will vest with the recipient. If there is a residual inventory of unused supplies exceeding $5,000 in total fair market value upon termination or completion of the award and if the supplies are not needed for any other federally sponsored programs the recipient shall compensate the awarding agency for its share.

25. 25 PROCUREMENT REQUIREMENTS Grantees must meet the following standards: t There must be a contract administration system. t There must be a written code of standards of conduct governing the grantee or subgrantee’s employees.] t Procedures that avoid the purchase of unnecessary or duplicative items. t Grantees are encouraged to enter into State and local inter- governmental agreements for purchasing common goods and services t Grantees are encouraged to use Federal excess and surplus property. t Procedures to ensure awards are only to responsible contractors. t Records that detail the significant history of a procurement. t Grantees must settle all contractual and administrative issues arising out of a procurement. t Grantees will have protest procedures.

26. 26 PROCUREMENT REQUIREMENTS (CONT.) All procedures transactions will be conducted in a manner providing full and open competition. There must be written selection procedures. Also, the solicitation must include a clear and accurate description of the service or material being procured. The approved methods of procurement are: t Small purchase procedures for services and goods that will not cost more than $25,000 in the aggregate. t Sealed bids (formal advertising). t Competitive proposals. t Non-competitive proposals may only be used when the item is available from one source, emergency situations, the awarding agency authorizes, or competition is determined inadequate. Pre-award review may be required above $25,000.

27. 27 Grantees are to give preference to minority firms, women’s business enterprises, and labor surplus area firms. There must be a cost or price analysis in connection with every procurement action. Grantees must make available proposed procurement technical specifications upon request by the awarding agency. The bonding requirements of a recipient will be accepted if the awarding agency’s interest in adequately protected. If not, there are specific requirements described in 10 CFR 600. PROCUREMENT REQUIREMENTS (CONT.)

28. 28 PERFORMANCE REPORT REQUIREMENTS Performance reports shall not be required more frequently than quarterly or, less frequently than annually. Periodically report progress in meeting program objectives. This must include comparison of accomplishments with planned objectives. Quarterly and semi-annual reports will be due 30 days after the reporting period. Annual and final reports will be due 90 days after expiration date.

29. 29 RECORD RETENTION REQUIREMENTS Grantee and subgrantees must retain records for three years after submitting the final expenditure report. Records must be maintained until completion of action on all litigation, claims, negotiation, or audit. For property and equipment the retention period starts upon disposition.

30. 30 CLOSE-OUT REQUIREMENTS The Federal agency will require the following final reports: t Standard Form 269 - Financial Status Report t Standard Form 270 - Request for Advance or Reimbursement, if applicable t Final performance or progress report The recipient will submit an invention disclosure, if applicable. The recipient will submit a Federally-owned property report. Cost and cash adjustments will be made as appropriate.

31. 31 t Basic Guidelines for Costs t Cost Allocation Plan t Indirect Cost t Allowability for selected costs THE COST PRINCIPLES ADDRESS FOUR MAJOR AREAS:

32. 32 u Costs are allowable if they are necessary and reasonable, not prohibited under state or local laws, conform to laws and regulations, given consistent treatment, comply with generally accepted accounting principles, and are not included as a cost under other federal programs. u Allocable costs assigned must be in proportion to the benefits received, cannot be shifted to overcome deficiencies in other programs, must be supported by a cost allocation plan. u Applicable credits are to be used to reduce expenditures applicable to a given grant. u The total cost of a grant program is comprised of the allowable direct and allowable indirect costs less applicable credits. BASIC GUIDELINES FOR COSTS

33. 33 u Identify each of the shared costs that should be allocated. u Identify each of the shared costs that will be included as part of the indirect cost pool, if applicable. u Determine the method in which costs will be allocated so that each program is paying proportionately for the benefits from the cost. u Prepare the cost allocation plan and submit for internal approval. ALLOCATION OF COSTS

34. 34 u Identify the service and costs of each service to be allocated. u Determine the method (unit) for allocating the costs of each service to user programs. u Allocate costs mathematically to user programs. STEPS IN PREPARING A COST ALLOCATION PLAN

35. 35 The following supporting information would be a part of a cost allocation plan. t List of grants, contracts and agreements. t Agency organization chart. t Job description - for each general and administrative staff person. t Work sheet for each individual showing personnel and non personnel costs, chargeable hours and calculation of that employee's billing rate. t Summary of non-personnel general administrative costs and allocation to each general and administrative position. t Copy of the previous audit report supporting the total general and administrative costs use in these calculations. t Copy of the time sheet form which will be used by general and administrative staff. t Copy of the monthly billings summary form that will be used to invoice each program. t Space cost allocation for each property DIRECT COST ALLOCATION PLAN DOCUMENTATION

36. 36 t Some costs in all agencies that benefit all projects/programs/grants - although, they can't always be easily calculated exactly. t All who benefit from the costs should share these costs in a proportion as close to equaling the benefits received as possible. t The shared costs - which are difficult to determine exactly - might be allocated using a method based on some agreed upon unit that can be measured exactly. BASIC PRINCIPLES OF COST ALLOCATION:

37. 37 u Indirect costs are shared costs, to be distributed by an indirect cost rate, that must be grouped into one or more equitable cost pools to determine appropriate rate(s). u A formal indirect cost proposal must be submitted and approved. Once approval is granted, charges can then be distributed by means of an indirect cost rate. u Application of indirect cost rates must be supported by formal accounting records available for auditing. u Indirect costs (or administrative costs) are no different than direct costs in that they have to be allowable under the federal government cost principles. INDIRECT COSTS

38. 38 t Predetermined rate - negotiated, usually for one year and not subject to adjustment. t Fixed rate with carry forward - adjusted in future period. t Final rate - not subject to adjustment. t Provisional rate - temporarily subject to adjustment. TYPES OF INDIRECT COST RATES

39. 39 t Receive the grantee's indirect cost proposal. t Review it in the detail it deems necessary to reach a conclusion. t Try to reach an agreement with the proposing agency on a rate both will find acceptable. COGNIZANT AGENCY

40. 40 DISTRIBUTION BASE The Agency must identify the distribution base. The most widely accepted distribution bases for the distribution of indirect costs are: u Direct Labor u Direct Labor and Fringe u Total Direct Costs (TDC) u Modified total direct costs

41. 41 t Costs included as indirect costs should not also be charged directly to programs. t All costs could be charged to programs on a direct basis, if one wanted to incur the time and expenses to do so. t Costs must be allowable under the cost principles. t Funds spent on administrative costs are unavailable for programmatic use. t Funds spent on administrative costs, which are not charged to the program receiving the benefit, must be paid for by other funds of the agency. t Many funding sources limit the amount of total administrative costs (direct and indirect). KEY POINTS TO REMEMBER

45. 45 t Preparation of the Budget t Comparison of the Budget to actual result. t Reaction to differences between budget outcomes and actual outcomes THREE PHASES OF BUDGETING

46. 46 t Available Resources t Regulations t Scope and Quality of Services t Volume of Activity t Cost Elements FACTORS OF BUDGETING

47. 47 t Revenue Budgets t Cash Budgets t Capital Budgets t Expense Budgets TYPES OF BUDGETS

48. 48 INCREMENTAL BUDGETING. Budgeting changes between items in the previous budgets. Use when continuing existing program with no changes. PLANNING, PROGRAMMING, AND BUDGETING SYSTEM. Budgeting based on analysis of the programs resources and the agency goals and objectives. METHODS OF BUDGETING

49. 49 t Administrative t Training and Technical Assistance t Program Operations t Health and Safety t Vehicles and Equipment t Liability Insurance t Financial Audit DEPARTMENT OF ENERGY WEATHERIZATION OF ENERGY PROGRAM COST CATEGORIES