1. Advanced Allowable Costs Issues Difficult Issues of Cost Allocation Leigh Manasevit Brustein & Manasevit, PLLC lmanasevit@bruman.com Spring Forum 2011

2. 2 Costing Options: 1. Direct Charge 2. Cost Allocation Plan (CAP) 3. Indirect Costs

3. 3 OMB Circular A-87 Allocable benefit to federal program Chargeable or assignable to the federal program in accordance with the relative benefits received

4. Direct Charges: Salaries and Wages How can grantee show allocable benefit to specific federal program??

5. Time Distribution Records!

6. 6 Support of Salaries and Wages Payroll must be documented in accordance with SEA/LEA’s generally accepted accounting practice Charges must be approved by a “responsible official” of the SEA/LEA

7. 7 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

8. 8 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 What is not a cost objective? Source of funding

9. Who must participate?  Any employee working on a federal program ◦ Not contractors  All employees paid with federal funds  Some employees paid with non- federal funds ◦ Matching 9

10. 10 Cost Objective Single cost objectives: Consolidated administration Schoolwide programs

11. 11 Cost Objective (cont.) 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.

12. 12 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, 2010 through June 30, 2010 one- hundred percent (100%) of my time and effort was spent on Title III Administration.”

13. 13 Single Cost Objective (cont.) Flexibility Payroll certification in lieu of semi-annual certification 1. Single cost objective 2. Supervisor cannot assign multiple functions 3. Employee coded to dedicated function not benefiting multiple functions Blanket certification

14. 14 Multiple Cost Objectives If an employee works on multiple cost objectives: Personnel Activity Report (PAR) or equivalent documentation Signed by employee Example: “I hereby certify that for the period January 1, 2011 through January 31, 2011 50% of my time and effort was spent on Title I School Improvement and 50% on Consolidated Administration.”

15. 15 Multiple Cost Objectives (cont.) PAR must be: After the fact Account for total activity Signed by employee Prepared at least monthly and coincide with one or more pay periods

16. 16 Multiple Cost Objectives (cont.) Time increments reported on PARs should be sufficient to recognize: Number of different activities performed The dynamics of these responsibilities

17. 17 Multiple Cost Objective (cont.) Flexibility Equivalent Documentation DRAFT Guidance from ED (may not be accepted by auditors) Instructional staff may use lesson plans to confirm that their written schedules were followed, in lieu of PARS, if: After-the-fact notes are made on those plans to indicate the completion of each scheduled activity The lesson plans account for the total time the employee is compensated The lesson plans are prepared at least monthly and coincide with one or more pay periods The completed lesson plans are signed by the employee

18. 18 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

19. Salaries 10 month teacher 12 monthly paychecks Can pay over the summer but cannot draw until salary paid 19

20. Salaries Activities allowable under more than one program Can be funded in part by both Can be funded 100% under either Coach provides professional development services Eligible under Title I or Title II The cost objective is professional development 20

21. Fringe Benefits Allowable Provided: Reasonable Required by law, agreement, policy 21 Compensation for Personal Services

22. Consolidated Administration Combine administration for all NCLB programs NOT non-administrative activities Single Cost Objective Semi-annual certification SEA: majority of operating funds from non-federal sources LEA: approval of SEA 22

23. Schoolwide Consolidation Use of Funds State, Local and Federal Consolidated Any purpose in the school A-87 does not apply – can include operational costs 23

24. Schoolwide Consolidation Use of Funds Federal Only Can be used only to address specific educational needs identified in needs assessment / Schoolwide Plan Activities do not have to be supplemental A-87 applies 24

25. Schoolwide Consolidation Use of Funds Title I Only – no consolidation Specific education needs as with Federal only Activities do not have to be supplemental Can serve all students A-87 applies Other federal funds must follow program rules 25

26. How does supplanting apply in a schoolwide program?

27. Supplement not Supplant Statute 1114(a)(2)(B): Title I must supplement the amount of funds that would, in the absence of Title I, be made available from non-federal sources. E-18 in schoolwide guidance The actual service need not be supplemental. 27

28. SNS: NEW!! Guidance: School must receive all the state and local funds it would otherwise need to operate in the absence of Federal funds Includes routine operating expenses such as building maintenance and repairs, landscaping and custodial services Question E-8 2008 Fiscal Guidance http://www.ed.gov/programs/titleiparta/fi scalguid.doc 28

29. Subawards Treatment for indirect cost $25,000 limitation – exclusion of amounts above Applies to each subaward separately Applies annually 29

30. Subawards If exclusion applies Exclude from indirect cost subaward amounts over $25,000 Process: $25,000 in denominator Apply rate to denominator Balance of subaward excluded 30

31. Subawards Process Continued… Amount of subaward over $25,000 Excluded from base No indirect is recorded against the overage 31

32. Subawards Not all awards subject to exclusion Greenbook http://www2.ed.gov/about/offices/list/ocfo/fipao/ guideigcwebsite.pdf http://www2.ed.gov/about/offices/list/ocfo/fipao/ guideigcwebsite.pdf Example #1 Grantee contracts with speech pathologist - $50,000 Professional service – usually in-house Not subject to exclusion Entire amount in denominator – indirect recovered 32

33. Subawards Example #2 Grantee contracts with software vendor for technical support and enhancement If organization wide indirect cost Not subject to exclusion Entire amount in denominator – indirect recovered 33

34. Subawards Example # 3 School nurse – no instruction Not subject to the exclusion Entire amount in denominator – indirect recovered 34

35. Subawards ED Informal Internal Document: Further Examples Example #4 Students court ordered to facility Subaward – Exclusion applies First $25,000 in denominator: balance excluded 35

36. Subawards Example #5 State funded grant to LEA for mentoring LEA pays Boys & Girls club the full amount as pass-through Subaward – Exclusion applies First $25,000 only in denominator 36

37. Subawards Where exclusion applies: $25,000 is annual limit 37

38. Post Retirement Health Benefits Pay as you go (actual payment) Accrued as they are earned Accrued leave Fringe Benefits, Special Rules

39. Accrued, not funded GASB 45 Must be shown as a liability DOES NOT REQUIRE FUNDING – only reporting Post Retirement Health Benefits (PRHB)

40. 40 PRHB GASB45 Effective Dates Phase I Employers (Annual Revenue $100M or More) Phase 2 Employers (Annual Revenue $10M to 100M) Phase 3 Employers (Annual Revenue Under $10M) Period Begins After December 1, 2006 December 1, 2007 December 1, 2008

41. Pay As You Go: Means: NO CHARGES until costs are incurred Indirect Cost PRHB

42. Currently – i.e. reserve funds now for future payments Option to fund How to Fund PRHB

43. Current Employees Current Service Past Service Retirees Funding PRHB

44. Current Employee Current Service Direct - Per Salary Distribution Funding PRHB

45. Current Employee Past Service Aggregate all employee past service liability Distribute direct / proportional to present salary distribution i.e. 10% Federal, 90% State / Local 45 Funding PRHB

46. Retirees Indirect Funding PRHB

47. Restricted Indirect Cost Rates Funding PRHB

48. PRHB Restricted Rate Must eliminate unallowable salary related fringes

49. PRHB Restricted Indirect Cost Rate Excludes salary costs of Chief Executive Officer, Chief Executive Officer of components, immediate offices 49 PRHB Restricted Rate

50. PRHB The fringe benefit associated in these salaries are unallowable in a restricted rate 50 PRHB Restricted Rate

51. PRHB in restricted rate calculation: Total state agency salaries: $24,000,000 State agency salaries that are unallowable (Chiefs, etc) $600,000 % of total salaries unallowable 600,000/24,000,000 = 2.5% PRHB Total Cost = $1,000,000 51 PRHB Restricted Rate

52. PRHB in restricted rate calculation: Unallowable PRHB = 2.5% of $1,000,000 = $25,000 Allowable PRHB for restricted rate $975,000 52 PRHB Restricted Rate

53. Early Retirement Incentives Regular turnover severance Allowable – indirect Abnormal – mass severance Must have prior approval and usually indirect Exception – ED Jobs Prior approval by state/direct 53

54. A-87 : Unused Leave Upon Retirement or Termination Allowable but must be “…allocated as a general administrative expense to all activities of the governmental unit or component.” Translation: Indirect Cost Caution: In Restricted Rate Programs – Cannot include leave cost for ineligible employees 54

55. New Programs SFSF RTT SIG ED Jobs 55

56. New Programs SFSF http://www2.ed.gov/programs/statestabilizatio n/auditor-guidance.pdf No non supplant A-87 does not apply but Necessary and reasonable does No time and effort under A-87 but Support time and effort as with Non federal employees 56

57. New Programs RTT http://www2.ed.gov/programs/racetothetop/fa q.pdf Must implement plan Must meet ED administrative regulations (EDGAR) A-87 – includes time and effort No non supplant 57

58. New Programs SIG http://www2.ed.gov/programs/sif/sigguidance 02232011.pdf References A-87 Will require regular time and effort documentation Non supplant required 58

59. New Programs ED Jobs http://www2.ed.gov/programs/educationjobsfund/go vernors-ed-jobs-guidance-final-8-13-10.doc School level positions only ED – A-87 applies but Early retirement “mass severance” Allowable (within confines of eligible positions) Approval by state Limited non supplant i.e. – No rainy day fund No debt No time and effort unless school site and district level cost objective 59

60. Equipment Useful life of more than a year Acquisition cost of $5,000 or more Unless State uses lower Everything else = “supplies” 60

61. Equipment Must be inventoried Description Serial or other ID # Source Title Acquisition Date Cost % Paid in Federal Funds Location Use and Condition Ultimate Disposition (if any) Inventory At least once every 2 years 61

62. Applying the Threshold Ex 1: LEA updates computer network Cost total $50,000 Includes software, monitors, computers, servers, etc. Each item is less than $5,000 The components make a usable system – i.e. cost is $50,000=Equipment 62

63. Applying the Threshold Ex 2: 15 Computers are purchased for an after school program Individual cost $850 each Total cost $12,750 Each computer functions Individually Not equipment 63

64. Applying the Threshold Small and attractive items: iPods iPadsUnder $5,000 each Cell phones Computers Meets definition of supplies however OIG and ED – Position- Great risk of “disappearance” Good internal control requires tracking More than supplies? – Yes Less than equipment? Same as equipment? 64

65. 65 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.