1. Presented by Leigh M. Manasevit, Esq. lmanasevit@bruman.com Brustein & Manasevit, PLLC Fall Forum 2013 lmanasevit@bruman.com

2. Why “Supercircular”??? 1.Greater simplicity 2.Greater consistency 3.Obama Executive Order on Regulatory Review – 2011  Increase efficiency  Strengthen oversight 2 Brustein & Manasevit, PLLC

3.  Greater “simplicity” means elimination of several compliance elements in the Compliance Supplement, including: 1.Equipment Management 2.MOE/Ear-Marking 3.Procurement 4.Program Income 3 Brustein & Manasevit, PLLC

4. What is covered? 1.Administrative Requirements (A-102, A-110) 2.Cost Principles (A-87, A-21, A- 122) 3.Audit Requirements (A-133) 4 Brustein & Manasevit, PLLC

5. Who is covered?  All non-federal entities expending federal awards 5 Brustein & Manasevit, PLLC

6. When is it effective?  NPRM – 2/1/13  Close of comment period – 05/02/13  Analysis of public comment  Final regulation – not likely before 1/1/14  EDGAR revisions – within one year of final regulation?  No splitting FY 6 Brustein & Manasevit, PLLC

7. When is it effective? Part 2  BUT SEE highly critical comments of Council of Inspectors General for Integrity and Efficiency (CIGIE) 7 Brustein & Manasevit, PLLC

8. A Battle Over the Future Direction of Federal Grants Management OMB vs. OIG 8 Brustein & Manasevit, PLLC

9. 9

10. Who?  OMB did not issue 2/1/13 NPRM (Super Circular) in vacuum  Drafters from Council of Finance Assistance Reform (COFAR) HHS, ED, DOL, NSF, AG, HS, DOT, HUD, Energy 10 Brustein & Manasevit, PLLC

11. Who?  But did “COFAR” include “CIGIE”?  Council of Inspectors General for Integrity and Efficiency  20 Federal Agencies 94% of $1.2 trillion in direct federal awards covered by A-133 11 Brustein & Manasevit, PLLC

12.  OIG Goal: 1.Promote accountability 2.Eliminate fraud, waste, abuse and improper payments Why? 12 Brustein & Manasevit, PLLC

13. Why?  Because goals are not aligned, OIG disagrees, strongly disagrees, and extremely disagrees with many of the proposed OMB changes 13 Brustein & Manasevit, PLLC

14. When?  Prediction: The OIG comments will either delay the final regulation or result in issuance of new NPRM 14 Brustein & Manasevit, PLLC

15. When?  EDGAR must be revised within 12 months of final regulation  Since changes must be prospective, effective date may be 7/1/16, not 7/1/15 15 Brustein & Manasevit, PLLC

16. 16 1 st Battleground Time and Effort Certifications Brustein & Manasevit, PLLC

17. OMB Proposal  Eliminate reference to PARs  Now “Certified Reports”  Reports may be electronic  Semi-Annual for single cost objective – same 17 Brustein & Manasevit, PLLC

18. Time and Effort Management  After the fact, unless mutually satisfactory alternative approved by awarding agency  Certification periods cannot exceed 12 months  Activities may be expressed as percentages 18 Brustein & Manasevit, PLLC

19. Time and Effort Management  At postsecondary level, “reliance may be placed on estimates in which a degree of tolerance is appropriate 19 Brustein & Manasevit, PLLC

20. Time and Effort Management  Certified Reports on 2 or more cost objectives certified by employee or individual responsible for verification 20 Brustein & Manasevit, PLLC

21. Time and Effort Management  No additional support other than certification is necessary 21 Brustein & Manasevit, PLLC

22. Time and Effort Management  Substitute systems may be used if approved by cognizant agency  Federal agencies are encouraged to approve alternative proposals based on outcomes 22 Brustein & Manasevit, PLLC

23. Time and Effort Management  Awarding agencies may approve “blended funding” where multiple programs are involved and “performance-oriented metrics” are used 23 Brustein & Manasevit, PLLC

24. OIG Rebuttal – Certifications  All certifications must reference consequences of false certification  By signing this report… I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact may subject me to criminal, civil, or administrative penalties. 24 Brustein & Manasevit, PLLC

25. OIG Rebuttal - Time and Effort  Any relaxation of time and effort rules would have “significant detrimental impact on government’s ability to protect from fraud, waste, abuse, improper payments.” 25 Brustein & Manasevit, PLLC

26. OIG Rebuttal - Time and Effort  NPRM proposed standards “would seriously undermine our community’s ability to identify and question unallowable and even fraudulent charges.” 26 Brustein & Manasevit, PLLC

27. OIG Rebuttal - Time and Effort  Do not issue final rule until results from four national pilot projects are considered 27 Brustein & Manasevit, PLLC

28. OIG Rebuttal - Time and Effort  OMB should provide uniform language: 1.Time charged reflects time actually worked on project 2.Alerts signer that he/she is subject to federal laws on submission of false information 28 Brustein & Manasevit, PLLC

29. OIG Rebuttal - Time and Effort  Retain A-87 language:  “Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation.” 29 Brustein & Manasevit, PLLC

30. OIG Rebuttal - Time and Effort  Payroll distributions are based on budget estimates that do not focus on actual activity 30 Brustein & Manasevit, PLLC

31. OIG Rebuttal - Time and Effort  12 month certifications do not provide adequate oversightit is too extensive a period for persons to identify actual activity performed (unless supported by additional source documentation) 31 Brustein & Manasevit, PLLC

32. OIG Rebuttal - Time and Effort  Drop phrase “mutually satisfactory alternative” in lieu of “after the fact certifications.” According to OIG, there are “no mutually satisfactory alternatives.” 32 Brustein & Manasevit, PLLC

33. OIG Rebuttal - Time and Effort  How would quarterly adjustments be validated using 12 month certifications? 33 Brustein & Manasevit, PLLC

34. OIG Rebuttal - Time and Effort  Certifications from supervisory personnel must include review of labor distribution reports to ensure effort being charged is reasonable. 34 Brustein & Manasevit, PLLC

35. OIG Rebuttal - Time and Effort  Charges for salaries and wages of nonprofessional employees (old A-21) must be supported by records that include time on tasks  Substitute systems must contain sufficient detail to be useful for audit purposes 35 Brustein & Manasevit, PLLC

36. 36 2 nd Battleground Employee Morale, Health and Welfare Costs Brustein & Manasevit, PLLC

37. Employee Morale  A-87 / A-21 currently allows for expenses incurred in accordance with the entity’s “established practice or custom for the improvement of working conditions, employer – employee relations, employee morale” 37 Brustein & Manasevit, PLLC

38. OMB - Proposal  No Change 38 Brustein & Manasevit, PLLC

39. OIG Rebuttal - Employee Morale  Do not allow expenses for recipient’s established practices could result in purchase of:  Groceries  Pizza parties  Toiletries  T-shirts  Gifts  Jewelry  Flowers  Balloons  Funds must be closely related to grant purposes 39 Brustein & Manasevit, PLLC

40. 40 3 rd Battleground Food / Meetings / Conferences 3 way battle OMB / OIG / ED ? ? Brustein & Manasevit, PLLC

41. Current Law: A-87 / A-21  Costs of meals and transportation if primary purpose of meeting / conference is dissemination of technical information 41 Brustein & Manasevit, PLLC

42. OMB Proposal  Cost of Meetings  Costs from meetings and conferences “beyond the recipient entity” are allowable 42 Brustein & Manasevit, PLLC

43. OMB Proposal  Travel Costs  Grantee must retain documentation a)Participation of individual is necessary to the federal award b)Costs are reasonable and consistent with entity’s established travel policy 43 Brustein & Manasevit, PLLC

44. Cost Principle Changes  Travel  If no institutional travel policy, GSA rates apply -48 CFR 31.205 44 Brustein & Manasevit, PLLC

45. OIG Rebuttal – Meetings and Conferences  OIGs have found conferences held by recipients where per-person cost of daily catering was between 189% and 400% of applicable location’s federal per diem for meals and incidental expenses 45 Brustein & Manasevit, PLLC

46. OIG Rebuttal – Meetings and Conferences  OMB should limit meal costs to federal per diem rates and document a cost comparison of at least three sites to determine most cost- advantageous location 46 Brustein & Manasevit, PLLC

47. New ED Guidance on Using Federal Funds for Conferences and Meetings  Very high burden of proof to show that paying for food is necessary  Grantee should structure agenda so there is time for participants to purchase own food; use location with easy access to food 47 Brustein & Manasevit, PLLC

48. 48  Grantees should not use grant funds to pay for food and beverages for receptions and networking sessions Brustein & Manasevit, PLLC

49. 49  When grantees contract with a hotel, food and beverage costs should be “backed out” Brustein & Manasevit, PLLC

50. 50 4 th Battleground Single Audit Thresholds Brustein & Manasevit, PLLC

51. Single Audit Thresholds  Current Law $500,000  OMB Increase to $750,000 51 Brustein & Manasevit, PLLC

52. OIG Rebuttal - Single Audit Thresholds  Increasing threshold from $500,000 to $750,000 loses audit coverage of 6,400 auditees  But these smaller auditees have more non-compliance and material weaknesses on internal control 52 Brustein & Manasevit, PLLC

53. OIG Rebuttal - Audit Quality  OIG recommends language that auditor engagement not exceed five consecutive years. 53 Brustein & Manasevit, PLLC

54. OIG Rebuttal - Submission of Audit Reports  Do not eliminate requirement for subrecipients to submit audit reports to their “pass-through” entities. This would adversely impact the monitoring function. 54 Brustein & Manasevit, PLLC

55. OIG Rebuttal - Questioned Costs  Revise the proposed guidance to require the reporting of all known questioned costs, not just those over $25,000. 55 Brustein & Manasevit, PLLC

56. 5 th Battleground Should computers be classified as “supplies?” 56 Brustein & Manasevit, PLLC

57. Current Law:  34 CFR 80.3  Tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. A grantee may use its own definition of equipment provided such definition would at least include all equipment defined above. 57 Brustein & Manasevit, PLLC

58. 58 OMB  Costs of computing devices classified as “supplies.” Brustein & Manasevit, PLLC

59. Reclassifying Computing Devices as “Supplies”OIG Opposes  Accounting definition of “supplies” are general purpose consumable items with shorter life span than machines  Computers would not be subject to basic inventory controls, although “misuse” is high  Federal agencies would not know if computers are being used for intended purposes or kept on entity’s premises 59 Brustein & Manasevit, PLLC

60. 6 th Battleground Cash Management 60 Brustein & Manasevit, PLLC

61. OMB – Cash Management  Recipient shall maintain advances of federal funds in interest bearing accounts unless… a)Recipient receives less than $120,000 in federal $ per year b)Interest will not exceed $500 c)Bank requires minimum balance 61 Brustein & Manasevit, PLLC

62. OMB – Cash Management  Unrecovered indirect costs may be included as match only with approval of federal agency 62 Brustein & Manasevit, PLLC

63. OMB – Cash Management  General rule on program incomes: “program income shall be deducted from total allowable costs to determine the net allowable costs,” unless federal agency indicates otherwise 63 Brustein & Manasevit, PLLC

64. OIG  Request OMB require recipients and subrecipients to provide interim financial statements  Such statements must contain basic line item information on how federal funds are spent  Without such interim statements pass- throughs and federal agencies cannot effectively monitor grantees 64 Brustein & Manasevit, PLLC

65. OIG - Cash Management  Recommend specific time frames for which recipient can draw cash  Terms such as “minimize” or “anticipated needs” are too general and not auditable 65 Brustein & Manasevit, PLLC

66. OIG - Cash Management  Clarify the type of working capital analysis that is required of federal agencies prior to providing advance payments 66 Brustein & Manasevit, PLLC

67. OIG - Cash Management  All recipients should account for program income using the “deduction method” unless federal agency indicates otherwise 67 Brustein & Manasevit, PLLC

68. OIG - Cash Management  Align Circular with Compliance Supplement on “Reimbursement”  Compliance Supplement requires that costs must be paid by the recipient before reimbursement is requested.  Under accrual accounting, a cost could be expensed on an award that has not been paid. 68 Brustein & Manasevit, PLLC

69. OIG - Cash Management  Recommend that federal funds never be placed in non-insured depository accounts 69 Brustein & Manasevit, PLLC

70. OIG - Cash Management  Do not allow program income to meet matching requirements because it could skew equitable cost sharing 70 Brustein & Manasevit, PLLC

71. OIG - Cash Management  Clear language is needed to assure “profit” is prohibited from all grants and cooperative agreements 71 Brustein & Manasevit, PLLC

72. 7 th Battleground Administrative Costs 72 Brustein & Manasevit, PLLC

73. OMB Proposes  Salaries of administrative and clerical staff should be treated as indirect, unless a)Services are integral to project, and b)Individuals can be specifically identified, and c)Costs are explicitly set out in budget, and d)Costs are not recovered as indirect 73 Brustein & Manasevit, PLLC

74. OIG Rebuttal Administrative Costs vs. Indirect  Circular must explicitly state that it is recipient’s responsibility to prove through verifiable means that direct charging of administrative and clerical salaries are reasonable, necessary, allocable. 74 Brustein & Manasevit, PLLC

75. OIG Rebuttal Administrative Costs vs. Indirect  OIG “would have a very difficult time auditing to determine whether administrative clerical salaries were charged both indirectly and directly, as indirect costs are not always identified by position.” 75 Brustein & Manasevit, PLLC

76. OIG Rebuttal Administrative Costs vs. Indirect  OIG demands more detailed reporting to justify charging administrative and clerical salaries as a direct cost demonstrating that such costs “are so integral to a project or activity to warrant direct charging.” 76 Brustein & Manasevit, PLLC

77. OIG Rebuttal Janitorial Costs  Circular must clarify how janitorial costs charged directly or indirectly. OIG has same concerns on clerical salaries. 77 Brustein & Manasevit, PLLC

78. 8 th Battleground Audit Resolution Attorney Fees 78 Brustein & Manasevit, PLLC

79. OMB Proposes  Costs for services of counsel (in- house or Bruman) for administrative proceedings (OALJ) may not be charged if the ALJ imposes a “monetary penalty.” Legal expenses are allowable if the proceeding is resolved by consent or compromise. 79 Section _.621 C-14(2) Brustein & Manasevit, PLLC

80. OIG Rebuttal - Attorney Fees  All costs related to administrative proceedings should be completely unallowable, regardless of disposition 80 Brustein & Manasevit, PLLC

81. OMB - Audit Follow-Up  Federal awarding agencies shall use “cooperative audit resolution mechanisms” to improve federal program outcomes through better audit resolution, follow-up and corrective action 81 Section _.713(c)(5) Brustein & Manasevit, PLLC

82. Cooperative Audit Resolution  Improve communication, foster collaboration, promote trust, and develop understanding between auditor and auditee 82 Appendix I - Definitions Brustein & Manasevit, PLLC

83. Cooperative Audit Resolution  This approach is based upon “Federal agencies offering appropriate amnesty for past noncompliance when audits show prompt corrective action” 83 Appendix I - Definitions Brustein & Manasevit, PLLC

84. Agency Determination Letters  The federal agency or pass- through entity may request additional information from auditee as a way of mitigating disallowed costs 84 Section _.714(a) Brustein & Manasevit, PLLC

85. Enforcement  Agencies that do not provide an opportunity to challenge suspension or terminations until after the action is taken (NSF) should be permitted to do so 85 Brustein & Manasevit, PLLC

86. Internal Controls  Do not delete A-21 control “ensure that no one person has complete control overall aspects of a financial transactions.” 86 Brustein & Manasevit, PLLC

87. Can a revised EDGAR be inconsistent with Supercircular?  Yes, but federal agencies applying more restrictive requirements need OMB approval 87 Brustein & Manasevit, PLLC

88. If program statute differs from Supercircular, statute governs 88 Brustein & Manasevit, PLLC

89. So what is new? 89 Brustein & Manasevit, PLLC

90. Federal agencies must evaluate risks to the program posed by each applicant a)Financial stability b)Management system c)History of performance d)Generally available information e)Single audits f)Capacity to implement programs 90 Brustein & Manasevit, PLLC

91. Agencies may impose conditions on grantee based on risk assessed 91 Brustein & Manasevit, PLLC

92. Performance Expectations  Award includes: timing and scope of expected performance – as related to intended outcomes 92 Brustein & Manasevit, PLLC

93. Subawarding Scope of Work  Eligible recipients may perform or subaward the performance of all or a portion of the work 93 Brustein & Manasevit, PLLC

94. Pass Through Agency should consider imposing risk conditions on subrecipients in noncompliance 94 Brustein & Manasevit, PLLC

95. Pass Through Agency may impose “supplemental requirements” 95 Brustein & Manasevit, PLLC

96. Pass Through monitoring shall include: a)Analyzing financial and programmatic reports b)Ensuring subrecipients take timely and appropriate corrective action c)Issuing management decision on A-133 finding at subgrantee level d)Other – as necessary 96 Brustein & Manasevit, PLLC

97. Monitoring Tools of Pass Through a)On-site reviews b)Provide training and technical assistance c)Arrange for “Agreed Upon Procedures” 97 Brustein & Manasevit, PLLC

98. Risk Factors for Pass Through Monitoring a)Previous audits b)New subrecipients c)New personnel or substantially changed system d)Extent of federal monitoring 98 Brustein & Manasevit, PLLC

99. Inventory Management 2 year inventory requirement remains  Equipment  Definition same a)Acquisition cost of $5,000 b)Useful life greater than one year 99 Brustein & Manasevit, PLLC

100. Inventory Management  Use/Management/Disposition  Same as EDGAR 80.32 100 Brustein & Manasevit, PLLC

101. Procurement Management  States must follow same procurement rules it uses for procurements from nonfederal funds  All others must follow Section 504 101 Brustein & Manasevit, PLLC

102. Procurement Management  Section 504 Procurement Standards derived from A-110, EDGAR Part 74 and A-102, EDGAR Part 80 102 Brustein & Manasevit, PLLC

103. Record Retention Management  Same as EDGAR: 3 years from date of submission of final expenditure report BUT – 5 year S/L 103 Brustein & Manasevit, PLLC

104. Cost Principles – Basic Considerations  Similar to A-87 but restructured 104 Brustein & Manasevit, PLLC

105. Cost Allocation  If a cost benefits two or more projects in a proportion easily determined, cost allocated on proportional benefit 105 Brustein & Manasevit, PLLC

106. Cost Allocation  If proportion cannot be easily determined, allocate on any reasonable documented basis 106 Brustein & Manasevit, PLLC

107. Indirect Costs  A federally approved negotiated rate shall be accepted by all federal agencies  Exception: If required by law/regulation (restricted rate) 107 Brustein & Manasevit, PLLC

108. Indirect Costs  Pass through entities must abide by the federally recognized indirect cost rate negotiated between the federal agency and subrecipient 108 Brustein & Manasevit, PLLC

109. Indirect Costs  But if no such rate exists, the pass through must negotiate the rate, or a de minimis indirect cost rate equal to 10% of total modified direct costs (But what about restricted rates? Most LEAs have restricted rates in single digits.) 109 Brustein & Manasevit, PLLC

110. Disclaimer 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, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. 110 Brustein & Manasevit, PLLC