OVERVIEW PART 3 DISCUSSION TOPICS Terminal Leave A killer
accounting issue Cognizance who is responsible for what Standard
10% indirect cost rate allowance why and who can use it
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INTRODUCING MY CO-CHAIR Gil Tran
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Part I Accounting for Terminal Leave by Ted Mueller 9
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A-87-Appendix B Unallowable Costs: Alcohol, Entertainment,
Lobbying, Governance, Prosecuting claims against the government,
etc. Question - Where is "terminal leave" on the basic allowable,
unallowable, allowable with prior approval cost grid? Terminal
Leave not a selected item of cost Where does it say that? 10
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Fringe benefit Section -- Appendix B. Section 8.d.3 "Payments
for unused leave after an employee has retired or terminates
employment, are allowable in the year if payment, provided they are
allocated as a general administrative expense to all activities of
the governmental unit as component" Cost Allocation Art of
Deductive Inference If it is only allowable as indirect then...
What if an employee worked on the same program their whole career?
A-87 Implementation Guide Q&As Consistent treatment and
retracing employment history deterrents 11
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Why? The old re-assignment and "cash out" routine an accounting
bait & switch Fringe benefit distinction in accounting
treatment 1. Active Employee under current programs (Compensated
Absences, employee insurance, pensions, unemployment benefit plans)
"equitably allocated to all related activities including Federal
awards" Relationship to an Active Employee and the cost objectives
2. Exiting Employee and Fringe benefits (unused leave, payment,
normal severance, post retirement health benefits). Exiting
employee benefits are removed from the cost objective(s) the
employee last worked on So: Active/Current = Direct Exiting/Distant
= Indirect 12
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State and Local Laments What if I do not have indirect cost
rate? What if I have a Pre-determined Rate What if I have a fixed
with carry-forward rate? Rates based on actual costs 2 years prior
or budget estimate Allowable in the year of payment 13 SOL for 2
years Answer: SOL (not Statute of Limitations) Answer: SOL
again
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What about the Restricted Rate? Answer: Double whammy Fringe
follows labor Re-classified employee costs, plus unused leave, goes
in the base Result: Non-recovery and lower rate 14
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Lets Do The Stroll Can an agency permit an employee to: Stop
coming in to work, stay on the books and be paid while using up
unused leave balance Result: No work No relative benefit received
Leave direct charged to the cost objective where the employee last
worked on Practice not addressed in A-87 15
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In Search of the Lost Policy Issue raised in a cost policy
summit with OMB Question: Does stroll accounting result in an
intentional circumvention of the A-87 provisions? Leave balance
under 80 hours = No Leave balance over 80 hours = Yes Dust in the
Wind 16
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Audit Findings Continue Commonwealth of Pennsylvania The
auditors identified unused leave payments over $10,000 charged to
Federal programs/clusters during the fiscal years covered by the
audit. The following list reflects the impacted ED programs and
questioned costs: 17 FY 07FY 08FY 09 CFDAProgram NameFinding
07-74Finding 08-70Finding 09-75 84.010 Title I Grants to Local
Education Agencies$72,078.00$20,493.00 84.002 Adult Education-Basic
Grants to States $25,357.00 84.027 Special Education
Cluster$57,714.50$47,479.00$6,153.50 84.173 Special Education
Cluster$57,714.50$47,479.00$6,153.50 84.048 Vocational
Education-Basic Grants to States$43,953.00$36,695.00 84.126
Rehabilitation Services-Vocational Rehabilitation Grants to
States$1,551,705.00 84.181 Special Education Grants for Infants and
Families with Disabilities$46,376.00 84.186 Safe and Drug-Free
Schools and Communities-State Grants$18,406.00 84.287 Twenty-First
Century Community Learning Centers$16,092.00 84.298 State Grants
for Innovative Programs$120,325.00 84.369 Grants for State
Assessments and Related Activities$17,279.00
Total$2,001,643.00$152,146.00$37,664.00
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Innovative Take on Proportionality Audit Findings Continue In
response to our queries, the Commonwealth provided documentation
verifying that the Pennsylvania Department of Labor and Industry
(the State agency responsible for rehabilitation programs) had
posted an adjustment to its accounting system. The adjustment
effectively ensured no terminal leave expenditures were charged to
the Vocational Rehabilitation (VR) Grants to States for FY 2007.
The amount charged to the VR programs represented 78 percent of the
total questioned costs in FY 2007. We analyzed the remaining
question costs in FY s 2007 through 2009, as well as the
Commonwealths revised methodology for treating unused leave
payments. Based on our review, an allocation of unused leave
payments would have ultimately resulted in charges to various ED
programs during FYs 2007 through 2009. Additionally, the
Commonwealths change in methodology results in charging unused
leave payments in accordance with OMB Circular A-87. We accept the
Commonwealths responses that corrective actions have been taken to
prevent a recurrence of the findings, and we consider the findings
resolved. 18
Slide 20
Innovative Corrective Action The Leave Payout Rate Year 1 of
Implementation - FY 2009FYE 6/30/10 [A] Anticipated Salary &
Wage Expenses$4,045,000,000 Anticipated Leave payouts$62,000,000
Plus: Associated Social Security @ 7.65%$4,743,000 Plus: Associated
SWIF @ 2.20%$1,364,000 [B] Total AnticipatedLeave Payout
Expenses$68,107,000 [C] Leave Payout Rate in Year 1 [B]/[A]1.6837%
Year 2 of Implementation - FY 2010FYE 6/30/11 [A] Anticipated
Salary & Wage Expenses$4,247,250,000 Anticipated Leave
payouts$58,000,000 Plus: Associated Social Security @
7.65%$4,437,000 Plus: Associated SWIF @ 2.20%$1,276,000 Total
AnticipatedLeave Payout Expenses$63,713,000 Less: Restricted
Account Balance 6/30/09$0 [B] Total Anticipated Leave Payout
Funding Required$63,713,000 [C] Leave Payout Rate in Year 2
[B]/[A]1.5001% 19 Rate is calculated in August 2008 for use in the
2009-10 Budget Process Rate is calculated in August 2009 for use in
the 2010-11 Budget Process. Funding into the RRA began un July,
2009; therefore the RA balance at 6/30/09 is still at -0- Year 3 of
Implementation - FY 2011FYE 6/30/12 [A] Anticipated Salary &
Wage Expenses$4,459,612,500 Anticipated Leave payouts$65,000,000
Plus: Associated Social Security @ 7.65%$4,972,500 Plus: Associated
SWIF @ 2.20%$1,430,000 Total AnticipatedLeave Payout
Expenses$71,402,500 Less: Restricted Account Balance
6/30/10$430,000 [B] Total Anticipated Leave Payout Funding
Required$70,972,500 [C] Leave Payout Rate in Year 2 [B]/[A]1.5914%
Rate is calculated in August 2010 for use in the 2011-12 Budget
Process. This will be the first year for the RA Account to have a
balance.
Slide 21
Section II SWCAP Accrue and Fund Estimated Liability vs.
Pay-as-You-Go (P-A-Y-G) Interest and Internal Service Funds. 20
Leave Payout Rate
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Part II Cognizance Conundrum Who is Responsible for What?
21
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Overview State-wide Cost Allocation Plans (SWCAPS) State Agency
Grantees Local Education Agency Grantees and Other Local Agency
Grantees Non-Profit Grantees Educational Institutions - Non-Profit
and For-Profit Sub-recipients 22
Slide 24
Cognizance A single Federal Agency who speaks for all Federal
awarding agencies in reviewing, negotiating and approving indirect
cost rates and Cost Allocation Plans (CAPS). 23
Slide 25
A-87 (2 CFR Part 225) Two separate levels of cognizance
State/Local Governments State/Local Grantee Departments or Agencies
Definitions State/Local Governments = Governmental Unit State/Local
Departments or Agencies = Components of the governmental unit
24
Slide 26
Components Administers grants that generate or a benefit from
indirect costs 25
Slide 27
SWCAPS The Federal Department of Health and Human Services
(DHHS) is cognizant for all SWCAPS SWCAPS are cost allocation plans
and not indirect cost rates 26
Slide 28
Section I of the SWCAP Allocated Central Services (State-wide
indirect costs) They can be added to the State Agency/Department
indirect costs when computing their indirect cost rates SWCAP only
rate Need SWCAP information? 27
Slide 29
Section II of the SWCAP = Direct Billed Services 28 Fringe
Benefits and leave payout rates
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29 Same as SWCAP - but retained on file and documented via
audits Local Governments and LOCAPS
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Second Level of Cognizance under A-87 Individual State and
Local Agency Grantees OMB Cognizant Agency Assignment List was in
1986 A-87 implementation guide says cognizance is determined based
on which Federal agency provides the most direct dollar subject to
indirect cost support Direct is the operative word Excludes
pass-through dollars and other costs not subject to indirect cost
support 30
Slide 32
How? Schedule of Federal Expenditure by CFDA number Or other
similar report that can be certified Colleges and Universities
Either ONR or DHHS - based on funding for the most recent 3 years
Neither - Defaults to DHHS For-Profit Colleges Federal Acquisition
Regulations? 31
Slide 33
Non-Profit Organizations No cognizance listing Case by case -
no change unless there is a "major" shift in funding Major not
defined What about Local Education Agencies? If XYZ School District
receives the most Federal Direct Dollars from the Department of
Agriculture is Agriculture cognizant? EDGAR controlling -75.561 and
76.561 SEA/Federal Department of Education relationship ED approves
the methodology, not the rates 32
Slide 34
Sub-recipients Indirect cost rates What is a sub-recipient? An
entity who: Receives an award made to a prime grantee to carry out
some part of a program or activities on behalf of the prime grantee
What about a lower tier/higher tier relationship? i.e., component
within a component 33
Slide 35
What about sub-recipients who are stand alone agencies or
components? No direct Federal dollars = Prime Recipient A-87 is
silent on how A-87 implementation Guide alternatives discussion
Same concept applies to non- profit sub-recipients 34
Slide 36
Finally cost negotiation cognizance is not the same as Audit
cognizance Audit Cognizance = A-I33 = $50 million in Direct Funding
Cost Negotiation = no $ threshold Indirect Funding = oversight
agency Lets look at the chart 35
Slide 37
AgencyDirect or PTCFDAProgramAmount Natl Science
FoundationDirect47.076Human Resources$50,000 Dept. of
Ed.Direct84.031Higher Ed$35,000 Dept. of Ed.Direct84.047Upward
Bound$35,000 State DOTPass-Through20.234SDIP$1,200,000 Student Fin.
Ass. ClusterDirect--- Dept. of Ed.Direct84.007Ed. Opp.$200,000
Dept. of Ed.84.033Work Study$200.000 Dept. of Ed.Direct84.063Pell
Grants$200,000 DHHSDirect93.069Public Health Preparedness$20,000 36
FY 2011 Funding
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1.Who provides the most Federal funds to the college? 2.Who
provides the least amount of Federal funds to the college? 3.Who
provides the most direct Federal funds to the college? 4.Are
pass-through funds counted in either the direct or indirect cost
cognizance determination? 5.Are Student Financial Assistance funds
counted in the indirect cost cognizance determination? 6.Who is the
cognizant/oversight agency for audit for the college? 7.Who is the
cognizant agency for indirect cost negotiation for the college?
Quiz 37 State Department of Transportation The DHHS The US
Department of Education No US Department of Education No The DHHS
OMB Circular A-21 (2 CFR Part 220) Section G. 11. A. 11
Slide 39
Part III Standard Indirect Cost Rate of 10% 38
Slide 40
Flat Indirect Cost Rate of 10% Background: 2 CFR Part 225
(formerly OMB Circular A-87) Appendix A. Section G Inter- Agency
Services, discusses the use of a standard indirect cost rate of 10%
Salaries & Wages (less overtime, shift premiums, and fringe
benefits) Policy Clarification: Who can use the standard 10%
indirect cost rate allowance? An Independent State/Local government
agency that does not receive Federal awards (directly or
indirectly) and does not need to obtain an indirect cost rate from
a cognizant agency; and who Provides a service to another
independent State/local government agency within the governmental
unit. Example: The Department of Public Works provides and puts up
highway signs for the Department of Transportation 39
Slide 41
Policy Clarification Continued: Who cannot use the flat
indirect cost rate? Operating agencies in lieu of Department/Agency
indirect cost rates under Federal programs Local government
agencies who perform work for State agencies and vice versa Non
profit sub-grantees under Federal awards Example: XYZ Nonprofit
Organization receives a sub award from a FMCSA grant and a direct
federal award from the Department of Justice. A flat indirect cost
rate of 10% may not be used under the FMCSA sub grant in lieu of an
indirect cost rate from the cognizant agency: Department of Justice
Flat Indirect Cost Rate of 10% 40