Financial & Grants Management Basics: 101

1. Financial & Grants Management Basics: 101

2. Session Objectives Learn basic financial and grants management Review reimbursing, reporting, and rebudgeting issues Learn about common audit pitfalls & issues

3. 10. Grant Closeout 1. Regulations & Requirements Session Objectives 9. Audits and Site Visits 2. Financial Management Principles 8. Reimbursing, Reporting, and Rebudgeting Grants & Financial Management Basics: 101 3. Policies and Procedures 7. Cash & In-Kind Match 4. Internal Controls 6. Documenting Expenses 5. Administrative Costs

4. Regulations & Requirements

5. Nat’l & Community Svc. Act of 1990 Code of Fed. Regulations (CFR) OMB Circulars (part of CFR) State & Local Regulations Provisions Certifications and Assurances Notice of Grant Award Proposal & Budget Notice Of Funding Opportunity

6. Changes to the OMB Circulars • The OMB Circulars were first published in 1952 • In 2005, grants management circulars were incorporated into the Code of Federal Regulations (CFR) • The content and information is the same; however, the guidelines were streamlined and changed for consistency

7. Grant Guidelines Effective May 11, 2004 and August 31, 2005 Notes: CFR = Code of Federal Regulations  = Organization is subject to A-133 if it expends more than $500,000 of Federal funds in its fiscal year Locate Grants Management Circulars: www.whitehouse.gov/omb/grants_circulars/

8. When do I use OMB Circulars? The Circulars provides guidance and requirements relevant to the Federal grants in these areas: • Cost Principles • Administrative Requirements • A-133 Audits

9. Cost Principles Requirements • Provide guidance to determine the allowable costs incurred by organizations under Federal grants • Designed so that Federal awards bear their fair share of costs • Provide guidance about reimbursement requirements • Provide uniform standards of allowability and allocation • Encourage consistency of treatment of costs • 54 selected items of cost

10. Cost Principles Examples of Costs in CFRs: • Advertising and public relations costs • Compensation for personal services • Memberships, subscriptions, and professional activity costs • Recruiting costs • Rental costs • Training and education costs • Travel costs

11. Administrative Requirements • Provide consistency and uniformity among Federal agencies in the management of grants and cooperative agreements • Required all Federal agencies to issue a grants management common rule to adopt government-wide terms and conditions • Specific grantmaking requirements for CNCS are in the CFRs

12. Administrative Requirements Examples of items in CFRs: • Pre-award policies • Special award conditions • Purpose of financial and program management • Standards for financial management systems • Cost sharing or matching • Program income

13. A-133 Audit Requirements • Provide the standards for obtaining consistency and uniformity among Federal agencies for the audit of organizations expending Federal funds • Apply to all organizations that expend $500,000 or more of Federal funds in a year

14. CNCS Grant Provisions • Are issued by CNCS with the Notice of Grant Award • Are the guiding principles for CNCS-funded grants and cooperative agreements • Contain program and financial guidelines • Are binding on the grantee and subgrantee in the same manner • The order of precedence if inconsistencies exists is: • Notice of Grant Award • AmeriCorps Special Provisions • General Provisions • Approved Grant Application

15. CNCS Grant Provision Requirements Examples of items in the Provisions: • Member Recruitment, Selection, and Exit • Living Allowances, Other In-Service Benefits, and Taxes • Member Records and Confidentiality • Budget and Programmatic Changes • Reporting Requirements • Responsibilities under Grant Administration • Financial Management Standards • Program Income • Safety

16. Financial Management Principles

17. Efficient Accounting System

18. Efficient Accounting System Accounting System must be capable of: • Distinguishing between grant verses non-grant related expenditures • Identifying costs by program year • Identifying costs by budget category • Differentiating between direct and indirect costs (administrative costs) • Accounting for each award/grant separately

19. Accounting System that properly segregates funds Accounting System Department of Education Grant Grant 1 Grant 2 AmeriCorps Grant Grant 3 Ford Foundation Grant NOT

20. Efficient Accounting System Accounting System must be capable of: • Distinguishing Federal funds separately from grant funds • Recording in-kind contribution as both revenues and expenses • Easily provide management with financial reports at both the summary or detailed levels • Comparing outlays with budget amounts for each award (budget vs. actual reports) • Correlating financial reports submitted to CNCS directly to accounting information and supporting documents

21. Allowable, Reasonable, Allocable, and Consistent Costs

22. Allowable - What does it Mean? To be allowable under a grant, costs must: • Be reasonable and allocable for the performance of the award • Conform to grant award limitations or cost principles • Be consistent with policies and procedures that apply to both federally-financed and other activities of the organization • Be given consistent treatment • Be in accordance with Generally Accepted Accounting Principles (GAAP) • Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program • Be adequately documented

23. Example – Allowable? • The Program Director of BEST AmeriCorps program decided to host a very important meeting at his home and serve beer and pizza hoping that everyone would attend. • The purpose of the meeting was to discuss changes in the new CNCS Grant Provisions that affected the program. • Because it was a business meeting he decided to charge the cost of the beer and pizza to the AmeriCorps grant, especially since he was providing the use of his home. Allowable?

24. Reasonable - What Does it Mean? A cost is reasonable if: • It does not exceed what a prudent person would do under the circumstances at the time the decision was made to incur the cost • Consideration should be given to: • Whether the cost is ordinary and necessary for the operations of the organization • The restraints or requirements imposed by generally accepted sound business practices • Whether the individuals concerned acted with prudence • Significant deviations from established practices which may unjustifiably increase the award costs

25. Example – Reasonable? • BEST AmeriCorps program needs 5 laptop computers for the program so that members can learn basic computer skills. • When deciding on the model that would best suit its needs, the Program Director received three price quotes on various models and two were within the same general price range of $650 - $700. However, one laptop appealed to him most – it met all of the necessary specifications plus being the “techie” he was it had many other “nice to have” features, such as built in webcam and mobile broadband, a 21” Hi-Def widescreen, and 8 built-in speakers and a subwoofer. • Although the basic models were adequate, the more appealing one was $2,999, on sale, and came in crimson red, the BEST AmeriCorps program’s team color, so the Program Director ordered 5 of these laptop computers. Reasonable?

26. Allocable - What Does it Mean? A cost is allocable: • Based on its relative benefits received • If it is treated consistently with other costs incurred for the same purpose in like circumstances and if it: • It is incurred specifically for the award • Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received or • Is necessary to the overall operation of the organization Any cost allocable to a particular award may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award

27. Example – Allocable? • When the crimson red laptops finally arrived, the Program Director found that funds allocated for supplies for the BEST AmeriCorps program were fully expended. • Although the laptops were to be used only for the AmeriCorps program, BEST had another CNCS funded program through a Learn & Serve America program, so the Program Director told the accountant to charge the cost to the Learn & Serve America program since CNCS was also funding that program. Allocable?

28. Consistent - What Does it Mean? Grantees must be consistent in assigning costs: • Whether a direct cost or an indirect cost • Regardless of the source of funding, i.e., federally or non-federally sponsored activities, and • Following written cost allocation plan, as applicable Key wording in the cost principles: • Consistent with that paid for similar work in the organization’s other activities • Distributed to awards and other activities in a consistent pattern • The organization must follow a consistent, equitable procedure • Charges must be consistent with those normally allowed in like circumstances in the organization’s non-Federally-sponsored activities

29. Example – Consistently Applied? • The BEST AmeriCorps program was running low on office supplies and postage stamps. • Since the Program Director couldn’t wait any longer for the office manager to provide the supplies, he purchased them and charged them to the AmeriCorps grant. Consistently Applied?

30. Policies & Procedures

31. Policies & Procedures • Policies and procedures are a set of written documents that describe an organization's • policies for operation – “what is to be done” • the procedures necessary to fulfill the policies – “how it is to be completed” • All staff must be familiar with these documents • Documents must be kept up-to-date • Documents should explain the rationale and include principal transactions and completed forms • Documents must incorporate Federal and CNCS grant regulations and provisions

32. Policies & Procedures • Required by Federal grant regulations • Non-profit organizations have additional requirements – Form 990 submitted to IRS • Other Key Policies & Procedures to document • AmeriCorps Programs See Handout Helpful guide and handbook for developing Policies and Procedures See Grantee Central CD provided in 2008

33. Internal Controls

34. Are You an Internal Control User? When you leave home in the morning to go to work, do you lock the doors to your house? _____________ If you do, that's your own "internal control" to safeguard the assets you own in your home Congratulations, you are an internal control user!!

35. Why Have Internal Controls? • Improve accountability to customers • CNCS, trustees, funders, public • Help organization achieve performance & budget targets • Improve reliability of financial reporting • Improve compliance with laws & regulations • Prevent loss of resources & public assets • Prevent loss of public trust • Reduce legal liability

36. Who is Responsible? Everyone within the organization has some role in internal controls Roles vary depending upon level of responsibility: • Executivesestablish the presence of integrity, ethics, competence and a positive control environment • Directors and department headshave oversight responsibility for internal controls within their units • Managers and supervisory personnelare responsible for executing control policies and procedures at the detail level within their specific unit • Each individualwithin a unit is to be cognizant of proper internal control procedures associated with their specific job responsibilities

37. Elements of Internal Controls Internal control systems operate at different levels of effectiveness Determining effectiveness is based on an assessment of whether these 5 components are present and functioning: • Control Environment – sets the tone of an organization • Risk Assessment – identifying & analyzing internal and external risk • Control Activities – management’s directives carried out through policies and procedures • Information and Communication – providing timely information to the right people down, across, and up • Monitoring – assessing the quality of the system’s performance over time

38. Administrative Costs

39. Definitions Direct Costs Specific expenses related to the operations of a specific project General expenses related to overall administration of an organization receiving CNCS funds Expenses incurred for common or joint objectives and cannot be readily identifiable with a specific project or cost objective Indirect/ Administrative Costs

40. What are Direct Costs? • Allowable direct expenses for members, e.g., living allowances and insurance costs • Costs for staff who train, place, or supervise • Member’s benefit programs • Evaluations of programs • Supplies and Facility costs • Travel

41. What are Administrative Costs? • Accounting, auditing, contracting, budgeting, and general legal services • Facility occupancy costs, e.g., rent, utilities, insurance, taxes, and maintenance • General liability insurance that protects the organization (not directly related to a program) • Director’s and Officer’s liability insurance • Depreciation on building & equipment • Office Supplies • General & Administrative salaries & wages

42. What cannot be included as Administrative Costs? • Bad debts • Entertainment costs • Fines and penalties • Fundraising • Interest on borrowed capital • Lobbying • Relocation Costs • Taxes

43. Administrative costs are limited by statute: Costs cannot exceed 5% of total Corporation share Grantees may charge up to 5% of the total CNCS funds expended, provided that the grantee’s administrative match does not exceed 10% of all direct costs CaliforniaVolunteers Guidelines: 4% = Subgrantee 1% = CaliforniaVolunteers Use the CNCS “fixed 5%” CNCS 5% Administrative Rate Option 1

44. Federally Approved Indirect Cost Rate Option 2 Use the Federally approved Indirect Cost Rate

45. Obtaining a Federally ApprovedIndirect Cost Rate • Can my organization have an indirect cost rate? • Yes. If your organization is a direct recipient of Federal grant funds • No. If your organization receives only pass-through Federal grant funds, then your organization is limited to using the 5% and 10% fixed rates stipulated for CNCS grants

46. Documenting Administrative Costs • Using the CNCS 5% Rate (45 CFR 2540.110) • Not subject to supporting cost documentation • “Not Auditable”? If direct costs charged to CNCS are questioned, and deemed unallowable: • Payback funds for disallowed direct costs • Payback funds for administrative costs claimed based on the disallowed direct costs • Unreimbursed indirect costs may be applied to meeting operational matching requirements • Using a Federally Approved Indirect Cost Rate • Must maintain related supporting documentation for audit • Charges are based on documented expenses

47. Documenting Expenses

48. Allowable Allocable Reasonable Consistently Applied Document, Document, Document

49. Documentation Basics Why Retain Documentation? • To track incoming information • To review information • To provide historical evidence • To provide evidence of accomplishments • To assist during the audit or site visit Establish a written record retention policy See Handout

50. Defining Source Documentation • Physical information: • Hard copy • Soft copy: CD, flash drive, server, microfilm • Source: • Internal to the organization • External sources • Benefits  supports a value, cost, or performance criteria relative to the grant CaliforniaVolunteers may request this during site visits or desk reviews