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Keys to Successful Financial Management of Grant & Contribution Funding. Scott W. Gold, CPA BKD, LLP October 12, 2006. Today’s Agenda. Grants and contributions defined Contents of the grant/contribution file Tracking revenues and expenditures Cash draw procedures

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Keys to Successful Financial Management of Grant & Contribution Funding

Scott W. Gold, CPA

BKD, LLP

October 12, 2006


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Today’s Agenda Contribution Funding

  • Grants and contributions defined

  • Contents of the grant/contribution file

  • Tracking revenues and expenditures

  • Cash draw procedures

  • Proper financial accounting treatment

  • Compliance and reporting

  • Financial status report issues

  • Strategic planning opportunities


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Grants and Contributions Defined Contribution Funding


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Grants vs Contributions Contribution Funding

  • Exchange vs Non-exchange transactions

    • Guidance in FASB No 116 on distinguishing contributions from other transactions

    • Generally governmental funding awards are considered exchange transactions (grants), however there are exceptions

    • The first step is to determine grant vs contribution for all types of awards you have


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Grants vs Contributions Contribution Funding

  • Get it in writing

    • Notice of Award

    • Letter from Donor

  • Importance of the original source of the funding

    • Inquiry to knowledgeable person

  • Grants defined

    • Federal

    • State

    • Local government


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Grants vs Contributions Contribution Funding

  • Contributions defined

    • Private source foundations

      • Many private foundations use the term “grant” in their agreements

    • Donors

  • Why do we care about the distinction?

    • Proper accounting

    • Restrictions on use of funds



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Documentation is King Contribution Funding

  • It is important to maintain detailed files for each grant or contribution your organization receives

  • These files should be maintained for at least three years after the acceptance of the award

  • It is important to be able to identify specific expenditures that were charged to each grant or contribution


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Contents of File Contribution Funding

  • Copy of original signed application, if applicable

  • Notice of grant/contribution award (all copies, all pages)

  • Copies of all correspondence

  • Copies of required reporting (UDS, FSR, other)

  • Copy of audited financial statements

  • Detail record of all revenues and expenditures (including inventory of fixed assets purchased)



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General Ledger Maintenance Contribution Funding

  • Multiple grants should be tracked independently

    • Tracking for grants with specific restrictions

      • Important to ensure that enough specific expenditures have been incurred to justify grant funding

      • Consider if indirect costs can be allocated

    • Tracking for grants that have similar purposes (“double-dipping” issue)


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Cash Draw Down Procedures Contribution Funding


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Grant Draw Processes & Procedures Contribution Funding

  • Important to establish consistent methodology for conducting grant draws

  • Advance drawing of grants is generally negative absent a unique financial situation

  • Federal CHC grant is a reimbursement grant

    • Grant funds must be expended within 3 business days of federal cash receipt

    • Grant funds requested must be supported by known incurred expenditures


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Contribution Cash Processes & Procedures Contribution Funding

  • Advance basis

    • Cash is restricted until used for specific purpose

  • Reimbursement basis

    • Submission of expenditures for reimbursement



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Revenue & Expenditure Recognition Contribution Funding

  • Revenue should be recognized only as qualified expenditures are incurred

  • Grant funds drawn in advance of qualified expenditures is recorded as deferred revenue (liability)

  • Contribution revenue received in advance is recorded as temporarily restricted net assets (equity)


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Revenue & Expenditure Recognition Contribution Funding

  • Expenditures include operating expenses, capital asset transactions & other

  • OMB Circular A-122 rules only apply to federal cash expenditures


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Accounts Receivable and Cash Recording Contribution Funding

  • Restricted Cash when received in advance

  • Grants receivable booked when expenditures have been incurred before cash receipt

  • Contribution receivable booked when promise is made


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Grant Example Contribution Funding

  • We have received a federal grant for HIV.

  • Revenue and expenditure recognition:

    • At the time the expenditure is incurred

      • Debit expense or capital asset

      • Credit accounts payable or cash

      • Debit grants receivable if cash has not yet been drawn or deferred revenue if cash was drawn in advance

      • Credit grant revenue

    • At the receipt of the cash

      • Debit cash

      • Credit grants receivable if expenditure has been made or deferred revenue if drawn in advance


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Contribution Example Contribution Funding

  • We have received a grant from a private source foundation for a restricted purpose

  • Revenue and expenditure recognition:

    • At the time of the notice of award

      • Debit contribution receivable

      • Credit temporarily restricted net assets

    • At the time of the expenditure is incurred

      • Debit expense or capital asset

      • Credit accounts payable or cash

      • Debit temporarily restricted net assets (TRNA)

      • Credit TRNA released from restriction (contribution revenue)

    • At the receipt of the cash

      • Debit cash

      • Credit grants receivable


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Contribution Example Contribution Funding

  • What if the private source contribution is unrestricted?

    • Implied restriction of time until it is expended

    • Same accounting as for restricted contribution (previous example)

    • Many times contributions are received and expended in the same fiscal period


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Compliance and Reporting Contribution Funding


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PIN 98-23 Contribution Funding

  • Financial System Expectations

    • Accounting & Internal Controls

    • Budget

    • Billing & Collections

    • Independent Financial Audit


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Budget Contribution Funding

  • Reflects the level & scope of services to be provided within the constraints of the health center’s resources

  • Should reflect available resources & required expenditures

  • Should be approved by the health center’s governing body

  • Particular emphasis on health center revenue streams


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Grant Funds: Contribution FundingNo Strings Attached?

  • If you accept the grant, accept the rules

  • It is the responsibility of health center management to understand the set of rules that accompanies each grant award

  • Noncompliance with any grant rules could result in significant risk to those with fiduciary responsibilities at the health center


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Applicable Rules & Regulations Contribution Funding

  • Governing federal regulations - most of which are available on the internet

    • OMB Circulars A-110, A-122 & A-133

      • A-110 - Management of federal grant funds

      • A-122 - Cost principles

      • A-133 - Audit requirements

    • Section 330 of the Public Health Services Act

    • Code of Federal Regulations

    • Policy Information Notices (PIN) & Program Assistance Letters (PAL)


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Scope of Project Contribution Funding

  • Important to know what activities are included & excluded from your scope of project as defined by the BPHC

  • Changes in the scope of project should be communicated to & approved by the BPHC in writing

  • Important to designate management level position to monitor compliance


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Scope of Project Contribution Funding

  • Risks of not including qualified health center activities in the scope of project

    • FTCA Coverage

    • Medicare & Medicaid FQHC reimbursement

    • Pharmacy benefits

    • Other


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Grant Reporting Contribution Funding

  • Required reports to be filed under the community health center grant include:

    • FSR (annually)

    • UDS (annually)

    • Federal Cash Transactions Report (quarterly)

    • Other

  • Federal reporting accomplished through submission of an annual FSR



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FSR – A General Overview Contribution Funding

  • The FSR is an official claim of expenditures submitted to the federal granting agency

  • It is a comprehensive report of all financial transactions relative to the approved project

  • It identifies allowable total outlays & the revenue sources utilized to satisfy such outlays


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FSR – A General Overview Contribution Funding

  • Upon completion, the amount, if any, of unobligated federal grant funds, and/or undisbursed (“excess”) program income will be determined

  • Section 330 programs are generally “last dollar” programs - necessary to understand & monitor spending order of health center funds


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FSR Terminology Contribution Funding

  • Total outlays

  • Program Income

  • State, local & other operational funding

  • Unobligated balance of federal grant funds

  • Undisbursed (“excess”) program income


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Total Outlays Contribution Funding

  • Total outlays represent expenditures incurred for the budget period prepared on the “modified” accrual basis of accounting

  • Generally begins with total expenses reported in the audited financial statements on the “full” accrual basis of accounting

  • Reconciliation from “full” to “modified” accrual basis is required


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Program Income Contribution Funding

  • Represents the amount of fees, premiums & third-party reimbursements accrued from health center operations during the budget period

  • Generally, will be net patient service revenue less provision for bad debts

  • Comparison will be made to expected program income included on the NGA


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State, Local & Other Operational Funding Contribution Funding

  • Represents all resources from the approved project that are not program income or Section 330 federal grant funds

  • Resources from state, local & other sources (other than net patient service revenue) that are not designated for the approved project may be excluded from the FSR


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Unobligated Balance of Federal Funds Contribution Funding

  • Represents grant funds authorized for the budget period not required to satisfy allowable outlays (unspent grant funds)

  • What should I do if this situation occurs?


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Undisbursed (“Excess”) Program Income Contribution Funding

  • Represents the amount of fees, premiums & third-party reimbursements, after adjustments for uncollectible accounts, which exceeds the amount of expected program income identified on the NGA

  • What implication does this have for my health center?


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FSR Issues Contribution Funding

  • Appropriate budgeting of program income is critical (best advice - be realistic, but conservative)

  • Interim planning is important for management of program revenues

  • Financial statement audit should reconcile with the FSR


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FSR Example Contribution Funding

  • ABC Community Health Center

    • Total allowable outlays = $7,000,000

    • Program income = $4,000,000

    • Budgeted program income = $3,000,000

    • Other sources of revenue = $1,000,000

    • Federal CHC grant = $3,000,000

  • In above circumstance, ABC CHC would have excess program income of $1,000,000 & $0 of unobligated federal funds


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FSR Example Contribution Funding

  • ABC Community Health Center

    • Total allowable outlays = $7,000,000

    • Program income = $4,000,000

    • Budgeted program income = $4,000,000

    • Other sources of revenue = $1,000,000

    • Federal CHC grant = $3,000,000

  • In above circumstance, ABC CHC would have excess program income of $0 & $1,000,000 of unobligated federal funds


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FSR Issues Contribution Funding

  • Strategies for avoiding unobligated federal funds

    • Establishment of authorized reserve funds

    • Accurate assessment of net realizable value of accounts receivable

    • Accurate recording of cost report settlements

    • Accrual of expenses in accordance with generally accepted accounting principles

    • Prepayment of known recurring non-salary costs


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Strategic Planning Opportunities Contribution Funding


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Current Financial Issues Contribution Funding

  • Increased pressure to grow & expand services without increasing reimbursements

  • Increased scrutiny of financial results by the federal granting agency & other external users of audited financial statements

    • Recent BPHC focus on current ratio, use of federal grant money & overall health center financial viability

    • The President’s initiative is over – now what?


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Current Financial Issues Contribution Funding

  • Increased tightening of state budgets resulting in reduced services and/or payments

  • Strategic financial planning is now more important than ever before


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Opportunities Contribution Funding

  • What do we want funded?

    • Current operations -

    • Expanded services -

    • Defined service

      • Medical, Dental, Mental Health, Pharmacy

    • Capital needs


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Opportunities Contribution Funding

  • Would we do this without the funding?

  • Will the money continue into the future?

  • Are there other revenue streams generated by the funded activity?

  • The compliance trap and opportunity cost

  • Seek funding with less restrictions


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Best Wishes for Financial Success for Your Health Center! Contribution Funding

sgold@bkd.com,

BKD, LLP

417 865-8701