United Way Worldwide

1. United Way Worldwide Grants Management & Administration

2. Guide to Grants Management and Administration • FIC Approved March 2013 • Co-Chairs – Tanya Muniz, Dick Butcher • Sub-committee first convened November , 2011

3. Financial Issues Committee • Background - The purpose of the Grants Committee is to assist United Ways by providing guidance and best practices regarding organizational standards, financial accounting issues and compliance pertaining to grants. FIC’s roll in this process should include a focus on creating the tools and examples that members need to guide them through the process. It has become clear from the questions being raised by members that they are facing new complexities in accounting for grants than those from the traditional fund-raising campaign accounting.

4. Task Force Charge • The Grants sub-committee will develop guidance to help United Ways deal with the complex issues pertaining to grants. The sub-committee will attempt to have guidance for FIC during the March 2012 meeting.

5. Scope of Work • Set goals of Grants Sub Committee • Survey United Ways for successful tools and processes already being utilized • Develop document of guidance and best practices to use within the network.

6. Identified topics • Organizational Standards/Collaboration • Application and Implementation • GL Accounting/GL Structure • Revenue recognition– campaign vs. grant revenue, restrictions (time, activity etc) • Expenses – allocations, cost center, etc • Cost Recovery –indirect cost rates, sub-contractors • Compliance/Regulatory/Reporting requirements

7. The Process • The sub-committee initially consisted of 18 members • The work process involved weekly conference calls and side-bar working sessions and conversations • The group was then broken into four working groups to focus on four areas involving grants management and accounting:

8. Four Areas of Focus • Applying for Grants • Audit and Compliance • Accounting for Grants • Indirect Cost Rates

9. Whew! • The final document draft was prepared by a smaller working group consisting of Sub-committee members from large markets like NYC, Detroit, Chicago, Boston, and other smaller markets. • The entire process lasted approximately 18 months and required an estimated 1,200 hours or work.

10. Overview & Scope • This document is intended to provide guidance and information on commonly encountered issues of particular interest to UW Members when receiving or awarding grants. The sub-committee recognizes accounting for grants will increase as more UW Members are moving towards community impact and thus are experiencing new revenue streams, especially those associated with the various types of grants available to non-profit entities. The guidance includes information regarding evaluating a grant for organization-fit; what is a grant life cycle; grant management roles and responsibilities; audit and compliance including subcontracting considerations; reimbursable direct and indirect costs; the reporting and accountingfor grants; and applying for a Federal indirect cost rate.

11. Applying for Grants Organizational Considerations and Finance’s Roles in the Grant Process

12. Organizational Fit • Preparation – understand the grant application process • Understand how the grant will be managed • Organizational Fit – does the grant fit into your strategic plan? • Does your organization have the capacity to manage the grant? • Does your organization have the capacity to sustain the program during its life cycle? What resources will be required to meet the grants compliance requirements?

13. Understanding the Grant • Understand the requirements • Full disclosure from grantor • Requirements of the grant • What role will your organization have? • Recipient • Sub-recipient • Service Provider • Restrictions • Contract requirements • Control

14. Financial Implications • Cost/benefit • Business Case • Matching Fund Requirements • Are administrative costs allowed? • Adequate accounting and systems • Grant ending implications

15. Applying for the Grant • Cross functional team • Grant Owner • Meetings and Communication • Planning • Task assignment • Grantor Communications • Terms • Staffing

16. Applying for the Grant (cont) • Capital Purchases • Administrative costs – fees • External Partners • Check-list • Net benefit • Geography • Finance Involvement is a key • Collaborative roles and commitments

17. Implementation • The following practices should be adhered to: • All department leads involved in the development of the grant should review the grant award documents to determine if requirements have changed since submission. A legal review may also be considered. • All signed contracts should be kept in a central, organization-wide location. • A contract directory should be maintained by an appropriate staff member. This directory should be accessible to all appropriate staff (on a read-only basis?). • Program implementation, monitoring and report preparation should all be assigned to specific staff for accountability. • If sub-recipients are needed, ensure required monitoring procedures are in place. • Continue cross-functional collaboration and ongoing communication, set expectations, and review regularly. • Ensure your infrastructure and technology will meet requirements of the contract. (i.e., adequate timekeeping system, cost allocation procedures, procurement, etc.) • Ensure providers/vendors have signed contracts on file outlining deliverables, specific deadlines, performance requirements and penalties.

18. Grants management roles and responsibilities • Once an award has been made, a grants management team should be assembled. Ideally, that team will have many of the same members as the team that designed the grant proposal. The grants management team should be comprised of both programmatic and financial personnel. The team should at least include: • Project Coordinator • Grant Accountant/Project Accountant/Fiscal Manager

19. Grants management roles and responsibilities Reporting • The grants manager should communicate with the program lead and finance department to ensure grant reporting and closeouts are compiled according to grant requirements and timelines. • Financial reports should be prepared by the finance department and channeled to the funder through the grants manager or as required by the contract/award letter. • Apply best practices for monitoring ongoing operational feasibility (when is it not beneficial to renew or opt out of an ongoing grant?) Bad decisions do not have to continue in perpetuity. • Schedule sub-recipient monitoring and perform timely monitoring, reviews, and audits.. Follow up on all observations and recommendations provided during monitoring. • Review and share financial and program reports, milestones, successes and failures with the cross-functional teams and with Senior Management as necessary.

20. Audit & Compliance

21. Audit & compliance

22. Audit and Compliance • What documents govern the grant? Governing documents may come in different forms depending upon the source of the funding. Initial notification may come in verbal form which would then be followed by an official written document.

23. Direct Federal Grants • For Direct Federal Grants, a notice of grant award will be sent by the funding agency. The award number, amount of award, date of award and any other critical information is included in the notice. The award notification becomes a legally binding contract and usually includes a brief description of the federal agency’s expectations and assurances. Other documents that may be provided by the agency at the time of award include the conditions or laws governing the acceptance of the award, and the program guidelines.

24. Federal Guidance • A-87 - This circular focuses on state, local, and Indian tribal governments. It establishes regulations for costs associated with government grants, cost reimbursements, contracts and other agreements. This circular is applicable if the federal funding passes through a state or local government agency. • A-110 - This circular contains guidance to federal agencies on the administration of grants to, and agreements with, institutions of higher education, hospitals and other nonprofit organizations. • A-122 - This circular provides cost principle regulations for nonprofit organizations. • A-133-This circular establishes the provisions for audits of state and local governments and other nonprofit organizations. It provides consistent and uniform regulations about audits and defines the responsibilities and monitoring requirements that apply to recipients of federal funds.

25. State and Local Grants • For State and Local grants, grantees will typically enter into a contract or other form of agreement with the government agency. The agreement should contain all terms and conditions of the grant including program scope, deliverables, a budget and payment terms. The agreement may also reference terms and conditions that may have been part of any Request for Proposal (RFP) issued prior to the grant award. • Some government agencies issue manuals that provide guidance specific to grants they award. These manuals will often specify reporting requirements, allowable costs, budget modification rules, etc. • It is also important, when managing public grants, to understand the enacting legislation from which the grant was established. The legislation often provides clues as to what is allowable from both a programmatic and financial point of view.

26. Private Grants • Private grants are typically explained in a letter to the UW Member and may refer to a previous solicitation or other correspondence. As with any grant, understanding the grant terms is essential to ensure that the grant is properly managed, accounted for, and that grantor/donor intent is met.

27. Subcontracting – Compliance/Regulatory/Reporting Requirements • Flow Down Clauses If sub contracts are permissible, the awarding agency may require that certain sections of the UW Member's contract also apply to the subcontractor. These are known as subcontract flow-down clauses. A standard clause is that all requirements, as a consequence of the grant agreement, automatically follow to the sub recipients of the UW Member. As a best practice UW Member’s should hold all sub recipients to the same standards and should be in the agreement as required by the code of federal regulations. Reference title 2-CFR Part 215 - Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations (OMB Circular A-110) and title 2-CFR Part 230 - Cost Principles for Non-Profit Organizations (OMB Circular A-122).

28. Sub-Contracting – Sub Recipients • The awarding entity is usually a government agency entering into a contract or agreement with the UW Member. The awarding entity acknowledges the UW Member as the primary recipient and as the primary recipient the UW Member is ultimately responsible for all of the award’s obligations.

29. Sub-Contracting – Sub Recipients(cont.) • A key determinant in the sub-contracting/sub recipient selection is ensuring the sub-contractor has the aptitude to perform the duties required. The sub-contractor should be able to clearly demonstrate the following to the UW Member: • Aligned Mission and/or Values • Geographic Specific • Match Funding for initiative (if applicable) • Board, Advisory Board or Oversight Committee in place • Sustainable Revenue Source(s) for the agency • Human Capital and Capacity

30. Sub-Contracting – Sub Recipients(cont.) • The UW Member must: • Disclose compliance requirements to sub-recipient • Monitor sub-recipients use of funds • Ensure audit compliance when necessary • Evaluate sub-recipient activities • Ensure timely and accurate program and financial reporting • Outline expectations for reporting • Site visits

31. Sub-Contracting – Sub Recipients(cont.) • The UW Member must: • Ensure regulations are followed regarding advances • Project plans • Standard or customized reporting templates • Progress reports • Project budget • Reporting timetable—program and financial • Penalties for non-reporting or late reporting

32. Sub-Contracting – Sub Recipients(cont.) • Supporting documentation for grant requirements • Many agencies that a UW Member may award a grant to could have capacity challenges in their accounting shops. Therefore, it is critical that the subcontracts include clauses that stress the importance of invoice accuracy and due dates for the submission of invoices.

33. Sub-Contracting – Sub Recipients(cont.) • It is recommended that a penalty clause for submission of inaccurate invoices be included in the award documents. Several possibilities exist: • A pre-determined penalty for submission of an invoice to the UW Member for payment that must be returned to the subcontractor for corrections • A pre-determined penalty if invoices must be returned to a subcontractor for the same type of error more than one time in a month. This approach allows the subcontractor one chance to resubmit an inaccurate invoice without penalty. • A higher pre-determined penalty if invoices must be returned to a subcontractor for the same type of error previously made in prior months. This may seem harsh, but some subcontractors make the same errors month after month.

34. Sub-Contracting – Sub Recipients(cont.) • Subcontractors must be made aware of the documentation requirements to support invoices. This can be accomplished in a variety ways: • Include clauses in the subcontract detailing the documentation required including what must be submitted with each invoice. In some instances, the UW Member’s awarding institution may have specific requirements for what must be submitted with its invoices to the funder. These requirements will need to be communicated to all subcontractors. • Provide written notices to the subcontractors specifying documentation requirements. • Conduct subcontractor meetings and review documentation requirements with subcontractors. • Ensure the subcontractors are aware of documentation retention requirements to meet grant requirements.

35. Sub-Contracting – Sub Recipients(cont.) • Communication to subcontractors • Communication between subcontractors and UW Member staff should be conducted on a regular basis. At times, communication will impact the financial administration of the awards therefore it is critical for financial personnel be included in communications. • The UW Member has the responsibility to ensure all expenses submitted by the subcontractor are allowable under the terms of the award. This means the UW Member financial staff must be aware of allowable expenses under the terms of its award from the funder. Any restrictions must be communicated to the subcontractors.

36. Audits • Internal Audit / Self-Assessment • Keys to a successful internal audit or self-assessment include the following: • Independent group - The group conducting the internal audit or self-assessment should be independent from the agency accounting and finance processes for a truly objective review of processes and employees. The group would report to either the audit committee or the CEO. • Annual audit plans - Just like any group, for an internal audit function to be effective, annual plans with goals and objectives as well as final deliverables should drive the primary focus of the group. • Flexibility – An internal auditor will often be called into a situation after an issue has come up, therefore be able to balance unforeseen issues and the annual plan is important. • Internal audit work can be utilized as support for internal control testing and risk assessments by external auditors which can reduce overall testing and costs.

37. Audits • Annual organization audit • Additional grant revenue does not necessarily mean additional audit testing. With a contract in place, most grants are easily substantiated and tested. Because most grants are short term in scope, typical contract accounting does not apply. Depending on the timing of the grant and the UW Member’s year end, cutoff of expenditures and revenue are absolutely vital.

38. State, Federal, Local and other municipality audit/monitoring • The UW Member should be prepared to be monitored if they receive funding as a sub recipient. The awarding entity is most likely to formally monitor the use of these funds as a contract requirement. The UW Member should be prepared to provide all documentation to support all charges/invoices submitted to the grantee.

39. Accounting

40. Accounting for Grant Revenue and Expense • Accounting treatment for revenues raised in a non-profit are governed by FAS 116,117, and 136. • Typically there are three types or revenue in a non-profit • Contributions • Exchange Transactions (fee for service) • Agency Transaction (FAS 136) – “Pass-throughs”

41. Contributions • Contribution - An unconditional restricted pledge (for example, an asset to be donated which must be used to support a particular program service (i.e. use restriction) or extends over multiple fiscal years (i.e. time restriction) is recognized when the pledge is made. These are campaign revenues.

42. CAMPAIGN REVENUE • The importance of making a determination for a grant as campaign or non-campaign is twofold: • Grant revenue may be included in campaign revenue or separately stated as its own line item. If grant revenue is considered material, generally accepted accounting principles requires all major classes of revenue to be reported separately. • The determination will affect what the UW Member reports to UW Worldwide on the database II report, which will be used to calculate membership dues.

43. Grant Revenue • Conditions for Grant Revenue: • Typically the key factor in when a commitment to fund would be considered a grant is when there are donor imposed stipulations or conditions commonly known as restrictions. This funding would not be available for use in the general fund or for any purpose that was not associated with the restriction. Restricted funding would restrict the use of these funds to the specific purpose or initiative associated with those restrictions. Typically this would require negotiation and a formal application for the funding. An example of a grant would be a foundation or governmental funding a specific need or purpose with a detailed description of the program. • A contract exists with specific donor restrictions and reporting requirements. These include would typically include details disclosing the details of any periodic reporting on the use of the grant funds and any evaluation reporting required that documents and memorializes the details of the organization’s results as the grantee – the grant impact, outcomes and accomplishments. • Any funds received from local, state or federal governments would most likely be grants. Consideration must be given to the UWW NPC policy on reporting total resources generated which specifies that government grants that directly fund initiatives are reported as “contributions beyond campaign” or UW3 in the UW Member Continuum.

44. Decision Tree

45. FINANCIAL STATEMENT PRESENTATION AND DISCLOSURE • Accounting for grant revenue and expense in the audited financial statements should be consistent with reporting in the UW Member Guide to FASB Statements 116,117 and 136 and the Functional Expense and Overhead Reporting Standards for UW Members. • The Statement of Functional Expenses should report grant related expenses (e.g. salaries, fringe/tax, and distributions) by natural classification as a separate column under Program Expenses. • Included in the organization’s notes to the audited financial statements, significant accounting policies should disclose the revenue recognition method for material classes of revenue.

46. Cost Recovery • Cost recovery for grants involves segregating all grant costs into direct and indirect costs based upon the indirect cost methodology used by the UW Member. A primary goal is to recover all of the UW Member’s costs related to providing a particular grant funded project or program.

47. Direct Costs • Direct costs are expenses which can be specifically identified to directly benefit a specific project or program. • Direct costs can include a portion of an individual’s salary, plus benefits, taxes and other allocated direct support costs. • Depending upon the UW Member’s methodology for allocating such costs, direct support costs may include building occupancy costs (phone, repairs and maintenance, insurance, depreciation and rent) and software and technology support. Direct support costs are often referred to as overhead. • Some of these costs may be considered indirect if they are not specifically identified to a specific project or program. The identification of a cost as direct or indirect may vary by UW Member. • These expenses are typically charged directly and supported by an invoice, contract, employee reimbursement form or other type of documentation supporting the expense.

48. Indirect Costs • Indirect costs are those that have been incurred for common or joint objective. Indirect costs are often referred to as administrative costs and would typically include areas such a human resources, finance, purchasing, occupancy, executive management, audit, insurance, or legal expenses. • While fundraising costs are not allowable in a federal indirect cost rate, they may be included as part of the indirect cost allocation for a non-federal grant. These costs as well as management and general may be calculated as a percentage of the total grant award or total direct costs. The calculation can be based upon the methodology used by the UW Member to calculate the overhead ratio per UWW’s “Functional Expense and Overhead Reporting Standards for UW Members” (calculated based upon time sheet/time studies or FTE allocations) for actual personnel engaged in grant activity plus any other associated costs. • Guidance, further clarification, and examples of these types of expense and allocation methods is contained in the UWW document entitled “Functional Expense and Overhead Reporting Standards for UW Members”, written and approved by the FIC in November 2004.

49. Indirect Cost Overhead Cost Assignment Methodologies • Time Sheet/Time Study Method - Employees, including the Chief Executive Officer report time worked in various functional classifications such as fund raising, management and general, and programs. Indirect expenses (allocable management and general) are allocated by the resulting percentage of time. • Fulltime equivalent employee method – The full-time equivalent (FTE) employee method is based on the premise that each employee has an associated overhead cost. In most UW Members, salaries will account for the majority of the operating expenses. The FTE method re-allocates a portion of the management and general expense to program expenses and to other supporting service expense, where applicable. The FTE employee method is a common indirect cost method used by many UW Members. • Square Footage Method – This method is not recommended due to poorly controlled variables such as inefficient space usage, large amounts of common areas and other factors. • Indirect Cost Documentation The organization should also have adequate documentation to support their indirect cost allocation methodology, to include time studies or other payroll related records and budget vs. actual comparisons for indirect cost pools in order to substantiate the rate charged to grants.

50. Indirect Costs • The documentation provided to your independent audit firm should include a summary of the indirect cost allocation methodology (time sheet/time study method, full time equivalent employee method, etc.), justification for the method used and the general approach to allocating indirect costs to specific programs. • The indirect cost allocation method should be consistent from year to year. If there is a change in methodology, the change should be well documented. One example of a change is the implementation of detail time reporting for all employees resulting in the use of the time sheet/time study method of cost allocation. • The result of the indirect cost allocation will be reflected in organization’s financial statements - the Statement of Activities (SOA) and the Statement of Functional Expenses (SOFE). The allocation method should be performed at least annually for audited financial statement purposes but preferably more frequently for internal review. After the indirect cost allocation is complete, total expenses in the SOA should tie to total expenses in the SOFE.