Fund Accounting Clinic

Who Are We?

� Presented by Training and Development Associates – Edward Hammond – Rocky Wade

� Sponsored by U.S. Department of Housing and Urban Development

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Who Are You?

� What type of organization do you represent? – Lead agency – Sponsor – Service provider

� What is your role at the organization? – Executive Director – Financial staff – Case Manager – Another position

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What Do You Expect?

� What are your expectations? – Why are you here? – What do you expect to gain from today’s

training session? – What will be the outcome of your participation

in this training session?

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Why Are We Here?

� Participants should be able: – To understand what fund accounting is and

how it applies to SNAPS grants; – To prepare a budget that uses fund

accounting; and

– To prepare an employee time and activity report that reflects fund accounting.

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Why Are We Here?

� To strengthen the capacity of SNAPS grantees to: – Make sure that funded activities are eligible – Make sure eligible costs are charged to the

appropriate grant – Prepare accurate reports to be used as

management tools – Avoid recapture of SNAPS funds by HUD

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Workshop Goals

� Participants will leave with tools and techniques to incorporate fund accounting into the grantee’s procedures for: – Budgets – Time and activity reports – Reporting

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Logistics

� Resource materials – Manual – Presentation – Handouts

� Activities � Questions (the “Bin”) � Restrooms and telephones

– Please silence or turn off cell phones

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What is Fund Accounting?

What is Fund Accounting?

� Simply stated: – Fund accounting is a method of recording

financial information that groups resources into funds based on the sources and the uses of those resources

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What is Fund Accounting?

� Not-for-profit accounting systems should operate on a fund basis – Fiscal and accounting entity

• With self-balancing accounts • Matches revenues with expenses

– Funds are segregated for the purpose of carrying out specific activities

• Such as eligible activities cited in a grant agreement

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Benefits of Fund Accounting

� Fund accounting tracks sources and uses of funds for each funding source – Without fund accounting, one cannot truly

analyze the revenues and expenses of a specific funding source

HUD revenues = HUD expenses

HHS revenues = HHS expenses

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Line of Credit Control System

(LOCCS)

Benefits of Fund Accounting

� Allows one to evaluate each project and/or activity individually � Results in proper information for the

drawdown of funds in LOCCS

Line of Credit Control System

(LOCCS)

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Common Misconceptions of Fund Accounting � Taking a straight percentage of costs and

applying it against a grant – Fund accounting creates a link between

eligible expenditures and the actual grant funds drawn for those expenditures

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Common Misconceptions of Fund Accounting � Drawing budgeted amounts regardless of

actual costs (including salary) – Time must be actual and documented

� Drawing funds against multiple SHP sites instead of the specific site in an approved grant award

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Common Misconceptions of Fund Accounting � Thinking that one SNAPS grant is the

same as another SNAPS grant – Each grant has a separate approved budget

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Common Misconceptions of Fund Accounting � Thinking that one can spend on anything

as long as it is SNAPS related – Expenses must be allocable to a specific

grant, not just eligible within the SNAPS program

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Common Misconceptions of Fund Accounting � Drawing funds from a prior SNAPS grant

to pay for a present grants’ expenditure

– Each grant has a specific funding period – Excess funds are subject to recapture by HUD

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Start with a Chart of Accounts

� Fund accounting starts from a basic building block—chart of accounts – Outlines all revenue sources – Outlines all expenditures by eligible activities

Model Chart of Accounts

Model Chart of Accounts

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Model Chart of Accounts

� Start with chart of revenues – Broken down by specific funding sources

� Expenditures for each possible activity and sub-activity � Specific expenditure charts for each

individual project � Chart of accounts grows with each new

project undertaken

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Developing a Sources and Uses Statement � Develop chart of accounts for grant, then

– Develop sources and uses statement outlined in general ledger

– Customized to particular SHP activity � We will use the “chart of accounts” as a

basic building block through the rest of the presentation.

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Examples of Fund Accounting

� Budget models – Housing operations with supportive services – Leasing with supportive services – Development with supportive services – Supportive services only – HMIS only – Development only – Grantee with sponsors

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Model Source and Use

Statements

Model Source and Use

Statements

One Model

� Housing operations with supportive services – Accounts for all revenues

• From HUD and others – Accounts for all expenses

• HUD-eligible and not eligible – HUD-eligible costs classified

• Direct • Allocated

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Who Uses Fund Accounting

� Board of Directors – Financially responsible for viability of

organization

– Owns program as they understand their

liability and responsibility � External funders (including HUD)

– Gain confidence in organization as it complies with business norms

� Staff and management – Tracks operations and reporting

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Exercise

� Family Services, Inc. – Review the case description – Complete the worksheet – Answer the related questions

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How Does Financial Management Relate to Fund Accounting?

Financial Management

� OMB establishes guidelines for financial management – Addresses many areas of financial systems

including requirement for fund accounting

– Applies to all awards of federal assistance

– May apply differently to specific grants based on role of recipient

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Relationship of Federal Regulations

Area of Financial Management

State and Local Governments Not-for-Profits

Cost Principles OMB Circular A-87 OMB Circular A-122

Audits OMB Circular A-133 OMB Circular A-133

Uniform Administrative Requirements

24 CFR Part 85 24 CFR Part 84

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OMB Accounting Standards

� Fund Accounting helps an organization

comply with OMB’s federal standards

– Control and account for funds, property and other assets

– Identify source and use of all federal funds

– Allow accurate, timely and complete financial reporting

– Minimize time in transfer of funds between federal government and grantee

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Accounting Records

� Tracks the sources and uses of funds � Ensures that program costs are

– Incurred for the proper period – Actually paid – Expended on eligible items – Expended from the appropriate grant

– Approved by appropriate officials

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Sources and Uses of Funds

� Up-to-date information on sources and uses of funds – Amount of federal funds received and

authorization of funds – Obligations of funds and un-obligated

balances – Assets and liabilities – Program income – Expenses by grant year and program

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Determining Costs

� Costs are only eligible if they – Are associated with an eligible client – Pay for eligible activities – Are delineated in your application (budget) – Have adequate source documentation – Meet OMB standards for being reasonable,

allowable and allocable

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Cost Reasonableness

� Costs charged to federal award must be necessary, reasonable and directly related to the grant � Look at the following

– Whether cost is ordinary and necessary – Market prices for comparable goods and

services – Benefit to the individuals involved

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Cost Allowability

� In general, cost must be – Necessary and reasonable – Allocable to the program – Authorized or not prohibited – Conform to and be consistent with rules and

requirements – Not charged to any other program

� Refer to list of allowed costs in OMB Circular

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Cost Allocation

� A cost is allocable to a HUD program if it is

– Treated consistently with other similar costs

– Incurred specifically for the program – Benefits program or can be distributed based

on a reasonable proportion – Necessary to operations

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Determining Eligibility

� If properly procured, cost is reasonable � If on approved budget, cost is allowable � If directly linked to grant, cost is allocable

� Therefore, if costs are reasonable, allowable and allocable… � They are eligible for federal

reimbursement!

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restriction and requirements

3. Develop procedures

restriction and requirements

3. Develop procedures

To-Do ListTo-Do List

1. Read grantRead grant1. agreementagreement

2. Learn scope ofLearn scope of2.

Grant Agreement

� Establishes compliance standards for federal requirements – SuperNOFA – Application – Technical Submission – OMB Circulars

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Importance of Fund Accounting to Financial Management � HUD grant may be of

many funding sources – Multiple grants lead to

fund accounting – Multiple HUD grants lead

to fund accounting – Financial management

system must account forrequirements

• All funding streams

• Each project and/or activity

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Local Government

Foundations

State Government

Donors

HUD 2

HUD 1

HUD 3

Developing Budgets

� Budgets are projections of expenses drawn from actual experience – Defines goals for a given period – Provides ability to monitor progress – Identifies significant variances between

financial goals and how resources are actually used

� Budgets should never be submitted to decision-makers and funding sources without including assumptions

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Budget Requirements

� OMB requires organizations put budget controls into place – Starting with the application – Confirmed in the technical submission – Established with an approved budget – Analyzed throughout agency operations

– Reconciled in any required reports

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Budget Requirements

� OMB requires organizations to compare and control expenditures – Keep records on budgeted amounts – Compare obligations and expenditures to

planned budgets and accomplishments

– Report deviations from budgets and plan

– Be prepared to request grant amendments when the budget deviations trigger such actions

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Developing a SNAPS Budget

� Study SNAPS budget requirements – Ask questions of the lead agency and/or HUD

before developing the SNAPS budget � Budget should include

– Description of particular SNAPS project – All HUD-eligible activities to be funded by the

SHP grant

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Developing a SNAPS Budget

� If necessary, include previous financial statements and budgets – Justifies historical assumptions used in your

budget � Contrast any budget changes from recent

history – Such as increases in utilities

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Developing a SNAPS Budget

� Include all budget assumptions – Especially those which might require greater

explanation – Such as substantial difference in cost from

historical assumptions

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Developing a SNAPS Budget

� Include allocation of all positions funded by the SNAPS grant – Include assumptions about projected hours to

be budgeted for each position by various funding sources

� Include for all funded positions – Descriptions – “Fully loaded” rates (wages and fringe

benefits) 45

– Breakdown of costs funded by SHP grant

Developing a SNAPS Budget

� Include all sources of funds – Match allocated to a specific SNAPS eligible

activity – Budget must fully account for all costs

associated with grant

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Developing a SNAPS Budget

� Funding non-HUD eligible activities – Identify source of funds – Comprehensive budget for the agency that

accounts for all HUD, cash match, and non-HUD funded activities

� Analyzing the budget – One other staff member – One Board member – Analyze and ask questions

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How Does Fund Accounting Impact Running A Program?

Impact on Program Operations

� Documenting time and activities � Pro-rating costs

– Personnel – Non-personnel

� Tracking other funds

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Timesheets and Activity Records

� Timesheets account for actual time spent on an eligible activity � Timesheets show the

“output” of one’s efforts � Timesheets are

necessary for payroll and accounting for one’s wages and compensation

� Activity records are the back up documentation that shows what was done during the time � Activity records show

the “outcome “ of one’s effort

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Documenting Time

� Most employees work on more than one activity and/or project � OMB standards require that

– Work be supported with employee time and activity tracking system

• Actual time was spent on an activity • What activity took place ( eligible client, eligible

activity) • Must be documented with activity records

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Timekeeping Requirements

� OMB requirements – After-the-fact determination of actual activity – Signed by individual employee or by

supervisor with first hand knowledge of employee’s work

– Prepared at least monthly – Charges to awards for salaries and wages

must be based on documented payrolls approved by responsible official of organization [OMB Circular A-122]

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Important Distinction

� OMB Circular A-122 requirements(nonprofits) – Charges for salaries and wages must be

based on documented payrolls approved by aresponsible official of the organization

– Distribution of salaries and wages must besupported by personnel activity reports exceptwhen a substitute system has been approved

– Reports must be signed by individualemployee or by a responsible supervisoryofficial having first hand knowledge ofemployee’s activities

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Important Distinction

� OMB Circular A-87 requirements (governments) – Charges for salaries and wages must be

based on payrolls and approved by a responsible official of the governmental unit

– Personnel activity reports must be signed by the employee

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Addressing Problems

� Where past time documentation has not been adequate, HUD may require grantees adopt stricter standards

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Time and Activity Reports

� Used to determine actual salary expenses

– Ties activities back to budget – Applies to HUD grantees, sponsors and

service providers

Model Time and Activity

Report

Model Time and Activity

Report

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Personnel Activity Reports

� All personnel activity reports must be signed by the individual employee, or by a responsible official having first hand knowledge of the activities performed by the employee � Payrolls must be approved by a

responsible official of the organization

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Model Time and Activity Report

� HUD-eligible and ineligible time allocations possible � Time accounted for within specific HUD

grants � Signed by employee or supervisor � Recorded after-the-fact

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Allowable vs. Allocable

� The real issue with time and activity reports is not whether the activity is allowable or not… � BUT whether the time is allocable to the

specific SNAPS grant

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Activity Records

� Documentation that supports time and activity reports – Clients’ case notes – Calendars, logs and sign-in sheets – Daily, weekly and quarterly reports – Products and deliverables

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Top 10 Timekeeping Mistakes

1. Charging straight 8 hours per day or straight percentage of time to a grant

2. Not using information from the time and activity report to charge the grant

3. Having discrepancies between payroll and budget

4. Not including sick time and vacation 5. Not linking time to an eligible activity

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Top 10 Timekeeping Mistakes

6. Not linking time to an eligible grant (ormultiple grants)

7. Not identifying a project or client 8. Not showing time spent on ineligible

activities 9. Not having documentation (activity

records) to support the time and activity report

10.Not getting either the timesheet or the activity report signed

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Pro-Rating Costs

� Required by HUD where full cost is not the actual cost for HUD’s piece � Must always have source documentation

to substantiate

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Pro-Rating Costs

� Personnel costs for supportive services, operations and administration – Salaries pro-rated based on actual, not

budgeted time – Personnel costs should include benefits

– Document with time and activity records

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Important Eligibility Consideration

� If the client is not eligible – All costs associated with that client are

ineligible for federal reimbursement – All match associated with that client is

ineligible

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Pro-Rating Costs

� Non-personnel costs for buildings and equipment – Pro-rate based on an established base

• Square footage of space • Time used • Actual mileage

– Document with logs, plans, etc.

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Allocating Non-Personnel Costs

� Space – Square footage – Usage (logs)

� Motor pool – Miles driven – Days used (logs)

� Computers – Separate by function – System usage

� Printing and reproduction – Number of copies – Separate by function

– Key/code access � Telephone

– Number of instruments – Separate by function

– Usage (logs)

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Tracking Other Funds

� Fees for services � Rents collected from residents � Mandatory savings accounts � Also, application of receipts that reduce

expenses – Management fees – Rebates – Discounts

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Exercise

� Haven House – Review each scenario – Select one answer for each

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How Does Fund Accounting Impact Match Requirements?

100% Equals 100%

� To serve 100% of the clients � With 100% of the activities � You must raise 100% of the total project

costs – HUD grant plus match

� If not, you are either – Not serving 100% of the clients – Not providing 100% of the activities

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Meeting Match Obligation

� Calculating match – Expenditures – Less SNAPS reimbursement – Equals Cash Match

� For example, an agency has incurred

$100,000 of eligible operations costs

$100,000 Total expenditures –$75,000 SHP reimbursement =$25,000 Cash match

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SHP Match Requirements

� Acquisition � 50/50 � Rehabilitation � 50/50 � New Construction � 50/50 � Supportive Services � 80/20 � Leasing � None � Operations � 75/25 � Administration � None � HMIS � 80/20

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SHP Match Sources

� Match must be CASH! � Must document match as part of the

management of your financial system � Must show that match is not being counted

as match for another federal program � Must keep source documentation on file

for review when needed

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SHP Match Sources

� Rent collected from clients may be counted towards your match requirement – If the rent is calculated properly and used for

HUD eligible activities

Remember, rent is rent, fees are fees

and savings are savings!

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SNAPS Match Sources

� Match can be from another HUD source – CDBG Program – HOME Program

• for acquisition, rehabilitation or new construction – Make sure match is eligible and authorized by

the federal funding source

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What Is Not Match?

� Rent is not always match � Fees are not match

– Fees are charged for a specific non -SNAPS use

� Savings are not match – Savings belong to the client, not the agency

� Non-cash donations are not match � Cash pledged to another grant is not

match

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How Does Fund Accounting Affect Grant Reporting?

Reporting Your Finances

� APR shows how grantee has performed financially during an operating year � Financial statements show financial

condition of organization at a point in time � Audit verifies all financial accounts over a

specific period of time, usually a fiscal year

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Function of Each Report

Annual Progress Report

Matches SHP draws and cash match to eligible SHP activities for HUD compliance

Financial Statements

Shows all sources of funds and uses of funds at a point in time to help operate the organization

Audits Verifies all revenues and expenses for a specific period and shows whether financially sound

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Annual Progress Report

� APR used to track project progress – Information on clients and services

– Information on expenditures and match

� Each grantee must submit an APR

– Supported with source documentation on file

� Separate APRs submitted for each grant received – Budget→Systems→Match→APR

Common Mistake

Budget in technical

submission does not align with budget in

APR

Common Mistake

Budget in technical

submission does not align with budget in

APR

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Components of APR

� Part I includes information on clients and activities � Part II provides financial information

– Expenditures and match for leasing, supportive services, operations, HMIS, administration, acquisition, rehabilitation and new construction

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Completing the APR

� Ensure you are using the most recent APR � Have program and finance staff complete

APR together – Parts I and II must be consistent

Checklist for Completing

APR

Checklist for Completing

APR

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Financial Statements

� Shows financial information at a point in time – Balance sheet (assets and liabilities) – Revenue and expenses

� Shows a positive or negative fund balance over time � Shows whether revenues are greater than

expenses

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Audit Requirement

� Federal programs subject to audit – Spending $500,000 or more in federal awards

per year – OMB Circular A-133 standards apply

� In addition to OMB’s requirement, audits – Are a universally accepted analytical tool – Demonstrates accountability of the Board

– Demonstrates proper stewardship of funds

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OMB Standards

� A-133 single audit – Funds come from more than one source – Involves looking at all programs individually

and organization as a whole � Select auditor who knows requirements

– More than a “clean bill of health” – Auditor must understand program compliance

• Not all auditors check for compliance with federal regulations, including fund accounting

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Auditing Standards

� Audits look at – Correct presentation of financial information – Financial management systems – Activities generally in compliance with program

requirements � Audit report must address each area � Audit does not assure there will be no

monitoring findings – Narrower scope of work than monitoring – Auditors may not determine compliance with all HUD

requirements

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Wrap-up

What Have You Learned?

� Post-assessment � Complete each true or false

question

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Fund Accounting Action Plan

1. Read NOFA, application, desk guide,technical submission, budget and OMBcirculars

2. Create a chart of accounts 3. Create budgets based on specific SHP

grant activities 4. Develop financial management system

including policies and procedures 5. Develop a time and activity reporting

system 90

Fund Accounting Action Plan

6. Develop allocation system for non-personnel costs

7. Train staff on financial management 8. Use both program and finance staff to

complete APR 9. Hire an auditor who knows A-133

requirements 10. Implement checks and balances

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Wrap Up

� Cleaning out “the BIN” � Evaluations � Who you gonna’ call?

– Lead Agency – HUD – TDA

� Have a safe journey!

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For Future Reference

Training & Development Associates, Inc.

131 Atkinson Street, Suite B

Laurinburg, NC 28352

910/277-1275 (O)

910/277-2816 (F)

www.tdainc.org

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