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Terminal Leave & Other Grave Matters

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Resurrection

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Terminal Leave & Other Grave Matters

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OVERVIEW PART 1

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RESURRECTION

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OVERVIEW PART 2 Teds Resurrection

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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

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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.

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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

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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

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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

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Components Administers grants that generate or a benefit from indirect costs 25

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Part III Standard Indirect Cost Rate of 10% 38

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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

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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