coping with cost principles - caplaw.org · (3) costs of conducting general liaison with news media...

S.R. Snodgrass, A.C. 1

COPING WITH COST COPING WITH COST PRINCIPLESPRINCIPLES

S.R. Snodgrass, A.C. S.R. Snodgrass, A.C. Certified Public AccountantsCertified Public Accountants 22

Composition of Total CostsComposition of Total Costs

Sum of:Sum of:

Allowable direct costsAllowable direct costs++

Allocable indirect costsAllocable indirect costs__

Applicable CreditsApplicable Credits


Factors Affecting Allowability of Factors Affecting Allowability of CostsCosts

a. Be reasonable for the performance of the a. Be reasonable for the performance of the award and be allocable, thereto, under these award and be allocable, thereto, under these principles. principles.

b. Conform to any limitations or exclusions set b. Conform to any limitations or exclusions set forth in these principles or in the award as to forth in these principles or in the award as to types or amount of cost items. types or amount of cost items.

c. Be consistent with policies and procedures c. Be consistent with policies and procedures that apply uniformly to both federallythat apply uniformly to both federally--financed financed and other activities of the organization. and other activities of the organization.



Factors Affecting Allowability of Factors Affecting Allowability of CostsCosts

d. Be accorded consistent treatment. d. Be accorded consistent treatment. e. Be determined in accordance with generally e. Be determined in accordance with generally

accepted accounting principles (GAAP). accepted accounting principles (GAAP). f. Not be included as a cost or used to meet cost f. Not be included as a cost or used to meet cost

sharing or matching requirements of any other sharing or matching requirements of any other federallyfederally--financed program in either the current financed program in either the current or a prior period. or a prior period.

g. Be adequately documented. g. Be adequately documented.


Reasonable CostsReasonable Costs

Does not exceed that which would be Does not exceed that which would be incurred by a incurred by a prudent personprudent person under the under the circumstances prevailing at the time. circumstances prevailing at the time.


Considerations for Determining Considerations for Determining Reasonable CostsReasonable Costs

a. The cost is of a type generally recognized as a. The cost is of a type generally recognized as ordinary and necessary for the operation of the ordinary and necessary for the operation of the organization, or the performance of the award. organization, or the performance of the award.

b. The restraints or requirements imposed by b. The restraints or requirements imposed by such factors as generally accepted sound such factors as generally accepted sound business practices, arms length bargaining, business practices, arms length bargaining, Federal and State laws and regulations, and Federal and State laws and regulations, and terms and conditions of the award.terms and conditions of the award.



Considerations for Determining Considerations for Determining Reasonable CostsReasonable Costs

c. Whether the individuals concerned acted with c. Whether the individuals concerned acted with prudence in the circumstances, considering their prudence in the circumstances, considering their responsibilities to the organization, its members, responsibilities to the organization, its members, employees, and clients, the public at large, and employees, and clients, the public at large, and the Federal Government. the Federal Government.

d. Significant deviations from the established d. Significant deviations from the established practices of the organization which may practices of the organization which may unjustifiably increase the award costs. unjustifiably increase the award costs.


Allocable CostsAllocable Costs

A cost is allocable to a particular cost A cost is allocable to a particular cost objective, such as a grant, contract, objective, such as a grant, contract, project, service, or other activity, in project, service, or other activity, in accordance with the relative benefits accordance with the relative benefits received. A cost is allocable to a Federal received. A cost is allocable to a Federal award if it is treated consistently with award if it is treated consistently with other costs incurred for the same purpose other costs incurred for the same purpose in like circumstances and if it: in like circumstances and if it:



(1) Is incurred specifically for the award. (1) Is incurred specifically for the award. (2) Benefits both the award and other (2) Benefits both the award and other

work and can be distributed in reasonable work and can be distributed in reasonable proportion to the benefits received, or proportion to the benefits received, or

(3) Is necessary to the overall operation of (3) Is necessary to the overall operation of the organization, although a direct the organization, although a direct relationship to any particular cost relationship to any particular cost objective cannot be shown. objective cannot be shown.




Any cost allocable to a particular award or Any cost allocable to a particular award or other cost objective under these principles other cost objective under these principles may not be shifted to other Federal may not be shifted to other Federal awards to overcome funding deficiencies, awards to overcome funding deficiencies, or to avoid restrictions imposed by law or or to avoid restrictions imposed by law or by the terms of the award. (by the terms of the award. (Cost transfers Cost transfers between programs must be adequately between programs must be adequately documented.)documented.)



Applicable credits refer to those receipts, Applicable credits refer to those receipts, or reduction of expenditures which or reduction of expenditures which operate to offset or reduce expense items operate to offset or reduce expense items that are allocable to awards as direct or that are allocable to awards as direct or indirect costs. indirect costs.

Shall be credited to the Federal Shall be credited to the Federal Government either as a cost reduction or Government either as a cost reduction or cash refund.cash refund.



Purchase discountsPurchase discounts Rebates or allowancesRebates or allowances Recoveries or indemnities on lossesRecoveries or indemnities on losses Insurance refundsInsurance refunds Adjustments of overpayments or Adjustments of overpayments or

erroneous charges erroneous charges



Questioned CostsQuestioned CostsA cost that is questioned by the auditor because of an A cost that is questioned by the auditor because of an audit finding: audit finding:

(1) A violation or possible violation of a provision of a (1) A violation or possible violation of a provision of a law, regulation, contract, grant, cooperative agreement, law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the use of or other agreement or document governing the use of Federal funds, including funds used to match Federal Federal funds, including funds used to match Federal funds; funds;

(2) The costs, at the time of the audit, are not supported (2) The costs, at the time of the audit, are not supported by adequate documentation;by adequate documentation;

(3) The costs incurred appear unreasonable and do not (3) The costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the reflect the actions a prudent person would take in the circumstances. circumstances.


Documentation is a Key to Avoiding Documentation is a Key to Avoiding Questioned CostsQuestioned Costs

Underlying source documents should support Underlying source documents should support the costs charged to federal programs. the costs charged to federal programs. (Incorporate (Incorporate ““memomemo--toto--the filethe file”” when needed)when needed)

Documentation should stand alone.Documentation should stand alone. Original documents are more reliable.Original documents are more reliable. Follow record retention standards (Generally Follow record retention standards (Generally

3 years, but some agencies require longer 3 years, but some agencies require longer retention periods. Check your grant retention periods. Check your grant agreements.)agreements.)


Reasons for Unallowable Costs Reasons for Unallowable Costs

Cost is unallowable.Cost is unallowable. Cost is unreasonable in Cost is unreasonable in

nature or amount. nature or amount. Proper approval was not Proper approval was not

obtained.obtained. Cost is not documented Cost is not documented ––

this is the most common this is the most common issue behind an issue behind an unallowable cost. unallowable cost.

Unallowable costs are Unallowable costs are preventable.preventable.

Maintain best evidence Maintain best evidence possible.possible.

Physical and documented Physical and documented statements can also be statements can also be used as cost support.used as cost support.

MemosMemos--toto--thethe--file to file to provide additional support provide additional support for decisions that may for decisions that may cause question. cause question.



1. Advertising and Public Relations1. Advertising and Public Relations

Advertising is allowable solely for:Advertising is allowable solely for:

(1) The recruitment of personnel. (1) The recruitment of personnel.

(2) The procurement of goods and services. (2) The procurement of goods and services.

(3) The disposal of scrap or surplus materials. (3) The disposal of scrap or surplus materials.

(4) Other specific purposes necessary to meet (4) Other specific purposes necessary to meet the requirements of the Federal award. the requirements of the Federal award.


1. Advertising and Public Relations1. Advertising and Public Relations

Allowable public relations costs:Allowable public relations costs:

(1) Costs specifically required by the Federal (1) Costs specifically required by the Federal award. award.

(2) Costs of communicating with the public and (2) Costs of communicating with the public and press pertaining to specific activities or press pertaining to specific activities or accomplishments which result from performance accomplishments which result from performance of Federal awards. of Federal awards.

(3) Costs of conducting general liaison with news (3) Costs of conducting general liaison with news media and government public relations officers.media and government public relations officers.


4.4. Audit Costs and Related Audit Costs and Related ServicesServices

a. The costs of audits required by, and performed in accordance a. The costs of audits required by, and performed in accordance with, the Single Audit Act, as implemented by Circular Awith, the Single Audit Act, as implemented by Circular A--133, 133, "Audits of States, Local Governments, and Non"Audits of States, Local Governments, and Non--Profit OrganizationsProfit Organizations””are allowable. are allowable.

b. Other audit costs are allowable, if included in an indirect b. Other audit costs are allowable, if included in an indirect cost cost rate proposal, or if specifically approved by the awarding agencrate proposal, or if specifically approved by the awarding agency as y as a direct cost to an award. a direct cost to an award.

c. The cost of agreedc. The cost of agreed--upon procedures engagements to monitor upon procedures engagements to monitor subrecipients who are exempted from Asubrecipients who are exempted from A--133 under Section 200(d) 133 under Section 200(d) are allowable.are allowable.



8. Compensation for Personal 8. Compensation for Personal ServicesServices

Includes all compensation paid currently Includes all compensation paid currently or accrued by the organization for services or accrued by the organization for services of employees rendered during the period of employees rendered during the period of the award.of the award.

Must be reasonable and conform to Must be reasonable and conform to established policy, and be adequately established policy, and be adequately documented.documented.


Reasonable CompensationReasonable Compensation

Comparable to that paid for similar work in the labor Comparable to that paid for similar work in the labor markets in which the organization competes for the kind markets in which the organization competes for the kind of employees involved.of employees involved.

Maximum annual salary for a Head Start employee Maximum annual salary for a Head Start employee cannot exceed Executive Level II, as established by the cannot exceed Executive Level II, as established by the Office of Personnel Management ($179,700 as of Office of Personnel Management ($179,700 as of 1/1/10).1/1/10).


Other Costs Related to Other Costs Related to CompensationCompensation

Fringe BenefitsFringe Benefits Organization Furnished AutomobilesOrganization Furnished Automobiles Pension Plan CostsPension Plan Costs Incentive CompensationIncentive Compensation Severance PaySeverance Pay

Remember to apply Agency policies consistently Remember to apply Agency policies consistently to all employees!to all employees!



Support of Salaries and WagesSupport of Salaries and Wages

Charges to awards for salaries and wages will be Charges to awards for salaries and wages will be based on documented payrolls, and the based on documented payrolls, and the distribution of salaries and wages to awards distribution of salaries and wages to awards must be supported by personnel activity reports. must be supported by personnel activity reports. (Documentation must support effort in the (Documentation must support effort in the Federal program Federal program –– the programthe program’’s fair share.)s fair share.)

Reports reflecting the distribution of activity of Reports reflecting the distribution of activity of each employee must be maintained for all staff each employee must be maintained for all staff members. (Budgets do not support expenditures members. (Budgets do not support expenditures to a grant.)to a grant.)


Personnel Activity ReportsPersonnel Activity Reports Must reflect an afterMust reflect an after--thethe--fact determination of the actual fact determination of the actual

activity of each employee.activity of each employee. Must account for the total activity for which employees Must account for the total activity for which employees

are compensated and which is required in fulfillment of are compensated and which is required in fulfillment of their obligations to the organization.their obligations to the organization.

Must be signed by the individual employee, or by a Must be signed by the individual employee, or by a responsible supervisory official having first hand responsible supervisory official having first hand knowledge of the activities performed by the employee.knowledge of the activities performed by the employee.

Must be prepared at least monthly and must coincide Must be prepared at least monthly and must coincide with one or more pay periods.with one or more pay periods.

Must include hours worked each day for nonprofessional Must include hours worked each day for nonprofessional employees (Fair Labor Standards Act).employees (Fair Labor Standards Act).


11. Depreciation and Use 11. Depreciation and Use AllowanceAllowance

Compensation for the use of buildings and Compensation for the use of buildings and equipment may be made through use equipment may be made through use allowance or depreciation.allowance or depreciation.

Shall be based on acquisition cost, Shall be based on acquisition cost, excluding the cost of land and any costs excluding the cost of land and any costs borne by the Federal Government, or as a borne by the Federal Government, or as a matching requirement.matching requirement.



DepreciationDepreciation

Based on useful lives of the assets.Based on useful lives of the assets. StraightStraight--line method is presumed to be the line method is presumed to be the

appropriate method.appropriate method. Building costs may be segregated by Building costs may be segregated by

components.components. No depreciation on fullyNo depreciation on fully--depreciated assets.depreciated assets. Depreciation records indicating the amount of Depreciation records indicating the amount of

depreciation taken each period must be depreciation taken each period must be maintained.maintained.


Use AllowanceUse Allowance

Building and improvements Building and improvements –– 2% 2% Equipment Equipment –– 6.67%6.67% Must be supported by adequate property Must be supported by adequate property

records, and physical inventories must be records, and physical inventories must be taken at least once every 2 years.taken at least once every 2 years.


15. Equipment and Other Capital 15. Equipment and Other Capital ExpendituresExpenditures

(1) General purpose equipment, buildings, and land are (1) General purpose equipment, buildings, and land are unallowable as direct charges, except where approved in unallowable as direct charges, except where approved in advance by the awarding agency. advance by the awarding agency.

(2) Special purpose equipment are allowable as direct (2) Special purpose equipment are allowable as direct costs, provided that items with a unit cost of $5,000 or costs, provided that items with a unit cost of $5,000 or more have the prior approval of the awarding agency. more have the prior approval of the awarding agency.

(3) Improvements to land, buildings, or equipment, (3) Improvements to land, buildings, or equipment, which materially increase their value or useful life are which materially increase their value or useful life are unallowable as a direct cost, except with the prior unallowable as a direct cost, except with the prior approval of the awarding agency.approval of the awarding agency.



15. Equipment and Other Capital 15. Equipment and Other Capital ExpendituresExpenditures

(4) When approved as a direct charge, capital (4) When approved as a direct charge, capital expenditures will be charged in the period in which the expenditures will be charged in the period in which the expenditure is incurred.expenditure is incurred.

(5) Equipment and other capital expenditures are (5) Equipment and other capital expenditures are unallowable as indirect costs.unallowable as indirect costs.


29. Meetings and Conferences29. Meetings and Conferences

Costs of meetings and conferences, the primary Costs of meetings and conferences, the primary purpose of which is the dissemination of purpose of which is the dissemination of technical information, are allowable. technical information, are allowable.

Includes costs of meals, transportation, rental of Includes costs of meals, transportation, rental of facilities, speakersfacilities, speakers‘‘ fees, and other items fees, and other items incidental to such meetings or conferences. incidental to such meetings or conferences.


30. Memberships, Subscriptions 30. Memberships, Subscriptions and Professional Activity Costsand Professional Activity Costs

Allowable:Allowable:Membership in business, technical, or professional Membership in business, technical, or professional organizations.organizations.Subscriptions to business, professional, or technical Subscriptions to business, professional, or technical periodicals.periodicals.

Unallowable:Unallowable:Membership in any country club, social, or dining club.Membership in any country club, social, or dining club.

Allowable with Prior Approval:Allowable with Prior Approval:Membership in civic or community organization.Membership in civic or community organization.



36. Pre36. Pre--Agreement CostsAgreement Costs

incurred prior to the effective date of the incurred prior to the effective date of the award.award.

directly pursuant to the negotiation.directly pursuant to the negotiation. in anticipation of the award. in anticipation of the award. necessary to comply with the proposed necessary to comply with the proposed

delivery schedule or period of performance.delivery schedule or period of performance.

AllowableAllowable


37. Professional Services37. Professional Services

Costs of professional and consultant Costs of professional and consultant services rendered by persons who are services rendered by persons who are members of a particular profession or members of a particular profession or possess a special skill, and possess a special skill, and who are not who are not officers or employees of the nonofficers or employees of the non--profit organizationprofit organization, are allowable., are allowable.


43. Rental Costs of Buildings and 43. Rental Costs of Buildings and EquipmentEquipment

A. Allowable to the extent that rates are A. Allowable to the extent that rates are reasonable.reasonable.

B. B. ““Sale and LeasebackSale and Leaseback”” allowable up to the allowable up to the amount that would be allowed had the grantee amount that would be allowed had the grantee continued to own the property.continued to own the property.

C. C. ““LessLess--thanthan--Arms LengthArms Length”” allowable up to the allowable up to the amount that would be allowed had grantee amount that would be allowed had grantee owned the property.owned the property.

D. Capital lease costs allowable only up to the D. Capital lease costs allowable only up to the amount that would have been allowable had the amount that would have been allowable had the grantee purchased the property. grantee purchased the property.



47. Taxes47. Taxes Taxes which the grantee is required to pay Taxes which the grantee is required to pay

are allowable with exceptions:are allowable with exceptions:

i. Taxes for which exemptions are available.i. Taxes for which exemptions are available.ii. Special assessment on land.ii. Special assessment on land.iii. Federal income taxes.iii. Federal income taxes.

Tax refunds must be credited to the award that was Tax refunds must be credited to the award that was charged or returned.charged or returned.


49. Training49. Training

InIn--house house PartPart--time educationtime education FullFull--time educationtime education Executive or management trainingExecutive or management training


51. Travel51. Travel

Actual costs or per diem.Actual costs or per diem. Lodging and subsistence Lodging and subsistence –– cannot exceed charges cannot exceed charges

normally allowed per written travel policy.normally allowed per written travel policy. Commercial air travel Commercial air travel –– standard commercial coach standard commercial coach

or equivalent class.or equivalent class. Foreign travel Foreign travel –– allowable with prior approval.allowable with prior approval.(Documentation includes the authorization to travel, (Documentation includes the authorization to travel,

expense statement with receipts, and adherence to expense statement with receipts, and adherence to Agency policy relative to per diems, etc.)Agency policy relative to per diems, etc.)



Questions?

1


The Single Audit Process and How to The Single Audit Process and How to Avoid Common Audit ProblemsAvoid Common Audit Problems

Understanding the Process and being Properly Prepared are the keys to a

Successful Audit!


Avoiding Common Audit ProblemsAvoiding Common Audit Problems

Do you understand the audit process and how to interpret the Do you understand the audit process and how to interpret the results?results?

Do you know the requirements of the auditee?Do you know the requirements of the auditee? Are you properly prepared for your audit?Are you properly prepared for your audit?

Is your agency in compliance with applicable laws and regulationIs your agency in compliance with applicable laws and regulations? s? Do you know what compliance requirements you need to meet?Do you know what compliance requirements you need to meet?

Are your agencyAre your agency’’s internal controls adequate? Do they address s internal controls adequate? Do they address compliance requirements for Federal Programs? Is documentation compliance requirements for Federal Programs? Is documentation sufficient to support what controls are in place? Have you sufficient to support what controls are in place? Have you documented your agencydocumented your agency’’s controls in accordance with the COSO s controls in accordance with the COSO framework? framework?


If you adequately address these If you adequately address these issues and questions, your agency issues and questions, your agency will be on track for a successful will be on track for a successful

audit and will avoid common audit audit and will avoid common audit problems.problems.

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A Quality Audit is to Your Benefit!A Quality Audit is to Your Benefit!

Avoid reputation risk in your community and Avoid reputation risk in your community and amongst your peers.amongst your peers.

Fulfill your fiduciary responsibility.Fulfill your fiduciary responsibility. Meet the needs of your community.Meet the needs of your community. Provide assurance about the integrity of your Provide assurance about the integrity of your

programs.programs. Be involved in quality assurance plan Be involved in quality assurance plan –– identify identify

any noncompliance or control weaknesses early.any noncompliance or control weaknesses early.


What an Auditee can do to improve What an Auditee can do to improve audit qualityaudit quality

Be well educated about the single audit process.Be well educated about the single audit process. Know what is required of the auditee and understand Know what is required of the auditee and understand

your responsibilities in the audit process. BE PREPARED!your responsibilities in the audit process. BE PREPARED! Know the compliance requirements.Know the compliance requirements. Ensure your controls are documented and functioning as Ensure your controls are documented and functioning as

intended.intended. Know the qualifications of your audit firm in the hiring Know the qualifications of your audit firm in the hiring

process, and evaluate the audit firmprocess, and evaluate the audit firm’’s anticipated hours s anticipated hours in relation to the firmin relation to the firm’’s proposed audit fees. s proposed audit fees.


Government Audit Quality Center of Government Audit Quality Center of the American Institute of Certified the American Institute of Certified

Public Accountants Public Accountants Ask your auditor if they are a member of the Ask your auditor if they are a member of the

GAQC.GAQC. Ask about access to the archived conference call Ask about access to the archived conference call

on on Preparing for Your Single Audit: An Auditee Preparing for Your Single Audit: An Auditee Perspective.Perspective.

That call will address, in more detail, some of That call will address, in more detail, some of the topics we will go over today and provide the topics we will go over today and provide additional insight to the audit preparation additional insight to the audit preparation process. process.

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THE PROCESSTHE PROCESS


Overview of the Audit ProcessOverview of the Audit Process

Audit in Accordance with Audit in Accordance with Government Auditing Government Auditing StandardsStandards -- Higher Level Higher Level of Standardsof Standards

Audit Covers Entire Audit Covers Entire AgencyAgency

Financial Statements are Financial Statements are Presented Fairly in Presented Fairly in Accordance with GAAP or Accordance with GAAP or OCBOAOCBOA

Tests of Internal Control Tests of Internal Control Tests of Compliance with Tests of Compliance with

Laws and RegulationLaws and Regulation FollowFollow--up on Prior Year up on Prior Year

Audit FindingsAudit Findings Submission of the Data Submission of the Data

Collection FormCollection Form


Understanding what reports will be Understanding what reports will be issued as a result of the audit issued as a result of the audit

process and the Auditeeprocess and the Auditee’’s role and s role and responsibilities.responsibilities.

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REPORTINGREPORTING


Audit ReportingAudit Reporting

(1) An opinion as to whether the financial statements are (1) An opinion as to whether the financial statements are presented fairly and an opinion as to whether the presented fairly and an opinion as to whether the Schedule of Expenditures of Federal Awards (SEFA) is Schedule of Expenditures of Federal Awards (SEFA) is presented fairly in all material respects in relation to the presented fairly in all material respects in relation to the financial statements taken as a whole. financial statements taken as a whole.

(2) A report on internal controls over financial reporting (2) A report on internal controls over financial reporting and compliance and other matters. and compliance and other matters.

(3) A report on compliance with major program (3) A report on compliance with major program requirements applicable to each major program. requirements applicable to each major program.


AUDITEE RESPONSIBILITIESAUDITEE RESPONSIBILITIES

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Auditee ResponsibilitiesAuditee Responsibilities Prepare Schedule of Expenditures of Federal Awards Prepare Schedule of Expenditures of Federal Awards –– the SEFA and the SEFA and

Auditee Section of the Data Collection Form. Provide a list of Auditee Section of the Data Collection Form. Provide a list of all all SubSub--recipient and Passrecipient and Pass--through Entities. Determine all awards are through Entities. Determine all awards are properly identified by appropriate CFDA number, including ARRA properly identified by appropriate CFDA number, including ARRA Funds and Clusters. (Funds and Clusters. (www.cfda.govwww.cfda.gov and Part 5 of 2009 Compliance and Part 5 of 2009 Compliance Supplement Addendum #1)Supplement Addendum #1)

Assure that Compliance Documents are Organized and Available forAssure that Compliance Documents are Organized and Available forReview. Compliance Staff Should be Available to Meet with Review. Compliance Staff Should be Available to Meet with Auditors.Auditors.

Internal Controls Should be Adequately Documented.Internal Controls Should be Adequately Documented. Organize Financial Records and Reports.Organize Financial Records and Reports. Document Status of Prior Findings.Document Status of Prior Findings. Organize Monitoring Files Organize Monitoring Files –– site visits, Asite visits, A--133 reports, contracts, 133 reports, contracts,

correspondence, and other crosscorrespondence, and other cross--agency information.agency information.


Auditee Responsibilities (SEFA)Auditee Responsibilities (SEFA)

(a) Identify, in its accounts, all Federal awards (a) Identify, in its accounts, all Federal awards received and expended and the Federal received and expended and the Federal Programs under which they were received. Programs under which they were received. Federal program and award identification shall Federal program and award identification shall include, as applicable, the CFDA title and include, as applicable, the CFDA title and number, award number and year, name of the number, award number and year, name of the Federal agency, and name of the passFederal agency, and name of the pass--through through entity. (entity. (Remember to identify any new clusters Remember to identify any new clusters and watch for new CFDA numbers due to ARRA and watch for new CFDA numbers due to ARRA funding.)funding.)


Schedule of Expenditures of Schedule of Expenditures of Federal Awards Federal Awards

(1) List individual Federal Programs by Federal agency. (1) List individual Federal Programs by Federal agency.

(2) For Federal awards received as a sub(2) For Federal awards received as a sub--recipient, the name of the recipient, the name of the passpass--through entity and identifying number assigned by the passthrough entity and identifying number assigned by the pass--through entity shall be included. through entity shall be included.

(3) Total Federal awards expended for each individual Federal (3) Total Federal awards expended for each individual Federal Program and Cluster and the applicable CFDA number.Program and Cluster and the applicable CFDA number.

(4) Notes that describe the significant accounting policies used(4) Notes that describe the significant accounting policies used in in preparing the schedule. preparing the schedule.

(5) Amount provided to sub(5) Amount provided to sub--recipients from each Federal Program. recipients from each Federal Program.

(6) Federal awards expended in the form of non(6) Federal awards expended in the form of non--cash assistance, cash assistance, the amount of insurance in effect during the year, and loans or the amount of insurance in effect during the year, and loans or loan loan guarantees.guarantees.

6


Avoiding SEFA ErrorsAvoiding SEFA Errors

Make sure you use proper CFDA #Make sure you use proper CFDA #’’s.s. Verify Cluster Programs in the Addendum Verify Cluster Programs in the Addendum

to the March 2009 Compliance to the March 2009 Compliance Supplement. (Part 5)Supplement. (Part 5)

Include all nonInclude all non--cash federal assistance.cash federal assistance. Reconcile expenditures to the general Reconcile expenditures to the general

ledger ledger –– include only Federal portion of include only Federal portion of expenditures in the SEFA. expenditures in the SEFA.


Auditee Responsibilities (IC)Auditee Responsibilities (IC)

(b) Maintain internal control over Federal (b) Maintain internal control over Federal programs that provide reasonable programs that provide reasonable assurance that the auditee is managing assurance that the auditee is managing Federal awards in compliance with laws, Federal awards in compliance with laws, regulations, and the provisions of regulations, and the provisions of contracts or grant agreements that could contracts or grant agreements that could have a material effect on each of its have a material effect on each of its Federal programs. Federal programs.


INTERNAL CONTROL INTERNAL CONTROL -- COSOCOSO

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Internal Control Internal Control –– Key ConceptsKey Concepts It is a It is a processprocess. It is a means to an end, not an end . It is a means to an end, not an end

itself.itself.

It is effected by It is effected by people. people. It is not merely policy It is not merely policy manuals and forms, but people at every level of an manuals and forms, but people at every level of an organization.organization.

It can be expected to provide only It can be expected to provide only reasonable reasonable assuranceassurance, not absolute assurance, to an entity, not absolute assurance, to an entity’’s s management and board.management and board.

It is geared to the achievement of It is geared to the achievement of objectives objectives in one in one or more separate, but overlapping categories.or more separate, but overlapping categories.


Internal Control Internal Control –– The COSO The COSO FrameworkFramework

THE CONTROL ENVIRONMENT THE CONTROL ENVIRONMENT –– establishes the foundation. establishes the foundation. (Tone at the Top)(Tone at the Top)

RISK ASSESSMENT RISK ASSESSMENT –– identification and analysis by identification and analysis by management of relevant risks. (i.e. risk of material management of relevant risks. (i.e. risk of material misstatement of financial statement amounts, or risk of materialmisstatement of financial statement amounts, or risk of materialnoncompliance)noncompliance)

CONTROL ACTIVITIES CONTROL ACTIVITIES –– policies, procedures, and practices. policies, procedures, and practices. (Your response to the risk assessment)(Your response to the risk assessment)

INFORMATION AND COMMUNICATION INFORMATION AND COMMUNICATION –– supports all other supports all other control components. (How information flows through your control components. (How information flows through your organization)organization)

MONITORING MONITORING –– oversight of internal controls.oversight of internal controls.


Evaluate Your Control Structure Evaluate Your Control Structure Under COSOUnder COSO

What is managementWhat is management’’s attitude about controls? s attitude about controls? -- the the control environment.control environment.

How do you know you needed this control? How do you know you needed this control? –– the risk the risk assessment process.assessment process.

What is your response to your identified risks?: proper What is your response to your identified risks?: proper segregation duties, safeguarding of assets, timeliness of segregation duties, safeguarding of assets, timeliness of recording transactions recording transactions –– control activities.control activities.

How do you communicate the control process? How do you communicate the control process? ––information and communication.information and communication.

How do you know the control is functioning properly? How do you know the control is functioning properly? ––the monitoring process.the monitoring process.

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Document Your Controls Using Document Your Controls Using COSOCOSO

Make sure everyone in the organization knows Make sure everyone in the organization knows the controls and where they are documented.the controls and where they are documented.

Provide employee training. Provide employee training.

Review controls to determine they are Review controls to determine they are functioning as designed.functioning as designed.

Monitor employees for compliance with the Monitor employees for compliance with the control structure control structure –– establish internal quality establish internal quality control processes.control processes.


Fraud AwarenessFraud Awareness

Incentive Opportunity

Rationalization


COMPLIANCECOMPLIANCE

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Auditee ResponsibilitiesAuditee Responsibilities

(c) Comply with laws, regulations, and the (c) Comply with laws, regulations, and the provisions of contracts or grant agreements provisions of contracts or grant agreements related to each of its Federal programs. As related to each of its Federal programs. As stated in Part 6 stated in Part 6 –– Internal Control of the 2009 AInternal Control of the 2009 A--133 Compliance Supplement, 133 Compliance Supplement, ““The AThe A--102 102 Common Rule and OMB Circular ACommon Rule and OMB Circular A--110 require 110 require that nonthat non--federal entities receiving federal awards federal entities receiving federal awards establish and maintain internal controls establish and maintain internal controls designed to reasonably ensure compliance with designed to reasonably ensure compliance with Federal laws, regulations, and program Federal laws, regulations, and program compliance requirements.compliance requirements.””


Know Your Compliance Know Your Compliance RequirementsRequirements

Review AReview A--133 Compliance Supplement.133 Compliance Supplement. Review Your Grant Documents and Review Your Grant Documents and

Contracts.Contracts. Establish Controls to Ensure Compliance Establish Controls to Ensure Compliance

with These Requirements.with These Requirements.


Internal Control Objectives Internal Control Objectives Regarding Compliance Regarding Compliance

Requirements for Federal ProgramsRequirements for Federal Programs Transactions are properly Transactions are properly

recorded and accounted recorded and accounted for.for.

Transactions are executed Transactions are executed in compliance with laws in compliance with laws and regulations. and regulations.

Funds and other assets are Funds and other assets are properly safeguarded from properly safeguarded from unauthorized use.unauthorized use.

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ComplianceCompliance

A. ACTIVITIES ALLOWED OR UNALLOWEDA. ACTIVITIES ALLOWED OR UNALLOWED B. ALLOWABLE COSTS/COST PRINCIPLESB. ALLOWABLE COSTS/COST PRINCIPLES C. CASH MANAGEMENTC. CASH MANAGEMENT D. DAVISD. DAVIS--BACON ACTBACON ACT E. ELIGIBILITYE. ELIGIBILITY F. EQUIPMENT AND REAL PROPERTY F. EQUIPMENT AND REAL PROPERTY

MANAGEMENTMANAGEMENT G. MATCHING, LEVEL OF EFFORT, G. MATCHING, LEVEL OF EFFORT,

EARMARKINGEARMARKING


ComplianceCompliance

H. PERIOD OF AVAILABILITY OF FEDERAL H. PERIOD OF AVAILABILITY OF FEDERAL FUNDSFUNDS

I. PROCUREMENT AND SUSPENSION AND I. PROCUREMENT AND SUSPENSION AND DEBARMENTDEBARMENT

J. PROGRAM INCOMEJ. PROGRAM INCOME K. REAL PROPERTY ACQUISITION AND K. REAL PROPERTY ACQUISITION AND

RELOCATION ASSISTANCERELOCATION ASSISTANCE L. REPORTINGL. REPORTING M. SUBRECIPIENT MONITORINGM. SUBRECIPIENT MONITORING N. SPECIAL TESTS AND PROVISIONSN. SPECIAL TESTS AND PROVISIONS


Auditee ResponsibilitiesAuditee Responsibilities

(d) Prepare appropriate financial (d) Prepare appropriate financial statements, including the Schedule of statements, including the Schedule of Expenditures of Federal Awards in Expenditures of Federal Awards in accordance with accordance with §§.310.310..

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Auditee ResponsibilitiesAuditee Responsibilities (e) Ensure that the audits required by this part are (e) Ensure that the audits required by this part are

properly performed and submitted when due. properly performed and submitted when due. No No extension will be given for Aextension will be given for A--133 audits effective 133 audits effective immediately. Filing late will affect low risk auditee immediately. Filing late will affect low risk auditee assessment by your auditor for subsequent yearassessment by your auditor for subsequent year’’s audit. s audit.

((Auditor ProcurementAuditor Procurement -- Factors to be considered in Factors to be considered in evaluating each proposal for audit services include the evaluating each proposal for audit services include the responsiveness to the request for proposal, relevant responsiveness to the request for proposal, relevant experience with community action agencies, availability experience with community action agencies, availability of staff with professional qualifications and technical of staff with professional qualifications and technical abilities, the results of external quality control reviews, abilities, the results of external quality control reviews, and price.)and price.)


Agency ResponsibilitiesAgency Responsibilities

(f) Follow up and take corrective action on (f) Follow up and take corrective action on audit findings, including preparation of a audit findings, including preparation of a summary schedule of prior audit findings summary schedule of prior audit findings and a corrective action plan in accordance and a corrective action plan in accordance with with §§.315(b).315(b) and and §§.315(c).315(c), respectively. , respectively. Address the findings in a manner that can Address the findings in a manner that can be carried out. Donbe carried out. Don’’t make promises you t make promises you cancan’’t keep! Avoid a repeat finding in the t keep! Avoid a repeat finding in the subsequent audit period. subsequent audit period.


BEING PREPARED BEING PREPARED –– Steps to follow Steps to follow throughout the year, as well as at throughout the year, as well as at

year end.year end.

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Preparing for a Successful Audit Preparing for a Successful Audit Takes all Year!!Takes all Year!!

Keep these steps in mind:Keep these steps in mind:


Cost Allocations and Time ReportCost Allocations and Time Report Organize all cost Organize all cost

allocation materials, allocation materials, including allocation including allocation support such as time support such as time studies and square studies and square footage. footage. Documentation Documentation support is key!support is key!

Employee time Employee time reports.reports.


File Timely and Accurate File Timely and Accurate Financial and Performance Financial and Performance

Reports Reports -- this includes 1512 this includes 1512 Reports under ARRA.Reports under ARRA.

Late reports can indicate weaknesses in your Late reports can indicate weaknesses in your grant management system. grant management system. (2010 (2010

Compliance supplement to address specific Compliance supplement to address specific testing by the auditors of 1512 Reporting.)testing by the auditors of 1512 Reporting.)

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Year End TransfersYear End Transfers

Shifting of costs between programs Shifting of costs between programs may cause suspicion, particularly may cause suspicion, particularly

those at year end. Maintain proper those at year end. Maintain proper support and authorization for all support and authorization for all

transfers between programs. transfers between programs.


Apply Applicable Credits to GrantsApply Applicable Credits to Grants

Purchase discountsPurchase discounts RebatesRebates RefundsRefunds Contract settlementsContract settlements ReturnsReturns


Cash ManagementCash Management

Efficient use of cash and minimization of Efficient use of cash and minimization of time between draws.time between draws.

Documentation to support cash draws.Documentation to support cash draws. Credit of interest earned by Federal funds.Credit of interest earned by Federal funds.

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Updated Property and Depreciation Updated Property and Depreciation RecordsRecords

All property records should include information All property records should include information required by Arequired by A--102 or A102 or A--110. Update records for 110. Update records for all additions, deletions, and current year all additions, deletions, and current year depreciation charges.depreciation charges.

Inventory all equipment, especially equipment Inventory all equipment, especially equipment purchased with Federal funds at least once purchased with Federal funds at least once every 2 years. every 2 years.

Reconcile inventory records to property records Reconcile inventory records to property records and general ledger. and general ledger.


Documentation of InDocumentation of In--kind kind ContributionsContributions

Maintain adequate support Maintain adequate support for fair market value for fair market value estimates for contributions estimates for contributions of supplies, services, of supplies, services, equipment, and facilities equipment, and facilities used for matching or cost used for matching or cost sharing purposes. There sharing purposes. There have been cases of inhave been cases of in--kind kind being disallowed due to being disallowed due to inadequate support. If you inadequate support. If you lose inlose in--kind match funds, kind match funds, you may be asked to return you may be asked to return grant funds.grant funds.


Subsidiary Record SupportSubsidiary Record Support

Reconcile all subsidiary Reconcile all subsidiary information on a monthly basis to information on a monthly basis to

general ledger amounts.general ledger amounts.

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YEAR END AUDIT PREPARATIONYEAR END AUDIT PREPARATION


Audit Prep List Audit Prep List –– Initial YearInitial Year

ByBy--laws laws Articles of Incorporation Articles of Incorporation IRS Determination LetterIRS Determination Letter Cost Allocation PlanCost Allocation Plan Chart of AccountsChart of Accounts All relevant policies: All relevant policies:

PersonnelPersonnelFiscal Fiscal OtherOther

Description of critical internal control activitiesDescription of critical internal control activities


Audit Prep List Audit Prep List –– Background ItemsBackground Items

Document/Update Internal Control Document/Update Internal Control Monitoring Reports from grantors or Monitoring Reports from grantors or

oversight agenciesoversight agencies Minutes of Board and Committee meetingsMinutes of Board and Committee meetings List of Board of DirectorsList of Board of Directors Transactions with Board Members or other Transactions with Board Members or other

related partiesrelated parties All significant contracts and grant All significant contracts and grant

agreements affecting the audit yearagreements affecting the audit year

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Audit Prep List Audit Prep List -- FinancialFinancial General Ledger DetailGeneral Ledger Detail Revenue and Expense reports by grants, funds, or Revenue and Expense reports by grants, funds, or

contractscontracts Subsidiary journals: Subsidiary journals:

ReceiptsReceiptsDisbursements Disbursements Payroll Payroll

Financial Statements, including Schedule of Financial Statements, including Schedule of Expenditures of Federal AwardsExpenditures of Federal Awards

Trial Balance at audit dateTrial Balance at audit date Budget, (original and final revised) for the yearBudget, (original and final revised) for the year


Audit Prep List Audit Prep List –– Asset SupportAsset Support Bank Reconciliations at audit date, including listing of Bank Reconciliations at audit date, including listing of

outstanding checks (all accounts)outstanding checks (all accounts)

Bank statements and canceled checks or check imagesBank statements and canceled checks or check images

Trustee or brokerage statements for any investment Trustee or brokerage statements for any investment accountsaccounts

Details of all securities transactionsDetails of all securities transactions

Detailed listing of receivablesDetailed listing of receivables

Detailed fixed asset schedule, reconciled to general Detailed fixed asset schedule, reconciled to general ledger, including depreciation calculation, additions, and ledger, including depreciation calculation, additions, and deletions for the yeardeletions for the year

Prepaid expense schedulePrepaid expense schedule

Schedule of deposits and other assetsSchedule of deposits and other assets


Audit Prep List Audit Prep List –– Liability SupportLiability Support Detailed listing of accounts payable by vendorDetailed listing of accounts payable by vendor Details of any deferred (unearned) revenueDetails of any deferred (unearned) revenue Detail of accrued payroll or other expensesDetail of accrued payroll or other expenses Detail of accrued vacation by employee, Detail of accrued vacation by employee,

including rate of pay and hours accruedincluding rate of pay and hours accrued Details of any loans payable including amount Details of any loans payable including amount

due, name and address of lender, interest rate, due, name and address of lender, interest rate, maturity date, last date interest paidmaturity date, last date interest paid

Schedule of unpaid payroll tax and other payroll Schedule of unpaid payroll tax and other payroll withholdingswithholdings

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Audit Prep List Audit Prep List -- OtherOther

List any litigation pending or significant commitments.List any litigation pending or significant commitments. Provide copies of insurance coverage.Provide copies of insurance coverage. Provide 941 Forms and related payroll tax returns for the Provide 941 Forms and related payroll tax returns for the

year.year. Provide access to personnel files, including rate of pay Provide access to personnel files, including rate of pay

authorization.authorization. Prepare confirmations as requested:Prepare confirmations as requested:

Bank accountsBank accountsLoansLoansReceivablesReceivablesGrant and contract revenueGrant and contract revenue


Audit Prep List Audit Prep List –– Net Asset SupportNet Asset Support

Schedule of any transfers between net Schedule of any transfers between net asset classifications.asset classifications.

Information related to any temporarily or Information related to any temporarily or permanently restricted contributions.permanently restricted contributions.


Get the Most From Your AuditGet the Most From Your Audit Make sure the audit firm has quality, knowledgeable staff with tMake sure the audit firm has quality, knowledgeable staff with the he

right skills for your audit.right skills for your audit.

Grant your auditor access to all the necessary financial and proGrant your auditor access to all the necessary financial and program gram records and be sure to identify all governmental financial assisrecords and be sure to identify all governmental financial assistance tance and federal programs in which you participate.and federal programs in which you participate.

Ensure that your key staff persons are available to your auditorEnsure that your key staff persons are available to your auditor..

Be actively involved Be actively involved –– take the initiative to understand what your take the initiative to understand what your auditor is doing and ask questions when you donauditor is doing and ask questions when you don’’t.t.

Ask questions about your auditorAsk questions about your auditor’’s work, the audit opinion, and s work, the audit opinion, and other compliance reports.other compliance reports.

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AMERICAN RECOVERY AND AMERICAN RECOVERY AND REINVESTMENT ACT REINVESTMENT ACT -- ARRAARRA


Impact of Recovery Act on the Impact of Recovery Act on the Audit ProcessAudit Process


Recovery Act Recovery Act

Some June 30, 2009, Some June 30, 2009, impact, mostly at impact, mostly at state level.state level.

Larger impact on Larger impact on 2010 and 2011 2010 and 2011 audits.audits.

Change to major Change to major program selection, program selection, specifically dealing specifically dealing with new program with new program clusters. clusters.

Compliance Compliance supplement will be supplement will be continuously changing continuously changing –– 2009 issued; 2010 2009 issued; 2010 in draft as of May in draft as of May 2010. 2010.

Monitor ongoing Monitor ongoing changes and updates, changes and updates, specifically those specifically those impacting compliance.impacting compliance.

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ACCOUNTABILITY AND ACCOUNTABILITY AND TRANSPARENCY ARE KEY ISSUESTRANSPARENCY ARE KEY ISSUES

Greater interest in AGreater interest in A--133 audits.133 audits. Chances for review of audits are significantly Chances for review of audits are significantly

higher.higher. Push to get audits done quicker Push to get audits done quicker –– no change in no change in

99--month reporting as of yet. However, no month reporting as of yet. However, no extensions to be given!extensions to be given!

Quicker resolution of findings. Quicker resolution of findings. New board to monitoring ARRA activity, New board to monitoring ARRA activity,

including fraud, waste, and abuse: Recovery Act including fraud, waste, and abuse: Recovery Act Transparency Board (RATB).Transparency Board (RATB).


Establish Your Process For Establish Your Process For Compliance Early and MonitorCompliance Early and Monitor

That Process That Process Agencies process for accepting Recovery Act funds.Agencies process for accepting Recovery Act funds. Segregate recovery funds. Segregate recovery funds. Appoint appropriate level of management to oversee the Recovery Appoint appropriate level of management to oversee the Recovery

Act funds and requirements.Act funds and requirements. Educate employees on new requirements and continuous updates.Educate employees on new requirements and continuous updates. Fine tune your reporting process Fine tune your reporting process –– significant impact by Section significant impact by Section

1512 reporting. 1512 reporting. Evaluate controls processes to assure they are working properly Evaluate controls processes to assure they are working properly and and

consider if additional controls are necessary.consider if additional controls are necessary. Determine monitoring process is in place, if you plan to pass Determine monitoring process is in place, if you plan to pass

through any Recovery Act funds to a subthrough any Recovery Act funds to a sub--recipient.recipient. Properly identify all ARRA funding on your SEFA.Properly identify all ARRA funding on your SEFA.


Questions

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THANK YOU FOR YOUR THANK YOU FOR YOUR PARTICIPATION TODAY. ANY PARTICIPATION TODAY. ANY

QUESTIONS MAY BE QUESTIONS MAY BE FORWARDED TO:FORWARDED TO:

Mike A. Zeno, CPA Mike A. Zeno, CPA –– [email protected]@srsnodgrass.comMary C. Pockl, CPA Mary C. Pockl, CPA –– [email protected]@srsnodgrass.com

Stay tuned for Part II on Allowable Costs!Stay tuned for Part II on Allowable Costs!