property management – from purchasing to disposition!

Property Management – Property Management – From Purchasing to From Purchasing to Disposition!Disposition!

Tiffany R. Winters, [email protected] & Manasevit, PLLCwww.bruman.comSpring Forum 2013

Brustein & Manasevit, PLLC 1

mailto:[email protected]

http://www.bruman.com/

What Rules Apply??What Rules Apply??State educational agencies (SEAs) and

local educational agencies/school districts (LEAs):◦ EDGAR Part 80◦ OMB Circular A-102 (Sections __.30- __.36)

Institutions of Higher Education (IHEs) and Nonprofit Organizations◦ EDGAR Part 74◦ OMB Circular A-110 (2 C.F.R. 215.30 –

215.48)

2Brustein & Manasevit, PLLC

What is Equipment?What is Equipment?Equipment: tangible,

nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit

Grantees may lower the threshold34 C.F.R. 74.234 C.F.R. 80.3


What about everything What about everything else?else?Technically – everything else are

“supplies”Supplies means

◦Personal property, excluding equipment◦34 C.F.R. 74.2; 34 C.F.R. 80.3

34 C.F.R. 74.2 adds… Intangible property Debt instruments Inventions of a contractor conceived or first

actually reduced to practice in the performance of work under a funding agreement


Other Technological Other Technological Items?Items?Prior audits applied equipment rules

to other items◦Found setting threshold of $500 was too

high Significant Technological Items Easily Pilferable Items Highly Walkables

New OMB Notice◦Introduces New Category of “Computing

Devices”5Brustein & Manasevit, PLLC

OMB: Computing Devices OMB: Computing Devices Are Allowable Direct Cost Are Allowable Direct Cost SuppliesSuppliesExplicitly includes the cost of

computing devices as allowable direct cost supplies

Documented in separate line itemNot required to conduct more

stringent inventory controls in place for equipment!


Would new OMB Would new OMB requirements actually requirements actually

change equipment change equipment thresholds set by thresholds set by

auditors?auditors?


PURCHASINGPURCHASING


Purchasing Equipment: Purchasing Equipment: Procurement Standards Procurement Standards

IHEs and Nonprofits: Must follow policies and procedures that meet the standards set out in 34 C.F.R. 74.41 through 74.48. Rules are designed to ensure materials and services are obtained in an effective and compliant manner.

34 C.F.R. 74.40


Purchasing Equipment: Purchasing Equipment: Procurement Standards Procurement Standards

SEAs: States may use their own

procurement policies and procedures to procure equipment. 34 C.F.R. 80.36◦Best Practice: Ensure that policies and

procedures meet all standards for other grantees and subgrantees.

LEAs:Other grantees and subgrantees must

follow policies and procedures that meet the standards set out in 80.36(b)-(i).


Ownership Ownership

Generally, title to equipment purchased with Federal funds vests in the organization that made the purchase.

34 C.F.R. 80.32(a)34 C.F.R. 74.34(a)


Ensuring Purchases are Ensuring Purchases are NecessaryNecessary

All costs have to be necessary for the performance or administration of the Federal grant

34 C.F.R. 80.22/ 34 C.F.R. 74.27 (OMB Circulars A-87/A-21/A-122)

Must review all proposed purchases to avoid unnecessary or duplicative items

34 C.F.R. 80.36(b)(4-7)34 C.F.R. 74.44(a)


Open CompetitionOpen CompetitionSEAs and LEAsAll procurement transactions will be

conducted in a manner providing full and open competition

34 C.F.R. 80.36

IHEs and NonprofitsAll procurement transactions shall be

conducted in a manner to provide, to the maximum extent practical, open and free competition

34 C.F.R. 74.43


Open CompetitionOpen CompetitionSEAs and LEAsSituations that restrict competition:

◦ Unreasonable requirements on vendors to qualify to do business Pre-qualified lists should not limit competition

◦ Requiring unnecessary experience or excessive bonding

◦ Noncompetitive pricing practices◦ Noncompetitive awards to consultants on

retainer◦ Organizational conflicts of interest◦ Specifying a brand name◦ In-state or local preferences

34 C.F.R. 80.36(c)14Brustein & Manasevit, PLLC

Open CompetitionOpen CompetitionIHEs and NonprofitsBe alert to organizational

conflicts of interest and noncompetitive practices that may restrict or eliminate competition or restrain trade

34 C.F.R. 74.43


Conflict of Interest Conflict of Interest Must have written policies and procedures

regarding conflict of interest.

A conflict of interest arises when any of the following has a financial or other interest in the firm selected for award:◦ Employee, officer or agent◦ Any member of that person’s immediate

family◦ That person’s partner◦ An organization which employs, or is about to

employ, any of the above or has a financial interest in the firm selected for award.

34 C.F.R. 80.36(b)(3)34 C.F.R. 74.42


Conflict of InterestConflict of InterestIHEs and NonprofitsOfficers, employees, agents of the

recipient shall neither:◦Solicit nor accept gratuities, favors, or

anything of monetary value from contractors or parties to subagreements.

◦However, recipients may set standards for situations in which the financial interest is not substantial or gift is an unsolicited nominal value. Standards must include disciplinary actions for

violations.34 C.F.R. 74.42


Role of Cost/Price AnalysisRole of Cost/Price AnalysisMethod and degree of cost or

price analysis depends on the particular facts and circumstances

Must make independent estimate before receiving bids or proposals

34 C.F.R. 80.36(f)34 C.F.R. 74.45


Vendor Selection ProcessVendor Selection ProcessMust have written selection

proceduresProcedures must ensure all

solicitations:◦Include a clear and accurate

description of technical requirements◦Identify all requirements vendor must

fulfill◦Identify evaluation factors

34 C.F.R. 80.36(c)34 C.F.R. 74.44


Types of ProcurementTypes of ProcurementSEAs and LEAsMethods of procurement:

◦Small purchase procedures◦Competitive sealed bids◦Competitive proposals◦Noncompetitive proposals

34 C.F.R. 80.36(d)


Vendor Selection Process: Vendor Selection Process: Small Purchase ProceduresSmall Purchase Procedures

Good or service that costs $100,000 or less◦State or local government may set

lower thresholdMust obtain price or rate quotes

from an adequate number of qualified sources

“Relatively simply and informal”34 C.F.R. 80.36(d)(1)


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Vendor Selection Process:Vendor Selection Process:Noncompetitive ProposalsNoncompetitive ProposalsUnder 34 C.F.R. 80.36(d)(4):

Appropriate only when:◦The good or service is available only

from a single source (sole source)◦There is a public emergency◦The awarding agency authorizes◦After soliciting a number of sources,

competition is deemed inadequate

Brustein & Manasevit, PLLC

Types of ProcurementTypes of ProcurementIHEs and NonprofitsRecipients shall make procurement

documents available upon request when any of the following conditions apply:

A procurement is expected to exceed the small purchase threshold, fixed at $100,000.◦ Note: While EDGAR states the amount is set

at $25,000 41 U.S.C. 403(11) was updated and increased.

The procurement specifies a brand name;The proposed award is to be awarded to

other than the apparent low bidder under a sealed bid; etc.

34 C.F.R. 74.44(e)23Brustein & Manasevit, PLLC

Brand Name Brand Name RequirementsRequirementsSEAs and LEAsStates Brand Names restrict

competition◦Must state “brand name or equal”

34 C.F.R. 80.36(c)

IHEs and NonprofitsThe specific features of a brand

name or equal descriptions that bidders are required to meet must be included in the solicitation

34 C.F.R. 74.44(a)24Brustein & Manasevit, PLLC

Noncompetitive Noncompetitive ProcurementProcurementStandard more relaxed for IHEs

and Nonprofits:◦Must maintain justification for lack of

competition when competitive bids or offers are not obtained and it exceeds the small purchase threshold

34 C.F.R. 74.44(e)


Vendor Selection Process:Vendor Selection Process:Noncompetitive ProposalNoncompetitive Proposal

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As a practical matter, a noncompetitive contract raises “red flags”◦ Ensure persuasive and

adequate documentation to facilitate audit


Vendor Selection ProcessVendor Selection ProcessCan only contract with responsible

contractors possessing the ability to perform successfully:◦Contractor integrity◦Compliance with public policy◦Record of past performance◦Financial and technical resources

34 C.F.R. 80.36(b)(8)34 C.F.R. 74.44(d)


Vendor Selection ProcessVendor Selection Process

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Cannot contract with vendor who has been suspended or debarred◦http://www.epls.gov/ ◦www.sam.gov

34 C.F.R. 80.3534 C.F.R. 74.44(d)34 C.F.R. 85.530


http://www.epls.gov/

http://www.sam.gov/

Procurement Procurement DocumentationDocumentation

SEAs and LEAs: Retain records to document:◦Rationale for the method of procurement

◦Selection of contract type◦Contractor selection or rejection◦Basis for contract price

34 C.F.R. 80.36(b)(9)


Procurement Documentation Procurement Documentation (cont.)(cont.)IHEs and Nonprofits: Retain records

to document:◦Basis for contract selection◦Justification for lack of competition

(if applicable)◦Basis for award cost or price

34 C.F.R. 74.46


YOU FINALLY YOU FINALLY PURCHASED THE PURCHASED THE ITEM, NOW WHAT?ITEM, NOW WHAT?


Contract AdministrationContract Administration

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Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract

Clearly stated in Part 74Implied in Part 80


Contract AdministrationContract AdministrationIHEs and NonprofitsA system for contract administration

must be maintained to ensure contractor conformance with terms of contract

To ensure adequate and timely follow up of all purchases

Must document whether contractors have met the terms of their contracts!

34 C.F.R. 74.4733Brustein & Manasevit, PLLC

Contract ProvisionsContract ProvisionsAll contracts supported with Federal

funds must contain certain required provisions◦ Specifics vary slightly

34 C.F.R. 80.36(i)34 C.F.R. 74.48


Contract AdministrationContract AdministrationAs a practical matter:

◦Must have written contracts (purchase order ok)

◦Contract should include clearly defined deliverables Description of services to be performed or goods to be

delivered Dates of performance Location of services or delivery Description of number of students/teachers/etc. to be

served (if applicable)◦Invoice must match the purchase order◦Both must be reviewed and approved

before payment!!!35Brustein & Manasevit, PLLC

INVENTORY INVENTORY MANAGEMENTMANAGEMENT

Must have adequate controls in place to account for:• Location of equipment• Custody of equipment• Security of equipment


Inventory ManagementInventory ManagementEquipment property records

◦Description, serial number or other ID, title info, acquisition date, cost, percent of Federal participation, location, use and condition, and ultimate disposition

Physical inventory◦At least every two years

34 C.F.R. 80.3234 C.F.R. 74.34


Inventory Management Inventory Management (cont.)(cont.)Must protect against

unauthorized use◦May use for other projects as long as

use is incidental and does not interfere

Control system must be in place to prevent loss, damage, theft ◦All incidents must be investigated


HOW CAN I USE MY HOW CAN I USE MY INVENTORY?INVENTORY?


Use of Grant-Acquired Use of Grant-Acquired Equipment Equipment SEAs and LEAsMay be used for the grant program that purchased

the equipment:◦ As long as needed; and◦ Even if no longer funded with Federal funds

When no longer needed, may be used in other activities currently or previously supported by a Federal agency. Preference given to ED programs.

May be used on other projects/programs currently or previously funded by the Federal government, but watch allocability!

34 C.F.R. 80.32(c)


Use of Grant-Acquired Use of Grant-Acquired Equipment Equipment

IHEs and NonprofitsMay be used for the grant program that

purchased the equipment:◦ As long as needed; and◦ Even if no longer funded with Federal funds

When no longer needed, may be used in other Federally funded activities, but must be prioritized to: Preference given to ED programs (if initial

grantee); then Other Federal agency programs

34 C.F.R. 74.34(c)41Brustein & Manasevit, PLLC

DISPOSING OF DISPOSING OF INVENTORYINVENTORY


Equipment DispositionEquipment DispositionWhen equipment no longer needed,

must follow disposition rules:◦Transfer to another Federal program◦Over $5,000 – pay Federal share◦Under $5,000 – no accountability

34 C.F.R. 80.32(e); 34 C.F.R. 74.34(g)IHEs and Nonprofits Disposition rules requested from the

Secretary (i.e., granting agency)43Brustein & Manasevit, PLLC

Disposition of SuppliesDisposition of SuppliesIf there is residual inventory of

unused supplies exceeding $5,000 in total aggregate fair market value upon termination or completion of the award; and

Supplies are not needed for any other Federal grant; then

Must compensate ED for its share!34 C.F.R. 80.3334 C.F.R. 74.35


Sale of PropertySale of PropertyProper sales procedures shall

be used that provide for competition to the extent practicable and result in the highest possible return

A-133 Compliance Supplement Part 3 (3-F-1)


STILL HAVE TROUBLE STILL HAVE TROUBLE WITH PROPERTY WITH PROPERTY MANAGEMENT RULES? MANAGEMENT RULES?

REVIEW YOUR REVIEW YOUR INTERNAL CONTROLS!INTERNAL CONTROLS!


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Components of Internal Components of Internal ControlsControls


Control Environment Control Environment ExamplesExamplesManagement committed to

providing proper stewardship for property acquired with Federal awards.

No incentives exist to under-value assets at time of disposition.

Sufficient accountability exists to discourage temptation of misuse of Federal assets.


Risk Assessment Risk Assessment ExamplesExamplesProcedures to identify risk of misappropriation or improper disposition of property acquired with Federal awards.

Management understands requirements and operations sufficiently to identify potential areas of noncompliance. ◦Decentralized locations, ◦Departments with budget constraints, ◦Transfers of assets between departments,

etc.


Control Activity ExamplesControl Activity ExamplesAccurate records maintained on all acquisitions

and dispositions of property acquired with Federal awards.

Property tags are placed on equipment.A physical inventory of equipment is periodically

taken and compared to property records.Property records contain all required information.Procedures established to ensure that the

Federal awarding agency is appropriately reimbursed for dispositions of property acquired with Federal awards.

Policies and procedures in place for responsibilities of recordkeeping and authorities for disposition.


Information and Information and Communications Communications Accounting system provides for separate identification of property acquired wholly or partly with Federal funds and with non-Federal funds.

A channel of communication exists for people to report suspected improprieties in the use or disposition of equipment.

Program managers are provided with applicable requirements and guidelines.


Monitoring Monitoring Management reviews the results

of periodic inventories and follows up on inventory discrepancies.

Management reviews dispositions of property to ensure appropriate valuation and reimbursement to Federal awarding agencies.


Testing Internal ControlsTesting Internal ControlsExample: Property Management1. Document an understanding of policies,

procedures and internal controls in place regarding property management◦ Use checklists, flowcharts, narratives

or questionnaires to determine the current internal controls

2. Select sample transactions and determine if the sample correctly flows through the system

3. Note any deviations53Brustein & Manasevit, PLLC

Testing Internal Controls (cont.)Testing Internal Controls (cont.)


Testing Internal Controls Testing Internal Controls (cont.)(cont.)

Discuss the results of the walkthrough with management and inform them of any deficiencies that need immediate attention

Document any changes to risk assessment

Document findings


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Weak Internal Controls – What Weak Internal Controls – What Now?Now?

When internal controls weaknesses are determined – various options:1. Increase supervision and monitoring2. Institute additional or compensating

controls3. Accept risk inherent with the control

weakness (assuming management is aware of the weakness)


DisclaimerThis presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or

later review of these printed materials does not create an

attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based

upon any information in this presentation without first consulting

legal counsel familiar with your particular circumstances.


property management – from purchasing to disposition!

Documents

pllcbrustein manasevit

pllcpurchasing equipment

equipment rules

equipment thresholds

procurement policies

cost of computing devices

procurement standards

procurement standards