Terminal Leave

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Terminal Leave Other Grave Matters
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Terminal Leave Other Grave Matters
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 3Discussion 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

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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?

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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 QAs
• Consistent treatment and retracing employment
  history deterrents

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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

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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

• Answer SOL (not Statute of Limitations)

• Answer SOL again

• SOL for 2 years

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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

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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

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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

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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

FY 07 FY 08 FY 09
CFDA Program Name Finding 07-74 Finding 08-70 Finding 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 Total 2,001,643.00 152,146.00 37,664.00
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Audit Findings Continue
Innovative Take on Proportionality
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.
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Innovative Corrective Action The Leave Payout
Rate
Year 1 of Implementation - FY 2009 FYE 6/30/10
A Anticipated Salary Wage Expenses 4,045,000,000
Anticipated Leave payouts 62,000,000
Plus Associated Social Security _at_ 7.65 4,743,000
Plus Associated SWIF _at_ 2.20 1,364,000
B Total AnticipatedLeave Payout Expenses 68,107,000
C Leave Payout Rate in Year 1 B/A 1.6837
Rate is calculated in August 2008 for use in the
2009-10 Budget Process
Year 2 of Implementation - FY 2010 FYE 6/30/11
A Anticipated Salary Wage Expenses 4,247,250,000
Anticipated Leave payouts 58,000,000
Plus Associated Social Security _at_ 7.65 4,437,000
Plus Associated SWIF _at_ 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
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 2011 FYE 6/30/12
A Anticipated Salary Wage Expenses 4,459,612,500
Anticipated Leave payouts 65,000,000
Plus Associated Social Security _at_ 7.65 4,972,500
Plus Associated SWIF _at_ 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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Leave Payout Rate

• Section II SWCAP
• Accrue and Fund Estimated Liability vs.
  Pay-as-You-Go (P-A-Y-G)
• Interest and Internal Service Funds.

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Part II

• Cognizance Conundrum Who is Responsible for
  What?

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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

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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).

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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

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Components

• Administers grants that generate or a benefit
  from indirect costs

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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

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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?

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Section II of the SWCAP Direct Billed Services

• Fringe Benefits and leave payout rates

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Local Governments and LOCAPS

• Same as SWCAP - but retained on file and
  documented via audits

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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

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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?

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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

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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

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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
  

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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

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FY 2011 Funding
Agency Direct or PT CFDA Program Amount
Natl Science Foundation Direct 47.076 Human Resources 50,000
Dept. of Ed. Direct 84.031 Higher Ed 35,000
Dept. of Ed. Direct 84.047 Upward Bound 35,000
State DOT Pass-Through 20.234 SDIP 1,200,000
Student Fin. Ass. Cluster Direct - - -
Dept. of Ed. Direct 84.007 Ed. Opp. 200,000
Dept. of Ed. 84.033 Work Study 200.000
Dept. of Ed. Direct 84.063 Pell Grants 200,000
DHHS Direct 93.069 Public Health Preparedness 20,000
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Quiz

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?

• State Department of Transportation

• The DHHS

• The US Department of Education

• No

• No

• US Department of Education

• 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

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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

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Flat Indirect Cost Rate of 10

• 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