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Have a Problem?A source for answers to some of the common questions posed by PVO Financial Managers.
1. What is the difference between Federal Procurement and Federal Assistance The distinction between these two types of federal actions was established in law under the Federal Grant and Cooperative Agreement Act of 1977 (PL 95-224). That statute states that when the principal purpose of the transaction is to purchase something for the Federal Government's own direct benefit or use, the federal agency must use a procurement contract. On the other hand, if the principal purpose of the transaction is to assist, stimulate or support (i.e. supply money or property) a non-federal party in the conduct of a public program, the federal agency must use an assistance instrument--either a grant or a cooperative agreement. For most federal agenciees, the appropriate instrument is often dictated in program legislation. However, the Foreign Assistance Act of 1961 merely states that any number of instruments might be appropriate, depending on the circumstance. This has resulted in much confusion regarding the appropriateness of an instrument at any given point in time. Because of the lack of clear legislative intent, it is unlikely that this confusion will disappear in the foreseeable future. A quick thmbnail test of application that might be useful would be to ask: "does it look like you will be working for USAID (a contract) or for yourself (assistance)"? 2. Is there any avenue for complaints should a Federal agency improperly choose an instrument? The General Accounting Office (GAO) has jurisdiction over the expenditure of grant funds under its enabling statute, the Budgetand Acounting Act of 1921. In addition to hearing claims brought by a grantee regarding costs determined to be unallowable by a federal agency, it will also hear claims where an inappropriate instrument was issued by a federal agency.Basically, the GAO has in interest in determining whether the Federal Grant and Cooperative Agreement Act has been properly implemented. However, the GAO has a fairly high treshold for overturning a federal agency's decision. It must be made clear the the agency acted in an unreasonable fashion or without a "rational basis". 3. What is the difference between a Cooperative Agreement and a Grant? Both are assistance instruments but the cooperative agreement anticipates greater federal agency programmatic or substantive involvement during performance of the agreement. Alternatively, for a grant, the recipient would have substantial freedom in the implementation of its program. The distinction does not have any bearing on the administrative or business management aspects of the project, which are to be carried out consistently regardless of whether it is a grant or a cooperative agreement.The distinction also arises from the Federal Grant and Cooperative Agreement Act. A cooperative agreement (versus a grant) would be used where the federal agency has superior programmatic knowledge that the grantee would need in order to successfully complete the program. OMB policy on substantial involvement, as established in the 1978 implementaton of the Act, states that federal agencies "should limit their involvement in assisted activities to the minimum consistent with program requirements." 4. What role do Office of Management and Budget Circulars play in the administration and audit of assistance programs? The Office of Management and Budget (OMB) has general authority under the Budget and Accounting Act of 1921 and related policies, to issue directives to the operating federal agencies. One of the customary vehicles for these directives is an OMB Circular. While such circulars address myriad issues affecting federal government operations, there are a number that affect assistance programs. Three current groups of circulars address uniform government-wide policies for grants administration, cost accounting, and non-federal audit. In them, federal agencies are told not only what the government-wide policies are, but how to implement them in operating regulations. Please keep in mind that OMB has the authority to direct the actions of a federal agency, not a grantee. Therefore, it is imperative that a federal agency not only adopt the OMB rules in some form but also instruct the grantee on application. For example, USAID codified A-110 at 22 CFR part 226. That codification is then incorporated by reference into the grant document, which is how the OMB Circulars directly apply to the grantee (the cost principles as well as A-133 are incorporated by reference within the A-110 document). So take care to notice what rules are being applied to your awards. If A-110 or a codification thereof is not properly incorporated, it simply does not apply. 5. What are OMB Circulars that apply to assistance programs? There are two administrative circulars, three sets of cost principles, and one audit circular. They are:
6. How do I obtain hard copies of OMB Documents? OMB Circulars, forms and other documents can be found at: http://www.whitehouse.gov/omb/grants. Single copies of OMB Circulars may be obtained in writing from: Publications Office By including a self-addressed label, you may expedite your request.
A-110 SPECIFIC QUESTIONS: (Note: the following cites are being made to USAID's codification of A-110 at 22 CFR 226, however, if a grantee receives an award from another federal agency, care must be taken to verify all information against that specific agency's own codification.) 7. Is a Federal granting agency permitted to require a grantee to maintain grant funds in a separate bank account? Generally not. It is expected that the grantee will have a sufficient financial management system to permit the tracking of grant funds from receipt to expenditure, eliminating the need for separate accounts according to revenue source. However, if a grantee demonstrates that it cannot maintain this accountability, federal agencies are permitted to require separate bank accounts as well as other measures to protect the funds. Typically this would be addressed in the award as a "Special Award Condition". USAID has the authority to create such conditions under 22 CFR 226.4 ("Deviations") as well as 22 CFR 226.14 ("Special award conditions). For more information concerning how USAID processes deviations or a further discussion on high risk grantees, please read ADS 303.5.3 and 303.5.9b respectively. 8. How long must records associated with grant and cooperative agreement awards be kept? Three years from the date of the final financial status report submitted for the grant. For federal agencies which issue multi-year awards with segregable program and budget periods (which often requires that the recipient submita complete 424 package each year) the annual budget period may be considered distinct so the submission of the final financial status report for each year would be the triggering action. However, as USAID grants do not have segregable annual periods which means that funds freely flow from year to year without a federal action de-obligation and then obligation funds on an annual basis. It has generally been USAID practice; therefore it may be assumed that the three year hold period does not begin until the final status report is submitted for the entire grant. (cite: 22 CFR 226.53) There are some variations on starting dates for indirect costs, property records, and audit work papers. 9. Who has access to the records of a grantee as a result of Federal requirements? Representatives of the Federal awarding agency and the Comptroller General of the United States, who heads the General Accounting Office (GAO), have access to grantee records. Grantee records are not subject to the Federal Freedom of Information Act (FOIA), which permits access to Federal records by private citizens including the press. Records that have been transferred to the Federal awarding agency by a grantee are subject to FOIA disclosure requirements (cite: 22 CFR 226.53(e)). 10. Does the Federal awarding agency have authority to require a grantee to establish a specific type of accounting system or to use a particular basis of accounting? Generally not. The design of a recipient's accounting system is a decision that is left to the grantee, provided that the system has certain capabilities for the management of federal funds. The inability to track funds from source to application, for instance, is considered a serious deficiency and could result in awarding agency direction concerning system design. The determination of whether to account on a cash or accrual basis of accounting is also a decision that is left to the grantee. Federal agencies may require financial reports to be submitted on an accrual basis of accounting in which case cash basis grantees would have to adjust their reports based on information that they have at hand (cite - various: 22 CFR 226.20 - 22; 226.50 - 53). 11. What financial reports are required to be submitted by grantees? The Office of Management and Budget has prescribed five financial reports that may be employed by Federal agencies in gathering financial information from grantees. Not all of the reports would be used by each grantee. The reports are:
Federal agencies must use these forms or obtain permission from OMB under the Federal Reports and Paperwork Reduction Acts to use others. All forms can be downloaded directly from the OMB website at : http://www.whitehouse.gov/omb/grants. 12. Are Federal awarding agencies permitted to require reporting of grant expenditures by budget line item? No. The design of the Standard Forms 269 and 269A is such that only aggregate expenditures of the grant are required to be reported. In fact, unless a Deviation has been approved or the grantee is considered "High Risk" as was discussed at question number 7 above, requiring any additional financial reporting is a violation of 22 CFR 226. 13. What programmatic reports are required to be submitted by grantees? Narrative programmatic reports are usually required to be submitted in the same frequency and timing as financial status reports. The contents of these reports have not been standardized on a government-wide basis except that they are expected to describe program accomplishments compared to originally proposed benchmarks and to explain any deviations. (cite: 22 CFR 226.51) 14. How much flexibility is available to grantees in shifting financial resources among cost categories or programmatic elements in their approved grant budget? Federal agencies have the authority to restrict non-profit organizations to ten percent cumulative shifts in all direct cost budgeted items without obtaining awarding agency permission when the Federal share of the project is $100,000 or greater. The percentage applies to the total direct costs not to individual line items. Each federal agency has the authority to apply this section as it sees fit. For example, the U.S. Department of Health and Human Servicces (HHS) did not include that section in its codification of A-110, which means they do not restrict their grantees in this manner. USAID, at 22 CFR 226.25f states that it "may, at its option, restrict the transfer of funds..." which means that in order for this restriction to apply to a specific grant, USAID must clearly cite this section in your award with the statement that it is exercising its option. For example, if there is a $1 million dollar grant which does not have the restriction, the grantee is allowed to move funds among the direct cost categories, in keeping with 22 CFR 226.(C)(1-8). However, if the restriction is in place, the grantee must also request USAID approval where the total of those transfers exceed 10% of the total, whcich here would be $100,000. 15. What actions are required to close-out a grant or cooperative agreement? Close-out is triggered by the submission of final financial and programmatic reports by the grantee. The Federal awarding agency reviews these, determines that all actions called for in the award have been accomplished and settles up the award by paying any cash to which the grantee may be entitled or requesting repayment of any funds due back from the grantee. There are a number of factors that are not affected by close-out, however, such as retention and access to records, the federal right to audit and disallow costs, and accountability for property. Close-out procedures are discussed at 22 CFR 226.71; however, care must be taken to review other sections of this regulation for property disposition as well as record keeping issues. 16. How can a grant or cooperative agreement be cut off? Grants and cooperative agreements, as assistance awards, are considered to be non-cancelable obligations of the Federal government. Accordingly, the award may only be unilaterally terminated or suspended by the awarding agency if: 1. The recipient materially fails to comply with the terms and conditions of the award, or 2. USAID determines that sich assistance would not be in the national interests of the United States. In other words, it would be extremely rare for the US government to unilaterally suspend or termininate an award, in whole or in part, although clearly it does have the authority. For the most part, awards that are suspended or terminated are often done at the request of the grantee. (Grantees always have the right to unilaterally refuse further funding), or else an agreement is reached with the grantee and USAID regarding curtailing the supported program or terminating, as may be beneficial to both parties. (cite 22 CFR 226.60 - 62). 17. Under what circumstances are grantees permitted to purchase from a sole source using federal funds? AS OMB does not regulate at what dollar theshold a grantee should go to free and open competition, the answer to this question is simple - it depends entirely on the grantee's own procurement system. Having said that, the question remains "when" should a grantee's procurement system allow for sole source purchasing. 22CFR226.40-49 contains the basic elements a grantee must address while developing its procurement system. Since there is no specific mention of when a sole source procurement may be permitted, it is the responsibility of the grantee to establish its own policies and procedures which are reasonable and necessary to protect federal funds. The following elements are suggestions for grantees to consider when developing internal practices and procedures. They are in no way exclusive of other considerations a grantee may have, but rather represent basic elements of sound business practices when justifying a sole source procurement:
18. Can a contractor under a grant earn a profit or fee? YES. There is absolutely no federal-wide restriction nor a USAID-specific restriction stating that a contractor cannot earn a reasonable profit or fee. What has caused much confusion is that 22CFR226.81 states there is a "Prohibition against profit" but that applies only to grantees and subgrantees. If, for example a commercial organization chooses to accept a subgrant, they must forgo any profit. However, if a contract is being awarded, they are entitled to earn a profit, as they would in any commercial transaction. 19. Are there restrictions precluding the purchase of foreign-made or procured items or services? While there are no federal-wide administrative rules governing this area (i.e. nothing in A-110 nor 22CFR226) Congress often requires that federal agencies adopt variations of what is commonly called the "Buy American Act" and impose some of those rules on grantees. It is imperative that a grantee read and follow all of the terms and conditions of their awards. This is not a simple area where one can claim a victory in knowing one agency's rules. Each federal agency has its own set of foreign purchasing rules that apply, and if the grantee does not know and understand them in detai,l they are very much at risk of having an audit finding of unallowable costs. The USAID set of rules in this area can be found in the Standard Provisions entitled "USAID Eligibility Rules for Goods and Services"; "International Air Travel and Transportation"; "Ocean Shipment of Goods"; and "Local Procurement". Also, 22CFR228, entitled "Rules on Source, Origin, and Nationality for commodities and Services Financed by the Agency for International Development" must also be consulted 20. What records are expected to be maintained concerning property purchased with grant funds? Grantees are required to maintain information describing the property, providing its serial number, purchase price, and other identification information, showing its current use, and including the extent of federal participation in its acquisition. If property has been disposed of, information about its disposition should also be included in the system of records. Property records are required to be retained for three years following final disposition. (cite: 22 CFR 226.34) 21. How often should a grantee's property be inventoried? Grantees must conduct a physical inventory of their property at least once every two years for reconciliation with property records. (cite: 22 CFR 226.34) 22. What is the definition of equipment under federal grants? There are two different definitions, which depend on the application: 1. Purchasing Any item which has a useful life of more than one year and an acqusition cost of $5,000 or more must be prior approved by the USAID Grant Officer before the purchase is made. 2. Disposition: When a recipient no longer needs an item,(whether or not a grant program has ended) the grantee must request disposition instructions from the awarding federal agency if the item has a current fair market value of $5,000 or over. While the $5,000 threshhold is the same dollar figure, it is important for grantees to recongnize that while an item might have been considered "equipment" at the time of purchasing it is quite possible that it "loses" that definition once its fair market value drops below the magic threshold. A-122 SPECIFIC QUESTIONS: 23. How do the cost principles for non-profit organizations contained in OMB Circular A-122 apply to AID grants? The cost principles in Circular A-122 covering non-profit organizations, like those affecting other types of performers, provide guidance about charging expenditures to cost-reimbursement agreements. They establish which classifications of cost are allowable, which are not, and how the costs must be documented. Part of the treatment of cost documentation involves alternative methods of documenting indirect costs. (cite: the cost principles are incorporated by reference into the awards via 22CFR226.27, "Allowable Costs".) 24. How do you determine whether a cost is allowable under circular A-122? A combination of factors affects the allowability of costs. In order to be allowable, a cost must meet general tests of allowability contained in the Circular as well as be listed or similar to selected items of cost listed in the Circular. The failure to mention a particular item of cost in the principles does not mean that it is unallowable. Rather allowability, in each case, would be determined by considering the allowability of similar or related items of cost and by applying the general standards. 25. What are the general standards for allowability of cost? To be allowable under the general standards, a cost must:
26. How is allocability of cost established under Circular A-122? A cost must be beneficial to an award, directly or indirectly. Generally, this means that a cost must be incurred in order to perform the work of the award; or it must be incurred in a way that benefits the award and other activities of the grantee; or it must be incurred for the overall operation of the grantee institution. There are, however, certain types of institutional costs that are restricted from charging to a Federal award because they provide so little benefit to the award. 27. What is considered to be adequate documentation? Generally, adequate documentation is considered to be the same as the grantee would generate to support an expenditure from its non-federal funds. However, for a few selected items of cost, such as compensation for personnel services (salaries, wages, and fringe benefits) and depreciation and use allowance (on assets purchased with the grantee's own funds), specific documentation requirements are presented in Circular A-122. 28. What kind of documentation is required for personnel compensation? Personnel compensation costs chargeable to federal grants must be based on payrolls developed in accordance with the customary practice of the grantee. Time and attendance records for individual employees must be generated and, for those who work on more than one grant or other cost objective, there must be time distribution records showing the relative work on each activity. Thus, full disclosure of all time worked is expected. 29. Are there any specific limitations on the levels of compensation that a grantee may provide to its personnel? As long as the compensation meets the general test of allowability and is properly documented, a grantee is permitted to compensate an employee at any level. However, not infrequently, Congress may pose a limit on compensation levels in an authorization or appropriation statute affecting a program. For instance, some programs may not compensate employees more than the amount paid to a federal employee at the GS (General Schedule) 18 level. It must be made clear that while USAID does NOT have such a restriction for its grantees, it does have one for its contractors. This had always been an area of much confusion as to which rules apply in what forums. If a grantee is being told there is any sort of limitation, it is imperative that they request from the USAID Grant officer a copy of the legislature to verify if such a cap does exist. 30. What kind of documentation is required for depreciation or use allowance to be charged to federal programs? The employment of a depreciation or use allowance to compensate for use of a capital asset that was purchased by the grantee with their own funds is permitted. The calculation is to be based on the documented original acquisition cost of the asset. In the case of a use allowance, specific percentages of that acquisition cost may be applied each year for use of the item (2% for buildings, 6 2/3% for equipment) For depreciation, the grantee must establish a useful life for the asset and then employ a generally recognized method of calculating the depreciation that is fair and equitable under the circumstances.
31. Under the cost principles, some cost items require the prior approval of the grantor agency? What is considered to constitute prior approval? Prior approval consists of written documentation evidencing consent from an authorized official which for USAID purposes is always the Agreement Officer, unless this authority has been specifically delegated to another official. The elements usually considered critical by those reviewing such transactions are that the evidence show an affirmative decision, by the person having authority to permit the expenditure at the grantor level, before the grantee initiated the action that created an obligation to pay. 32. Are grantees required to follow the federal government's travel regulations? The Federal Travel Regulations (FTR) promulgated by the General Services Administration (GSA) apply to federal employees. Grantees are permitted to use their own institutional travel rules as long as they are consistently applied to federally funded and other travel. The grantee rules may be based upon actual costs, a per diem arrangement, location differential or mileage basis or some combination. However, if a grantee does not adopt its own set of rules, some federal agencies may require use of the FTR. USAID has in the Standard Provison entitled "US Eligibility Rules for Goods and Services" explicity states at paragraph "f". Cost Principles" that if the recipient does not have written established policies, it will apply the Standardized Regulations for determining the reasonableness of cost. 33. There seems to be some overlap between the types of costs that are allowable under the cost principles' categories of meeting expense, travel and entertainment. Since the first two are allowable and the last one is not, what are the differences? Travel costs are those costs of transportation, lodging, meals and incidentals incurred while in transit on official business pursuant to a grant. Meeting expenses are the costs of rentals, meals, speakers fees, and the like incurred for a gathering that supports the purpose of the grant. Entertainment is the cost of amusement, diversion, social activities, ceremonies, and relating thereto. Since these could include meals, transportation, lodging, rentals and other similar expenses that might be allowable under other circumstances, it is important that the grantee document well the circumstances surrounding the incurrence of cost in all three of these categories. 34. There is a prohibition against the use of federal funds to lobby (in OMB Circular A-122) and a similar prohibition in the Byrd Amendment. What is the difference? The prohibition in Circular A-122 is broader. It prohibits the use of federal funds for influencing elections or legislation. The prohibition in the Byrd Amendment" prohibits the use of Federal funds to try to influence legislative or executive branch officials to decide in favor of awarding a particular contract, grant, cooperative agreement, loan or loan guarantee. 35. What methods are permitted under Circular A-122 for the calculation of indirect cost rates? There are three alternatives available. The variation is based on the relative degree of accuracy needs and the relative sophistication of the grantee's accounting system. They are the direct charge method, the simplified method and the multiple rate method. 36. Is there additional guidance available for private voluntary organizations concerning how to calculate indirect cost rates? The U.S. Department of Health and Human Services has developed a booklet entitled "A Guide for Nonprofit Organizations--Cost Principles and Procedures for Establishing Indirect Cost and Other Rates for Grants and contracts with the Department of Health and Human Services." While not specifically addressed to grantees of other agencies, the guide expounds on the methods of indirect cost calculation permitted under Circular A-122 and provides useful examples of rate presentation. The document is often referred to as "OASMB-5" and may be obtained from the U.S. Government Printing Office (Order Telephone Number (202) 783-3238). 37. What types of indirect cost rates can be approved by federal agencies? There are three types. They are:
USAID generally prefers the "provision/final" type of indirect cost rate for grants and cooperative agreements; however, OMB is increasingly encouraging use of pre-determined rates when cost experience shows the government is unlikely to be overcharged. A-133 SPECIFIC QUESTIONS: 38. How does OMB Circular A-133 apply to private voluntary organizations? U.S. based PVO's that receive $300,000 or more in federal awards during their fiscal year are required to have an audit performed in accordance with Circular A-133. 39. What is the purpose of the audit under Circular A-133? The audit is considered to be a financial audit, performed to determine three things:
40. Who may perform an audit under Circular A-133? The auditor who performs an audit under circular A-133 must meet the independence standards of the U.S. General Accounting Office publication "Government Auditing Standards." The independent auditor may, however, place some reliance on work performed by the internal audit staff of the grantee. 41. What is the relationship between the audit arranged for by a grantee under Circular A-133 and the federal agency's responsibility to audit? The primary responsibility for audit of federal assistance funds rests with grantees. As a term and condition of the receipt of funds, a non-profit organization agrees to arrange to have an audit performed under circular A-133. Federal agencies are expected to rely on that audit to the extent it meets Government Audit Standards and other requirements of the agency. However, the completion of that audit does not limit the right of the federal government to conduct audits of its own. Applicable guidance requires that federal agencies build on the audit work performed by the independent auditor and avoid duplication of effort. 42. What is the required frequency of Circular A-133 audits? Audits are to be conducted every year. The basic period for coverage is the grantee's own fiscal year rather than any specific program year of a particular award. 43. How are questioned costs reported? The auditor is expected to question costs that are unallowable, undocumented, unreasonable or unapproved and to include those that are considered to be material in the report on compliance. All non-material instances of non-compliance, including questioned costs, are to be reported to grantee management in a separate written communication. That document is also expected to be submitted to grantors. 44. In addition to the OMB Circulars, what other government-wide policies apply to AID grants and Cooperative Agreements?
45. How does one obtain OMB Circulars and other authoritative materials governing the administration of assistance awards? OMB Circulars, forms and other documents can be found at: http://www.whitehouse.gov/omb/grants. USAID documents, including ADS Chapters and Regulations can be found at: http://www.usaid.gov. |
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