EDGAR & More... Federal Grant Holders Guide to Understanding Financial and Administrative Regulations. Presenters: Bob Michaels and Gayle Palumbo. >> OPERATOR: Good afternoon and welcome to the National Council on Independent Living, EDGAR & More, Part 2, conference call. Today's moderator will be Mr. Bob Michaels. During the discussion, all participants will be muted. You will be able to ask questions during the presentation by pressing zero one on your telephone keypad. And now without further delay, I'll turn the conference call over to Mr. Bob Michaels. >> BOB M.: Hi everyone. My name again is Bob Michaels, and today again I'm going to be the moderator of today's session. We're very glad that you can join us for EDGAR & More, a Federal Grant Holder's Guide to Understanding Financial and Administrative Regulations. This training has been presented in two parts -- a couple of days ago on June 13th and today. As you know, this conference is brought to you by the IL NET, which is the collaborative project between NCIL and the IL NET. This is a national training and technical assistance project serving to strengthen the independent living movement by supporting centers for independent living and statewide independent living councils. They provide various resources on operating CIL's and SILC's. There are several representatives from the office of the Chief Financial Officers Indirect Cost Group. They are Ted Mueller and Bob Webster, Alan Shumard and Mary Gougisha. This team is ready to answer your questions. This training is being presented as both a teleconference and webcast. Today we have 35 sites representing 21 states and approximately 120 participants in the teleconference. We also have many joining us by the webcast. On Monday, there were between 70 and 80 participants joining us throughout the webcast. About halfway through this training we'll update you on webcast numbers. I'd like also to thank our site coordinators across the country for your participation and for the preparations for your site participants. We are taping this call so you're going to be able to receive a copy of that tape as part of your registration. So if you don't want to take notes, that's okay. You're going to be able to refer to the tape later. The webcast is also being archived and will be available shortly after on the IL NET website, www.ilru.org. Also the webcast is realtime captioned and a transcript is going to be available on that page as well. The webcast archives and transcript from Monday's session are already available on ILRU's website. Again, just go to the www.ilru.org and click on the webcast calendar. On Monday there were several questions that we did not have time to answer. If time permits, I'll integrate them into today's session. Regardless of whether we answer them today or are able to discuss them, the questions and Gayle's answers have already been posted in the IL Coach Message Forum on IL NET's website. You can find them -- the IL Coach again by going to ILRU.org and clicking on Projects and then IL NET. Please keep in mind your feedback is important to us because it helps us improve our future trainings. For those of you in the teleconference, your evaluation forms may be found in your participant's manuals. Webcast participants will find that link on the webcast page. In both cases, we hope you will complete and submit an evaluation. You're going to find it for today on Page IV; and site coordinators, just a reminder to you, you'll need to point out corresponding page numbers in Braille and large print for your participants. I'd like to introduce to you our presenters. Gayle Palumbo has worked in the Department of Education since 1984. Gayle has considerable experience with EDGAR or even with this particular set of regulations during most of her tenure with the Department of Education. She's been a management and program analyst, grants management specialist and regional grants representative. She currently manages the discretionary grants program in RSA's Region IX office in San Francisco. Michael Fuller has worked for RSA since 1999. He's a financial management specialist in the Region X office in Seattle. His duties have been to provide technical assistance and monitor the financial management of state V. R. agencies and nonprofit agencies, including CIL's. He's a CPA, certified internal auditor, and has an MBA. So without any further ado, I'll let you get started, Gayle. >> GAYLE: Okay, thanks, Bob. And hello again everyone. We're going to begin today with a brief recap of Monday's training, talk about the agenda for today and then move into a discussion of cost allocations. On Monday, during part 1 of the EDGAR and more training, we provided you with an introduction to EDGAR in terms of what kinds of requirements are covered in the various parts of the regulations. We talked about other documents you should be aware of that contain fiscal and administrative requirements including The Rehabilitation Act of 1973 as amended, the federal independent living regulations at Title 34 of the Code of Federal Regulations, Parts 364 and 366, and Office of Management and Budget Circulars A-122 for nonprofit organizations, A-133 audits for state and local governments and nonprofit organizations. We talked about the order of precedence of various documents when there is conflicting information between them. That order being the statute or the law always comes first in terms of precedent over other rules; second, the program or independent living regulations; third, in order of precedence would be EDGAR and fourth would be OMB Circulars and any other policy documents. We went over on Monday some general fiscal requirements, different kinds of fiscal records that must be maintained, having a clear audit trail in your record, safeguarding federal funds, internal controls and federal drawdown requirements. We also went over required written fiscal procedures and talked about OMB Circular A-122 in terms of what's contained in that circular and discussed some specific items of cost that are unallowable, allowable or allowable only with prior approval. We also talked about how the OMB Circular defines allowable costs, reasonable costs, and allocable costs although we're going to go over those costs more in depth today. We talked about when to request approval for changes in your project, whether budgetary changes or programmatic changes and we talked about the annual financial status record or SF-269 that must be filed by all centers. We discussed obligations, what an obligation is and when it happens and carryover of funds from one year to the next. And just to reiterate, independent living centers are currently unable to carry Title VII Part C funds from one year to the next, but we anticipate that may change as part of the reauthorized rehabilitation act. We also talked on Monday about independent audit requirements, those being you're required to have an independent annual audit if you expend $500,000 or more in federal funds in a fiscal year. As we talked about the requirement that you may only expend federal funds on independent audit costs if you are required to have one. So now we're going to move on to the topic of cost allocation plans and then later in this training session, we'll be discussing program income, contract provisions, lobbying prohibitions and drug free workplace requirements. So I'm going to turn the discussion over now to Mike Fuller from our Seattle regional office who is going to make a presentation on cost allocation plans and then we have the staff from the office of the chief financial officer in Washington D. C. available to answer questions specific to cost allocation plans. So, Mike... >> MIKE: This presentation answers two questions: First, what is a cost allocation plan? And, second, why do I need a cost allocation plan? What is a cost allocation plan? A center may receive a memorandum in late May or early June 2004 from an RSA regional office that clarifies the requirements for allocating indirect expenses to federal awards. It explains that a cost allocation plan is a narrative that describes methodologies for allocating indirect expenses to cost objectives. A cost objective can be a grant, project, service or other activity of an organization. Specific dollar amounts and percentages are not used in the narrative because the cost allocation plan will remain in place until there is a change in the methodology being used or there is a change in the center that affects the methodology. A model cost allocation plan is available on the U.S. Department of Education website at www.e.gov/programs/cil/legislation.html. I will mention that website again later if you didn't get it all. Model cost allocation plans begins with a purpose statement that says that a cost allocation plan is to summarize in writing the methods and procedures that the center will use to allocate costs to various cost objectives. The second part of the model cost allocation plan provides the general approach used to allocate costs. For example, allowable direct costs are charged directly to a cost objective and indirect expense costs will be allocated to cost objectives. The biggest part of the model of the allocation plans describes how various types of expenses are to be allocated. For example, all personnel are to prepare daily time sheets, program personnel will charge their time to (Inaudible) and administrative personnel will charge their time to an administrative cost objective and reallocate it to other cost objectives. The great majority of centers have a preference for cost allocation plans rather than an indirect rate for the cost allocation plan. They can charge actual expenses to the grants rather than an amount that an indirect rate would allow. Indirect rate is calculated using historical financial information, so the amounts of indirect expenses that are charged to a federal grant in a fiscal year are limited by the percentage obtained using the historical financial information. A center may have problems financing its operations in a year if indirect expenses are higher than what an indirect rate allows. This is essentially true if a center does not have a significant amount of nonfederal sources of funding. On the other hand, a cost allocation plan provides for the allocation of indirect expenses to cost objectives in the year they are incurred. Another reason centers like cost allocation plans, they require less time to maintain than indirect rate proposals which require approval. The second question was why do I need to have a cost allocation plan? The Office of Management and Budget is part of the Executive Office of the President of the United States. Part of this job is to lead the development of government wide policy to ensure that grants are managed properly and federal dollars are spent in accordance with applicable laws and regulations. In order to accomplish this job, OMB published circulars A-122. This circular establishes principles for determining the (Inaudible) with nonprofit organizations and Part C of the Rehabilitation Act. OMB Circular A-11 can be obtained at http:// www.whitehouse.gov/omb circulars/index.html. I'll mention that later, too, if you didn't get it all. OMB Circular A-122 provides general principles for determining costs of grants. One of these principles is that a cost mus be allocable. A cost is allocable to a grant if discharged in accordance to relative benefits received. The U.S. Department of Education is allowing centers to use cost allocation plans rather than indirect rates. With an approved plan a center will be in compliance with OMB Circular A-122. In addition to being in compliance, an approved cost allocation plan may help you improve the financial management of your center. You will know with more certainty how much it costs to operate your various grant programs or activities. That's the end of my presentation. >> BOB M.: Okay, thanks, Mike. Michelle, any questions? >> OPERATOR: If anyone has a question or comment, you may press zero one on your telephone keypad. Once again, if you have a question, please press zero one on your telephone keypad. We have three questions in the queue. The first one comes from Kent. >> CALLER: Yes, my question is this: With the cost allocation plans as they were outlined to us, it limits the amount of grants we can get outside the center. Is there any way to handle that? A lot for example our -- our United Way grants, we're not allowed to allocate them around. >> You have grants from United Way you say? >> CALLER: I have attempted to get grants from United Way, but now that I have to have an allocation plan, the grants don't fit in the allocation plan. >> So the grants from the United Way don't allow costs to be allocated, is that what you're saying? >> CALLER: Yes, it's for a specific purpose. >> TED: Well, this is Ted Mueller. The purpose of cost allocation and cost determination is based on 100 percent cost basis, in other words, an organization has to account for 100 percent of its costs. So these United Way grants still should pick up a fair share of costs that are being allocated, particularly of a general administrative nature. So they have to be accounted for in the plan. I mean, all the plan does is set forth a methodology for allocating costs, how they apply and are charged out to the grants is a funding decision using your cost allocation plan. So I'm having a little trouble understanding why -- because when you do cost allocation plan and the overall methodology, it accounts for 100 percent of the organization's costs. In fact, that's one of the key aspects of when you put together the cap, as we call it, you have to reconcile costs to a total -- what do they call it -- total base or functional statement or something. So our CAP should account for 100 percent of total organizational activity. >> CALLER: The problem is the United Way doesn't allow me to spread their grant and this requirement makes me spread the grants so I end up having to turn down the United Way money. >> GAYLE: This is Gayle. And if I could make a suggestion. I wonder if part of the confusion here is understanding not allocating among grants, but allocating by programs and maybe you could just explain what that's about. >> BOB W.: Gayle, this is Bob Webster. Involved in any kind of cost allocation process it's always up to the particular organizations as to whether they'll accept the grant even though the indirect costs may be limited or even though there may not be any indirect costs, but for cost allocation purposes, we still need every grant -- each and every grant has to pick up its share of administrative costs or indirect costs whether or not the organization actually recovers it. So the organization needs to make a determination as to whether or not they'll accept a grant, even though they can't get a full indirect cost recovery on it or their indirect cost may be limited. That's the decision that they have to make. Sometimes organizations just won't pay their fair share of grant money, reimbursement on indirect costs. (Multiple Speakers). >> CALLER: Is that grant from United Way -- are those for the same purposes as the federal independent living center grant? >> BOB W.: No. >> CALLER: What is the purpose of the grant? >> BOB W.: A mentoring program. >> CALLER: That's not included? >> It isn't a core service. It's part of our overall mission but it's a mentoring program, but they want 100 percent of their money to go to the costs of the person doing the mentoring. They don't want their money split on administrative purposes. >> This gets to the heart of cost allocation. Cost allocation is separate from funding. You use cost allocation to assign costs to activities. At that point, the organization has to make a decision based on what each grant will pay for and this is a perfect example why you do need a cost allocation plan because it's going to tell you on this United Way grant what administrative costs you're going to have to subsidize on their behalf. Since United Way grant will not pick up their fair share, it will show you what costs you're going to have to subsidize from general revenue so you still have to assign from that activity their fair share by a cost allocation. That's cost determination. Now comes the funding decision part of it. If they're not going to pick it up, then you're going to have to subsidize it with general fund revenue. That's why you need -- and that's why we kind of sell indirect cost rates or cost allocation. They are something more than a percentage or methodology. They service a financial blueprint for your organization. It tells you what costs you're going to account for directly and indirectly and you'll use it for funding determination. >> ALAN: Ted, this is Alan Shumard. I'm here. Just one question I have for this organization, suppose they did not have this -- you know, this federal grant and they went ahead and they said, let's apply for United Way monies. Well, they'd still incur these general administrative costs like the personnel office, the accounting, bookkeeping and stuff like that. I mean, what are they going to charge it to if they don't have the federal grant and the United Way monies instead? >> CALLER: Are you asking that of me? >> ALAN: Yes, sir. >> CALLER: Those costs are already covered by my basic state grant and so -- in actuality -- in an actual physical condition, I'm not incurring additional costs as a result of the United Way grant. The light bill in that office is already paid. I'm adding an extra desk in the office, but the phone was already paid by the other person in the office. So literally, I'm not a crewing additional costs. >> ALAN: So you're charging a cost to another award that actually benefits United Way? >> CALLER: No, actually, I'm using an office that is being used for another purpose. So I'm actually being much more economic with the thing. I'm actually using an office for two purposes rather than one. Now, under your way, I'm splitting it out, but in actuality, I'm not incurring any additional costs at all to bring in this grant. If I didn't have the grant, I would still be paying for this office out of the other pot of money. So whether I get the grant or not, I'm not incurring additional costs. >> Kind of difficult to see what the problem would be then. >> CALLER: Well, the problem is you are saying every grant I have in here has to have this cost. So what I'm doing is I'm arbitrarily creating costs in order to do your allocation plan. >> Ted, does that mean that they would be required to -- I mean, on the books those -- some costs would be allocated to the United Way grant, but does that require them to charge those costs to the United Way grants? >> No, as I said, allocation is different from funding. I think -- again, as long as you're accounting in the methodology for 100 percent of your costs -- maybe off line we can work through some examples on this. >> CALLER: Okay. Yeah, I don't want to take too much of the group's time. >> Yeah, the principle I think is that indirect costs (Inaudible) the federal grants take up their fair share of the administrative costs that they benefit from and/or help generate. That's what indirect cost plans are about. >> For example, I suppose insurance would be an example, even though you just have -- if only had one grant, you would pay all the insurance, but if you have many grants they should be sharing the insurance. It's just a fair amount of fairness. >> Yes, sir, that's correct. >> Absolutely. >> OPERATOR: There are two further questions in the queue and the next one comes from (Inaudible). Go ahead, ma'am. >> CALLER: Hi, I just have a question. I believe all of us have submitted our cost allocation plans for the Department of Education's review back in September '04, and we haven't heard back. And we've been allocating our costs according to the plan we have submitted. Now, what do we do? Do we wait until there is a response from the Department of Education? And make changes accordingly afterwards or continue to use it -- I'm not sure what we are supposed to do in the meantime. >> TED: Okay, this is Ted Mueller again. What's the name of your organization? >> CALLER: Silicon Valley Independent Living Center. >> TED: I'll check up on the status, number one. A little background for the audience here. Mike did a great job of explaining how we go to the cost allocation plan process. What happened as a result of this policy decision, we got a huge bottleneck of work to attend to. So now I have a unit of like eight people, and our maximum workload up to this point -- we're cognizant that's the term we use to identify what federal agency is responsible for approving cost allocation plans and indirect costs. It's whoever gives your organization the most direct federal assistance. So we're cognizant and our primary clients are the state education agency. And we're cognizant of about 200 organizations. So when we got the independent living workload, it was very close to 500 cost allocation plans. So it's basically over -- doubled what we normally do in one year. We do have a contractor that we've -- a retired fed, director of cost allocation with the Department of Labor who is helping us out, but all that is just to say we've got a bottleneck. We're working our way through. Now, with respect to your predicament, I think it's going to have to be a program call. My recommendation is, yeah, you have to start allocating on some basis and using that proposed cost allocation plan is using none at all. I'm just relying on budget, if that's going to get you into the audit scenario. And then if we have to retroactively adjust based on the approved plan, then that would be my recommendation. >> CALLER: Okay, I do have a question while I have you on the line. What we do here in our organization is we divide our costs based on our full time equivalency within a program or within a department, and based on that, we most generally are allocating our costs accordingly. So is that something which is legitimate? >> You said by FTE did you say? >> CALLER: Yes. >> Most of the methodology that we've been approving have been salary-based, you know, using salaries for different components and allocating using the total salaries as the denominator and whatever the divisional activity we're talking about as the numerator and coming up with percentages. We can take a look at the FTE. Usually FTE is used to distribute space, maybe sometimes -- we'll try and be as flexible as we can, but I'd have to be frank and say most of the methodologies have been salary-based. Bob, do you -- and Alan, do you agree with that? >> CALLER: Well, no matter what the salary is of a person, if there is telephone used it is based on (Inaudible) number of hours they are putting in and what kind of work they are doing, you know, I would rather distribute my telephone costs according to that full time equivalency rather than basing the person's (Inaudible) on their salary. So I'm not understanding why -- >> I just picked out one item of cost. >> CALLER: the same thing true for all the other. Like for example, office supplies. >> yeah, I can look at that. Alan, were you about to say something? >> ALAN: You know, I've seen -- you know, I deal with some that are based on salary amounts. The FTE's, like I say, are usually based on something where one person would use one thing like a telephone or, you know, computer or Internet -- >> CALLER: You say office supplies, kitchen supplies, mileage -- >> so your plan is a little bit more sophisticated than some of the ones we've seen. >> CALLER: in my cost allocation plan, I have listed all different costs and how I -- what is my methodology between dividing the cost between the programs and the department. >> so you have a finite distribution based by cost element. Space would be square footage, accounting would be transactions processed or personnel would be the number of FTE? >> CALLER: Uh-huh. >> well, I'm going to pull your plan when I get back. >> CALLER: Okay. >> BOB M.: We need to move on here because we're going to run out of time. I've been letting this go on because I suspect that they tr only ones with these questions. We're going to have to wait to take the third question until after Ted's next segment. Okay? >> okay. >> MIKE: the next part I have is general requirements of OMB sick lar A-122. The title of office management is (Inaudible). Attach. A. to the circular provides the general principles for determining costs of grants, one of the general principles is that a cost must be allocable to a grant. Another general principle is that expenses must be identified as either direct or indirect. Direct expenses are those that can be identified specifically with a particular cost objective. Cost objective can be a grant award, a project service or other direct activity of an organization. a center may have more than one funding source to pay for one project service or other activity. So it may be practical to allocate expenses to the project service or other activity rather than the funding source. A center may not charge all expenses to the Title VII Part C independent living center grant runs it is the only source of funding for the center. Indirect expenses are those that have to be incurred for common or organization wide objectives and cannot be readily identified with a particular grant award. Indirect expenses are what remains a total expense after direct expenses are assigned to cost objectives. Examples are A, operating and maintaining fa signatures and B, general administrative expenses like salaries of executive officers, personnel administration and accounting. OMB Circular A-122 explains how an indirect cost rate is calculated. the most appropriate methods described in OMB Circular A-122 are either the simplified allocation method or the direct method. Under the simplify method the centers expenses are separated from the base period as either direct or indirect. The base period is the time period when the expenses were incurred and accumulated and normally coincide with the center's fiscal year. Most of the indirect expenses are identified, they are divided by distribution base like total direct expenses or direct salaries and wages to obtain an indirect cost base. Capital expenses and other distorting items are not to be included in direct expenses. Under the direct method, indirect costs consists exclusively of general administration and general expenses. Other expenses are prorated individually as direct expenses to each (Inaudible). In all other respects, the center's indirect rates are computed the same as indirect methods. OMB Circular does not specifically discuss cost allocation plans. You may submit a cost allocation plan to your agency. For most centers is the Department of Education is the cognizant agency. The cognizant federal agency negotiates and approves cost allocation plans or indirect rate proposals on behalf of all federal agencies. Each center received a memorandum in June or May of 2004 concerning the costs of independent living centers. It says that if a center does not have an indirect rate or cost allocation plan approved, an indirect rate proposal or cost allocation plan must be submitted before September 30th 2004. If a cost allocation plan or indirect rate proposal has been submitted, you could result in a monetary disallowance. These should be submitted to the following address if the Department of Ed is the agency. That's The Indirect Cost Group, Financial Improvement and Post Audit Operations Office of Chief Financial Officer, U.S. Department of Education, 400 Maryland Avenue Southwest, (Inaudible), Washington D. C, 20202. That address is in that regional identical memorandum. For instructions and technical assistance, you may call at (202)708-7770. And the model cost allocation plan is available as I mentioned before at www.e.gov/programs/cil/legislation.HTML and the website for Circular A-122 is www.whitehouse.gov/omb/circulars/index.html. That's all I have for that part. >> BOB M.: Okay, Michelle. >> OPERATOR: Thank you, sir. If there are any further questions or comments at this time, please press zero one on your telephone keypad. We have two questions in the queue and the first one comes from Joseph. >> CALLER: Yeah, I think I believe my question was answered in the first when the gentleman was answering the question one and question two. We spent so much time on those. I think within that time my question was answered. I'll rest my question now. We've got to go on. >> OPERATOR: Thank you. The next question comes from William Knight. go ahead, sir. >> CALLER: Yes, this is Karen. Bill Knight is with me here. We also were interested in knowing when the allocation plans would be approved because some of that discussion is linked to our state contracts. The other issue that I wanted to review, I know it was mostly the discussion on Monday was the allowable costs for purchase of real property. Is it possible that we can address that issue sometime this afternoon? >> BOB M.: Why don't you go ahead and ask that question. >> CALLER: I have been given conflicting information about the use of federal dollars for the purpose of a building that would be owned by the center for its offices. >> GAYLE: This is Gayle Palumbo. Let me go ahead and answer that question because it's a real quick answer. Actually, EDGAR says that federal funds and the Department of Education funds may not be used for real property. So EDGAR would supersede any information you find in an OMB Circular. I'm not sure what the circular says right off the top of my head. So you may not use Title VII money to purchase buildings. >> TED: I think is circular would allow interest on debt financing arrangements, but as Gayle pointed out -- I mean, EDGAR does not allow the purchase of that type of asset. >> CALLER: So is there -- what it sounds like, and our state is using the federal guidelines to apply to our state dollars. And so if nearly 100 percent of your operation is accommodation of federal and state dollars, it pretty much closes us out from buying an office building in preference to leasing space in someone else's property? >> not necessarily. I mean, if you purchase the building and you have an indirect cost rate or a cost allocation plan, you can deprecate yate -- using the useful life scenario an we would pick up that as long as you're using the building and again, cost depreciation would be allocated on some basis across benefiting activities. I guess -- I believe -- I don't know what your relationship is, but it sounds like the building would be used by more than one activity? >> CALLER: the building would be used to deliver independent living seer investigate it's and the total amount of dollars would be a combination of federal and state funds and so -- >> no, you would have to purchase the asset with state money and then deprecate yate the cost of that asset and then we would pick up the cost of depreciation as long as federal funds were involved. >> CALLER: Okay, but what I'm trying to say to you is that in the state of Florida, our state is applying all of the federal regulations and so, therefore, we cannot use state dollars nor our Part C dollars for the principal. >> well, that's a state and local decision. I mean -- as long as you don't blame us for saying that's why you can't buy. If you're applying a federal bar and applying that at the state bar, that's a state or local prerogative to do that. So it's not a federal mandate to require you to do that. >> CALLER: Well, it has to do with how we use the SSA dollars and those are considered by our state as comparable to -- it's comparable to any other federal rehab funds. >> you know, EDGAR and the cost principles are set up to protect the federal interest. It's not necessarily set up to -- for use for state and local guidelines. >> CALLER: Well -- >> BOB M.: to move on to another question. If you can finish up here. >> CALLER: I guess what I would ask then, maybe not of the experts who are on the line, but of other CIL directors, what is a methodology by which if all of your state and federal funds are considered as part of the unallowable purchase of property, is there a methodology by which we can purchase property and still maintain a relationship with the feds and the state? That's just a question that I guess I'd have to come back to you, Bob, at another -- on another call. >> BOB M.:Yes. Okay. >> CALLER: You know we in Florida have used all of our state dollars as an exchange of SSA funds. And those are considered by our state to be exactly the same as federal rehab dollars. >> BOB M.: Yeah, I think we're probably losing most of the people on this call. So if you want to send me that question, I'll search around and try to find somebody who knows the answer and make sure you get it back. >> CALLER: Thank you. >> OPERATOR: Yes, sir, we have a question from Mary Ann Hernandez. Go ahead, please. >> CALLER: Actually, my question was answered earlier. >> OPERATOR: There are no further questions in the queue. >> BOB M.: Yeah, I have some that have come in through the webcast. One question I have is if a center has a branch that is 100 percent direct program services, and administration is at the main office, then would all the expenses for that branch office be considered direct expenses? >> yeah, I think -- well, it could be, but the direct costs would be -- would have to be allocated directly to the benefiting regional activities. I mean, it could still be considered a direct expense, but would have to be prorated amongst the organization or activities that the central office is providing support to. Does that make sense? Do you understand that? >> BOB M.: You know, that question came in on the web is cast so I don't have a person to ask if they're clear on it. By the way, we've had a request from our realtime captioner to make sure we identify the acronyms and slow down. The second question I have is can expenses such as utilities, rent and trash pick up be considered indirect or program expenses due to the fact that the program could not exist without these expenses? >> BOB W.: Those are typically indirect expenses that are necessary and they fall under the category that we consider to be administrative and indirect and they'll be allocated over the -- all the projects of the program that the organization has. >> BOB M.: Okay, and then there is a third question: Does program expenses have the same definition as direct expenses and does administrative expenses have the same definition as indirect expense. >> TED: Administration can be both direct and indirect. You can have direct costs of administration and then you can have indirect management general costs that are considered indirect in nature. So that the two are somewhat coupled and it may not apply to the CIL's, but that becomes a major headache in some of our formula programs where Congress has imposed caps on quote-unquote administration without defining what administration is. But typically administration can be both direct -- you have direct administration costs, i.e. project director, stuff like that; and you have management in general costs that are considered indirect and both of them are -- fall under the umbrella of administration costs. >> BOB M.: So do program expenses have the same definition as direct expenses? >> TED: I think so. I think that's fairly consistent. For example, organizations with I. R. S. form 990, the program expenses that are captured on there are typically the same types of costs that are categorized as direct expenses in the direct cost allocation method. So I think the answer to that is yes. >> BOB M.: Okay, I have one more question. If CIL's RSA grant only covers a small portion of the cost of providing the five core services and the remainder of those costs plus the costs of other programs and services are paid from CIL's discretionary funds, what is the purpose of a cost allocation plan? >> TED:Well again -- and I keep saying this everywhere I go. A cost allocation plan or indirect cost rate is the financial blueprint for your organization. It's going to account for what positions and costs that the organization considers indirect or management general and costs are considered director program. It's going to lay out what your depreciation policy is for your equipment. It's going to account for salaries. It can provide a framework for time keeping and time distribution. So all those fall under the category of cost allocation and financial blueprint. So regardless of funding or how you get reimbursed, we always -- you need these cost allocation plans at indirect cost rates. It's a matter of good business. A friend of mine frequently uses the Edsell as an example. If you remember, the Edsell was a car that was produced by the Ford Motor Company and at the corporate level they keep finite records on what it costs to produce what. And they weren't doing that at that time so the Edsell was it costs more to produce the Edsell than what they were selling it for so it didn't last too long. So that's an example that we provide to highlight why you need indirect costs and cost ole ' indication. It's a matter of good fiscal administration. >> BOB M.: Okay, great. We need to move on to the next section. I want to say at this point we have just under 60 listeners on the webcast. >> TED:Can I make one observation. I failed to catch earlier, Mike, when we put out the original guides to help you out sh our address was as you stated, but they moved us out subsequently. So we have a new telephone number. It's the same area code obviously, but we're now at 377-3838. And our new address -- instead of room 4 W. 103, it's just put U. C. P. Union Station capital plaza. Just put U. C. P. All the other address information is okay. >> would you want to put the suffix 202-0450 to mail it to us? >> TED: Yeah, thank you. >> BOB M.: Now we'll move on to the next part, program income. >> GAYLE: Okay, and Ted and company, you all are staying around until the end in case we get some additional cost allocation questions at the end of the teleconference, right? >> TED: Yeah, I can stay until about 4:20, but Bob will be here and Alan, can you hang around? >> ALAN: Until about 4:20, yes. >> TED: Okay. >> GAYLE: Thanks. So now we're going to move on to a discussion of program income. Program income for independent living centers is actually defined in the program regulations at 34 CFR 364.5 and 6. And I realize you all don't have a copy of the program regulations in your training manuals. You certainly should have copies of the regulations on hand at your centers. If you don't, you can access them online at www.gpoaccess.gov/cfr/index.html. And a definition of program income in the independent living regulations is virtually the same definition as you'll find in EDGAR at Part 74 .2, which you'll find on Page 105 in your training manual. And it is gross income received by a center that's directly generated by an activity supported by Title VII Part C funds in your case. In other words, if you spend Title VIIc money to make money, money you make is program income to the VIIc program. Program income does not include grant funds. So if you pay a grant writer with VIIc funds to write grant applications and he or she is successful at that, the grants you receive are not program income. And that's because grants generally have terms of their own based on the requirements of the grant or agency that may not make it feasible for that to be considered program income to the VIIc program. But it does include fees for service e and other money you may raise, again, provided you spend VIIc money to do so. It must be used for the same allowable purposes as you would use your VIIc funds for, that is for the provision of independent living services and the operation of the center. You may use program income in accordance with what's referred to as the edition alternative in EDGAR where you're allowed to add the income to your federal funds and use it for allowable purposes. The other option for using program income is what's referred to as the deduction alternative where you use program income funds before you use federal funds so that if there is any money left over at the end of the year, it's federal money and it reverts back to the government. So your best bet is to use the additional alternative. That's certainly what's in your best interest. You have -- in addition to the year in which you eastern the income, one additional year beyond that in which to use the income. If you report any income you earned or haven't spent our annual financial status report which we talked about on Monday. And you can get additional information on program income in Part 74 .24 of EDGAR which you'll find on Page 117 of your training manual. So let me stop there for questions on program income. >> OPERATOR: if anyone has a question at this time, please press zero one on your telephone keypad. We have a question -- two questions in the queue and the first one is from Joseph. >> CALLER: Yeah, my question is about the program income -- say, for instance, we close the center. Am I allowed to keep that program income? >> GAYLE: If I'm sorry, if you close the center -- you mean go out of business? >> CALLER: Yes. Do I need to return it to the federal government? >> GAYLE: if you close the center, then your expenses for that year would come out of your program money and you would return federal funds to the government. You spend your program income money first and what's left over would be federal funds. You would be using what we refer to as the deduction alternative. Are you planning on closing? >> CALLER: No, no, no. I'm sorry. (Inaudible). Also the program income -- the program income is the money that comes if I use the federal grant money -- make money? >> GAYLE: Yes, that's right. >> CALLER:(Inaudible) is not program income? >> GAYLE: if you spend federal money to earn that fee-for-service then it becomes income. I'm sorry? >> CALLER: It books program income? >> GAYLE: Yes. >> BOB M.: Michelle, any other questions? >> OPERATOR: Yes, from Mary Ann Hernandez. >> CALLER: if a center does not declare that they're going to generate program income on their 424 cover page, and they do generate program income, do they still have the choice to elect whether they're going to use the add-on message or the deduction method or is that determined by the program officers? >> GAYLE: You have the option very using either one at the time. >> CALLER: Either one. >> OPERATOR: We have no further questions in at this time. >> BOB M.: Yeah, I have one question that came in and it says my center realizes income each year from our personal assistance program. Five years ago, when we started the program, we used some Part C funds to support the administrative expenses. To date, the program is 100 percent self-sustaining. When did our obligation to treat the proceeds as program income end? >> GAYLE: the current answer to that question is it never ends. We raised this question with our general counsel about a year ago in terms of centers that use federal funds to start up a program and then the program becomes self-sustaining and does self-sustaining money then -- is it always considered program income to the program and the answer we received from our general counsel is that there is no time limit on that and, yes, it's always considered program income to the program. That doesn't mean that decision can't be revisited at some time and we had quite a bit of discussion about it within RSA. There is a strong feeling here that that was not the intent when the program income section of the independent living regulations was written. So we may revisit that with our general counsel, but their decision at this point is that the obligation never ends. >> BOB M.: Okay, next area is required contract provisions. >> GAYLE: Okay, so there are some requirements with respect to provisions you must include in all contracts you establish using federal funds. And those contract provisions are found in EDGAR at Part 74 .48 which is on Page 132 of your manual and A. to Part 74 which is on Page 141. And you'll see that there are provisions listed in those sections that don't necessarily apply to you. There are a lot of provisions listed there that apply to construction contracts. So let me try to weed out what actually does apply to you. Of course first of all you must include provisions that define what we call a sound and complete agreement. And a sound and complete agreement will have specific terms in it, what the contractor is expected to do for you if there are any deliverables and what the time frames are on the work that's being conducted. Some of the language in EDGAR refers to contracts that exceed the small purchase threshold, the small purchase threshold is $25,000. Again, in case you didn't hear that, the small purchase threshold is $25,000. So if you have a contract with someone or an organization for more than $25,000, you must have provisions in your contract that allow for administrative, contractual or legal remedies in instances in which the contractor violates or breaches the contract terms. Also all contracts in excess of $25,000 must contain provisions for termination of the contracts by you. Contracts in excess of 25,000 must have a provision saying that the center is -- saying that the records of the contractor are available to the center, the U.S. Department of Education and to the controller general of the U.S., which is general accountability office or any of their duty authorized representatives. All contracts, including those over and under $25,000, require a provision that the contractor will comply with certain executive orders and federal regulations that ban discrimination in employment. And appendix A. to Part 74 of EDGAR on Page 141 of your manual gives you the specific executive order numbers and regulations related to equal point opportunities with which contractors must comply. So I'll stop there and ask for questions on contract provisions then. >> OPERATOR: if anyone has a question, you may press zero one on your telephone keypad. We have two questions in the queue and the first one comes from Mary Ann Hernandez. >> CALLER: I'm sorry, my question was answered. >> OPERATOR: the next question comes from Ellen. >> CALLER: Speaking from a funding source perspective, how do you enforce some of these rules and regulations on EDGAR? >> GAYLE: Well, RSA conducts onsite reviews of independent living centers. We're required to review 15 percent of the independent living centers we fund nationally each year. and that's the primary method we have for ensuring compliance with EDGAR. >> CALLER: Okay. I'm from Michigan and we're doing those right now. I just wondered how you enforced those -- a lot of these rules and regulations. >> GAYLE:That's primarily the method we have. Of course there are many more centers that are funded than we have staff available to conduct onsite reviews, so we don't get to centers very often. Some centers have not yet had a review. >> CALLER: That's very true. >> GAYLE: That's about the method we really have for enforcing other than doing some periodic trainings to remind people what requirements are. >> BOB M.: Michelle, are there any they are questions? >> OPERATOR: Yes, sir, there is a question from Kent. >> CALLER: Gayle, how are you going to enforce EDGAR if and when they close the regional offices? >> GAYLE: That's a good question, Kent. I don't have an answer. I think that's a question maybe for -- >> single audits. >> CALLER: Yeah, but single audit isn't going to show you anything about EDGAR. I mean the audit is going to show we used our money and so forth, but it's not going to show if we have administrative and financial systems in place and all that stuff. >> well t compliance supplement on single audits addresses many requirements programmatic and fiscal. So I agree with you they're not the best tool, but -- >> CALLER: and again, I'm not speaking for me in general, I'm saying we do have centers that -- federal audits find problems long before they become major ones. And I'm concerned that they're not going to find these problems and they're going to become very major. Maybe that's not a question, maybe it's a statement and I'm sorry. I'll get off the soap box. >> BOB M.: Okay. Michelle, do you have any more? >> OPERATOR: Yes, we have a question from Laurie. Go head, ma'am. >> CALLER: Yes, (Inaudible) coming out for the review. If problems are encountered, how long do the centers have to come back into compliance? I mean, what are the consequences or time frame for corruption? >> GAYLE: During the review we'll have extensive discussions with you regarding how to come back into compliance and we do provide you with an opportunity to develop a plan to come into compliance and you get -- I think the current time frame is 45 days from when we issue an onsite review report to submit a plan to us for approval. So that's kind of the beginnings of that. >> CALLER: You're not going to come in and do the review an close the center down or take the money back? >> GAYLE: No, we don't do that. >> BOB M.: Gayle, why don't we talk about lobbying a little bit. >> GAYLE: Okay. Part 82 of EDGAR, which is -- begins on Page 206 of your training manual contains the requirements with respect to prohibitions on lobbying and then OMB Circular A-122 in a penned distribution B. and this so page 46 of your manual, talks about costs related to lobbying. Basically, any costs associated with attempts to influence tout comes of federal, state or local elections are unallowable expenses against federal funds. As are any contributions to a political party, a political campaign, a lobbying organization for the purposes of influencing the outcome of an election. The other thing is that attempts to influence the introduction of federal or state legislation or the enactment or modification of pending federal or state legislation, for example, by communicating with Congress people or distributing publicity or propaganda are unallowable against your federal award. Encouraging members of the public to demonstrate or lobby or write letters or make telephone calls in order to influence a specific piece of legislation is also not allowable using federal funds. Let me stress that these are unallowable activities with respect to using federal funds to support them. There is nothing that prevents you from engaging in these activities when your salary is not being paid by the federal grant or you're not on federal time. What is allowable and even expected of centers as part of your advocacy activities is providing factual presentations related to a particular program through hearing testimony with letters to Congress or the state legislature, for example. And several years ago, NCIL produced a document that talked about the differences between advocacy and lobbying that was very good and, Bob, do you have that up on your website? >> BOB M.: Yes, that's up there. You can find it under publications. >> GAYLE: That's a good document to look at if you want a real clear distinction between what is advocacy and what is lobbying, and if I had to summit up, I think I would say that advocacy is concerned with issues on behalf of individuals with disabilities more than elections or specific pieces of legislation, which is where lobbying goes. That's most of what the OMB Circular says. EDGAR says in part 82, is you may not use federal funds to lobby not only Congress, but anyone in the executive branch of government with respect to getting or continuing a grant. So you're not allowed to encourage government officials to give you a grant. So let's stop there and take questions on lobbying. >> OPERATOR: if there are any questions at this time, you may press zero one on your telephone keypad. We have one question in the queue. That comes from Ellen. >> CALLER: Hello, as an Executive Director and we're salary and really on call 24/7 because we represent the center in anyway, how can we, say, volunteer after hours but we're really not on a 9 to 5, so I can't say at six o'clock I'm off the clock. I might be on the clock I just have a real question. How can we do that if we're working for a campaign or if we contribute our own money and not be seen as the CIL director because that's the hat we have? >> GAYLE: What matters is who is paying your salary. Does the federal grant pay your salary? >> CALLER: Well, yeah, part of it. Federal, state and any other grants I might have. Because I'm split across probably 15 grants. >> GAYLE: Well, I think -- your VII c grant pays part of your salary, not all of it, is that right? >> CALLER: Right. >> GAYLE:There would have to be -- I mean, one thing is you should have time records that indicate when you're spending time on VII c activities, and outside of those time periods you should be able to consider the rest of your time to be not federally funded if they are not federal grants funding your activities. I understand there has to be some period that you consider yourself to be not on the clock. And yet people will still see you as the center director, but there is nothing you can do about that. >> BOB M.: Any other questions? >> ALAN: This is Al. Can I make one comment about this? >> GAYLE: Yes. >> ALAN: These unallowable type lobbying costs are not allowable if you use indirect cost rate or like administrator costs or management in general if you use the cost allocation plan. They cannot be part of the costs distributed to grants under either plan. In addition, you know, for either indirect cost plan or a cost allocation plan, they have to be allocated, you know, their share of these administrative costs you know, as well, so they have to be part of the Dee nominate tore, the distribution base when it comes up for these plans. They can't be left off. >> GAYLE: Yeah, that's true. Thanks. >> BOB M.: Any other questions? >> OPERATOR: if anyone has a question, you may press zero one on your telephone keypad. There are no questions at this time. >> BOB M.: You want to do a drug free workplace? >> GAYLE: Okay, the drug free workplace requirements may be found in part 84 of EDGAR, which is on Page 221 of your manual. And they used to be part of part 85 and lumped in with the debar. Suspension procedures, but now a drug free workplace requirements are part 84 and debarment is by itself in part 85. This may be a little confusing in your manual because the version of EDGAR was that last published contained both the combined part 85 as well as the separate sections 84 and 85 since the separation had just occurred when EDGAR was published. So it was kind of in this transition period. At any rate, you should refer to part 84 for drug free workplace requirements at this point. A drug free workplace act of 1988 says that all organizations that receive federal funds must maintain a drug free workplace. This means you have to publish a drug free workplace statement that tells your employees that the unlawful manufacture, distribution, possession, or use of a controlled substance is prohibited in the workplace. It specifies the action you'll take for violations of that prohibition and it lets the employees know that they must notify you in writing if they're convicted for a violation of a criminal drug statute occurring in the workplace no later than five calendar days after conviction. A drug free workplace also means you must establish a drug free awareness program for your employees. And the ongoing drug free awareness program must inform employees about the dangers of drug abuse in the workplace, what your drug free workplace policy is, and any available drawing counseling, rehabilitation and employee assistance programs and the penalties you'd impose for drug abuse violations occurring in the workplace. And again, the drug free awareness program has to be an ongoing one which means that you must periodically remind employees of that. As an example, you might do this once a year at a staff meeting. The policy statement must be given to each employee at the center who will be engaged in the performance of any federal award. And then if an employee is actually convicted of a drug violation in the workplace, there are some specific actions you're required to take. You must notify federal agencies that fund you and we tell you in EDGAR what information you need to include in your notification. Also within 30 calendar days of learning of the conviction, you must either take appropriate personnel action or require the employees to participate in a drug abuse rehabilitation program. So that's it for drug free workplace requirements. I think we're ready to take questions on anything we've covered. We can open that up. >> BOB M.: Okay. Michelle. >> OPERATOR: if there are any questions, you may press zero one on your telephone keypad. Once again, if anyone has a question or comment, please press zero one on your telephone keypad. There are no questions at this time. >> BOB M.: Okay, I have several from the webcast side. And a couple of them go back to yesterday. This one I think is on more allowable costs here. Could you please address the appropriateness of paying for food with federal funds? I have heard mixed answers to this question, specifically can you pay for food for consumer events such as workshops, ILS training, recreational services, peer mentoring activities and so forth? What about an open house or an outreach event? What about staff trainings? Thanks. >> GAYLE: Well, that's a whole lot of different questions thrown into one because those events -- many of them are different one from another. OMB Circular A-122 allows food expenses in conjunction with meetings or conferences. So if you are having a meeting or a conference, then there is no problem paying for food and refreshments in that setting. Other -- we do not allow things like awards banquets. They are generally considered entertainment or presentation kinds of events like that are generally considered entertainment. They're not seen as meetings. As far as consumer services go and food connected with consumer services, I think you should include something like that in your line item budget and have your program officer take a look at it and get it approved. I suspect that there won't be a problem with a service type event, but I think it would depend on the specific circumstances and you should see about getting that approved from your program officer. >> BOB M.: Okay. All right -- >> GAYLE: (Inaudible). >> BOB M.: Okay, another question, are printing and copying machine costs allowable under -- for federal expenses? >> GAYLE: If you're talking about leasing a copier, yes, that's an allowable expense. If you're talking about buying a copier and it is more than $5,000, then that would be considered equipment and you would need specific approval to do that; but it is possible to get approval from your program officer for that expense if you can appropriately justify it. >> BOB M.: Okay. Here is a variation on several different questions we got. Where in the Rehab Act does it state that centers are allowed to use federal funds for fund-raising? >> GAYLE: It doesn't. What it says in the Rehab Act is that centers are required to conduct resource development activities. And that is in -- I believe it's section 725 of the Rehab Act. >> BOB M.: Yes, 725 standards and assurances. >> GAYLE: Thanks, Bob. Because of the language in the Rehab Act that requires centers to conduct resource development activities, our general counsel has said that that supersedes language in the circular that prohibits grantees from spending money on fund-raising activities because we're requiring them to conduct fund-raising activities in the Rehab Act. It tells you you have to do fund-raising which allows the expenditure. >> BOB M.: Another question with regard to fund-raising, there would have to be a line item in the budget for the specific centers, is that correct? >> GAYLE: Yes, there should be a budget line item that you could include those expenditures under. >> BOB M.: Okay, Michelle, do you have any other questions? >> OPERATOR: Yes, we have a question from Kent. >> BOB M.: Oh, heaven forbid -- >> CALLER: I beg your pardon. We serve meals at regularly scheduled board meetings and is that an allowable expense under C. grants? >> GAYLE: That would be allowable because it's a meeting. So it would come under the OMB Circular what's considered meetings and conferences. >> CALLER: So if it was a regular scheduled meeting, it would be okay then? >> GAYLE: Yes. >> CALLER: Okay, thanks. >> ALAN: We still need to be reasonable costs, you I don't find the most expensive caterer in town and have them cater it. >> CALLER: We actually cook our own meals. So it's groceries. Yes, I understand that. >> OPERATOR: We do have a question from Mary Ann Hernandez. >> CALLER: Back to the fund-raising element, if the Rehab Act says resource development activities, but doesn't specifically say fund-raising activities, those could conceivably be two different items because resource development could simply mean you have a grant writer on staff and you're paying that grant writer's salary, whereas a pure fund-raising activity to me would be something like a golf tournament. So you're saying that even that is allowable? >> GAYLE: Yes, it is. I know what you're saying. Research development is really a broader term than fund-raising, but we put fund-raising in that category of resource development and we allow it as part of your overall resource development requirement. >> CALLER: Along the same lines, since there is nothing in writing that I've seen that allows this, and I have my auditor come in and do the single audit, and the circular A-122 says it's not an allowable expense, how can I prove to my auditor that it is an allowable expense? Because he's going to kick it out unless I have something in writing that says I can do it. >> GAYLE: He can -- well, I expect she should have a copy of the Rehab Act. >> CALLER: Yeah. >> GAYLE: He certainly can raise the question with us and we do get questions from auditors quite frequently about specific audits they're conducting. I don't -- I would have to look to see if we ever put that out in writing on a national scale. >> CALLER: Yeah, because one of the things that we've been told over and over again when the main reason for primary documentation and everything is if you don't have it in writing, it didn't happen. So you see what I'm coming from, is that if I don't have it in writing, then, you know, it's basically a lost cause. >> GAYLE: I'll certainly take it up with folks and we'll see if we can get something out in writing on a nationwide letter or something. >> ALAN: I have to go now. Thanks for allowing me to participate. >> GAYLE: Thanks, Al. >> BOB M.: Here is another question. Now, if VII c funds are used for resource development or fund-raising, are the funds raised then considered program income or can the CIL use the funds for other purposes than the five core services? >> GAYLE: if you use VII c funds to do fund-raising, then it would be program income and you would have to use it for allowable expenses. >> BOB M.: Okay. Michelle? >> OPERATOR: if anyone has a question, please press zero one on your telephone keypad. There are no questions in the queue. >> BOB M.: Well, there we are. So I want to thank all of you for the excellent questions you've asked. Please complete the evaluations so that we can continue to provide you with high quality training activities. I'd like to thank Gayle, Mike, Ted, Bob and Al, and everybody else who joined us for tear time and effort to make this teleconference a success. Also thanks to the wonderful staff at ILRU and NCIL for facilitating this training. Thank you and goodbye for now and presenters and staff, please stay on line.