Financial Management Workshop for CILs…Regulations and Beyond
IL-NET presentation on May 25-27, 2016
Module 8: Day 1 Wrap-Up, Q&A

PAULA MCELWEE: Start on the questions that you all put on your sticky notes yesterday, so there were, I typed them out on paper in small type with narrow margins.

For those of you who can't see what I'm doing, I'm waving multiple pages around at the room.

Well, you know, we've got lots of them to cover, for sure.

So, you know, finances, one of the things that was clear kind of from the questions is that each of you from your own job or your own role comes from a little bit different place.

So those of you who are fiscal managers are very concrete thinkers, and you want to know exactly how it must be done, as if there is only one way to do things.

And sometimes there are alternatives and choices that you have to make in that process.

And then those of you who are the leaders of your organization, your Program Managers and the Executive Directors, we notice that you're a little more how to.

You know, what can we do here and could we do this, so there were kind of a different flavor to some of these questions as we went along.

So there were in the questions, there was a whole block of them that was about internal controls.

And that's a topic we're going to cover this afternoon, so we're going to hold those specific questions for this afternoon's conversation about internal controls.

There was also more than half a page about Personnel Activity Reports and other time and effort reporting related to how you allocate time of your staff, and that is the main topic for the end of this morning.

So we're going to hold those questions for that topic.

We'll share them with that presenter, and then if they aren't all addressed, we'll pick them up this afternoon for you.

So that does reduce what we have to do right now a little bit.

Not a lot but a little.

Okay.

So one of the first questions was around what do you do if a funder doesn't allow an administrative cost to be charged to that particular grant?

So the question was, can we then use our Part C grant to pay for the administrative cost of another project?

And the answer is, probably not, but there may be some exceptions, so one of the exceptions would be this one.

If you're passing funds through to a consumer, so you have an attendant services program and you manage the financial piece of that but you're actually paying attendants and the money is passing through to the direct benefit of the consumer, then that portion of that project does not have to be included, and you would say that in your indirect cost rate.

You would actually, in your narrative, say this program doesn't count because it's a direct benefit, and it's actually managed by, it's part of what's allowable service under Part C, so it's managed under Part C but this portion of it is direct benefit to the consumers and is passed over that way.

Does that make sense?

You might, other programs like that might be that you have community development block grant funds for home modifications for folks, and you have the benefit is passed through to them for the contractor to build the ramp at their house, it's a direct benefit to them.

You're not managing, you're not, all that funding isn't managing the project.

A lot of that funding is passing through directly to the benefit of the consumer.

So as you do your calculations, that money that's passed through directly to the benefit of the consumer does not need to be included as an indirect cost, if you can't charge the indirect cost to that thing.

We would urge you to begin to ask for indirect cost at the approved rate from every funding that you have, and sometimes if you look at your grant applications, there's even a place where it says federal approved indirect cost rate, right on your budget, which you've been ignoring.

Now you don't have to ignore it anymore.

Now you have an approved indirect cost rate that you can put right in that grant application when you're asking for those specific funds.

Does that make sense?

So you need to be doing that.

But the purpose of the indirect cost rate process is that every funder bears its own share of the indirect cost.

So you can't, if a funder is not bearing their share of the indirect cost, you can't just pass it on to a different funder.

You have to find another source for handling those indirect costs, and that other source can be money that you have from other fundraising events or your fees-for-service that have, that are making a profit for you that you have that you can go back against, and those kinds of things.

Does that help a little on that clarification?

And do you want me to just do all mine and then you can do yours?

JOHN HEVERON: I can jump in when you're ready.

PAULA MCELWEE: Jump in on payroll overhead.

JOHN HEVERON: Which one, Paula?

Okay.

JOHN HEVERON: Okay, so on to the question about payroll overhead.

The question is, is it an indirect cost or does it have to be allocated according to payroll actuals?

And the answer is yes.

What I mean by that is, we will calculate payroll overhead as a percentage of payroll.

We'll apply it to direct payroll and we'll apply it to indirect payroll.

And I'm not going to say any more about it now because we just created an example that's going to show you exactly how this works, and it's going to clear up all of the confusion that may be in the room here.

I promise.

Okay.

PAULA MCELWEE: That's going to be in a session later on this afternoon.

So one of the other things that was asked is, how will the funding increase based on the indirect rate?

Will the funding increase based on the indirect rate?

As you said yesterday, John, there is some hope that the cost will be borne, right?

JOHN HEVERON: The Federal government, through Uniform Guidance, made a commitment to fully fund the programs that it funds.

So in that respect, yes.

Also, there is an advantage when you have an indirect cost rate that you will be allowed, I mean, you may not get any more dollars for your program, but you will be allowed to fully cover that program share of your indirect cost.

So that's the worst case, but in cases where programs didn't fully fund your indirect cost, there really is a strong mandate to do that now.

Particularly for programs like yours, there are some exceptions but most of the programs that you're dealing with should not be an exception to full funding.

PAULA MCELWEE: In addition to the plans that are rolling out to help you build capacity, each time you do a grant proposal, you should be looking at asking for your indirect rate now that you have an approved rate, and those of you who are still waiting for your approved rate, soon you'll be able to do that.

So that's always exciting.

JOHN HEVERON: The next question is, what does it mean that a contractor is not subject to the cost allocation rules?

So a contractor really represents a purchased service.

I've described myself as a contractor when I serve in the capacity of an auditor.

So you, I don't submit my cost to you.

We have a negotiated bill.

You need to go through your procurement procedures but then once you've done that, that's really all you need to do.

As opposed to a cost allocation process where you're looking at individual costs that are direct and adding on your indirect.

PAULA MCELWEE: Your time would not be allocated out but your bill might be.

JOHN HEVERON: Right.

PAULA MCELWEE: Depending wherever it's put, indirect cost and then spread as part of indirect.

JOHN HEVERON: They might spread that, but there isn't the same responsibility for me to tell you what my costs are, for performing this service.

It's a negotiated rate that's been through a process, procurement process.

In other words, you've done some competitive bidding or whatever, and determined you know, the proper skill level and everything else.

That's the end of it in terms of determining the rate.

We don't go through the same process that we would if we were an internal program.

PAULA MCELWEE: This question was, is it better for my organization to have a higher percent or a lower percent indirect rate?

Now, there have been a couple of samples, and I talked to Bob about this briefly before he came in.

A couple of you have given us examples, one of you said your rate was 12, so when you submitted it, they said, why don't you make it ten, and just take the deminimis rate and another one of you said, well, we submitted at 19% and they came back and said, no, it ought to be 15%, and then we went, they negotiated to 17%, and kind of split the difference.

That's not how it's supposed to work.

And I got confirmation on that this morning.

And if that's happening, you need to kind of figure out who your program officer is within the Independent Living Administration and you need to start a conversation about how to finish your process in a way that doesn't have that negotiation, because your indirect cost rate is your indirect cost rate.

Your indirect cost, you figure out what they are, you put them together, and you ask for that rate, and it's based on actual numbers.

It's concrete.

Now, are there some things that you can decide would be direct or indirect?

Yes, and the salaries of those indirect staff were an example of that, right?

So we said, well, your Executive Director can be 100% indirect or your Executive Director can say I spent this much time on this project, this much time on this project and this much is indirect, and this much is fundraising and can split it out more so your rate might be higher or lower depending on how you treat that indirect position.

But you get to decide that, and then that rate is approved based on the accuracy of your information, not based on trying to achieve a specific number.

So there isn't a magic number.

Now we kind of, you know, as we were helping you all with your projects, we kind of got a little uneasy if they got up there too high.

But we have seen them approved at a higher rate than what we typically see because of that very specific strategy of making all of the management staff 100% indirect.

And if you do that, which is actually encouraged in Uniform Guidance.

If you do that, then you are in a situation where you are going to have a slightly higher rate than if you have have that time split out.

Does that make sense?

So your rate is your rate.

There's not a magic number to seek and you should be able to show what your rate is and that's what you're submitting for approval, and what they should be approving is your process is accurate.

And reasonable and necessary, because that's true of any expense you have.

They might question a specific expense as not being reasonable or necessary but they should not be saying, I don't like 12 make it ten.

That's not an appropriate response, we may need some advocacy from our partners at the ILA to make that transition work for you.

So keep that in mind.

JOHN HEVERON: Let me emphasize that, Paula.

So your indirect rate is controlled by the procurement rules that are part of Uniform Guidance.

It's controlled, because as Paula said, the expenses have to be necessary, properly allocable to this indirect cost.

That's how, that's the only way the funder should control your indirect rate, is to make sure that you've met that criteria.

Once you've met that criteria, and you haven't included anything inappropriate in your indirect rate and yes, now it's a math problem.

It's not, it's not a strategic problem.

It's really down to math.

AUDIENCE MEMBER: I just want to comment, just based on something you said yesterday about having the knowledge, and knowing what you're doing when you're doing it.

And I was, and that question, if they're coming back and they're saying, okay, well, you're at 12, you should be at ten, they should be able to tell you why.

What needs to be pulled out.

Is this not indirect, you know, something like that.

You shouldn't just accept the answer that they just say, you should be a ten.

Why should they be a ten?

You should push back and ask the questions.

JOHN HEVERON: Absolutely.

PAULA MCELWEE: You should negotiate it.

If you're the center that had a 12% rate when you figured it out and you submitted for that and they're saying, oh, just go with the ten, then you've lost 2% of your administrative cost because you can't recoup it anywhere else.

See what's happened there?

Yeah.

Unless you take something out of your calculation or you reduce your costs, because you decide something isn't necessary, you've lost that 2%, if you do that negotiation.

JOHN HEVERON: Same services, same population.

PAULA MCELWEE: There you go.

Same services, the same population.

This was the conversation that we had yesterday about how you determine your cost objectives, and you're dividing your staff time between cost objectives.

So that term cost objective wasn't in the question but I inserted it.

Do the same principles apply regarding cost objectives that if you have the same services, same location, same population, then a single cost objective can be there.

So you don't have to separate between the two for your PARs, nor do you have to separate between the two for your indirect cost rate.

You can apply it, you're applying the rate the same to every funding that you have.

So it's going to be the same across the board.

But, yes, if it's the same population and the same geographic area and you're providing the same core services, then it can be a single cost objective.

This mostly applies when a center has both Part B and Part C funds, because both Part B and Part C require exactly the same services, so if your part B grant and Part C grant serve the same number of counties and same, you know, across all ages and the same five core services and some additional services that you might provide, then it can be considered a single cost objective.

AUDIENCE MEMBER: Is this on?

All three of the questions have been mine that you have done.

And they all kind of tie together and I guess where I'm really confused is, we receive about almost $400,000 from our county to provide IL services, but it's the exact same service but we're targeting people with, who are deaf and then in one program and another program we're targeting people who are in transition, so you know, they are both, you know, eligible IL consumers.

The county will not allow us to use any, they say we're a supplement funder, we are not your core primary funder.

So for us to have to come up with 11.6% you know, of $400,000, we may have to turn this money back and say, we can't afford to accept it, and so that's where I'm coming with this.

PAULA MCELWEE: Hold that thought for just a minute.

So let's look first at how you keep track of staff time.

So on your personnel sheet, you will have something for each of those county grants.

And that's okay.

Because you're keeping separate time because it's serving a separate group.

But to consider it supplemental independent living services for your indirect cost rate, I would feel comfortable that these are indeed supplemental services, your Part C grant requires that you seek out those additional resources, and if you're directly benefiting a population within your group, I think that would be an area of conversation with your program person, but I think that probably that would be a supplemental service.

In your standards and indicators for Centers for Independent Living, you have the five core services, but you also have this whole long laundry list of additional services that are allowable, and they would certainly be in that list of allowable services.

JOHN HEVERON: Are we going to move along to allowable cost questions here Paula?

The first of the, by the way, you can see how Paula organized all of your questions.

This is really wonderful and I appreciate it.

I don't know when she sleeps, but, so it says, if a CIL has two corporations, one that owns the building and maintains it.

And the other, for providing services, can the corporation that owns the property charge the fair market rent to the CIL, even if there's no mortgage?

This question may have been asked after I made a comment that under the new Uniform Guidance rules, if you have a sale and lease back transaction, then you cannot charge any more in rent, than the cost that you would have incurred if you didn't do that transaction.

I suppose, if it affected your agency and there were originally two separate corporations, it might make sense to research that question further, because you will find that in Uniform Guidance.

I mentioned yesterday that being an electronic document, it is searchable, so I would go right into that document and search sale and lease back.

There are also, the COFAR website also has some questions and answers, there might be something further on sale and lease back.

COFAR is the, what is the acronym?

PAULA MCELWEE: I couldn't remember so that's why I was- JOHN HEVERON: Well, it is the place where you will find Uniform Guidance training and resources.

If you Google that, maybe somebody can remind me what the acronym is for.

I apologize, Paula, I don't remember.

Council on Financial Assistance Reform.

But that website has all sorts of tools.

It's got PowerPoints, be it's got frequently asked questions.

It will be updated continuously with additional resources to help interpret Uniform Guidance, so it really is a great resource, so you can look a little further, but the general rule under the new Uniform Guidance is that if you sell your building to a separate corporation, lease it back, then you cannot charge any more than the costs would have been if you didn't do that transaction.

Let's see.

I guess I get the next one too.

Independent sector publishes a rate for volunteer hours which I used to calculate, to include volunteer hours as an in-kind match.

The funder did not accept that rate because it was higher than the manager's rate of pay.

You know, that's always a tough one because you're dealing with funders and they have and use some discretion.

Just a couple of suggestions that I would make on that one.

First of all, it's easy to find the rate, the most recent rate right on independentsector.org website.

That's the average rate.

The average value of volunteer services.

Dig a little deeper though, and you'll find that it's regionalized, so you can go back in there and find it for your region.

Second thing that I should mention is this is an all-inclusive rate.

It's not a pay rate.

So it shouldn't be compared to a pay rate.

It's an all-inclusive rate like certainly would include any sort of payroll overhead, and it might even be somewhat of a mix between a, you know, professional billing rate and a payroll rate.

So you might go back to your funder with the rate for your specific region pointing out that this is not a pay rate but it's an all-inclusive rate.

Interstate commerce question, we serve two states, so would the section for overtime, the new overtime rules we talked about yesterday, affect the individuals or the organization?

As I read it, the interstate commerce rules affect the individuals.

Anybody who is working in interstate commerce.

But again, that's going to be important to your organization.

It becomes effective December 1.

I'd suggest you do some additional research on that as well, but from what I read, from the Department of Labor, it appears to apply at an employee, not an organization level.

PAULA MCELWEE: There were a few questions around the board and Executive Director roles and responsibilities, who should be responsible for setting the salary rates for staff, the board or ED?

They both have a role in that process, so you remember that the board sets the broader structure, would approve the organizational chart, would approve the budget with the salary portion of that budget as part of that.

Would have those approval processes in place, but the ED, the Executive Director, will probably be the one to propose that, because they have the day to day knowledge, and they know kind of what they want to do, so the ED proposes the budget, the board approves the budget, and then the ED would be the one to actually implement whatever was decided on.

Now, the board also approves personnel policy and procedures, and it may have in those policies and procedures your process for determining if there's a salary rate change.

And that salary rate change would follow that policy then, so if you're using a merit increase of some sort, then you would follow that practice, whatever that is, and so it would have an evaluation process maybe or it might have some other pieces.

So the board sets the larger scope.

The Executive Director makes the actual on the ground decision and implements the scope that the board put into place.

So they both have a role in that.

Setting salary rates for staff was the phrase that you used in your question.

Setting salary rates for staff is probably going to be part of the salary schedule, you're probably going to say well, these positions pay in this range, and this position pays in this range, so the board would probably be the one to look at that.

But they're going to base it based on information brought to them by the Executive Director, so it's a collaborative effort.

Someone asked how important is it that you do a personnel review, and should it be done annually or more frequently?

And that is a personnel policy that you need to decide on yourselves at your organization.

That's going to be different from one organization to the next.

Kind of based on your personnel philosophy, so some of you have a philosophy of kind of an ongoing evaluation that happens monthly, quarterly, at every meeting that you have, or whatever.

You have some other things that are in place.

You still are probably going to have to have a written performance appraisal because you need to be giving feedback constantly about the person's performance.

And the centers that delay this or don't do it, I have seen them regret it later, because they don't have good documentation on how they've assisted that employee in trying to help that employee to do the job effectively and then if they let that employee go for not doing the job effectively, and they don't have the documentation, they end up in a possible personnel squabble over that, and that's not a good situation.

So best practice, at least annually.

This is probably the most difficult to achieve for the Executive Director because the board is probably the least likely to initiate an appraisal unless you have somebody on the board who kind of has that background, so you may, as we said yesterday, you may have to push them a little on that.

The board is responsible also for assuring that the person hired as the ED meets the qualifications of the job, including keeping the organization in that 51% consumer control issue, so 51% of your management staff specifically must be persons with disabilities.

If you have only one management staff, your Executive Director, then that person must have a disability.

If you have only two management staff, Executive Director and a Program Manager, 51% of two is still two.

So they both must have a disability.

And so the board that is working with this consumer control thing has to have that in mind.

They can't ask if the person has a disability at the interview.

May or may not be able to tell that visibly.

But if the person knows anything about independent living, they're going to talk to you about their disability during that interview anyway.

You can open the door to that by saying, you know, what's your experience with disability?

And then let them tell you whatever they're going to tell you.

But the board is responsible for making sure that the Executive Director's hiring meets that requirement as well as whatever other requirements are in your actual job description or position description.

Typically you are also, the board is also confirming this with your program staff at Independent Living Administration, so you've got an assigned person that you're working with, whether it's Kimball Gray, Deb Cotter, or Corinna Stiles, you have somebody you're working with at that level, and the board should be telling them that indeed the person meets the requirements.

That's part of what's in the grant, some of the grant assurances that you provide.

So the board will also need to be telling that.

It raises, if the board approves, whoops, I skipped a line here.

Sorry.

Yeah, so anyway, this should be affirmed with the Independent Living Administration.

And then somebody said we don't have active committees, but we do some other things.

Have regular meetings with the treasurer for example, or some other things for example, does that have to be in the policy?

You may want to have some kind of a written description of the responsibilities of your board officers.

That could be in your bylaws, it could be a separate document but you're not really going to need to have a policy or a procedure around something that may or may not happen on a regular basis.

So if you're meeting with treasurer every month to do your review with your financial report, you know, so that they can present it at the board meeting, that may be just a way that you're assisting them in their responsibilities the way you defined them, would not need to be a separate policy but it certainly is a way you could support them.

And then how often do board members need to sign the conflict of interest disclosure form?

Yearly or more frequently, and how often should you review personnel policies and should a lawyer review them?

That was a whole bunch of questions kind of at once.

Every state has different personnel law.

It's not identical from state to state, so we strongly recommend that you find a personnel attorney in your own state.

If you work across two states, you may need to consider that, and that you have them review your personnel, have them review your personnel policies to make sure that you're in keeping with the state requirements.

So we do recommend that.

We also recommend that the board review those on some frequency and usually at the same time you have this external lawyer look at them for you, which might be every year, do a quick review, then you would have your board accept any changes that came out of that review.

As far as the conflict of interest piece for the board members, typically you would do a once a year board orientation on conflicts of interest and other ethical standards and typically you would have them sign their code of ethics or whatever you use for that process.

You have them sign that at that time.

The other time you want to do it, though, is at new board orientation, so your board may come on sporadically through the year.

You may have one person who comes on in January and somebody new in July.

You're going to do an individual training with that person and have them sign it at the time they become a board member, because it's part of their orientation to understand those ethical requirements, the code of ethics and conflict of interest.