Financial Management Workshop for CILs…Regulations and Beyond 
IL-NET presentation on May 25-27, 2016 
Module 16: Review of Day Two 

PAULA MCELWEE: Here's the first one.

Does the fiscal policies handbook at this conference replace or supplement the handbook template that was presented in Pittsburgh?

This is a replacement.

So the one you had in Pittsburgh was current at the time, but with Uniform Guidance and other changes that have happened as you've seen as we've gone through this last couple of days, it is a replacement because it contains that new information or it contains policies that are compliant with that new information.

And then a question about the minority businesses, the minority and women owned businesses.

It's part of that procurement policy and they ask, what is the reference for this?

JOHN HEVERON: And so again, we talked about how to get to Uniform Guidance.

I looked this up, and what did it take me?

Three, four minutes?

Once we got on to Google.

So we, I went to Google.

Uniform Guidance.

The reference was right there.

I clicked on that, and then I scrolled down and there's actually a section on using minority and women- owned businesses, so you would scroll down to 200.321, that's the reference, 200.321.

If I'm, if I may continue here, there was a question about auditor rotation and there is a section about auditor selection.

There's not a requirement for rotation, not even a recommendation for it, but there is a mandate to follow your procurement procedures.

And that is Section 200.509, and it does say, whenever possible, the auditee must make positive efforts to utilize small business and minority owned firms and women owned business enterprises in procuring audit services as stated in the other section that I just referred to.

PAULA MCELWEE: What's the other section again?

JOHN HEVERON: The other section is 200.321.

PAULA MCELWEE: Also, it's not hard to search by that reference number, if you want to.

So if you just type in CFR, and that 200, and the rest of it, this citation, if you know it, like what we've just given you, it will take you directly to that section, so.

JOHN HEVERON: I brag about that, because now that I'm semi retired, we've got a female owned business, actually New York state qualified female owned business, so that's, we're joyful in reading that.

PAULA MCELWEE: Issue on the indirect cost rate in assessing, and assessing it comes when some grants or contracts don't allow indirect costs.

If no enterprise funds are available to cover indirect expenses, it will not be fully covered and affects the bottom line and that's really more of a statement but we might speak to that just for a minute.

JOHN HEVERON: That's a very good point.

This is something that's going to be a big deal for some of your organizations now that we're all implementing Uniform Guidance.

You may find there are some programs that aren't fully funded.

You're going to be more aware of these now, with the indirect cost rate plans, you'll be much more aware of what the costs are to run these programs, and better able to communicate these to your board.

To say listen, we have this other program that is not fully funded, we really have two choices.

We need supplemental funding or we need to discontinue the program.

And that's a strategic decision that the board generally will own, so you will be running into situations like that.

PAULA MCELWEE: Yeah, and you know, the expectation is that each project cost objective, cost center, however you describe it, that each one is fully funded.

That would be your goal, right?

And that does have to include the indirect portion of the cost for that project.

So that's the part that we haven't always done very well.

We did mention a couple of exceptions to that yesterday.

If the money is passed through directly to consumers then it's considered a benefit that you do as part of your other program and would need the indirect and there may be other supplemental programs like that.

One of the questions was about, hey, the state is going to give us money for helping us with transition, so we've got this new core service and they're going to give us some extra money, can we take it?

We're not sure but we think what the question really meant was, how do we, can we take it without having to charge indirect costs back against it because the state didn't give us any indirect.

You would have to work that out with how you think it supplements it and make a case if you don't charge indirect against it.

You would have to make sure you make that case, if you haven't finished it yet in your proposals.

If you didn't put that kind of stuff in your proposal.

We had some concerns as we've talked to some of you as we've gone through this training, and I know some of you have concerns, that your indirect cost rate proposals, now you understand it better, you might do differently.

If you did the deminimis 10%, you can make a change, because you can do a new full indirect cost proposal.

But if you've already done an indirect cost proposal, you can't do a change until they ask you to update it.

So you're kind of stuck with it for a period of time, but we're wondering, we're getting some feedback that some of the regional offices are not handling this in the right way.

If you have a situation like that, would you drop me an e-mail, and we're going to collect information about what the regional office, some of you were talking about how they wanted to negotiate your rate down and some other things or whatever it is you felt you didn't know adequately, and it was still approved and now you'd like to change it.

We'll see if there can be a mechanism for that.

We do have a contact that is our primary contact at the national level for this topic, and we can at least ask on your behalf, so do let us know and we'll see what we can learn, so if you just drop me a note, I've got, if you didn't pick up a card, I've got a few more cards up here on the table and just drop me an e-mail and tell me what your situation is and we'll gather that information together and see what we can do to facilitate some changes, if changes are what you're going to need.

Because you do need to make sure that cost goes back, or that you justify when you don't charge that cost, that you can somehow justify why it should not be charged, so, okay.

Independent Living Administration, this is a comment too, needs to know that we are going to be asking for approval of blended funding.

The independent living administration staff should be knowledgeable on approving this.

And that's true.

And if you have, that's that one.

I don't know what it's dinging about.

If you have a situation where you don't think your person understands that and you're going to put something together, CC me on it, because I work with all of them on technical assistance to some extent too.

That way we can all kind of be on the same page.

And I'll support you from the other side as much as I'm able to, because I can do a little bit of that.

And of course, key people were here yesterday when we were talking about that topic, and so I think there's some awareness of it there as well, so.

Are there any CILs that ILRU is aware of now that uses a purchase order or compliant purchase plan that's done electronically?

And I think we mentioned yesterday that within QuickBooks there is, or maybe.

JOHN HEVERON:  I think we just discussed this among ourselves.

But you can generate a purchase order right out of QuickBooks, and I believe you can just send that electronically.

I don't see this used very frequently by organizations like yours.

I don't see purchase orders used.

They're not a requirement of the procurement procedures.

However, having said that, they might help with documentation, so maybe we will be moving more into use of purchase orders just to confirm our procurement process.

But QuickBooks itself, and I'm sure some of the other softwares can generate a purchase order automatically and electronically.

PAULA MCELWEE: Do you have any other ones?

JOHN HEVERON: You know, I had one that said if a purchase is over 150 but broken down to, into pieces, does it fall into that lower threshold?

Now somebody yesterday talked about writing a check for 2100 that was over their dollar limit and they broke it down into three $700 pieces.

Check with them because I think they can give you the answer.

Sort of the same thing.

One thing I wanted to read before we wrapped up.

I took some notes, when we talked about the burning questions here.

I want to make sure that we've at least lowered the flames here, if not extinguished these burning questions.

Lack of funds, sorry, we failed on that.

I think, I mean, there are some limited things we can do here.

Hopefully, I think we've heard a little bit of optimism about what's going to be done, you know, in terms of more fully funding your programs.

There really is a commitment that is part of Uniform Guidance for Federal agencies to fully fund their programs.

You will be more intelligently looking at programs that don't carry themselves.

Beyond that, we really can't help.

Indirect cost rate, we beat that one up pretty good, so, but it's not off the table.

In fact, actually, if there are any questions on it for today, let's ask them.

We're going to talk about integrating into your system in just a few minutes, so we'll sort of get on to that topic, but that's not off for now.

And indirect cost rate, now what?

We'll talk about that a little bit more.

Uniform Guidance, I think we're good with that.

Paying for food, maybe not thanks to us but thanks to our guest speaker yesterday, I think we did a good job.

Changes from RSA to ACL, the regulations and I think Paula covered that very well, explaining that ACL is really following the Uniform Guidance specifically.

They don't have interpreting regulations like RSA did, so what you see is what you get with Uniform Guidance.

And that's a the good thing.

I mean, Uniform Guidance, tiny little two column pages, but I think they're only like 200 pages.

If you printed normal, it would be 450 or something, but compared to all of the things that got consolidated into Uniform Guidance, all the things that you needed to know before, it's really much more manageable and as I said, it's much more searchable.

Bringing new people up to date with the regulations.

I think we may have covered that pretty well, but I'll just remind you that that COFAR website has PowerPoint presentations, questions and answers, interpretations, so again, Google COFAR all caps and you'll get to that.

Why abandon the Cost Allocation Plan for the indirect cost rate and it's unfortunately a requirement.

But you're not really abandoning it.

You're tweaking it.

It is the same process here.

The only big difference, as we said, now you need to actually calculate a rate, with the Cost Allocation Plan you said we're going to treat these things as direct and these things as indirect and we're going to spread the indirect based on direct costs, or based on direct payroll.

You're doing exactly the same thing.

With your indirect cost rate.

But now you need to come up with your expected rate at the beginning of the year and then report on your actual rate at the end of the year.

It's really not too different.

Fund accounting training, I don't think we did address that one.

Boardssource.org I'm pretty sure still has a publication out on, called Understanding Nonprofit Financial Statements.

And if I'm wrong about that, then just Google, Understanding Nonprofit Financial Statements.

It's a fairly good, you know, not too thick text on nonprofit financial statements.

Been around for a bunch of years, but fortunately things don't change all that much.

Although there are some changes that are going to be happening in the next year.

PAULA MCELWEE:  John, related to that, on my blog, I think last week, it might have been the week before, I listed four nonprofit resources that are links for you to go to that give you lots of good information that applies to all nonprofits, including centers, so we give you a lot of center specific information but of course, as nonprofits you can also benefit from that more generic nonprofit information, so do make sure you check in on that and access, and that's one of them.

There are some others there as well.

JOHN HEVERON: Yeah.

Let me just digress a little bit and mention, I said there are going to be some changes.

They're pretty big changes for nonprofit financial statements.

Probably happen within a year, and instead of having the unrestricted, temporarily restricted and permanently restricted, which are really confusing, because federal funds have restrictions with them but they're not restricted.

Only contributions fall into those three categories.

Only donations and contributions do.

So now we're going to go from three to two, almost a done deal and there are going to be funds with donor restrictions and funds without donor restrictions.

It's going to be easier for people to read your financial statements.

There are a few other little things but that's probably the most significant thing that you'll see there.

AUDIENCE MEMBER: Hello?

I guess it's just something very basic, but if we have our Part C grant and for example, just two other grants and we have an indirect cost rate of, for example, 15%, do we charge 15% to each grant for indirect cost or is that, am I interpreting that correctly?

PAULA MCELWEE: You are interpreting that correctly.

John, do you want to say a little more on that?

JOHN HEVERON: Again, the example we did yesterday, the real practical answer is when you go to voucher or do draw downs under any of those grants.

The big change in the process is that instead of listing all of the components of cost, now you just list the direct items and do your add on for your indirect, based on that percentage.

So again, I think it will become simpler but I don't want to imply that it is simple.

This is going to be different.

It's going to be complicated.

It is going to require you, I think almost every case, to make changes to your accounting system.

PAULA MCELWEE: Which is the next topic, but, Jim?

AUDIENCE MEMBER:  I need just a little bit more clarification.

Let's say I have a really, like a million dollars in one cost objective.

I have $100,000 in another cost objective.

And then I just have some pass through dollars.

So pass through, I'm going to justify and say, 0% is going to be charged to that, because none can be.

So really, two cost objectives.

So do I apply, let's say my rate is 11.6%.

So do I apply 11.6 to the money that comes in, or do I apply it, let's see if I can ask this correctly.

Is it like right off the top, 11.6 of whatever comes in, or is it 11.6% of the expenses go to that cost rate?

JOHN HEVERON:  That's a very good question and it is really based on expenses.

You're not doing that when money comes in or becomes available, but really it is based on expenditures.

The other thing, I just wanted to comment.

You've submitted your indirect cost proposal, and so you said for the pass through money you weren't going to add any indirect at all?

What, certainly you won't have the same level of indirect.

No question about it, because if you applied the full rate to those dollars that you really were just passing through, then that really would be wrong, but at the same time, you do have some responsibilities for accountability and oversight, and you know, some indirect payroll for that, so what I've seen with indirect cost rate proposals, when you do have some pass through funds, that you apply a different rate and provide the rationale for that.

If you haven't done that, you might think about whether the costs are substantial enough that you do want to assign some and look for a modification right up front.

PAULA MCELWEE: When you have a really large amount of money that you pass through, especially, it becomes cumbersome.

I have seen some proposals, and John, I don't know what you think.

We don't know yet if they've been approved so they're out there floating.

Some proposals where it was a fairly small amount of money that was passed through and the justification made by the center was this is money that's passed through as a part of a core service, and so the administrative rate is all absorbed in our core service provision, Title VII.

JOHN HEVERON:  That makes sense.

PAULA MCELWEE: We hope it will be approved.

JOHN HEVERON:  If it's substantial, that might be different.

PAULA MCELWEE: The more substantial, the more important, and I think you had a question and then you had a question.

AUDIENCE MEMBER: So my concern is, I'm still kind of stuck on the backup documentation for indirect cost rate because you know, when you have your direct expenses, you have all your receipts, but then when you just apply that percentage, then you don't have all of your backup documentation really until the end of the year, from what I understand, because you might spend more one month and less another month than everything else.

So when we just had our audit by our state, for state monitoring and they just picked two months, and they went through every single receipt, you know, for every single expense looking for the backup documentation.

Then we have this lump of indirect and I'm still trying to figure out how we tie our true expenditures back to that percentage.

JOHN HEVERON: Well, this is going to be a slower educational process for state agencies, and I don't know for sure whether they will ever get there.

But if they pick two months, two summer months, when there's a lot of vacation time, let's say, then your indirect is, in reality, much higher, and it might look like you under billed.

If they pick two months where there aren't a lot of vacation time, then it might look like you're overcharging your overhead.

I think the best you can do is to educate them about that, to talk about things like that specifically.

I know in New York, we pay, like, 70% of our unemployment in the first quarter of the year.

Fourth quarter, almost nothing.

We pay insurance policies often in a lump sum at one time during the year.

So a lot of things will distort an individual month.

But they work themselves out over the year, and the best we can all do to educate our other funders, you know, the better off we will be.

PAULA MCELWEE: As you establish, we've got a couple with mics, so we'll be just a second.

As you establish your accounting system to match this, it will be capturing specific indirect costs that you can look at, at any given time in any monthly statement and you can do your own variance conversation about those variables and say, oh, yeah, well it looks like, is that what you were going to say?

Oh, okay.

But you can look at those variables and you can see kind of where you are, and you should be able to explain that or show that, because you do still have backup documentation.

You are not without documentation.

It's just that you've got to make sure you're capturing it correctly in your accounting system so that you know what the, what has been charged to indirect.

And that is what we're going to talk in the next session a little bit about how you do that.

JOHN HEVERON: Can I just add one more comment?

What you may find yourself doing is exactly what we talked about yesterday with your Federal agency, but your state agency, you may have to give them the indirect based on the time frame that you're vouchering for, and you will have that information if you set up your accounting system to categorize all of the indirect costs into sort of a single area.

As I said, either with classes or categories.

PAULA MCELWEE: If you have an approved rate, they also should accept that approved federal rate.

They should be doing that with other vendors.

The cost allocation process that we've been using is very rare, actually, out there in the federal grant, federal pass through world.

Most of them have been using indirect cost rates for some time, so.

AUDIENCE MEMBER:  Just for clarification, on the way you set up that spreadsheet to voucher and you had all the direct information and then you applied the 21.9% to what?

To the monthly expenses for that month, or.

JOHN HEVERON: To what you're vouchering or drawing down for.

So you've got payroll to your different people.

You've got program supplies and things of that nature.

You take your payroll, add your payroll overhead, and then add your other program supplies and outside services, subtotal all of that, and then you apply your indirect to that.

AUDIENCE MEMBER: The 21.9% to all the direct stuff.

JOHN HEVERON: All the direct.

AUDIENCE MEMBER: Got it.

Okay.

AUDIENCE MEMBER: I have a question about the indirect cost rate.

My concern is, how do you apply indirect cost rate to a funder that doesn't allow for administrative overhead?

JOHN HEVERON: Well, you can't.

You can't.

I mean, if they have special rules about what they will fund, then you can only voucher them for what they will pay for.

And you need to make up the difference with another funding source.

With contributions or fee for services that aren't restricted.

But you can't force them to do this.

PAULA MCELWEE:  They may be willing to do a portion of it, based on, because indirect is not exactly the same thing as administrative overhead.

So your indirect costs are shared costs, some of which is administrative overhead but some of which is very concrete, like, you know, rent and utilities and office supplies.

So they may be willing to do a portion of it, if you can go do your backup and go back and see, what do we apply to indirect and then the portion that they'll accept.

Some of them also will accept a federal indirect rate who won't accept an administrative fee.

So check.

You know, some of them may accept the indirect rate, because it's a federally approved rate.

AUDIENCE MEMBER:  What's really interesting, this is an ACL program that I'm talking about.

So they should know better.

PAULA MCELWEE:  Then advocacy, what are their rules?
There may be some exceptions to those rules, so I've got one here.

AUDIENCE MEMBER: So say you have a state funded program established in legislation that has a cap on administrative costs and it's like 7% cap and the rest of it is pass through.

How does that work with indirect cost?

It's administrative cap of 7%.

JOHN HEVERON: So again, you need to assign that program, all its direct, full fair share of indirect costs and you need to find funding for the balance of it.

AUDIENCE MEMBER:  I think a few of us are asking the same question but in different ways, so again, in our situation, we have two contracts that will finalize, or will be in a rebid situation after next year.

So the way the contracts are structured, it builds on the direct billing, for instance, my time, the amount of time I spend on it, I directly bill those hours.

It wasn't set up on an indirect cost rate structure, neither one of them.

I thought I heard you say yesterday that having to do with the slices of cheese, if you have to continue to do it that way, you can, and just correlate it back to the indirect cost rate?

Do you see what I'm saying?

If we have to, we can kind of have a hybrid.

You didn't use that word.

JOHN HEVERON: Just to clarify, you're talking about basically accounting services for you, right?

AUDIENCE MEMBER: No.

As Executive Director, in my oversight role, I actually, we bill those particular contracts for my time specifically, so we don't have, we didn't, it's not structured as indirect cost rate.

All actual expenses are tied back and then we bill for the staff and Bob with that program specifically, including my time.

JOHN HEVERON: When you talk about your time for those programs, is that time you actually work on your program or just a slice of your time to each program?

AUDIENCE MEMBER: It's time I actually work on the program.

JOHN HEVERON: Okay.

Well, that's correct.

So yes, you will continue to do that.

Anything that is direct, payroll particularly, should be documented and directly charged to those programs, and then the overhead is on top of that.

PAULA MCELWEE:  I know maybe sometimes some of this question of, how do we do the overhead where they won't, or never let us do the overhead before?
I think you're asking the question over and over again because you're hoping the answer will change.

(Laughter.) No.

I know, it's a tough one, isn't it?
Because you don't have the funding.

That's probably the biggest challenge, we haven't done it this way so suddenly we're in a situation where we're going to try to apply a new procedure, not just where we're required to but across all of our cost objectives, and that is a challenge, and we do know it's a challenge.

It's just, it is a challenge.

We're coming.

AUDIENCE MEMBER: This is more of a comment.

I think in a lot of ways, we've been used by many, they'll call you up and say, we'll give you $6,000 to do this work on the MIPA program for the next year, and no offer for indirect.

No, you can't use indirect.

And we've all still taken the money.

And probably done things we shouldn't have done, but, so it's a whole mind set change.

Part of it makes me angry at myself for allowing that to happen and a part of me makes me angry at them for not being willing to pay for what you want us to do.

But it's a whole different way of thinking.

PAULA MCELWEE: It is a different way of thinking, because now you're going to be seeing the whole picture and trying to apply it consistently, where it's been very inconsistent through time.

JOHN HEVERON:  If you are going to take on programs like that, one of the problems with finding outside funding for the balance of that is that, not too many people get that excited about paying for administrative costs.

They want to pay for stuff you're doing.

But to sell it, to make it sound a little bit better, is it's a leveraging factor, so if we can get 2,000 for this program, then we can get funding of $10,000.

We can leverage those donated dollars and carry on this program.

And that might be the best way for your development folks to sell that.

PAULA MCELWEE:  I would really encourage you to stick with the word indirect and not administrative, because it goes better, first of all, but secondly, you can actually go back into your books and say, indirect is, this amount of our shared space of rent, this amount of our office supplies, this amount much our internet service.

It is the indirect is also shared costs.

It's not just administrative kinds of things.

It's costs that you can't split out that you need to share.

Does that make sense?

And it will fly better with your funders if you do that.

And you could even do the backup and put it together.

AUDIENCE MEMBER:  Just a comment.

We have the same situation with the MIPA program.

They couldn't administer it so they asked us to do it and then they said, oh, no, you can't charge holiday or vacation.

And we're, like, what are we supposed to do?
This person is assigned to this grant.

What are we supposed to do?
I don't know.

We turned them down and we said no.

Then they came back, please, please, please, we really need your help.

What do you want us to do?

How do you put it in there?

So we ended up negotiating and we were able to do it, using our indirect cost rate.

JOHN HEVERON: That's a success story.

Hopefully there will be a lot more.

AUDIENCE MEMBER:  Since I have already signed my state grant, it's not Part B money but another program, do I need to absorb what would have been my indirect?

Because I don't have indirect in that contract.

Will I need to absorb that into my unrestricted funds this year?

JOHN HEVERON: Yes.

PAULA MCELWEE: Probably.

JOHN HEVERON: You can't charge it to the federal.

AUDIENCE MEMBER:  Well I don't really have, up till now using, like, allocating everything directly.

I was using my Cost Allocation Plan.

I was dividing everything, based on that.

PAULA MCELWEE:  John, tell me this.

Because this is how I see it but I don't know if I'm right.

What I would see is in that case, you still do your indirect but you break it out and tell them what it is, and then they should still pay it.

Because you are including it, right?

Only it was cost allocation basis instead of your indirect, there's nothing that prevents you from breaking out what your indirect rate is and still charging it directly if the grant will only accept that.

You're still doing the same rate.

You're still charging that funding source or cost objective.

You're still charging them the indirect rate and they are paying it.

You're just breaking it out in detail so that they'll accept it.

Is that an acceptable way.

JOHN HEVERON:  Absolutely.

Many of you are going to do that with many programs for a while until, and maybe forever, but until other funders buy into this process.

I mean, it really is a much more reliable process.

It gets rid of the peaks and valleys but if somebody doesn't buy into it and they want the indirect for this time frame, this 45 days, it's right in your general ledger.

In detail.

PAULA MCELWEE:  That help?

I'm seeing some nods.

Good.

Another question?

AUDIENCE MEMBER: I'm wondering in regards to what you were talking about with draw down and that.

I am wondering if you are going to cover like cash flow situations, in regards to where you draw down in your direct expense and you are going to do 21%.

Let's say you have, I don't know, a major item that's a GNA, like insurance or something like that that's going to far exceed that 21.9%, are you going to be able to draw it down to cover that for that period of time until it will come out, so to speak, in the wash?

JOHN HEVERON: There are some fairly strict rules about when you can draw down.

But, and insurance might actually be in a, might be in a, part of an indirect.

So I can see where that might be problematic.

But you can prepare a voucher and say, these things I've paid.

This payroll, I'm paying next Friday.

The payroll taxes, the Monday after that.

And I have this insurance bill that's due.

You should be able to do that, but I do see the contradiction and I have to admit, I've never thought about a large check needing to be written for something that's in your 21% or whatever your number is.

It's an interesting question.

PAULA MCELWEE: What some organizations choose to do is make a monthly payment, even though it costs them a little more, just to keep it evened out.

So you're allowed to make a monthly payment usually for your insurance, sometimes there's a big up front cost but it's not the full year's premium, it's the up front cost that will give you a little less of a cash flow issue and even though it's going to cost you $10 a month more to spread it and pay it month by month instead of paying it all in one lump sum, some organizations do that.

Another thing that I see, some states will say, you can't prepay an expense that far into the future.

Some states require you to do it monthly.

Or at least book it monthly, even if you have the money to pay it they will only reimburse it month by month.

You'll see that as well, for what it's worth.

AUDIENCE MEMBER: That's what we do.

It's a prepaid expense, and then charge it monthly.

PAULA MCELWEE: Yeah.

All right.