2007 Compliance Supplement Issued: Time Distribution Questions Remain
This week, the Office of Management and Budget posted the 2007 version of the OMB Circular A-133 Compliance Supplement. It is expected to be announced in the Federal Register in the next couple of days.
The OMB Circular A-133 Compliance Supplement is the federal guidance that auditors use when conducting Single Audits. Produced by OMB with the input of participating federal agencies (including the Department of Education (ED)), the Compliance Supplement identifies the specific tests an auditor should apply when monitoring for compliance. Because the document provides a roadmap on the direction of the audit and is updated annually, it is particularly helpful for program administrators preparing for an audit.
In general, the 2007 version of the Compliance Supplement does not reflect many significant differences from the 2006 version. However, a few changes are noteworthy, particularly involving time distribution requirements under schoolwide programs and consolidated administration.
Time Distribution in Schoolwide Programs: The Compliance Supplement newly adopts language from the May 2006 Title I Fiscal Guidance on time distribution in a schoolwide program. The language states that if a schoolwide program consolidates federal, state, and local funds in “a single account,” an employee who is paid with funds from that single account is not required to file a semi-annual certification “because there is no distinction between staff paid with Federal funds and staff paid with State or local funds.”
The language goes on to say that if a schoolwide program does not consolidate funds in a single account, an employee who works solely on a single cost objective must furnish a semi-annual certification. Employees working on multiple cost objectives must maintain monthly time distribution records.
While not explicitly stated in this guidance, we understand from conversations with ED officials that the schoolwide plan is considered to be a single cost objective.
Neither the Compliance Supplement nor ED guidance defines what “a single account” involves. Our conversations with ED officials indicate that they intended the “single account” to refer to the use of a single “schoolwide accounting code” for the labeling of all costs captured in the schoolwide plan. However, additional written guidance from ED is essential before districts can fully maximize the flexibility potentially available in a schoolwide program.
In the absence of clarification from ED through guidance or the Compliance Supplement, we recommend districts take a conservative approach and maintain a semi-annual certification on schoolwide employees reflecting time spent on the single cost objective of the schoolwide plan, or monthly PARs reflecting time split between the schoolwide plan and another cost objective.
Time Distribution under Consolidated Administration: The Compliance Supplement from 2006 stated that consolidated administration is considered to be a single cost objective and that the semi-annual certification requirements under OMB A-87 applied. To meet the semi-annual certification requirements, the 2006 version gave two options: 1) maintaining the certification every six months, or 2) through time and attendance certifications under normal standards for payroll documentation. Under the second approach, if:
(1) the standards for payroll documentation comply with A-87 standards,
(2) the employee is coded to a “dedicated function” (i.e., single cost objective) in the state’s or district’s payroll system, and
(3) the employee’s potential assignment to multiple programs/ activities is not within the authority or purview of the supervisor responsible for certifying time and attendance for payroll, then
the payroll certification shall be accepted in lieu of the semi-annual certification of time and effort.
The 2007 Compliance Supplement largely reverses the assumption underlying that interpretation. The 2007 version simply states “[a]n employee who works on a Federal program whose administrative funds have been consolidated is not required to file a semi-annual certification.” The Compliance Supplement no longer discusses how the district might meet applicable semi-annual certification rules (including through the 3 steps noted above). Rather, it suggests the semi-annual certification rules no longer apply.
The basis for this new interpretation is unclear. In the schoolwide setting, the explanation for not requiring a semi-annual certification seems to be because federal funds are combined with state and local funds – specifically, as stated in the Compliance Supplement, “because there is no distinction between staff paid with Federal funds and staff paid with State or local funds.” Consolidated administration, however, generally affects only federal programs under the NCLB; thus the schoolwide reasoning would not be applicable. (While state and local funds may be combined with federal NCLB administration funds, the state and local funding must be used only for allowable purposes under the federal statute.)
With the new language on time distribution under schoolwide programs and consolidated administration, numerous important questions remain unanswered. We will continue to track these issues closely and provide you with the latest information that we obtain.
Internal Controls: The 2007 Compliance Supplement reflects some recent fiscal findings from program reviews dealing with needed improvements in internal controls. Officials from ED have noted that in cases where grantees rent or lease buildings or equipment from an affiliate organization, the costs associated with the lease or rental agreement can be excessive. The Compliance Supplement alerts the auditor to the fact that the measure of allowability in such “less-than-arms-length-relationships” is not fair market value, but rather the “costs of ownership” standard as referenced in each OMB cost principles circular. This reflects a trend we have seen coming from the Office of the Chief Financial Officer whereby fiscal monitors are closely reviewing the internal controls of states and districts.
Highly Qualified Teachers: The Compliance Supplement states that all teachers of core academic subjects must be highly qualified by the end of the 2005-06 school year, as indicated in the statute. The 2007 version advises auditors that most states, however, have negotiated a plan to come into compliance with the HQT requirements by the end of the 2006-07 school year.
Other changes in the 2007 version deal with higher education issues and are not addressed in this summary.
Resource:
The 2007 Compliance Supplement can be accessed through the following link: www.whitehouse.gov/omb/grants/grants_circulars.html
Author: KTC
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