Welcome to Numbers dont lie, they hide

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Welcome to Numbers dont lie, they hide
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Numbers Dont Lie, They Hide

• Financial Management for Homeless Grantees

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Who Are We?

• Presented by
• Training Development Associates,
  Inc.www.tdainc.org
• As a subcontractor of the Corporation for
  Supportive Housing
• Sponsored by
• U.S. Department of Housing and Urban Development
• Los Angeles Field Office

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Logistics

• Manual and handouts
• Exercises
• Teams
• Questions (the Bin)
• Restrooms and telephones

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Who Are You?

• Type of organization
• Lead agency
• Sponsor
• Service provider
• Your role
• Executive director
• Financial staff
• Case manager
• Another position

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Why Are We Here?

• Different funding requirements and reports
  confusing
• Grantees have questions about HUDs requirements
• Finance roles for staff and subgrantees can be
  confusing
• Monitoring scrutiny plus new funding
  considerations
• Reliance on outside experts leaves some in the
  dark
• Programs rely on software they cant interpret
• Staff does not know the language or tools of
  financial management

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Workshop Goals

• Participants in this session will
• Understand the nuts and bolts of financial
  management and analysis
• Know how to use internal controls to guarantee
  compliance with HUD and other funder requirements
• Understand the order of authority and,
  therefore, what is required by HUD regulations,
  OMB Circulars and Generally Accepted Accounting
  Principles
• Leave with tools and techniques to address
  financial management and know when to seek
  external assistance

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Performance Benchmark

• Each participant will
• Leave with at least 3 new ideas, techniques or
  tools to address financial management
• Meet at least 2 new participants who can be their
  resource person, mentor or support network after
  the workshop

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Table Talk Real vs. Ideal

• Discuss the difference between the ideal-world
  and the real-world as it applies to financial
  management of your HUD homeless grant
• Identify 3 items and provide the following
• In an ideal world _____
• But in the real world _____ is what happens
• Why the real world differs from the ideal world
• Ways the real world can be more like the ideal
  world

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HUDs Top Issues

• Funds spent on eligible costs
• Documentation of homeless status
• If the client is not eligible, the costs are not
  eligible
• Proper calculation of rents
• Commitment of match dollars
• Documentation of expenditures
• You are assumed guilty until proven innocent
• Information to report results to Congress
• Timeliness of drawdowns

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New Emphasis on Performance

• HUD comprehensive monitoring handbook issued
• Covers all CPD programs, including SHP 6509.2
  REV-5
• Exhibit 13-8 Guide for Review of SHP Financial
  Management
• Exhibit 13-9 Guide for Review of SHP Cost
  Allowability
• Exhibit 13-10 Guide for Review of SHP
  Procurement
• Exhibit 13-11 Guide for Review of SHP Equipment
• Exhibit 13-12 Guide for Review of SHP Other
  Federal Requirements

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Its Time for Bingo!
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Financial Management Systems
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The Order of Authority

• GAAP
• Congress
• OMB/GAO
• HUD
• HUD Grantee

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Relationship of Federal Regulations
Federal Acquisition Requirements
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Fiscal Management System
Cash Management
Regulations
Accounting
Procedures
Financial Reports
Documentation
Internal Controls
Policies
Budgeting
Monitoring
Auditing
Financial Management
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Setting the Stage

• Financial Management
• Constant process of safeguarding financial assets
  of organization, whether for-profit or nonprofit
• By instituting policies and practices that
  maintain and increase the value of assets for
  overall benefit of the organization

• Financial Analysis
• Systematic technique for evaluating financial
  health of organization
• By quantifying information and comparing that
  information to similar organizations in the field

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The Importance of Financial Management

• Fitting in with other funders
• Better planning
• Gaining allies
• Raising your match
• Sustaining future growth

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Fitting in With Other Funders and Better Planning

• Funders (private and public) look at financial
  management to make investment decisions
• Solid information helps grantees to
• Realistically project the future
• Seek funding for that future
• Plan more accurately
• Financial management is part of a multi-year
  planning process
• Operating like a business helps organizations to
• Increase program services
• Not always be obsessed with raising more funds

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Fund Accounting

• Your grant may be one of many funding sources
  that your agency has
• Multiple funders leads to fund accounting
• Your financial system must account for the
  requirements of all of funding streams
• While many of the requirements have a higher
  authority than HUD
• HUD is the funding stream that we focus on

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Example of Fund Accounting
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Gaining Allies

• Who is financially responsible for the viability
  of your organization?
• Your board of governance begins to own the
  program as they understand their liability and
  responsibility
• External funders gain confidence in your
  organization as you comply with the norms of the
  business world

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100 Equals 100

• To serve 100 of the HUD-eligible clients
  projected in your technical submission and
  approved budget
• With 100 of the projected HUD-eligible
  activities
• You must raise 100 of the total project costs
  (HUD grant and match)
• Otherwise, you are either not serving 100 of
  the clients or not providing 100 of the
  activities

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Keys to a Successful System
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Who is Involved in Managing Your System?

• Board of Directors
• Local community development staff
• Elected officials
• HUD
• Government staff
• Other investors
• Accountants

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Staff Responsibilities

• Fiduciary trust
• Payment of taxes
• Government filings
• Cash flow
• Fund accounting and reports to funders, including
  HUD
• Service delivery

• Internal financial controls
• Reports to committees
• Legal contracts
• The books
• Constructionif?
• Future planning and financial projections

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Board Responsibilities

• Building the agencys financial capacity
• Raising the funds to maintain the organization
  long-term
• Budgeting funds productively
• Managing funds wisely
• Reporting on funds raised
• Supplementing budgets
• Evaluating agencys financial performance

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When Do You Need An Accountant?

• Benefits justify the costs
• Too many hoops
• Adjunct staff and business partner
• Fund accounting required
• Funders requirement

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What Services Should An Accountant Provide?

• Advice on tax matters, unrelated business income,
  tax questions
• Preparation of tax forms
• Quarterly IRS Form 941
• Quarterly federal, state and local government tax
  filings
• Annual income tax returns and/or 1099s
• Analysis of management activities and advice

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What Services Should An Accountant Provide?

• Assistance in establishing financial management
  systems
• Collecting grants, outstanding revenues and fees
  for service
• Control of inventory, asset purchases and cash
• Recommendations to cut expenses, increase cash
  flow and price services
• Assistance in preparing the organization for
  long-term growth
• When can the agency afford new staff?

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• Components of a Financial Management System

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Why a Financial Management System?

• Required by HUD and OMB
• Systems required to meet certain standards
• Control and account for funds, property and other
  assets
• Identify source and application of funds
• Allow accurate, timely and complete reporting
• Minimize time in transfer of funds between
  parties
• Addressed through policies, procedures, practices
  and personnelthe 4-Ps

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Financial Management System

• Ineffective results in
• Major audit findings
• Negative publicity
• Funding withheld

• Effective results in
• Sound management decisions
• Documentation supporting program activities and
  expenditures
• Knowledge of regulations, policies and procedures
• Strong accounting system
• Good internal controls

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Components of Financial Management Systems

• Uniform administrative requirements
• Cost principles
• Audit procedures
• Procurement standards

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In The Final Analysis

• Like it or not, financial management is a
  requirement of your grant
• We need to learn to appreciate it, rather than
  fight it!
• Use source documents for guidance
• Regulations
• 24 CFR Part 85Governments
• 24 CFR Part 84Nonprofits
• HUDs desk guides
• OMB Circulars
• HUDs Monitoring Checklist
• Exhibit 13 8, Items 1-12

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Frequently Asked Questions

• Who? What? How? Under SHP

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Supportive Housing Program

• One component of the continuum of care strategy
  for homelessness
• Outreach and assessment
• Immediate (emergency) shelter
• Transitional housing (with support services)
• Permanent housing (with support services)
• Enacted in the McKinney-Vento Act

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Answering the Important Question

• What is 3-6-8-8?

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National Objectives

• 3 goals of HUDs homeless programs
• Help participants obtain and remain in permanent
  housing
• Help participants increase skills and/or income
• Help participants achieve greater
  self-determination

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HUD Objectives

• National Targets
• Create new PH beds for chronically homeless
  persons.
• Increase percentage of homeless persons staying
  in PH over 6 months to 71.
• Increase percentage of homeless persons moving
  from transitional housing into permanent housing
  to 61.
• Increase percentage of homeless persons becoming
  employed by 11.
• At least 390 CoCs will have functioning HMIS.

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Program Components

• 6 types of projects
• Transitional Housing
• Permanent Housing for people with disabilities
• Supportive Services Only
• Safe Havens
• Innovative Supportive Housing
• Homeless Management Information Systems

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Eligible Activities

• 8 ways to spend SHP funds
• Acquisition
• Rehabilitation
• New construction
• Leasing
• Supportive services
• Operating expenses
• Administration
• Homeless Management Information System

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Acquisition and Rehabilitation

• Purchase and/or rehabilitate all or part of
  building
• Used for housing and/or services
• Pay off a current mortgage (lump sum)
• If not previously used for HUD
• Funding limited to between 200,000 and 400,000
• Higher amounts applicable to high cost area
• 50 cash match obligation
• 20-year use restriction

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New Construction

• Newly construct building for housing (not
  services)
• Funding limited to 400,000
• Covers both land and building
• Funds cannot be used for demolition
• Must demonstrate costs are less than for
  rehabilitation
• 50 cash match obligation
• 20-year use restriction

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Leasing

• Leasing building for supportive housing or
  supportive services
• Portion of building, entire building or multiple
  buildings
• Not building already owned
• No mortgage payments or building operations
• Pay rent for individual units
• Paid directly to landlord
• Units must meet housing standards
• Rents must be reasonable
• No match requirement for leasing

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Supportive Services

• For new grantees, cost of new or increased
  services
• For renewals, cost of continuing services
• Salaries to providers and other direct costs
  (actual direct staff time)
• Services aimed at moving homeless to independence
• Offered while part of project
• For transitional housing, services may continue
  for 6 months after graduating
• 20 cash match obligation

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Operating Expenses

• Costs of operating facilities
• Only for new project or expanded portion of
  existing project
• Supports function and operation of project
• Often referred to as indirect costs
• Standards in OMB Circulars A-87 and A-122
• Pro rate costs to individual funding sources
• Eligible for all components except supportive
  services only
• 25 match obligation

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Administrative Costs

• You may request up to 5 of grant to cover
  administrative costs
• Costs associated with carrying out the grant
• May be split between lead agency and sponsors
• Costs associated with carrying out components
  ineligible
• No match requirement for administrative costs

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Homeless Management Information System

• Computerized data collection tool
• Designed to capture client level system-wide
  information
• Costs to implement and/or operate a computerized
  data collection tool
• Characteristics and service needs of the homeless
• Funds cannot be used for planning or developing
  new system
• 20 cash match obligation

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HUD Eligible Activities

• For Shelter Plus Care, remember
• Housing Assistance is for the term of the grant
• Service Match is 11 during the term of the
  grant
• Service match must be for HUD-eligible activities
• Administration is 8 of the grant ( after the
  housing assistance)

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Eligible Clients

• 8 eligible categories of homelessness
• Not all homeless people are HUD-homeless eligible
• Not all clients with disabilities are eligible
  for permanent housing
• If a client is not eligible, all costs associated
  with that client (including administration and
  match) are not eligible

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Procurement, Match and LOCCS
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• Procurement

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Procurement Rules

• Grantees and subgrantees must adhere to federal
  procurement rules when purchasing
• Services
• Supplies and materials
• Equipment
• Applicability
• Governmental entities 24 CFR Part 85
• Nonprofits 24 CFR Part 84
• Also refer to
• SHP Monitoring Checklist Exhibit 13 -10, Items 1
  - 17

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Procurement Overview

• Procurement policies must be in place
• Must follow written procedures and document
  compliance
• Four procurement methods available
• Small purchase (less than 100,000)
• Sealed bid (construction)
• Request for proposals (RFP)
• Non-competitive

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Small Purchase Method

• Also known as streamlined method
• May be used for purchases below 100,000
• Requirements include
• Getting 3 to 5 competitive quotes
• Selecting the most reasonable offer
• Using purchase orders or petty cash to purchase

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Sealed Bid

• Use for construction contracts and to purchase
  equipment and/or supplies
• Process involves
• Developing an invitation for bids
• Publicly soliciting bids
• Opening bids and announcing prices
• Reviewing bids in detail
• Awarding contract to winning bidder

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Request for Proposal (RFP)

• Used when sealed bid not appropriate (for
  example, consulting services)
• Process involves
• Announcing and issuing RFP
• Opening, reviewing and comparing proposals
• If necessary, negotiating with offerors
• Requesting and reviewing best and final offers
• Awarding contract

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Non-Competitive Award

• Permitted when award is infeasible under other
  methods and one of following applies
• Item is available from only one source
• Emergency situation will not permit delay
• HUD authorizes non-competitive proposals
• Price or cost analysis and written justification
  must be in files

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Contracts

• Two basic types permitted
• Firm fixed price
• Agreed upon price, regardless of actual cost
• Cost reimbursement
• Estimated cost, usually with a ceiling
• When using sealed bid method, firm fixed-price
  contract required
• Other methods, use either type

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Bonding and Insurance

• For contracts of 100,000 or more, completion
  assurance required through
• Performance and payment bonds
• Deposit of cash escrow
• Letters of credit

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Bonding and Insurance

• Insurance requirements include
• Workers compensation and employee liability
• Auto insurance for injuries on job site
• Comprehensive public liability
• Property damage

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Other Contracting Requirements

• Minority- and women-owned businesses
• MBE and WBE outreach requirements
• Must take affirmative steps to use businesses
  owned by minorities and women
• Section 3
• applies to construction contracts
• Goals for training and hiring low-income
  residents of area
• Goals for hiring contractors located in area

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Ethics in Contracting

• Conflict of interest requirements apply
• 24 CFR 583.330(e)
• SHP Monitoring Checklist Exhibit 13 -12, Item 4
• Gratuities and kickbacks not allowed
• Confidential information may not be used for
  personal gain
• Influence peddling not allowed

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Numbers Dont Lie, They Hide

• Financial Management for Homeless Grantees

DAY TWO
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Pop Quiz on Day One

• 3__________________
• 6__________________
• 8__________________
• 8__________________
• 4__________________
• 14__________________
• 100 must equal _____ or ___________________

• 24 CFR, Part ______ is for governments
• 24 CFR, Part ______ is for not-for-profits
• OMB Circular A-ll0 governs ____________
• OMB Circular A-122 outlines ____________
• OMB Circular A-133 governs ____________
• Extra Credit Question?

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• Meeting Programmatic Match Requirements

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SHP Match Requirements

• Acquisition
• Rehabilitation
• New Construction
• Supportive Services
• Leasing
• Operations
• Administration
• HMIS

• 50/50
• 50/50
• 50/50
• 80/20
• None
• 75/25
• None
• 80/20

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SHP Match Sources

• Match must be CASH!
• Must document match as part of the management of
  your financial system
• Must show that match is not being counted as
  match for another federal program
• Must keep source documentation on file for review
  when needed

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SHP Match Sources

• Rent collected from clients may be counted
  towards your match requirement
• If the rent is calculated properly and used for
  HUD eligible activities
• Self-Monitoring Checklists, pp. 31 to 35
• HUD Notice 96-3 Certain Tenant Rent Calculations
• Match can be from another federal source
• ESGs transitional housing program
• HOME Program
• Match is leverage but not all leverage is match

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Team Exercise

• Safe House Match Requirements

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HUD Eligible Activities

• For Shelter Plus Care, remember
• Housing Assistance is for the term of the grant
• Service Match is 11 during the term of the
  grant
• Service match must be for HUD-eligible activities
• Administration is 8 of the grant ( after the
  housing assistance)

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Calculating Resident Rents
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Rent can be match

• Rent can be used for match if
• Properly calculated
• Properly documented
• Properly used

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Calculating Resident Rents

• Grantees may charge participants rent under
  specific guidelines
• Maximum rent (housing expense) is higher of
• 30 of monthly adjusted income
• 10 of monthly gross income
• TANF rent
• Utility expenses deducted

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Calculating Rents, contd

• Annual income from all sources
• Income exclusions subtracted
• Adjustments to annual income
• Dependent allowance
• Childcare allowance
• Disabled assistance allowance
• Medical expenses allowance
• Elderly/disabled family allowance

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Calculating Rents, contd

• General Guidelines
• Review document income annually or when changes
  occur
• Distinguish between employment training
• Employment income
• Training stipends or reimbursements
• Fees for food services acceptable if reasonable
  not paid for by HUD or match already

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Team Exercise

• Tenant Rent Calculations

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• Line of Credit Control System (LOCCS)

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Line Of Credit Control System

• LOCCS Access Authorization
• HUD Form 27054
• Banking information
• Direct Deposit Form 1199
• LOCCS Voucher for Grant Payment
• HUD Form 50080

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LOCCS Access

• Authorize a staff person for draw downs
• Maintain security of password
• If a LOCCS password is shared, one can be banned
  from using LOCCS forever
• Access LOCCS to maintain an active password
• Approving official certification

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Direct Deposit

• Banking information
• Form 1199
• Use Your existing bank account or establish a new
  account
• Submit Form 1199 to HUD Officials
• Washington, DC OR Field Office
• Ensure that all banking information is accurate

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LOCCS Payment

• Minimize the time elapsing between transfer of
  funds to recipients from the U.S. Treasury
• Advance method
• Expend in 3 days
• Reimbursement method
• No timeframe for reimbursing the general fund
  account

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Tracking LOCCS Draw Downs

• Cash control register
• Track each draw request
• Track SNAP funds by grant number and voucher
  number
• Maintain a cumulative balance of SNAP funds

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Uniform Administrative Requirements
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Internal Controls

• Combination of polices, procedures, job
  responsibilities, personnel and records that
  create accountability in financial system
• Ensures funds are used and managed properly
• Remember, a small investment early will reap
  great benefits later

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Internal Control System

• Basic elements
• Organizational chart
• Written delineation of job duties
• Accounting policy and procedures
• Separation of duties
• Hiring policies
• Control over assets and documents
• Reconciliation of records

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Internal Controls

• Hiring competently trained financial personnel
• Board authorizing bank accounts and checks
• Recording all cash
• Maintaining pre-numbered receipts
• Board signing checks
• No invoice, no check

• Reconciling bank statements monthly
• Having timesheets to justify payroll expenses
• Recording petty cash
• Maintaining fireproof storage
• Maintaining detailed inventory records
• Obtaining fidelity Insurance

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Organization Chart

• Supervision of employees
• Lines of authority
• Communication
• Delineates responsibility, functions and duties
• Auditors want it!

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Segregation of Duties

• Not having one person in control from inception
  to final recording
• Having independent cross-checking
• SHP Monitoring Checklist, Exhibit 13-8, Item 14

• Separating
• Operational work from record-keeping of assets
• Asset custody from asset records
• Authorization of asset purchases from custody and
  record-keeping
• Purchasing from receiving

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Documenting Time

• For employees that work in a single indirect cost
  activity, document time with a timesheet
• For employees that work in a single federal award
  category, document time with a timesheet and
  periodic certifications
• For employees that work on more than one activity
  (direct or indirect), document time with
  timesheets supported by activity records
• SHP Monitoring Checklist, Exhibit 13-8, Items
  11-13 and 15-17

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Time and Activity Records

• Time and activity records
• Accordingly to OMB Circular and Parts 84 and 85
• After-the-fact determination of actual activity
• Signed by individual employee, certified by
  supervisor
• Prepared at least monthly
• Applies to direct HUD grantees and subgrantees

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Sample Timesheet
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Sample Timesheet
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Types of Activity Sheets

• Clients case notes
• Calendars, logs and sign-in sheets
• Palm pilots
• Daily, weekly and quarterly reports
• Products and deliverables
• What do you use now?

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Basic Cash Controls

• Making disbursements with checks, not cash
• Pre-listing and recording cash receipts by
  someone other than depositor
• Having subsidiary and control accounts
• Using pre-numbered checks

• Reconciling bank statements monthly (backed by
  checks)
• Having supporting documentation for checks
• Having payroll expenses backed up by
  timesheets/separate bank account

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Physical Control of Assets

• Keeping canceled checks in a safe, fireproof
  place
• Periodically inventorying physical assets
• Using a check protector machine vs. individually
  drafted checks

• Using fireproof safes and locked file cabinets
• Keeping duplicate records in a safe, secure
  off-site location
• Depositing cash receipts on a daily basis

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• Budget Controls

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Team Exercise We Need a Budget

• Your team has won the lottery!
• While you have only won 100, you decide to
  celebrate as a group
• Prepare a celebration budget that includes
• Budget assumptions
• Cost estimates
• Proposed expenditures

100
Budget Controls

• Compare and control expenditures
• Keep records on budgeted amounts
• Compare obligations and expenditures to planned
  budgets and accomplishments
• Report deviations from budgets and plan

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Developing Budgets

• Budget is projection of expenses based on actual
  experience
• Defines goals for a given period of time
• Provides ability to monitor progress
• Identifies significant variances between
  financial goals and how resources are actually
  used
• Budgets should never be submitted to
  decision-makers and funding sources without
  including assumptions

102
Drawing Down Budgeted Funds

• Drawdown for actual expenses by line item
• Homeless programs allow
• Moving up to 10 between line items (notify HUD)
• More than 10 (request HUD approval to amend
  budget)
• Implication of budget amendments
• Initially funded for a specific purpose
• Revising budgets too much may trigger funding
  reconsideration, amendments and additional HUD
  scrutiny

103

• Accounting Records

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Accounting Records

• Accounting system should include
• Chart of accounts
• Cash receipts journal
• Cash disbursements journal
• Payroll journal
• General ledger

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Accounting Records

• Source documentation required
• SHP Monitoring Checklist Exhibit 13-8, Items 1- 4
• Also, ensure that program costs were
• Incurred for the proper period
• Actually paid
• Expended on eligible items
• Approved by appropriate officials

106
Sources and Uses of Funds

• Up-to-date information on sources and uses of
  funds
• Amount of federal funds received and
  authorization of funds
• Obligations of funds and un-obligated balances
• Assets and liabilities
• Program income
• Expenses by grant year and program

107

• Cash and Property Management

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Cash Management

• Procedures to minimize the time between receipt
  and disbursement of funds required
• Three methods allowed
• Reimbursement
• Almost all SHP lead agencies use reimbursement
• Cash advance
• Working capital

109
Property Management

• Definitions
• Real property is land and improvements
• Personal property is other types of property
  (supplies and equipment)
• SHP Monitoring Checklist 13 -11
• Complies with 24 CFR 85.32 and 24 CFR 84.34

110
Property Management

• General requirements
• Property can only be acquired for a specific
  purpose
• Specific requirements
• Use must continue for a certain period of time
• Remember the SHP 20 year use restriction
• Accurate records must be kept
• SHP Monitoring Checklist Exhibit 13 -11, Items
  1-3
• Use should reflect intended purpose
• Property can be disposed of only if rules are
  followed
• There are specific requirements for SHP property
• SHP Monitoring Checklist Exhibit 13 -11, Item 4

111
Federal Cost Principles
112
Cost Principles

• Three components to cost principles
• Cost reasonableness
• Cost allowability
• Cost allocation
• Applicability
• Governmental entities OMB Circular A-87
• Nonprofits OMB Circular A-122
• Also refer to
• SHP Monitoring Checklist, Exhibit 13-9

113
Determining Costs

• Costs are only eligible if they can be associated
  with an eligible client
• Costs are only eligible if they are
• Eligible activity under funding program
• Delineated in your application submissions and
  budgets
• Source documented
• Reasonable, allowable and allocable

114
Cost Reasonableness

• Costs charged to federal award must be necessary,
  reasonable and directly related to the grant
• Look at the following
• Whether cost is ordinary and necessary
• Market prices for comparable goods and services
• Benefit to individuals involved

115
Cost Allowability

• In general, cost must be
• Necessary and reasonable
• Allocable to the program
• Authorized or not prohibited
• Conform to and be consistent with rules and
  requirements
• Not charged to any other program
• Refer to list of costs in OMB Circular A-122

116
Table Talk Cost Allowability

• Which of the following costs are allowable?
• Alcohol
• Pre-award costs
• Writing a Continuum of Care grant application
  (fundraising)
• Client graduation ceremony (entertainment)

117
Cost Allocation

• A cost is allocable to a HUD program if it is
• Treated consistently with other similar costs
• Incurred specifically for the program
• Benefits program or can be distributed based on a
  reasonable proportion OR
• Necessary to operations

118
Allowable vs. Allocable

• The real issue with timesheets is not whether
  the activity is allowable or notBUT whether
  the time is allocable to the specific grant.

119
Table Talk Allowable vs. Allocable

• Under what circumstances could furniture, which
  is allocable, not be allowable?
• Under what circumstances would a computer
  printer, which is allowable, not be allocable?
• Under what circumstance would the case managers
  time, which is reasonable, not be allowable?
  Not be allocable?

120
Determining Eligibility

• If properly procured, cost is reasonable
• If on approved budget, cost is allowable
• If directly linked to grant, cost is allocable
• Therefore, if costs are Reasonable
  Allowable Allocable They
  are eligible for federal reimbursement

121
Direct and Indirect Costs

• Direct costs can be identified with specific
  program or activity
• Indirect costs are incurred for common/joint
  purpose benefiting more than one program or
  activity
• Administrative salaries
• Accounting expenses
• Facility maintenance

122
Table Talk Direct vs. Indirect

• Assign the following costs as direct or indirect
• Staff salaries
• Utility costs
• Food
• Depreciation
• Insurance

123
What kind of cost is it?
124
Pro-Rating Costs

• Required by HUD where full cost is not the actual
  cost for HUDs piece
• Must always have source documentation

125
Pro-Rating Costs

• Supportive service costs
• Salaries pro-rated based on percentage time
• Document with time and activity records
  reflecting funding source
• Operating expenses
• Pro-rate based on percentage of space or time
  used
• Document with logs, plans, etc.

126
Table Talk Pro-Rating Costs

• A case manager works with 30 clients under 3
  different funding programs of which 8 clients are
  associated with this HUD grant
• How would you pro-rate the case managers time?
• Divide the total cost equally among the 3
  funding programs
• Charge 8/30ths of the cost to this grant
• Compare the number of hours spent with the 8
  clients to that spent with all 30 clients
• None of the above

127
Table Talk Pro-Rating Costs

• Your HUD-funded program is located in the same
  facility as another program where there is only
  one utility meter
• How would you pro-rate the utility costs?
• Divide the cost equally among the 2 programs
• Use the percentage of square footage used by
  clients
• Use the percentage of square footage used by
  clients and staff
• None of the above

128
Cost Eligibility Summary

• Costs are eligible if they are reasonable,
  allowable and allocable
• A cost is only a cost if charged to the correct
  budget line item
• If the client is not eligible, all costs
  (including administration) associated with that
  client are ineligible
• If a cost is not specifically listed in OMBs
  Circular, does that mean that the cost is
  allowable?

129
Auditing, Monitoring and Compliance
130
Why Do We Need An Audit?

• Universally accepted analytical tool
• Ratios, standards, disciplined way of viewing
  numbers
• Demonstrates accountability
• GAAP, GAGAS, OMB Circular, HUD requirements
• Demonstrates proper stewardship
• Verifies internal financial controls
• Demonstrates board oversight
• Independently audited and adequate reporting

131
Audits

• Federal programs are subject to review or audit
• When spending 500,000 or more in federal awards
  per year, specific rules apply
• Grantees and subgrantees must adhere to OMB
  Circular A-133

132
Federal Awards

• Federal awards include
• Grants, loans and loan guarantees
• Direct assistance or appropriations
• Property insurance or interest subsidies
• Property, food commodities
• Cooperative agreements or contracts
• Other assistance
• But only counts if expended

133
Type of Audit

• Program-specific audit
• OK if recipient or subgrantee gets federal funds
  from only one source
• Involves only looking at that program
• Single audit
• Required if funds come from more than one source
• Involves looking at all programs and financial
  statements

134
Auditing Standards

• Federal audits performed using Generally Accepted
  Government Auditing Standards
• Financial information correctly presented
• Internal controls exercised regarding cash
  management, payroll processing, fixed assets and
  reporting
• Activities in compliance with program
  requirements
• Audit report must address each area

135
Compliance Requirements

• A federal audit must satisfy 14 compliance
  requirements
• Laws (for example, Davis Bacon)
• Regulations covering match, eligibility, etc.
• Other grant provisions including subgrantee
  monitoring

136
Audit Findings

• Audit may include findings and questioned costs
• Material weakness in internal control
• Noncompliance with laws and/or regulations
• Questioned costs in excess of 10,000
• Fraud affecting federal award
• Misrepresentation of prior audit finding

137
Qualified Audits

• Auditors work based on the work of others
• Uncertainties exist affecting the potential
  effect of the audit
• Serious doubt about organization as an ongoing
  concern (bankrupt?)
• Supplementary information not presented or
  inadequate

138
Qualified Audits

• Unaudited information not consistent with audited
  data
• Deviation from GAAP due to unusual circumstances
• Auditor unable to perform all aspects of the
  engagement
• In adequate records to support assertions in the
  financial statements
• Financial statements do not contain all
  disclosures needed for a fair presentation

139
Review and Resolution

• Audit report must be submitted to HUD within 9
  months of audit period and
• Submit an A-133 Audit to the Federal
  Clearinghouse
• Grantees and subgrantees must establish system to
  ensure timely and appropriate resolution to audit
  findings

140
What HUD Looks For

• Audits that are clean
• There are no findings, either financial or
  management
• Fund accounting applied to segregate HUDs grants
  and costs associated with those grants from other
  funding sources
• Costs that are supported with source documentation

141
Hiring An Auditor

• Many nonprofits need specialized auditor
• Multiple funding sources requires fund accounting
• Specialized experience with federal programs
• Too much emphasis on cost vs. needs
• Perception of low-risk of liability for agencies
• Failure to recognize the needs of all interested
  parties

142
Specialized Auditors

• Specialized auditors need to know
• AICPAs industry audit and accounting guide
• GAOs Government Auditing Standards manual
• Applicable OMB Circulars
• Catalogue of Federal Domestic Assistance
• HUDs program guidelines
• OMBs Compliance Supplement

143
Selecting The Right Auditor

• Use a competitive process with at least 3 bids
• Issue a request for qualifications (RFQ) that
  outlines what you want
• Separate the technical submission from the cost
  quote
• Issue an engagement letter
• GAO secondary considerations include
• Financial education and audit experience
• An audit committee to handle selection
• Detailed policies and procedures

144
Using An Audit Committee

• Nominate and terminate the firm
• Negotiate fees
• Determine the type, scope and timing of the audit
• Discuss internal control weaknesses
• Review financial and audit reports
• Monitor and evaluate performance
• Oversee the accounting policies
• Follow up on findings and corrective actions

145
On the Lighter Side!

• What is an auditor?
• Someone who arrives after the battle and bayonets
  the wounded
• What are the three types of accountants in the
  world?
• Those who can count and those who cant
• What do accountants suffer from that ordinary
  people dont?
• Depreciation

146
The Audit Process Is Ongoing

• As one audit period ends, another audit period
  begins

147
Team Exercise

• Family Services Audit Consideration

148

• Annual Progress Reports

149
Purpose of APR

• Tracks project progress
• Help participants obtain and remain in permanent
  housing
• Help participants increase skills and/or income
• Help participants achieve greater
  self-determination
• Tool for HUDand YOU!
• Helps to keep your program on track
• Gives you information about how the project is
  doing and what it is accomplishing
• Used to document success for other funders
• Used for completing continuum gaps analysis

150
Submission Requirements

• Each grantee must submit an APR
• If grantee does not run the project
• Sponsor completes
• Gives to grantee for submission to HUD
• A separate APR submitted for each HUD grant
  received
• Each program component a project a separate
  APR

151
Due Date Reporting Period

• Failure to submit an APR may lead to a delay in
  receiving future grant funding
• Due 90 days after the end of each operating year
  of your program
• What is the operating year?
• Trigger date for start and end of grant term
• Starts the clock for submission of APR
• Trigger varies depending on program and project
  activities

152
Operating Year

• Projects with acquisition, rehabilitation or new
  construction
• Operating year begins after
• Obtaining a certificate of occupancy
• Accepting first client
• Other projects
• Operating year begins after
• Accepting first client
• LOCCS draw of leasing, supportive services or
  operating funds
• Renewal projects
• Specified in grant agreement letter

153
Components of APR

• Basic information about project and goals
• Information about participants in project
• Information about participants leaving project
• Financial information and match

154
APR Part I Project Progress

• No. 1 Projected level of service
• At a given point in time show
• Number of singles not in families
• Number of adults in families
• Number of children in families
• Number of families

155
APR Part I Project Progress

• No. 2 Persons served
• Enrolled on first day of operating year
• Enrolled any time after the first day
• Who left during the operating year
• Still enrolled in the program on the last day of
  the operating year
• No. 3 Project capacity
• No. 4 Non-homeless housed (Section 8 SRO only)

156
APR Part I Project Progress

• Nos. 5 14 Demographic Data
• Participant information by individual, families
  and chronically homeless

• Age
• Gender
• Race/ethnicity
• Primary disability
• Prior living situation

• Income change
• Income source
• Length of stay
• Reasons for leaving
• Post-project destination

157
APR Part I Project Progress

• No. 15 Supportive Services
• Number of participants receiving discrete
  categories of service
• Identify those participants receiving services
  that are chronically homeless

158
APR Part I Project Progress

• No. 16 Goals and objectives
• Shows goals and objectives
• Current years goals and progress
• Next years goals
• Measurable goal for each year as it relates to
  the overall HUD program goals
• Obtain and remain in permanent housing
• Increase skills and income
• Achieve greater self-determination

159
APR Part I Project Progress

• No. 17 Number of beds
• SHP (not completed for SSO projects)
• Number of beds Current Level
• Number of beds New Effort
• New Effort beds in place at the end of operating
  year
• Shelter Plus Care
• Number of beds
• Number of dwelling units
• Section 8 SRO
• Number of dwelling units

160
APR Part II Financial Information

• No. 18 Supportive Service
• SHP funded services
• Amount of SHP funds spent during operating year
• For discrete services outlined in application and
  technical submission
• SC projects
• Amount of funding from other sources
• Spent on services by discrete categories
• SRO projects
• Estimates percentage of clients who use discrete
  service categories
• Funded outside of SRO program

161
APR Part II Financial Information

• For SC service match
• 14 categories of eligible services
• Match is overall
• Not year-by-year
• Each client need not receive the same amount of
  services as rental assistance.
• Examples of match 582.110
• Volunteer time at 10 per hour
• Actual salaries paid to staff that provide
  services
• Value of lease on service facility

162
APR Part II Financial Information

• No. 19 SHP leasing, supportive services,
  operating costs, HMIS, and administration
• Tracks SHP expenditures
• SHP funds drawn down during the year
• Cash match (by activity)
• Total expenditures
• Tracks sources of cash match
• Cash only! (no in-kind contributions, etc.)
• Required match varies by activity
• Keep documentation on file
• SHP expenditures and cash match
• No regulatory guidance outside of OMB Circulars

163
APR Part II Financial Information

• No. 20 SHP acquisition, rehabilitation, and new
  construction
• Tracks SHP expenditures
• Fill out in year-1 only
• SHP funds drawn down during the year
• Cash match (by activity)
• Total expenditures
• Tracks sources of cash match
• Match is 1 for 1
• Keep documentation on file

164
APR Part II Financial Information

• No. 21 SHP HMIS activities
• Shows how SHP funds for HMIS activities were
  spent during year
• Equipment
• Software
• Services
• Personnel
• Space and operations

165
APR Part II Problems, Changes, and Technical
Assistance Request

• Open-ended questions
• Describe problems or changes
• Solicit information on
• Need for technical assistance
• Ways HUD could improve service
• Self-reflection on project improvement
• Chance to give important feedback!
• Establish HUD relationship

166
Emphases in the Revised APR

• Renumeration of services to the chronically
  homeless
• Reporting of HMIS activities
• Racial and ethnicity reporting
• Certification of continuing SHP services
• Persons-served worksheet (new tool)
• Exiting program
• Participant leaves project, stops receiving
  rental assistance, and/or services
• Not expected to return
• Return after 90 days, new participant
• Return within 90 days, not counted as exiting
  program

167
Grant Amendments and Mergers
168
Technical Submission

• Technical submission is your contract
• If an activity is not specified in the technical
  submission, it is not eligible
• Strengthening the technical submission
• Site control (within 1 year of award letter)
• Restrictive covenants for 20 year use
• Match raised (evidence of first year in hand)

169
Spending Down the Grant

• Timeliness!
• Timeliness!
• Timeliness!

170
Grant Amendments

• Program changes during grant term
• Scope of changes
• Significant
• Minor
• HUD involvement and approval
• Informed (minor)
• Review and approval (significant)

171
Scope of Changes

• Significant changes
• Departure from application
• And substantially affects implementation
• HUD approval required and amended grant agreement
• Minor changes
• Departures from application
• But does not substantially affect implementation
• No HUD approval or amended grant agreement
• Must document change

172
Examples of Significant Changes

• Substantial amendment needed when
• New grantee or name change
• Change in project site
• Change in project activities
• Shift over 10 of funds from one activity to
  another (cumulative)
• Change in population or number of participants
  served

173
HUD Approval

• Written request to field office with revised
  application
• Letter
• Revised application exhibit(s)
• If applicable, new ConPlan certification
• Field office approval and amendment of grant
  agreements
• Application must remain competitive
• Reduced rating requires HQs approval

174
Reduced Rating Examples

• Lower quality
• Housing and/or services lower quality than
  originally funded
• Less experienced provider
• Innovative features eliminated
• Cost effectiveness reduced
• Site moved to area of less need

175
Recapture of Funds

• Whole grants or portion of grants
• Used to fund additional projects next year
• Reasons
• Lack of site control
• Slow expenditure of funds
• Noncompliance with grant agreement
• Unspent or surplus funds

176
Recapture of Funds

• Lack of site control
• Must obtain within 1 year of award notification
• Statutory (cannot be waived)
• Exception where site control lost (rare)
• Slow expenditure of funds
• Acquisition, rehabilitation or new construction
  must begin within 3 months OR residents must
  begin occupancy within 9 months of agreement
• Leasing, operating or supportive services must
  begin within 3 months of availability

177
Recapture of Funds

• Noncompliance with grant agreement
• Any instance of default
• Factors beyond grantees control considered
• Unspent funds
• During grant term
• Costs are less than anticipated
• Funds may be shifted to other activities or
  carried forward

178
Recapture of Funds

• Surplus funds
• Upon expiration of grant
• Unspent funds
• Unless term extension received or final draw-down
  is pending

179
Merging SHP Grants

• Under certain conditions, grants may be merged
• Applies to grantees with 2 or more grants that
  meet criteria
• Grants must be the same component
• Grants must have same period (expiration)
• Instructions included in SHP operating
  instructions
• Shelter Plus Care grants may also be merged

180
Financial Statements and Analysis
181
What is Financial Analysis?

• Tool to analyze financial information in a
  systematic manner
• Quantify ones financial questions
• An art, not a science
• Using standard ratios and measures
• Language of lenders and investors

182
The Process of Financial Analysis

• Spreading the numbers
• Reviewing basic credit questions
• Is the organization liquid?
• Is the organization profitable?
• Is there adequate cash flow to operate?
• Preparing follow-up questions
• Calculating and analyzing ratios
• Compare this organization to others
• Trend analysis
• The key is getting better

183
Documents to Review

• Three years of financial statements
• Revenue and Expenses
• Balance Sheets
• Cash Flow Statements
• Corporate tax returns
• Bank statements
• Why 3 years?

• Projected financial statements for the next3 to