### Tribal TANF and CCDF Guide to

### *Financial Management, Grants Administration, and*

### *Program Accountability*

### 

### ![](media/image1.jpeg){width="0.8125in" height="0.8125in"}

### DEPARTMENT OF HEALTH & HUMAN SERVICES

### 

### Child Care Bureau • Office of Family Assistance 

### 

**Table of Contents**

# 

# Table of Contents

[Introduction 1](#introduction)

[**1. Overview of Programs 2**](#__RefHeading___Toc83016274)

[Child Care and Development Fund for Tribal Grantees (CCDF)
2](#child-care-and-development-fund-for-tribal-grantees-ccdf)

[Tribal Temporary Assistance for Needy Families (TANF)
2](#tribal-temporary-assistance-for-needy-families-tanf)

[**2. Applicable Regulations, OMB Circulars, and Certifications
3**](#__RefHeading___Toc83016277)

[Code of Federal Regulations 3](#code-of-federal-regulations)

[Title 45 3](#title-45)

[Office of Management and Budget (OMB) Circulars
4](#office-of-management-and-budget-omb-circulars)

[Policies 5](#policies)

[Certifications 5](#certifications)

[**3. Basic Grants Management Principles
6**](#__RefHeading___Toc83016283)

[Allowable Cost Determination 6](#allowable-cost-determination)

[Recipient/Subrecipient/Vendor Status
6](#recipientsubrecipientvendor-status)

[Obligation and Liquidation Periods
7](#obligation-and-liquidation-periods)

[Administrative Costs 8](#administrative-costs)

[Penalties and Disallowances 10](#penalties-and-disallowances)

[Required Financial Reporting 11](#required-financial-reporting)

**[4. Basic Financial Management
Principles:](#__RefHeading___Toc83016291) [Federal Financial Management
Requirements 12](#__RefHeading___Toc83016292)**

[Financial Systems 12](#financial-systems)

[Internal controls 12](#internal-controls)

[Accounting Systems 13](#accounting-systems)

[Cash Management 13](#cash-management)

[Audits 14](#audits)

[**5. Procurement/Property Requirements
16**](#procurementproperty-requirements)

[Federal Procurement Requirements 16](#federal-procurement-requirements)

[Code of Conduct 16](#code-of-conduct)

[Competition 17](#competition)

[Contract Requirements 17](#contract-requirements)

[Property Management 18](#property-management)

[**6. Other Administrative Requirements/Options
19**](#other-administrative-requirementsoptions)

[Record-Keeping and Record Retention
19](#record-keeping-and-record-retention)

[Program Administration Option: Indian Employment, Training
and](#program-administration-option-indian-employment-training-and-related-services-demonstration-act-102-477)

[Related Services Demonstration Act (102-477)
19](#program-administration-option-indian-employment-training-and-related-services-demonstration-act-102-477)

[Appendix 21](#appendix)

[Web Sites for Agencies and Documents Referenced in This Guide
21](#web-sites-for-agencies-and-documents-referenced-in-this-guide)

#   {#section-5 .unnumbered}

# Introduction

A "*Tribal TANF and CCDF Guide to Financial Management, Grants
Administration, and Program Accountability"* was developed in
conjunction with a special Tribal Cluster Training, "*Collaboration and
Accountability as Foundations for Success,*" held in Portland, Oregon on
August 24-25, 2004. This Tribal Cluster Training is jointly sponsored by
the Office of Family Assistance (OFA), which administers the Tribal
Temporary Assistance for Needy Families (TANF) program, and the Child
Care Bureau (CCB), which administers the Child Care and Development Fund
(CCDF) program.

Recognizing that the TANF and CCDF programs have a number of
cross-cutting issues, this *Guide* focuses on general program
administration and accountability issues that are common to the Tribal
TANF and CCDF programs, including basic grants management and financial
management principles, audits, and procurement and Federal property
requirements. TANF and CCDF specific information is highlighted
throughout the *Guide*.

By working collaboratively across the TANF and CCDF programs, Tribes
have the opportunity to provide enhanced services to Indian families as
they move along the path toward social and economic self-sufficiency.

1.  []{#__RefHeading___Toc83016274 .anchor}**Overview of Programs**

## Child Care and Development Fund for Tribal Grantees (CCDF)

The Child Care and Development Block Grant Act was enacted in 1990 to
provide child care assistance to low income working families. In 1988
and 1990, Congress enacted Title IV-A programs to support families on
welfare, leaving welfare, and at-risk of welfare. The Child Care and
Development Fund (CCDF) was authorized by the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 (Public Law 104-193),
also known as PRWORA or "welfare reform." It eliminated the separate
Title IV-A programs and consolidated Federal child care subsidy funding.
PRWORA provided new direct Federal child care funds for Tribes which
have been designated as Tribal Mandatory Funds. The new funds, combined
with the Discretionary Fund (also referred to as the Child Care and
Development Block Grant or CCDBG), are called the Child Care and
Development Fund (CCDF).

The CCDF assists low-income families, families receiving temporary
public assistance, and those transitioning from public assistance in
obtaining child care so they can work or attend training/education.
Funds are awarded by the U.S. Department of Health and Human Services
(DHHS), through the Administration for Children and Families (ACF),
Child Care Bureau (CCB). ACF Regional Office staff have approval
authority for Tribal CCDF two-year plans.

## Tribal Temporary Assistance for Needy Families (TANF)

With the signing of the 1996 welfare reform law, the Administration and
Congress charted new ground by giving federally recognized Indian
Tribes, or consortia of such Tribes, authority to operate their own
Temporary Assistance for Needy Families (TANF) programs. The final
Tribal TANF regulations hold Tribes accountable for moving families to
self-sufficiency while encouraging and supporting flexibility,
innovation, and creativity in tribal programs. The final regulations
also implement the Native Employment Works (NEW) program which
authorizes funding to former Tribal JOBS grantees, for tribal programs
to make work activities available. This final rule implements the
provisions in PRWORA, which for the first time gives Tribes the
opportunity to operate their own TANF programs. The TANF statute offers
Tribes the choice of whether to operate their own TANF program or to
participate in the program operated by the State, a choice that
represents a major step forward in tribal self-governance.

The Tribal TANF final regulations provide Tribes and tribal consortia
with a clear and balanced set of rules for complying with the law's
performance goals. They reflect PRWORA's focus on moving needy families
to work and self-sufficiency, and on ensuring that welfare is a
time-limited, transitional experience, not a way of life. The
regulations encourage and support flexibility, innovation, and
creativity to enable tribal programs to reach all families and provide
supports to working families. They do not dictate to Tribes how to
design their TANF programs or spend their funds; however, they do hold
Tribes accountable for moving families toward self-sufficiency. Funds
are awarded and administered by the DHHS, through the ACF, Office of
Family Assistance (OFA) at the regional office level.

2.  []{#__RefHeading___Toc83016277 .anchor}**Applicable Regulations, OMB
    Circulars, and Certifications**

Tribal agency staff working with Federal grants must be fully
knowledgeable of all applicable Federal requirements and skilled in
applying these requirements in the daily operation of their program,
whether starting a new program or striving to maintain a quality program
which meets the intent of the enacting legislation. It is the
responsibility of the tribal agency staff to determine what regulations
apply to each program they administer.

While legislation and enacting regulations are program specific, there
are also regulations and Office of Management and Budget (OMB) Circulars
which are cross-cutting and apply to many Federal programs. These
requirements address program administration such as financial management
and procurement. There are also "assurances" which define standards for
operation, such as the Drug-Free Workplace, which apply uniformly.
Statements of agreement to abide by these assurances are included in the
tribal plan.

## Code of Federal Regulations

The *Code of Federal Regulations (CFR)* is a systematic collection of
the rules published in the Federal Register by the executive departments
and agencies of the Federal government. The CFR is divided into 50
Titles that represent broad areas of Federal regulation. A portion of
these are devoted to common regulations that apply across several
different Departments of the government, such as Title 5,
*Administrative Personnel*; and Title 41, *Public Contracts and Property
Management*. Other Titles contain only the regulations of a single
Department, such as Title 7, *Agriculture*; Title 29, *Labor,* and Title
49, *Transportation*. Title 25 is titled *Indians* and includes
regulations related to programs funded through the Bureau of Indian
Affairs (BIA), U.S. Department of the Interior.

Some of the regulations pertaining to DHHS are Title 21, *Food and Drug
Administration*; Title 42, *Public Health Service*; and for Human
Services, Title 45, *Public Welfare*. CCDF regulations are found at
Title 45, Parts 98 and 99.

## Title 45

Several Parts under Title 45 contain the Department-wide regulations
that apply to DHHS programs. Most important among these in terms of the
day-to-day operation of the programs under discussion are Part 74,
*Uniform Administrative Requirements for Awards and Subawards to
Institutions of Higher Education, Hospitals, Other Non-Profit
Organizations, and Commercial Organizations* and Part 92, *Uniform
Administrative Requirements for Grants and Cooperation Agreements to
State and Local Governments including Indian Tribal Governments.*

Part 74 and Part 92 contain the procedures governing the administration
of awards issued by DHHS. The Subparts cover topics such as cash
management, financial reports, allowable and unallowable costs, and
property management and procurement. Part 92 applies to tribal
governments.

Regulations related to the operation of a Tribal Child Care (CCDF)
program are found at 45 CFR Part 98, Subpart I. Subpart I specifies the
extent to which general regulatory requirements apply to Tribes. In
accordance with Section 98.80(a), Tribes shall be subject to all
regulatory requirements in Parts 98 and 99, unless otherwise indicated.
Subpart I lists general regulatory requirements that apply to Tribes. It
also identifies requirements that do not apply to Tribes. Financial
Management issues that apply to Tribes are addressed in Subpart G --
Financial Management, and Data Reporting issues that apply to Tribes are
addressed in Subpart H -- Program Reporting Requirements.

Regulations related to Tribal TANF are found at 45 CFR, Subtitle B,
Chapter II (Office of Family Assistance), Part 286. Part 286 is divided
into five subparts:

Subpart A -- General Tribal TANF Provisions;

Subpart B -- Tribal TANF Funding;

Subpart C -- Tribal TANF Plan Content and Processing;

Subpart D -- Accountability and Penalties; and

Subpart E -- Data Collection and Reporting Requirements.

## Office of Management and Budget (OMB) Circulars

On behalf of the executive branch of the Federal government, OMB leads
the development of government-wide policy to assure that grants are
managed properly and that Federal dollars are spent in accordance with
applicable laws and regulations. The outcome of this process is the
issuance by OMB of instructions or information to Federal grant-making
agencies. These issuances are referred to as OMB Circulars. Although a
number of OMB Circulars have addressed grants management issues, each
Federal grant award recipient is covered by only three Circulars,
depending on the type of entity. Tribal governments follow these
circulars:

• A-87 for cost principles;

• A-102 for administrative requirements (also referred to as the "Common
Rule"); and

• A-133 for audit requirements.

The administrative requirements for Indian Tribes are codified at 45 CFR
Part 92.

## Policies

Legislation and regulations represent the first two levels of
rulemaking. The third level of rulemaking is referred to as *policy*.
Policies are developed to guide the implementation of a regulation.

Generally, new policies are developed and existing policies are updated
in response to changes in the body of knowledge concerning "best
practice," or because of frequent misinterpretation of the meaning of a
regulatory requirement. Policies are generally issued in the form of a
Policy Announcement (PA), Information Memorandum (IM), or Program
Instruction (PI). For example, TANF-ACF-PA-00-4 transmitted "Guidance
concerning State Maintenance-of-Effort (MOE) funds paid to a Tribe with
an Approved Tribal Family Assistance plan."

## Certifications

When a grantee accepts Federal funding, they are asked to certify that
they will adhere to certain cross-cutting requirements. These include,
but are not limited to:

-   Certification regarding debarment (includes definitions for use with
    the certification of debarment);

-   DHHS certification regarding drug-free workplace requirements;

-   Certification of compliance with the Pro-Child Act of 1994;

-   Assurance of compliance with Title VI of the Civil Rights Act of
    1964 (CCDF only); and

-   Assurance -- Non-Construction Programs (TANF only).

3.  []{#__RefHeading___Toc83016283 .anchor}**Basic Grants Management
    Principles**

## Allowable Cost Determination

Determinations of cost allowability are based on principles found in the
OMB Cost Principles (A-87). Costs must meet certain criteria to be
allowable. The costs must be reasonable, necessary, and conform to
limitations set forth in legislation, regulation, or circulars. They
must be consistent with the grantee's policies and procedures such as
agency procurement policies. Grantees are required to determine and
adequately document costs in accordance with Generally Accepted
Accounting Principles (GAAP). Failure to follow these principles may
result in an inappropriate use of Federal funds; as the result of an
audit finding or questioned cost, the grantee may have to repay the
funds or incur a financial penalty.

Attachment B of OMB Circular A-87 lists numerous "Selected Items of
Cost." A cost is not necessarily unallowable just because it is not
listed in these circulars. If a specific cost is not listed, the cost
must meet the "necessary and reasonable" principle before being charged
to the program. Costs that are listed as unallowable under certain
paragraphs cannot be shifted to another category to make them allowable.
For example, all forms of fundraising and lobbying costs are unallowable
and are noted as such in the cost principles.

Costs must also be "allocable" to a program to be allowable. Costs can
be allocated in one of three ways. They can be directly charged,
proportionately charged, or be an indirect cost. A direct cost is a cost
which is incurred specifically for one program, such as the salary of a
program manager. A cost which is proportionately allocated is one which
benefits more than one program. An example of a proportionately
allocated cost would be the salary for an administrative assistant who
works for two programs. This salary cost would be allocated based on the
number of hours worked for each program. Indirect costs benefit all
programs in an agency or tribal government equally. These costs are
charged to an indirect cost pool and allocated to the programs using an
indirect cost rate. This rate is determined during the indirect cost
negotiation process and is approved by the cognizant Federal agency.

A written cost allocation plan is required for costs which are allocated
proportionately between programs. The plan must include the items of
cost, the basis for allocation, and the funding source information to
which the cost will be allocated.

## Recipient/Subrecipient/Vendor Status

There is a distinction between the status of recipient, subrecipient,
and vendor. Federal awards expended as recipient or subrecipient are
subject to audit under OMB Circular A-133. In contrast, a vendor
supplies either goods or services.

The functions performed by the agency determine the status as
subrecipient or vendor. For example, when a Federal award is received by
a subrecipient agency, the following may be completed by the
organization:

-   Determination of client eligibility for the program;

-   Is subject to performance measurement by the Federal agency;

-   Responsible for programmatic decision making;

-   Must adhere to Federal program compliance requirements;

-   Uses Federal funds to carry out a program of the organization as
    compared to providing goods or services for a program of the
    pass-through entity.

In contrast, payment for goods and services received by a vendor are
when the organization:

-   Provides the goods and services within normal business operations;

-   Provides similar goods/services to many different purchasers;

-   Operates in a competitive environment; and

-   Provides goods or services that are ancillary to the operation of
    the Federal program.

## Obligation and Liquidation Periods

Based on the Federal regulations at 45 CFR 92.23 and 98.60(e), where a
funding period is specified, a grantee may charge only allowable costs
resulting from obligations incurred during the funding period for the
award. Funding period refers to the period of time that Federal funds
are available for obligation. An obligation is defined as a legally
binding agreement between two parties for purchase of services,
supplies, or equipment. Examples include purchase orders and contracts.
Liquidation means the issuance of payment for an obligation.

When submitting financial reports, the grantee must be able to provide
information related to the *unobligated balance of Federal funds* and
the *unliquidated balance.* The unobligated balance is defined as the
portion of the funds authorized by the DHHS awarding agency that has not
been obligated by the grantee, and is determined by deducting the
cumulative obligations from the cumulative funds authorized. The
unliquidated obligations are those obligations which have not yet been
paid. The programs under discussion in this document have different
funding periods which are defined in the applicable regulations, and
noted below:

> ***CCDF:***
>
> The Tribal Child Care (CCDF) program grantees have a two-year
> obligation period with an additional one-year liquidation period, with
> the exception of construction awards which have a three-year
> obligation/liquidation period.
>
> ***TANF:***
>
> Tribal TANF funds do not necessarily need to be obligated by the end
> of the funding period. A Tribe may reserve amounts awarded to it,
> without fiscal year limitation, to provide assistance under the Tribal
> TANF program. It may expend funds beyond the fiscal year in which
> awarded only on benefits that meet the definition of assistance at
> Sec. 286.10 and administrative costs directly associated with
> providing that assistance.
>
> Tribal TANF grantees need to obligate current year funds on
> non-assistance activities before the end of that current fiscal year.
> Current year funds that are obligated by the end of the current fiscal
> year may be carried into the succeeding fiscal year to pay for those
> non-assistance activities. But, if those funds are not liquidated by
> the end of the succeeding fiscal year, then any remaining funds would
> be de-obligated and carried into the next fiscal year to use only to
> provide "assistance" and pay for any administrative costs directly
> associated with providing that "assistance." For example, if the Tribe
> obligated current year funds by September 30 of that fiscal year to
> pay for non-assistance activities, the Tribe would have an additional
> fiscal year (the immediately succeeding fiscal year) to liquidate
> those funds. Any current year funds not obligated by September 30 of
> that year must only be used in immediately succeeding fiscal year to
> provide "assistance" (and administrative costs related to that
> "assistance"). Tribes may read relevant principles expressed in
> TANF-ACF-PI-2002-02, dated May 23, 2002, regarding *Clarification of
> Procedures and Methods of Obligating Federal Funds under the TANF
> program* at <http://www.acf.hhs.gov/programs/ofa/pi2002-2.htm>.

## Administrative Costs

The Tribal TANF and Tribal Child Care programs both limit the amount of
administrative cost that can be charged. The allowable amounts vary
between the programs, as does the definition of these costs.

Administrative costs include the organization-wide management functions
of accounting, budgeting, coordination, direction, and planning, as well
as the management of payroll, personnel, property, and purchasing. Such
costs can be for either personnel or non-personnel functions.

> ***CCDF:***
>
> Tribal Child Care funding is broken down into three parts. The
> *Mandatory* and *Discretionary* Funds categories are allocated on a
> per-child amount basis. Each grantee also receives a Discretionary
> Funds *base amount* of \$20,000. (Note: It is not necessary to track
> whether expenditures are mandatory or discretionary.) Of total
> mandatory and discretionary expenditures, no more than 15% can be
> administrative (see 45 CFR 98.83(g)). The base amount is not subject
> to the administrative limitation and is excluded from the calculation.
> Administrative costs include:

-   Salaries of staff performing administrative functions;

-   Planning/developing;

-   Plan preparation;

-   Developing agreements;

-   Monitoring compliance;

-   Preparing reports;

-   Public hearings;

-   Maintaining complaints;

-   Coordination activities;

-   Audit resolution;

-   Program evaluation;

-   Personnel management;

-   Travel, equipment rental, supplies, etc. for administrative staff
    and/or functions;

-   Audit services; and

-   Indirect costs.

> The following are not categorized as administrative costs:

-   Eligibility (re)determinations;

-   Preparation/participation in judicial hearings;

-   Recruitment, licensing, inspection of child care providers;

-   Reviews & supervision of placements;

-   Rate setting;

-   Resource and referral services;

-   Training of child care staff; and

-   Establishment and maintenance of computerized information systems.

> ***TANF:***
>
> For the Tribal TANF program, ACF will negotiate a limitation on
> administrative costs with each Tribal TANF applicant, based on the
> applicant's justification for its proposed administrative cost. The
> negotiated limit may not exceed 35% in year 1, 30% in year 2, and 25%
> in year 3 and thereafter. Activities, personnel, and related costs
> that fall within the definition of "administrative cost" in Sec. 286.5
> are subject to the limit. Indirect costs are based on the rate
> negotiated by the Tribe with the BIA or, where applicable, the
> Department of Health and Human Service's Division of Cost Allocation
> and applied to the administrative portion of the grant; this is
> considered part of the total administrative costs.
>
> Costs which are not considered to be administrative include direct
> costs of providing services, e.g., costs of providing diversion
> benefits and services, providing program information to clients,
> screening and assessment, development of employability plans, work
> activities, post-employment services, work supports, and case
> management. Information technology and computerization for Tribal TANF
> tracking, data entry, and monitoring, including personnel and other
> costs associated with the automation activities needed for these
> purposes, are excluded from the administrative cost cap, even if they
> otherwise fall within the definition of "administrative costs."
>
> If the Tribe has expended the maximum toward administrative costs in
> the previous year and has reserved or carryover funds available, no
> administrative costs associated with providing the assistance can be
> charged to the prior year carryover funds.

**For Additional Information on Administrative Costs:**

## Penalties and Disallowances

Tribal TANF grantees face financial penalties if Federal funds are used
in violation of the Act. The single audit conducted under the Single
Audit Act, supplemented by other related audits, reviews, and data
sources, will help identify violations.

Any use of TANF funds in violation of the provisions of the Act, the
provisions of 45 CFR Part 92, OMB Circulars A-87 and A-133, or any
Federal statutes and regulations applicable to the TANF program, will be
considered to be a misuse of funds.

Misuse of the Tribal TANF grant will be considered to have been
intentional under the following conditions: (1) there is supporting
documentation, such as Federal guidance or policy instructions,
indicating that TANF funds could not be used for that purpose; or (2)
after notification that the government has determined such use to be
improper, the Tribe continues to use the funds in the same or similarly
improper manner.

Five TANF penalties can be imposed on tribal grantees. They are as
follows:

-   A penalty of the amount by which a Tribe's grant was used in
    violation of part IV-A of the Act, including providing assistance
    beyond the Tribe's negotiated time limit, as determined by findings
    from a single audit;

-   In addition to the amount misused, a penalty of five percent of the
    TANF grant as a result of audit findings which show that the Tribe
    intended to violate a provision of the Act;

-   A penalty in the amount of the outstanding loan plus interest owed
    on the outstanding amount for failure to repay a Federal loan;

-   A penalty for failure to satisfy the minimum work participation
    rates; and

-   A penalty of no more than two percent plus the amount a Tribe failed
    to expend of its own funds to replace the reduction in its grant due
    to the assessment of a penalty.

To ensure tribal accountability, the regulations have narrowly defined
the limited circumstances under which Tribes may demonstrate reasonable
cause or receive penalty reductions.

Within 60 days of receiving notice that it is facing a penalty, a Tribe
may respond by stating that it has reasonable cause for failing to meet
a requirement and/or by providing a corrective compliance plan. A
penalty will not be assessed against a Tribal TANF grantee if it can be
determined that there was reasonable cause for its failure. The general
factors a Tribe may use to claim reasonable cause are:

-   Natural disasters, extreme weather conditions, and other calamities
    (e.g., hurricanes, earthquakes, fire, and economic disasters) whose
    disruptive impact was so significant that the Tribe failed to meet a
    requirement;

-   Formally issued Federal guidance which provided incorrect
    information resulting in the Tribe's failure;

-   Isolated, non-recurring problems of minimal impact that are not
    indicative of a systemic problem; or

-   Significant increases in the unemployment rate in the Tribal TANF
    service area and changes in the TANF caseload size during the fiscal
    year being reported.

The statute provides that prior to imposing a penalty against a Tribe,
the Tribe must be given an opportunity to enter into a corrective
compliance plan. The regulation requires the corrective compliance plan
to identify the causes of the problems, the corrective action steps,
outcomes, and time frames which the Tribe believes will fully and
adequately correct the violation. Each plan will be reviewed on a
case-by-case basis, and acceptance of the plan will be guided by the
extent to which the Tribe's plan will lead to correction of the
situation leading to the penalty.

Tribal Child Care grantees are subject to disallowances, penalties, and
sanctions based on the results of the annual A-133 audit, or a finding
that the grantee failed to comply with regulation or law. These
disallowances may be based on questioned costs, e.g., incurring costs
deemed to be unallowable, or other failure to comply with Federal
requirements.

## Required Financial Reporting

Recipients of Federal funds are required to submit financial reports
which are defined and/or described in applicable legislation and
regulation. Tribal Child Care programs must submit the ACF-696T
financial reporting form annually. This report details how the CCDF
funds have been expended over the prior twelve month period. Cost
categories included on the report include:

-   Child care services;

-   Child care administration;

-   Non direct services;

-   Quality activities; and

-   Construction/renovation expenditures.

While Tribes and States operate under approved two-year plans, CCDF
funds are awarded annually, and they must be accounted for by Federal
fiscal year on the ACF-696T form. The grantee must also report the
unobligated balance and the unliquidated obligations. One report is
submitted for each grant year, thus the grantee may be responsible for
submitting as many as three separate reports.

Tribal TANF grantees are required to file quarterly expenditure data on
a form prescribed by ACF. Tribes receiving direct funds (non-102-477)
must use the SF-269 form until the Tribal TANF 196 form is approved.
102-477 Tribes must report on the 102-477 Tribal TANF report as a part
of their 102-477 annual report.

4.  []{#__RefHeading___Toc83016291 .anchor}**Basic Financial Management
    Principles:** []{#__RefHeading___Toc83016292 .anchor}**Federal
    Financial Management Requirements**

## Financial Systems

Effective and efficient financial management systems are required by
Federal regulations (45 CFR 92.20). All Federal grantees are required to
have financial management systems that provide for timely, accurate,
current, and complete disclosure of financial information while
providing for oversight and protection of Federal funds.

A financial management system is comprised of accounting records
(checkbooks, journals, ledgers, etc.) and a series of processes and
procedures assigned to staff, volunteers, and/or outside professionals.
The goals of the system are to ensure that financial data and economic
transactions are properly entered into the accounting records and that
financial reports necessary for management are prepared accurately and
in a timely fashion.

All agencies have common requirements to fulfill when administering
Federal programs. For example:

-   Contract and compliance requirements must be fulfilled and grant and
    contract funds must be expended appropriately.

-   Accounting records must be maintained.

-   Assets must be safeguarded.

-   Internal control systems must be adequate.

-   Internal policies and procedures must be developed and implemented.

-   Costs must be allocated to the correct program based upon a cost
    allocation plan in cases where costs are shared by programs.

-   Grantees must have an annual audit.

Often, agencies are administering numerous grants and contracts with
differing requirements. Communication between program staff and
accounting staff is a key factor to ensuring successful operations.

## Internal controls

Internal controls are the systems established by a grantee agency's
governing body and/or administrative staff that are designed to provide
reasonable assurance regarding the achievement of objectives in the
following categories:

-   Effectiveness and efficiency of operations;

-   Control of assets and records of the organization to protect against
    loss, theft, or misuse;

-   Compliance with applicable laws and regulations;

-   Appropriate oversight by the agency's governing body;

-   Adherence to the agency's policies and procedures; and

-   Reliability of financial reporting.

Internal controls help ensure that financial information is reliable,
thereby assuring managers and governing bodies that the information is
accurate for making programmatic and other decisions.

## Accounting Systems

The accounting department is responsible for the accounting records.
Initial set up of the chart of accounts should be based on communication
with program managers and, if necessary, the grantee agency's auditor or
other financial consultant to determine necessary information to be
tracked. It also should be based upon the terms and conditions and
regulations applicable to the program. For example, Tribal Child Care
and Tribal TANF programs must track administrative cost. Correct
categorization of the chart of accounts will help meet these
requirements.

The end products of the accounting process are the financial statements
that summarize all of the financial transactions of the organization for
the period. Because each organization faces different financial issues
and has different resources to bring to financial functions, each
organization will choose a different set of regular financial reports to
prepare and analyze. At different times an organization will need
different reports to provide information to support its decision-making.

It is critical that the financial statements meet the needs of the end
user. For example, financial statements prepared for the Tribal Council
may not contain the same level of detail, or be formatted the same way,
as those produced for program managers. Regulations state that Federal
grantees must produce a budget-to-actual expenditures report that is
timely, current, and complete (45 CFR 92.20 (b)(1)). Other reports that
may be produced include the balance sheet (showing the agency's assets
and liabilities) and the cash flow statement (which provides an analysis
of cash available for operations).

## Cash Management

Procedures for minimizing the time elapsing between the transfer of
funds from the U.S. Treasury and disbursement by grantees and
subgrantees must be followed whenever advance payment procedures are
used. Grantees must establish reasonable procedures to ensure the
receipt of reports on subgrantees' cash balances and cash disbursements
in sufficient time to enable them to prepare complete and accurate cash
transactions reports to the awarding agency. When advances are made by
letter-of-credit or electronic transfer of funds methods, the grantee
must make drawdowns as close as possible to the time of making
disbursements. Grantees must monitor cash drawdowns by their subgrantees
to assure that they conform substantially to the same standards of
timing and amount as apply to advances to the grantees.

Because of the short timeframe between request of funds and deposit into
the agency bank account, many grantee agencies submit a drawdown request
to coincide with payroll and accounts payable processing. Tribes are not
covered by the Department of Treasury rules implementing the Cash
Management Improvement Act. However, the Tribal TANF program is covered
by 45 CFR Part 92. For Tribes operating TANF, 45 CFR Part 92.20(b)(7)
states that procedures for minimizing the time elapsing between the
transfer of funds from the U.S. Treasury and disbursements by the Tribe
for TANF expenditures must be followed whenever advance payment
procedures are used. The Tribe must establish reasonable procedures to
ensure the receipt of reports on sub-grantees' cash balances and cash
disbursements in sufficient time to enable the Tribe to prepare complete
and accurate cash transactions reports. Tribes must monitor cash
drawdowns by their subgrantees to assure that they conform substantially
to the same standards of timing and amount as apply to advances to the
Tribe. These rules apply to all Tribes operating a Tribal TANF program
under Section 412 of Title IV-A of the Social Security Act, including
those Tribes that elect to include Tribal TANF in a consolidated 102-477
plan through the U.S. Department of the Interior.

## Audits

Agencies that expend more than \$300,000 in Federal cash are required to
have an audit completed each year. The audit is referred to as a "Single
Audit," as the auditor will review all programs. The OMB Circular A-133
and the OMB Circular A-133 Compliance Supplement help the auditors in
fulfilling their responsibilities and define compliance issues for each
program. The audit, which is completed by an independent auditor, will
help to determine:

-   Whether the agency's financial statements are accurate;

-   Whether the agency is complying with the terms and conditions of the
    grant;

-   Whether appropriate financial and administrative procedures and
    controls have been installed and are operating effectively; and

-   Whether the agency is complying with laws, regulations, and the
    provisions of contracts or grant agreements.

A financial audit is a process for testing the accuracy and completeness
of information presented in an organization's financial statements as
well as evaluating the financial systems used to gather this
information. This testing process enables an independent certified
public accountant (CPA) to issue what is referred to as "an opinion" on
how fairly the agency's financial statements represent its financial
position and whether they comply with Generally Accepted Accounting
Principles (GAAP).

The audit team also will develop an opinion regarding the internal
control structure of the agency. The team may test program data to
ensure compliance with regulations. During the audit, the auditor may
determine that there are "disallowed costs" or costs which were not
appropriate under the terms of the grant. For example, fundraising costs
are specifically unallowable and may not be paid with Federal funds.
Significant findings will be written up in the audit report. Audit
findings are sent to the funding agency and disallowance of Federal
funds or a financial penalty(ies) may result.

Per the OMB Circular A-133, the auditor(s) will:

-   Perform an audit of the financial statement(s) for the Federal
    program in accordance with Generally Accepted Government Auditing
    Standards (GAGAS) (A-133.235(b)(3)(i));

-   Perform procedures to determine whether the auditee has complied
    with laws, regulations, and the provisions of contracts or grant
    agreements that could have a direct and material effect on the
    Federal program consistent with the requirements for a major program
    (A-133.235(b)(3)(iii)); and

-   Follow up on prior audit findings, perform procedures to assess the
    reasonableness of the summary schedule of prior audit findings
    prepared by the auditee, and report, as a current year audit
    finding, when the auditor concludes that the summary schedule of
    prior audit findings materially misrepresents the status of any
    prior audit finding in accordance with the requirements
    (A-133.235(b)(3)(iv)).

## Procurement/Property Requirements

## Federal Procurement Requirements

Federal grantee agencies are required to establish their own written
procedures based on Federal standards for purchasing services, supplies,
and other expendable property, equipment, and real property. The
standards for procurement are found in regulations 45 CFR 92.36 for
local government organizations. The Federal standards were established
to ensure that grantee agencies obtain materials and services paid for
with Federal funds in an effective manner and in compliance with Federal
laws. Grantee agencies are directed to use Federal funds to purchase
items and services in the most economical way, and to buy only what they
need.

Grantees shall have in place written procurement policies which ensure:

-   Procurement need is legitimate;

-   Open and free competition;

-   Clear specifications for bids;

-   Efforts to use small and minority owned businesses;

-   Price comparisons/cost analysis;

-   Invoices are checked against purchase orders and receiving reports;

-   Goods/services are received prior to payment; and

-   Contractors comply with the terms of contracts.

Within the parameters of the Federal standards, grantee agencies are
allowed to design their own systems for procurement and use whatever
forms and workflow processes best suit the organizational structure.
Such systems may be more stringent than the Federal requirements, but
not less.

## Code of Conduct

Grantee agencies must maintain written standards of conduct governing
the performance of employees who are involved in the award or
administration of procurement contracts, including vendor contracts,
lease contracts, construction contracts, and program services and
administrative services contracts. Generally this includes, at a
minimum, the procurement officer (or whoever in the agency does the
purchasing or leasing), contract administration officer, and all grantee
agency officials who can sign or authorize procurement contracts (such
as the procurement officer or program manager).

The written code of conduct must state that no grantee agency employee,
officer, or agent shall participate in the selection, award, or
administration of a procurement contract supported by Federal funds if a
real or apparent conflict of interest would be involved. Based on the
regulations, such conflict would arise when the employee, officer, or
agent, or any member of his or her immediate family, his or her partner,
or an organization which employs or is about to employ any of the
parties indicated, has a financial or other interest in the firm
selected for an award.

The grantee agency's written code of conduct also must state that
officers, employees, and agents of the grantee agency shall neither
solicit nor accept gratuities, favors, or anything of monetary value
from contractors or parties to subagreements. However, grantee agencies
may set standards for situations in which the financial interest is not
substantial or the gift is an unsolicited item of nominal value.

## Competition

Based on Federal standards, all procurement transactions, regardless of
amount, must be conducted in a manner that provides, to the maximum
extent practical, open and free competition. This means that, even if it
seems like a "good deal," grantee agencies cannot make the purchase
until other vendors also are given consideration.

Soliciting competitive bid prices from vendors might be done in
different ways. For example, a grantee agency could get vendor prices by
advertising in newspapers, sending letters to prospective vendors,
telephoning prospective vendors, or even by comparing prices in office
supply catalogs. Solicitations for bids should clearly state all the
requirements the vendor must fulfill in order for the bid or offer to be
evaluated by the grantee agency.

The procurement should be given to the vendor whose bid or offer is
responsive to the solicitation, and is the most advantageous to the
grantee agency (considering price, quality, and other applicable
factors). Any and all bids or offers may be rejected when it is in the
grantee agency's interest to do so. This means that grantees do not have
to accept the lowest bid received because other factors, such as quality
of the product or service record of the vendor, also may be considered
by the grantee in making the decision.

Grantee agencies must, whenever possible, make positive efforts to use
small businesses, minority-owned firms, and women's business
enterprises, and should take all of the following steps to further this
goal:

-   Ensure that small businesses, minority-owned firms, and women's
    business enterprises are used to the fullest extent practical;

-   Make information on forthcoming opportunities available and arrange
    time frames for purchases and contracts to encourage and facilitate
    participation by small businesses, minority-owned firms, and women's
    business enterprises;

-   Consider in the contract process whether firms competing for larger
    contracts intend to subcontract with small businesses,
    minority-owned firms, and women's business enterprises; and

-   Encourage contracting with consortiums of small businesses,
    minority-owned firms, and women's business enterprises when a
    contract is too large for one of these firms to handle individually.

## Contract Requirements

A contract is defined as a legally binding agreement entered into by two
parties for the purpose of purchasing goods or services. Federal
regulations found at 45 CFR 92.36(i) detail provisions which must be
included in all contracts which require payment by Federal funds.
Grantees must have a contract administration system in place to monitor
contractor adherence to contract terms, specifications, and conditions.

Contract award should follow the agency procurement policies and
procedures. For example, threshold levels for bids, sole source
requirements, and other stipulations must be adhered to.

## Property Management

Federal regulations require that grantees have written procedures which
document their system for:

-   Maintaining control over assets including assurance against loss,
    theft, damage, etc.;

-   Separation of duties, e.g., control of assets vs. control of
    records; and

-   Inventory process which provides for inventory of Federal equipment
    every 2 years.

Inventory records must include the following information for all
equipment (i.e., acquisition price of \$5,000 or above): cost; serial
number; source; title holder; acquisition date; description; percent of
Federal dollars used for purchase; current location; condition; and
disposition data.

## Other Administrative Requirements/Options

## Record-Keeping and Record Retention

Grantee financial records, supporting documents, statistical records,
and all other records pertaining to the grant award must be retained for
a period of at least three years from the date of submission of the
annual financial report (45 CFR 92.42, or 45 CFR 98.90). Exceptions to
this are:

-   If any litigation, claim, financial management review, or audit is
    started before the expiration of the three-year period, the records
    must be retained until all litigation, claims, or audit findings
    involving the records have been resolved and final action taken.

-   Records for real property and equipment acquired with Federal grant
    funds must be retained for three years beyond the date of final
    disposition (i.e., the date the equipment or property was sold or
    otherwise disposed).

Federal awarding agencies have the right of timely and unrestricted
access to any of the grantee's books, documents, papers, or other
records that are pertinent to the grant award in order to make audits,
reviews, examinations, excerpts, transcripts, and/or copies of such
documents. This right of access exists as long as the records are
retained.

For purposes of Tribal TANF programs, the three-year record-keeping
requirement in 45 CFR 92.42 has been interpreted in TANF-ACF-PI-2003-1,
dated January 28, 2003 regarding *Retention of TANF Records --- Starting
Date of Retention Period* (available online at
http://www.acf.hhs.gov/programs/ofa/retentn.htm).

This program instruction clarifies the general rule for determining the
start date of the three-year record retention period provided under 45
CFR 92.42(c)(1) as it pertains to the State, Territorial, and Tribal
Federal TANF awards and MOE expenditures. For Federal TANF awards, the
record retention period starts on the day the grantee submits its final
expenditure report showing that all the funds awarded in the particular
Federal fiscal year (FFY) have been expended. For each fiscal year, the
three-year record retention period begins in the first quarter of the
new fiscal year that immediately follows the 4th quarter
TANF/Territorial Financial Report (ACF-196) or the 4th quarter Tribal
TANF Financial Report (SF-269A and/or ACF-196TR) for the current fiscal
year showing the final expenditure for the particular grant year. If any
litigation, claim, negotiation, audit, or other action starts before the
expiration of the three-year record retention period, then the retention
period extends up to expiration of the three-year retention period, as
illustrated in the PI, or upon resolution of all issues arising from the
action, whichever is later.

## Program Administration Option: Indian Employment, Training and Related Services Demonstration Act (102-477)

The Indian Employment, Training and Related Services Demonstration Act
of 1992, as amended, (P.L. 102-477) was enacted to:

-   Demonstrate how Indian tribal governments can integrate the
    employment, training and related services they provide in order to
    improve the effectiveness of those services;

-   Reduce joblessness in Indian communities;

-   Foster economic development in Indian communities; and

-   Serve tribally determined goals consistent with the policies of
    self-determination and self-governance.

Public Law 102-477 permits tribal governments to consolidate a number of
Federal programs to integrate their federally funded employment,
training, and related services programs into a single, coordinated
comprehensive program. The TANF and CCDF programs may be consolidated
under P.L. 102-477. The Office of Self-Governance and
Self-Determination, U.S. Department of the Interior serves as the Lead
Agency for all P.L. 102-477 plans. Consolidation into 102-477 does not
relieve the grantee of its responsibilities for meeting program
reporting requirements and for fiscal accountability.

# Appendix

## Web Sites for Agencies and Documents Referenced in This Guide

**This Guide was developed under PSC Contract Number 233-03-0021,**

**Task Order Number 2 for the U.S. Department of Health & Human**

**Services/Administration for Children and Families Child Care Bureau.**

***August 2004***