Questions and Answers from Auditing the Head Start Program as ...

Questions and Answers from Auditing the Head Start Program as Part of Your

Single Audit: Avoid Common Pitfalls

Received from Participants AttendingA Governmental Audit Quality Center Web Event

Presented on October 11, 2012 and Re-broadcast on November 16, 2011

Governmental Audit Quality Center

Purpose of this Q&A Session

Intended to supplement original GAQC Web event held in October, 2012 titled, Auditing Head Start and Early Head Start as Part of Your Single Audit: Audit Essentials and Avoiding Common PitfallsWill cover, at a broad level, questions that came in during the live event in several main topic areasTo get the most out of the audio recording, listeners should open the corresponding PowerPoint presentation prepared by the Head Start program staffNot all questions in PowerPoint presentation will be addressed in detail during this Q&A session; therefore, consider reviewing it in detail afterwards 2

http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Resources/Pages/GAQCWebEventontheHeadStartProgram.aspx





Presenters Ann Linehan, Deputy Director• Office of Head Start (OHS)

Terry Ramsey, CPA• U.S. Department of Health & Human Services

Belinda Rinker, JD• Senior Advisor to the Office of Head Start

Jim Belanger, CPA• Director, Fiscal Operations, Program Monitoring

Eric Formberg, CPA, CGFM• Plante & Moran PLLC

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Responses to QuestionsThe presenters will address major topic areas identified in questions submitted during the broadcast entitled Auditing the Head Start Program as Part of Your Single Audit: Avoid Common Pitfalls, October 11, 2012.Responses to individual questions submitted during the earlier webinar broadcasts are posted on the GAQC website, click here to access.Responses are as complete and accurate as possible, given the limited information available in the webinar

Q & A format. However, the responses are not formal Office of Head Start policy statements and variation from the facts and circumstances presented could result in a different conclusion than that expressed by the presenters today.

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Additional InformationSome submitted questions did not include enough facts to allow the presenters to fully understand and address the issues presented. Additional financial information is available from the Head Start National Center on Program Management and Fiscal Operations (PMFO) .PMFO information can be accessed at the following website: http://eclkc.ohs.acf.hhs.gov/hslc/tta-system/operations.Individual fiscal and program management questions can also be submitted to the PMFO for response by phone at the PMFO info-line: 1-855-763-6647 or by email at [email protected].

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http://eclkc.ohs.acf.hhs.gov/hslc/tta-system/operations


OverviewOpening remarks and general observations.Emphasize identified areas of compliance:• Non-Federal Match• Cash Management• Property and Facilities• Indirect Costs

Closing comments.

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MatchingAre services provided by a local education agency (LEA) allowable for in-kind match?Services provided by a local education

agency are allowable as in-kind match so long as they are necessary for the implementation of the Head Start Performance Standards, reasonably valued, and are not Federal in source or used to match any other Federal grant.

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MatchingIs parent time spent in the home allowable in-kind or match and if so how does an auditor determine what activities are allowable?Parent in-home curriculum support activities

are allowable under limited circumstances. The parent activity must be at the direction of the child's teacher or home based educator, related to implementation of the Head Start Performance Standards, adequately documented and meet applicable cost principle requirements, including being necessary, reasonable and allocable.

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MatchingWhen calculating the "value" of volunteer hours, what is the basis that should be used for calculating an hourly rate? What is the supporting documentation requirement with respect to volunteer hours? Head Start guidance indicates that parent classroom volunteer hours should be valued at the rate of a teacher assistant, including wages and fringe benefits. Higher rates are only reasonable if specialized skills are provided, such as where a parent who is a professional painter provides painting in the Head Start center. Volunteer services shall be documented and, to the extent feasible, supported by the same methods used by the recipient for its own employees.

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MatchingWhat resource can an auditor use to verify the volunteer rates and other match values are valid and reasonable? The reasonableness of in-kind values must be supported

by the Head Start agency (45 CFR 74.23(i); 45 CFR 92.24). The value for services donated by the employee of a third

party is based on the employee’s hourly rate, including fringe.

The value of volunteer services is consistent with rates paid by the Head Start agency for staff performing similar services. Where an internal comparison is not possible, the rate is consistent with the rate paid in the local labor market.

The value of donated supplies does not exceed fair market value.

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MatchingA grantee receives passes to a local entertainment facility for the children and parents. They receive documentation relative to the value of the passes. Passes are provided to children and parents. The value of these passes is used as matching funds. Is this appropriate? Entertainment expenses are generally unallowable as

direct costs and as in-kind match. The grantee could only establish allowability by documenting that the activity engaged in at the entertainment facility implements identified Head Start Performance Standard requirements, including the child's curriculum. General parenting activities, and items that benefit primarily the parent or child, not the program, are not allowable as in-kind.

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MatchingFor matching costs, is the criteria that the amounts were received or is it that the amounts were spent/used during the year? For example, if an organization receives donated supplies, it is an allowable matching cost in the period the supplies are received or when the supplies are used?Donated supplies, equipment, land and buildings

may be claimed as non-Federal match at the time they are donated for program use.

Donated cash can only be claimed as match when expended for allowable Head Start program purposes.

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MatchingWe see situations where match is recorded related to parents dropping off or picking up their children at the Head Start center. Typically 15 minutes for each occurrence valued at a rate slightly above minimum wage. Is this allowable? In-kind match for parents picking up and dropping

off their children at the Head Start center is generally not allowable. Only costs associated with transportation provided in a compliant vehicle as described in the Head Start Performance Standards transportation regulations beginning at 45 CFR 1310.10 (not a private auto) are allowable for center-based programs.

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MatchingIs there a limit to the number of consecutive years for which an agency can request a match waiver?No, but the grantee must reapply for the

waiver annually and meet applicable waiver criteria set out in the Head Start Act Sec. 640(b).

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MatchingFor match requirement, is the time spent by voluntary board members allowable? Head Start guidance indicates that time spent by governing

bodies such as the Board of Directors, Tribal Councils and the Policy Council may be used as in-kind for time spent in their decision-making capacity related to the Head Start program. A reasonable valuation should be developed by the program, and applied based upon documentation from the meeting minutes and sign-in sheets.

In determining the valuation, the agency or program should bear in mind the nature of the contribution rendered by these individuals. Policy Council time would be considered to be programmatic, however Board or Tribal Council time could be considered an administrative match that is subject to the 15% administrative cost limitation.

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MatchingCan unrecovered allowable indirect costs that are not charged to the Head Start grant be a part of the matching requirement?Unrecovered allowable indirect costs may be

included as part of cost sharing or matching, but only with the prior approval of the Federal awarding agency.

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MatchingIf match provided by a delegate agency is listed as a receivable by the grantee during the grant period, but received after the grant period, has the match requirement been met?Match is generated from qualifying expenditures

or in-kind services benefiting the Head Start program. Recording a receivable is not an expenditure and therefore cannot be counted as match. The delegate agency must actually provide eligible match to the grantee for the benefit of the Head Start program before it may be claimed as match by the grantee.

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MatchingWhat can be used to get a fair market value for donated space? Does a letter stating fair market value has not changed work to establish fair market value? Under applicable cost principles, the value of donated

space shall not exceed the fair rental value of comparable space as established by an independent appraisal of comparable space and facilities in a privately-owned building in the same locality. The appraisal must be performed by an independent appraiser (certified real property appraiser). A letter would not generally qualify as an independent appraisal.

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MatchingCan programs require parents to complete volunteer hours in order to participate in Head Start?Parents may not be required to pay a fee or

provide supplies as a condition for their child’s enrollment in the Head Start program (45 CFR 1305.9). By extension, a parent cannot be mandated to provide donated services in order to participate in the Head Start program.

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MatchingIf an agency contributes unrestricted (non-Federal) funds to cover Head Start costs, what documentation is needed to show where the unrestricted agency funds are generated from. At a minimum, the grantee should be able to identify funding awards, grants, donation records or similar documents indicating the source of unrestricted funds and identify journal entries showing transfer of funds from the unrestricted fund account to the Head Start program account.

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Cash Management (Reserves)Should organizations be encouraged to build reserves from non-federal sources to cover unallowable costs or manage cash flow disruptions? The question is two part: What are sufficient (1) fund

balance reserves and (2) sufficient cash reserves: Fund balance reserves are needed to pay for unallowable costs and other expenses that cannot be paid from Federal grants. Fund balance reserves need to be generated from donations or other income sources. Cash reserves involve timing to ensure that sufficient cash is on hand to meet payroll and other expenses when due. The amount will vary by organization depending on factors such as stability of income and frequency of unexpected cash needs. Continued on next slide.

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Cash Management (Reserves)

The organization’s finance officials may wish to discuss appropriate reserves with the chief operating officer and governing body as well as seek advice from their auditor.A best practice is for the governing body to set fund balance and cash reserve policies and monitor adherence to the policies. Clearly adequate fund balance and cash reserves will mitigate going concern risks.

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Cash Management (Reserves)Is a reserve for upcoming building repairs allowable?Establishment of a reserve for repairs or

replacement is not allowable in that funds are drawn down from the payment management system without expenditure in the applicable grant year. To the extent that a grantee is allowed to charge depreciate against its grant (adjusted for Federal share) some funds may be accumulated for repairs or replacement.

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Cash ManagementWhat is the applicable timeframe for disbursement of funds drawn down from the payment management system? Grantees must have written cash management procedures which minimize the duration and amount of cash on hand and written procedures minimizing the time elapsing between the transfer of funds to the recipient from the U.S. Treasury and the issuance or redemption of checks, warrants or payments by other means for program purposes by the recipient. 2 CFR Part 74 or 2 CFR Part 92. Head Start guidance states that the grantee must make draw downs as close as possible to the time of making disbursements.

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Cash Management(1) With respect to drawdowns for "immediate cash needs,” what is the definition of immediate? (2) Is there a definition of "excess" drawdowns? (3) What should be done with funds drawn down when an expected large disbursement is not paid? Given the ability to access payment management system funds on a daily basis, Head Start agencies should be able to request funds based on immediate cash needs and return those funds when actual cash needs are less than what was projected. Several methods are available for return of funds to the payment management system. See instructions at: http://www.dpm.psc.gov/grant_recipient/funding_requests/returning_funds.aspx?explorer.event=true. Continued on next slide.

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http://www.dpm.psc.gov/grant_recipient/funding_requests/returning_funds.aspx?explorer.event=true

http://www.dpm.psc.gov/grant_recipient/funding_requests/returning_funds.aspx?explorer.event=true


Cash ManagementAny drawdowns in excess of immediate cash needs would be viewed as excess. In evaluating compliance, consideration would be given to the amount of funds involved and the time lapsed between drawdown and disbursement. The recipient is responsible for determining when the Federal funds have been deposited into its bank account for each drawdown, ensuring that the funds are fully disbursed as close as possible to the time they are received, and returning undisbursed Federal cash on hand to the payment management system.

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Capital Expenditures (Equipment)Can the equipment budget line be exceeded if below $25,000 per unit? Without approval? Regulations define equipment as having a unit cost of

$5,000 or greater and a useful life of one year or more. (45 CFR 92.3(j), 45 CFR 74.2(o).

Any proposed purchases of items meeting the definition of equipment should be identified in the funding application.

For equipment not included in the funding application, prior approval is required where the total cost exceeds $25,000. See Program Instruction 07-01 on ECLKC at http://eclkc.ohs.acf.hhs.gov/hslc/standards/PIs/2007/resour_pri_00110_011707.html.

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http://eclkc.ohs.acf.hhs.gov/hslc/standards/PIs/2007/resour_pri_00110_011707.html



Capital Expenditures (Equipment)What if the grantee’s internal policy allows equipment in excess of $5000 to be expensed and not capitalized as long as the grant funds it and it is on an approved budget? Are we still supposed to treat the acquired equipment as a fixed asset? The agency’s equipment threshold for equipment may be

greater than $5,000, but Head Start agencies are required to maintain equipment records and perform periodic physical inventories of equipment with a unit cost of $5,000 or more (45 CFR 74.34 or 45 CFR 92.32). If the audited financial statements are prepared using a different equipment threshold, agencies may be required to reconcile fixed assets or expenditures in order to explain variances between the audit report, equipment records and the SF-425 report.

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Capital Expenditures (Equipment & Facilities)Is a playground renovation of a leased property costing under $200,000 considered a construction project? Is prior approval from the Regional Office required? Under 45 CFR §1309.3, the Head Start facilities regulations, construction means new buildings, and excludes renovations, alterations, additions, or work of any kind to existing buildings. The playground renovation may be classified as a major renovation if it is to change the function and purpose of the leased property, regardless of amount. Approval of a facilities activity classified as an incidental alteration or renovation could be part of the approved budget of the program or a budget modification request, but would not require a full facilities application under 45 CFR §1309.10.

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Capital Expenditures (Facilities)If a grant award include major renovation for $100,000 but the activity did not meet the definition per 1309.3 is filing a notice of federal interest required or should the award have been for minor repairs? A major renovation is defined as a structural change,

an increase in the floor size, significant change in function and purpose or any renovation with costs exceeding $200,000 adjusted for CPI-U (currently $249,339.13). Dollar value is not the only determinant of a major renovation.

While filing a notice of Federal interest would not usually be required for an incidental renovation, if the grant award requires filing a notice of Federal interest the grantee is contractually obligated to do so upon acceptance of the funds.

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Capital Expenditures (Facilities)If the entity’s facility costs are funded entirely by the local match rather than by direct Head Start dollars, does this result in a Federal interest? Federal share in a facility includes both Federal Head Start funds and any acquisition costs of the facility that are claimed by the grantee as non-Federal match. Once claimed as match, the additional acquisition costs become part of the grant award and are excluded from the non-Federal share calculation per 74.2(s). Contributions made to facility costs by the grantee which are not claimed as match are part of the non-Federal in the facility share and do not result in a Federal interest.

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Capital Expenditures (Asset Purchase)Should an auditee record a capital asset purchased with Head Start funds as an expense to Head Start program and capitalize it in a separate agency fund or can the auditee record it as fixed asset within the Head Start fund? Head Start regulations do not prescribe how the fixed asset should be recorded on the agency’s books. Regardless of the approach used by the grantee, the Federal funding agency retains a reversionary interest in the asset.

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Capital Expenditures (Equipment)Head Start grantees are required to take an inventory every 2 years. Do items, such as computers, valued at under $5000, have to be recorded on an asset inventory? The property management requirements in 45 CFR 74.34

and 45 CFR 92.32 provide that, as a minimum, a physical inventory of equipment be taken and the results reconciled with the property records at least once every two years.

Equipment is any article of tangible, nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit (unless the terms and conditions of the Federal award specifically establishes a lower amount).

As described, the computers would be supplies due to their value under $5,000, not equipment. Supplies do not need to be recorded on the equipment inventory.

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Activities Allowed (Property & Facilities)An estimate of the cost of donated property is allowed where records are not available. If records are not available, can an independent appraiser provide an estimate of value? The value of donated land and buildings shall not exceed

its fair market value at the time of donation to the recipient as established by an independent appraiser (certified real property appraiser) and certified by a responsible official of the recipient. If documentation of the value of the property at the time of donation is not available, an estimate of fair market value at the time of donation must be made by an independent appraiser.

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Activities Allowed (Property & Facilities)Please clarify the issue of rent charged at fair market value instead of depreciation or use allowance under capital leases. Please see applicable cost principles, such as 2 CFR

230, Appendix B, Item 43.d. which state that rental costs under leases which are required to be treated as capital leases under GAAP are allowable only up to the amount that would be allowed had the non-profit organization purchased the property on the date the lease agreement was executed. This amount would include depreciation or use allowance, and expenses such as maintenance, taxes, and insurance.

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Activities Allowed (Property & Facilities)How is use allowance determined?Please see applicable cost principles, such as

2 CFR Part 230, Appendix B, Item 11.f which state that the use allowance for buildings and improvements (including land improvements, such as paved parking areas, fences, and sidewalks) will be computed at an annual rate not exceeding 2% of acquisition costs and the use allowance for equipment will be computed at an annual rate not exceeding 6 2/3% of acquisition cost.

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Indirect CostsWhat determines the threshold for smaller grantees for an approved negotiated indirect cost rate?There is no threshold based on size of grantee

in relation to a negotiated indirect cost rate. The grantee is free to decide whether a negotiated indirect cost rate is advisable, which may turn on a number of factor’s including nature, number, complexity and limitations of individual funding sources and overall agency funding.

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Indirect CostsIf a grantee has a negotiated indirect cost rate of 17.41% (with a base of direct salaries), are they limited to charging a rate of only 15% to the Head Start grant? No. Administrative costs are limited to 15% of the total of

Federal expenditures plus approved non-Federal share (45 CFR 1301.32(a)(1)). An approved indirect rate is usually computed against a smaller base --- usually the direct salaries charged directly to Head Start. So indirect costs may be more than 15% of direct salaries, but still less than 15% of the total of Federal expenditures plus non-Federal share.

To extend the example used in the question, assume the grantee has $1,000,000 of Federal expenses (which includes $600,000 of direct salaries) and an approved non-Federal share of $250,000. In this example, the indirect costs of $104,460 ($600,000 @ 17.41%) represent administrative costs of 8.3% ($104,460 divided by $1,250,000). Continued on next slide.

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Indirect Costs

It is important to note that the grantee may have administrative costs outside of the indirect rate, such as administrative costs charged directly to the award or administrative costs as part of the non-Federal share. These costs must also be included in the administrative cost calculation.

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Indirect Costs (Personnel Compensation)Could you discuss how the salary and fringe of an executive director in a multiple program community action agency should be allocated?The allocation of the salary of an executive director

should reasonably reflect how the position functions in the grantee organization. There is no single correct way to allocate the position of executive director. Allocation of the position should take into account assigned job duties, relationship to various programs and extent of services provided to various benefitted programs. Allocation should be consistent with the agency’s cost allocation plan and personnel activity reports.

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Indirect Costs (Personnel Compensation)Are personnel activity reports required for all staff directly charged to Head Start, even if the organization is a single-purpose agency with only one Federal award (e.g. Head Start)? The response depends upon the type of organization.

For a nonprofit organization, personnel activity reports must be used to support direct salary charges --- even in organizations with only a single Federal award (2 CFR 230(Appendix B)(8)(m)(2)). Periodic certification could be used in lieu of personnel activity reporting by government grantees (2 CFR 225, Appendix (B)(8)(h)(3)) as well as educational institutions (2 CFR 220 Appendix A(J)(10)(c)(1)).

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Indirect CostsFor the indirect cost proposal, why are in-kind salaries and other forms of in-kind not allowed to be included as part of the indirect cost rate (ICR) base? The HHS website sample proposal shows in-kind as an includable cost in the base.A recent training by the Division of Cost

Allocation indicated that the inclusion or exclusion of non-federal match from the ICR base has not been entirely consistent. The training further indicated that future negotiations of indirect cost rates would include non-Federal match.

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Indirect CostsWe have an indirect cost rate approved by the U.S. Department of Education that we use for all Federal grants. Is it okay to use this indirect cost rate even though the Head Start grant does not flow through the State? The Regional Office has always accepted the rate. The U.S. Department of Education may be the

cognizant Federal agency for a number of Head Start and Early Head Start grantees who are also school districts. Some state Departments of Education have agreements with the U.S. Department of Education allowing use of the State indirect cost rate for Federal purposes. A grantee unsure of the acceptability of this practice should consult with Regional Office staff.

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Indirect CostsIf compensation for an executive director or chief financial officer are included in a negotiated indirect cost rate and the two attend a Head Start-only function do you charge the cost of the training to indirect or direct to Head Start? If the training is being attended by the executive

director or chief financial officer solely in support of the Head Start program the cost can be charged directly to Head Start.

If the training is being attended to gain training which is of benefit to the entire organization the cost should be characterized as indirect.

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Indirect CostsHow can an agency change its previously approved negotiated indirect cost rate agreement? For example, if a grantee wants to change the percentage of the cost of its executive director from 100% indirect to 90% direct and 10% direct. Negotiated indirect cost rate agreements have historically varied, with provisional rates, final rates and varying lengths of application. Absent errors in calculation, additional funding or other unanticipated considerations, an indirect cost rate agreement cannot be modified during a funding period. The rate can be changed for subsequent periods by submitting a new indirect cost rate proposal. See: https://rates.psc.gov/

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https://rates.psc.gov/


Indirect CostsOur agency received an approved indirect cost rate this year for the first time. After applying the indirect cost rate, what additional direct agency administrative costs may be charged directly to the Head Start grant?The terms and conditions of the negotiated indirect cost rate govern whether any agency administrative costs can be charged directly to the Head Start grant. Costs cannot be both included in the negotiated indirect cost rate and charged to the Head Start grant directly.

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Indirect and Administrative CostsWhat is the relationship between administrative costs and indirect costs?Administrative costs and indirect costs are distinct but overlapping concepts. Administrative costs may be direct or indirect. Indirect costs are generally administrative. Administrative costs relate to the overall management of the program and do not relate to the provision of program services. Administrative costs may be direct or indirect. The salary of the Head Start Director would usually be considered an administrative cost, but the salary of the manager overseeing the education service area would be considered a program costs. Administrative costs may also be part of the non-Federal share.

Continued on next slide.

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Indirect and Administrative CostsA cost is determined to be direct or indirect based

on whether it can be assigned to a project or activity. Indirect costs are costs incurred for common or joint objectives which cannot be readily and specifically identified with a particular project or activity. Indirect costs are generally assumed to be administrative, but programmatic indirect costs may be allowable when explained in the funding application (45 CFR 1301.32(f)(3)).

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Indirect CostsIf an organization has an approved indirect cost rate for a prior year, but no approved rate for the current year, would indirect costs charged to the current grant using the last approved rate be allowable for the current grant year?Indirect costs charged on the Final SF-425 must be supported by a final rate. Many grantees have provisional rate agreements with the HHS Division of Cost Allocation, which allow rates to be applied “until amended”. In the above example, the grantee could apply the provisional rate to the current year, adjusting to the final rate when negotiations are completed.

Continued on next slide.49


Indirect Costs In other cases, cognizant agencies issue rates on a year-by-year basis. For example, some grantees have negotiated a one-year predetermined rate. In this scenario, the predetermined rate for the current year would only be issued upon evaluation of the prior year’s indirect cost proposal. Grantees are encouraged to work with their Regional Office for guidance on recovering indirect costs when the agency has submitted a timely indirect cost proposal which is pending evaluation by the cognizant federal agency.

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General Questions (Designation Renewal)If a grantee successfully re-competes under designation renewal is the grant awarded for a one year or a five year period?The new award is for a five year project period; however, the grantee must submit an annual refunding applications for years 2-5 of the new five year project period.

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General Questions (Designation Renewal)If a grantee is disbarred by USDA in the second year of a five year project period, is the grantee allowed to complete the five year period before entering re-competition? If the grantee is disbarred from receiving USDA funding in any year of the five year award, it will be required to re-compete for a new five year grant at the end of the five year project period in which the grantee was disbarred by USDA.

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Designation RenewalHow is transfer of program assets from a prior grantee managed in the event that a new grantee is selected through designation renewal? Information on Designation Renewal, including Frequently Asked Questions, is found on ECLKC: http://eclkc.ohs.acf.hhs.gov/hslc/hs/dr/index.html Disposition of real property is addressed in 45 CFR 1309.32 and 45 CFR 1309.31 and includes a directed transfer to another eligible entity.

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http://eclkc.ohs.acf.hhs.gov/hslc/hs/dr/index.html


General Questions(Research and Development)

Is it possible for Head Start funds to be considered research and development in certain circumstances? OHS does have authority to award grants for research; however, research grants are competitive grant awards that are separate and distinct from funds received by the grantee to operate its Head Start or Early Head Start program. It is not uncommon for local Head Start programs to form a partnership with a university and participate in a research project but it would be a red flag if a Federally funded Head Start or Early Head Start program were using its program funds to support a research project.Development costs are allowed so long as they conform with 45 CFR 1301.32 (a)(1)(2)(b)(1)-(5).

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General Questions (Accounting Certification)

Our client was asked to provide an “Accounting Certification” due to a finding. We could not find any professional standard that allowed for such a report. Can you please address this? OHS is aware that an accounting certification such as that required by 45 CFR 1301.13 is not within the professional standards of Head Start program auditors and the certification is no longer being requested.

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Cost Allocation (Transportation)What is the best way for an entity to charge the Head Start program for the use of an entity owned vehicle by the program? The requirement to allocate the costs of shared

resources can be met by using logical and rational methods to ensure that each program is paying only its fair share of the cost of an item used in common, and that no program is subsidizing another. Generally, the methods used to allocate a shared cost should be the simplest, most straightforward way of allocating this type of cost fairly. Hours of use, miles of use or numbers of children receiving transportation by program, supported by adequate documentation of costs might all be appropriate allocation bases.

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Activities Allowed (Transportation)Can a program which does not provide transportation spend program funds for city bus passes for parents to bring their child back and forth to Head Start if the family does not have transportation? Transportation in center based programs must be

in compliant vehicles, so the cost of city bus passes would be allowable only if the city bus complies with the safety and bus monitor staffing requirement. The regulation does provide the Office of Head Start with authority to grant a waiver to these requirements (see 45 CFR 1310).

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TransportationDo the 45 CFR 1310 transportation regulations apply to Early Head Start programs? Do they apply to home-based programs?The transportation regulations apply to both

Head Start and Early Head Start programs, but home based programs are excluded from requirements of 45 CFR 1310.12,1310. 15 (c), and 1310.16, except when there is an applicable State or local requirement that sets a higher standard. Incidental transportation not part of transportation services is also excluded.

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Activities Allowed (Staff Food Expenses)Are cost associated to food expenses for staff allowable during a week of staff training with no children on site? Meals provided to staff during training

activities are only allowable if documented circumstances indicate that provision of meals is necessary for more efficient operation of the program. When staff are not in travel status, their food costs should not, as a general rule, be charged to the Head Start award.

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SubrecipientsIf a state agency receives Head Start funds and then sub-awards them to several municipalities along with child care funds, are the municipalities required to submit a separate program specific audit for the Head Start program and a single audit of the municipality?A subrecipient which submits a properly

performed OMB A-133 audit meets Federal audit requirements and no additional Federal program audit required.

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Internal ControlsShould the monthly credit card report include only credit card expenditures using Head Start funds, or any credit card purchase of the agency?The Head Start Act (Section 642(d)(2)(A)) is

interpreted to require a monthly report of Head Start credit card expenditures, including those expenditures from Head Start funds or claimed as non-Federal share. This requirement is not interpreted to extend beyond the Head Start program.

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Internal ControlsShould board review of monthly credit card statements also include statements of an individual employee who use their own credit card and the agency reimburses the individual's credit card?The reporting requirement under Section

642(d)(2)(A) is not interpreted to apply to reimbursement of costs paid by employees. The agency would presumably collect adequate source documentation (e.g. an invoice) to support the charges, regardless of the payment type used by the employee.

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Internal ControlsDo general written fiscal policies and procedures for the entire agency meet the Head Start requirement or does Head Start require separate fiscal policies and procedures.The Head Start performance standards and Uniform

Administrative Requirements (45 CFR Part 74 or 45 CFR Part 92) require certain procedures to be in writing. For example, Part 74 organizations must have a written procedure for cash management meeting the requirements of 45 CFR 74.21 (b)(5). General agency policies and procedures should be reviewed to insure that all Head Start-specific requirements are met.

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Internal ControlsSince entities are required to be submitting credit card expenditures monthly, should this be something that auditors ask auditees? Would any testing be recommended?Section 642 (d) (2) (A) of the Head Start Act

requires monthly financial reporting to the governing body and policy council which includes credit card expenses. The auditor should review this as part of planning and gaining an understanding of internal control; and perform tests and other audit procedures depending upon audit risk.

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Activities Allowed(Medical and Dental Services)

For non-citizens, Head Start funds are frequently medical and dental funds of last resort. Is this use of Head Start funds allowable?Per 45 CFR 1304.20(c)(5), Early Head Start and

Head Start funds may be used to provide professional medical and dental services to enrolled children when no other source of funding for such services is available. The grantee must have written documentation of its efforts to access other available sources of funding.

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Activities Allowed(Medical & Dental Services)

Does the term medical services include speech and mental health services, understanding that such services should be paid by Head Start only as a payer as last resort? Yes, please refer to 45 CFR 1304.20(c)(5) and note that services can be provided for enrolled children and efforts to obtain other available resources must be documented.

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Activities Allowed (Compensation)If an employee makes more than the Executive Level II threshold of $179,700 can any portion of their compensation be included in the indirect cost pool or does it all have to be excluded? No Head Start funds, indirectly or directly, can be used

to pay any portion of compensation to an employee who is compensated in excess of Executive Level II. The applicable definition of "compensation" is found in the Head Start Act at Sec. 653(b)(2) and should be reviewed to clarify what elements are included and excluded when considering application of the limitation on compensation.

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Activities Allowed (Compensation)If you have an employee such as a chief financial officer (CFO) whose personnel activity report indicates only 4 – 6 hours per month of Head Start time, is the grantee required to give the CFO a Head Start awarded cost of living adjustment (COLA).The agency can exercise discretion in

determining whether to give a COLA adjustment to a staff person who charges a minimal amount of time to Head Start, given that the position is overwhelmingly paid from non-Head Start funds.

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Activities Allowed (Accruals)Are accounts payable and accrued expenditures as well as accrued wages considered proper expenditures within the grant period when properly reported at grant year end?Accounts payable and accrued expenditures are

reportable as expenditures on the Final SF-425 report.

Obligations must be liquidated within 90 days of the end of the funding period (45 CFR 74.71(b) or 45 CFR 92.23(b)), unless the liquidation period is extended by the Federal agency.

Continue on next slide

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Activities Allowed (Accruals) Accounts payable and accrued expenditures are not reportable as disbursements on the quarterly SF-425 report to Payment Management. Accrued leave may be reported as an expenditure and disbursed to the agency. The Office of Head Start has provided guidance on the funding of accrued leave in Program Instruction 09-07 http://eclkc.ohs.acf.hhs.gov/hslc/standards/PIs/2009/resour_pri_007_051209.html

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Activities Allowed (Education Vouchers)Is it an allowable cost to purchase prepaid tuition vouchers? The actual payments were paid to a college for vouchers, but only a small amount of vouchers were used over the next two years, leaving a substantial amount of prepaid and deferred revenue reported on financial statements. The grant had since expired. Given that only a small amount of the services were consumed during the award period, it could be determined that purchase of these vouchers was not necessary for efficient operation of the Head Start program, and consequently not allowable. A further consideration would be whether the purchase represented an attempt to expend funds in a current award period but shift the benefits to future periods, which would also be unallowable.

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General (Related Parties)Where can we find guidance on what determines related parties? What are the criteria for related parties? Are separate boards enough to conclude that the agencies are not related? Head Start guidance and cost principles (e.g. 2 CFR 230,

App. B, Item 43.c) use the term "less than arms length" to describe arrangements between related parties. A related party is one which has the ability to control or substantially influence the actions of the other. Related parties include, but are not limited to divisions of the same organization, common control through officers, directors or members, and relationships between key personnel, either directly or through controlled organizations. Separate boards are a strong indicator that parties are not related, but is not dispositive.

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EligibilityUnder certain circumstances, the program may have an additional 35% of children from families up to 130% of the poverty line. Are auditors expected to determine if those circumstances have been met? If so, how might an auditor best determine that those circumstances have been met, particularly whether families below the poverty line have already been served. The Head Start Act at Sec. 645(B)(ii)(II)(aa)-(bb) defines the actions the agency must undertake to ensure that all eligible children are enrolled before enrolling children whose families have income between 100% and 130% of the poverty line. Continued on next slide.

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Eligibility If a child’s enrollment records indicate that family income is 100% to 130% above the poverty line additional documentation must be reviewed to determine if the agency has enrolled all eligible children before using the 100% to 130% category. Documentation review could include the latest community wide assessment which should include demographic data on eligible families, the agency’s outreach and recruitment policies and procedures that should ensure the agency is meeting the needs of eligible children first, selection criteria and a review of eligibility criteria of children on the wait list.

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EligibilityMy understanding is that the family only needs to meet the low income threshold upon enrollment to be eligible. Once the child is determined to be eligible and is in the program, if the family income increases will the child still be permitted to participate? How long is eligibility valid? See 45 C.F.R. 1305.7(c) a child who is determined income eligible for Head Start remains eligible through that enrollment year and the immediately succeeding enrollment year regardless of a change in income. Children determined income eligible and enrolled in Early Head Start remain income eligible while they are participating in Early Head Start, but upon transition to Head Start family’s income must be re-verified.

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EligibilityWhat constitutes a "family" for determining income eligibility? Is the family required to reside in the same household?Family means all persons living in the same

household who are: (1) Supported by the income of the parent(s)

or guardian(s) of the child enrolling or participating in the program, and

(2) related to the parent(s) or guardian(s) by blood, marriage, or adoption.

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EligibilityYou stated food stamps alone would not make a child eligible. Please elaborate further regarding this. The Supplemental Nutrition Assistance Program (SNAP) has replaced the federal food stamp program. Temporary Assistance to Needy Families (TANF) and Supplemental Security Income (SSI) are the only two programs which qualify as public assistance for determining categorical Head Start eligibility.

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EligibilityIf the grantee does keep documentation of verification documents, would you suggest auditors compare the documentation to the eligibility verification to ensure we arrive at the same outcome? If so, would you expect findings if we note errors even though they aren't required to keep that documentation?Auditors may deem it appropriate to test

available underlying eligibility documentation. Auditors should consider whether any exceptions are required to be reported as an audit finding.

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EligibilityHow are children with disabilities counted? Is it the cumulative number of children with disabilities served or is a grantee required to attain and maintain enrollment of 10% of children with disabilities after the mid-point of the program year? ACF-PI-HS-09-04 states that each grantee and delegate agency should document that, from the midpoint of their program year to its end, it maintained an enrollment of children with disabilities that was at least 10% of its total funded enrollment. 79


EligibilityDo you have any guidance on when to consider the following to be an audit finding: failure to meet funded enrollment, serving too many over-income children and not serving 10% of children with disabilities?An audit finding should be prepared any time

the noted requirements are not met. The audit finding should be clearly identify the condition found and the effect.

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EligibilityRegarding the 10% of enrollment of children with disabilities, is the agency able to round to be compliant? For example 156 funded, can the agency be compliant with having 15 children with disabilities? The requirement for enrolling children with disabilities is that “at least” 10% of enrolled children must be children with disabilities. If 15 of 156 children have disabilities, the percentage is 9.6%, which is not at least 10%.

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Program IncomeHow are trade-ins recorded? If the per unit cost of the item traded in exceeds $5,000 permission to use the property as a trade-in is required. Permission is also required to purchase property with a per unit cost that exceeds $5,000 (or $25,000 if part of an approved grant application). The value assigned to the traded property is considered program income and included in the overall value of the item purchased. The item purchased should be recorded on the grantee’s equipment inventory at its full value. 82


Program IncomeIs all income received from wrap around and state funded childcare program income if the costs are tracked separately including allocated facility costs? Program income is the gross income earned by the grant recipient during the grant period that is directly generated by a supported activity or earned as a result of the award. Program income is formally defined in 45 CFR 74.2(ag) and 92.25(b). Income from outside sources is not program income unless the criteria noted above are met. 83


Early Childhood Learning and Knowledge Center (ECLKC)

http://eclkc.ohs.acf.hhs.gov/hslc

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Head Start Performance StandardsHead Start ActMonitoring ProtocolTraining and Technical Assistance Centers

Program InstructionsInformation MemorandumsHead Start Announcements…and more!

http://eclkc.ohs.acf.hhs.gov/hslc


GAQC Resources

GAQC Web site (www.aicpa.org/GAQC) Original Archived GAQC Web Event titled, Auditing the Head Start Program as Part of Your Single Audit: Avoid Common Pitfalls, available at: http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Resources/Pages/GAQCWebEventontheHeadStartProgram.aspxVisit the Auditee Resource Center at: http://www.aicpa.org/INTERESTAREAS/GOVERNMENTALAUDITQUALITY/RESOURCES/AUDITEERESOURCECENTER/Pages/AuditeeResourceCenter.aspx

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http://www.aicpa.org/GAQC





http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Resources/AuditeeResourceCenter/Pages/default.aspx




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