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audited by State and local auditors. Audits performed by these auditors will be acceptable to CSA provided that the auditor has been approved by CSA pursuant to $1068.42-6: Provided, That the auditor maintains the same standards, utilizes similar auditing procedures and qualified personnel, and renders a similar opinion and report as provided for in the Audit Guide. If for any reason the public agency is unable to apply auditing standards equal to those set out in the Audit Guide, an audit by an independent certified public accountant or an independent licensed public accountant will be required.

§ 1068.42–10 Maintenance of records.

Grantees and delegate agencies must maintain appropriate records and accounts to assure a proper accounting for all project funds, both Federal and non-Federal. All financial records, including books of original entry, source documents supporting accounting transactions, the general ledger, subsidiary ledgers, personnel and payroll records, cancelled checks, and other related documents must be retained for the time period and in the manner prescribed by CSA's policy retention and custodial requirements for records.

Section 243 “(b) Within three months after the effective date of a grant to or contract of assistance with an organization or agency, the Director shall make or cause to be made a preliminary audit survey to review and evaluate the adequacy of the accounting system and internal controls established thereunder to meet the standards set forth in the statement referred to in subsection (a). Promptly after the completion of the survey, the Director shall determine on the basis of findings and conclusions resulting from the survey whether the accounting system and internal controls meet those standards and, if not, whether to suspend the grant or contract. In the event of suspension, the assisted agency shall be given not more than six months within which to establish the necessary systems and controls, and, in the event of failure to do so within such time period, the assistance shall be terminated by the Director."

Section 243 "(c) At least once annually the Director shall make or cause to be made an audit of each grant or contract of assistance under this title. Promptly after the completion of such audit, the Director shall determine on the basis of resulting findings and conclusions whether any of the costs of expenditures incurred shall be disallowed. In the event of disallowance, the Director may seek recovery of the sums involved by appropriate means, including court action or a commensurate increase in the required nonFederal share of the cost of any grant or contract with the same agency or organization which is then in effect or which is entered into within twelve months after the date of disallowance."

Section 243 "(d) The Director shall establish such other requirements and take such actions as the Director may deem necessary and appropriate to carry out the provisions of this section and to insure fiscal responsibility and accountability, and the effective and efficient handling of funds in connection with programs assisted under this title. These requirements and actions shall include (1) necessary action to assure that the rate of expenditure of any agency receiving financial assistance does not exceed the rate contemplated under its approved program; and (2) appropriate requirements to promote the continuity and coordination of all projects or components of programs receiving financial assistance under this title, including provision for the periodic reprogramming and supplementation of assistance previously provided."



AND AUDITING Section 243 of the Economic Opportunity Act (EOA) of 1964, as amended, states that:

Section 243. “(a) No funds shall be released to any agency receiving financial assistance under this title until it has submitted to the Director a statement certifying that the assisted agency and its delegate agencies (or subcontractors for performance of any major portion of the assisted program) have established an accounting system with internal controls adequate to safeguard their assets, Check the accuracy and reliability of the accounting data, promote operating efficiency and encourage compliance with prescribed management policies and such additional fiscal responsibility and accounting requirements as the Director may establish. The statement may be furnished by a certified public accountant, a duly licensed public accountant or, in the case of a public agency, the appropriate public financial officer who accepts responsibility for providing required financial services to that agency."



Statement to be submitted by the appropriate public financial officer when the ap plicant is a public agency or when the ac

counting system of a private-nonprofit agen- Subpart 1068.43-Grantee Fisca cy will be maintained by public agency. (Address of Regional or Program office of the

Responsibility and Auditing Community Services Administration, as appro

(CSA Instruction 6801-1 CH 2) priate.) Dear Sirs:

AUTHORITY: Sec. 602, 78 Stat. 530, 42 U.S.C. I am the chief financial officer of (name of 2942. public body) and, in this capacity, I will be responsible for providing financial services

SOURCE: 44 FR 56572, Oct. 1, 1979, unless adequate to insure the establishment and otherwise noted. maintenance of an accounting system for the (name of applicant), which is a public (or non

§ 1068.43–1 Applicability. profit) agency charged with carrying out a This subpart applies to all grantees CSA program in (name of community). The ac

financially assisted under titles II, IV, counting system will have internal controls

and VII of the Economic Opportunity adequate to safeguard the assets of such

Act of 1964, as amended, if such assistagency(ies), check the accuracy and reliability of accounting data, promote operating ef

ance is administered by the Commuficiency, and encourage compliance with pre- nity Services Administration. scribed management policies of the agency(ies)

8 1068.43–2 Effective date.

August 31, 1971 (CSA Instruction 6801Signature of financial officer

1, Change 2).

8 1068.43-3 Purpose. Name of financial officer

CSA Instruction 6801-1, now Subpart

1068.42 of this chapter, provides that Title

grantees must have one annual audit

which must cover all CSA-funded proName of public body

grams. This subpart clarifies the period

of time to be covered by the annual APPENDIX C TO SUBPART 1068.42 audit in those cases where grantees

GRANTEE FISCAL RESPONSIBILITY have received funds from more than AND AUDITING

one funding office within CSA and the

authorized period for expending the Statement to be submitted when applicant

funds is not consistent with the grantis a private-nonprofit agency (or a public agency) whose accounting system will not beee's program year. maintained by a public agency. Address of Regional or program office of the

8 1068.434 Definition. Community Services Administration, as appro A Program Year means a grantee's 12priate)

month accounting period. For commuDear Sirs:

nity action agencies this is the funding I am a certified or duly licensed public ac

period for the principal grant that procountant and have been engaged to examine and report on the financial accounts of the

vides funds for most of the grantee's (name of applicant), which is a private-non

administrative costs. For other agenprofit organization (or public agency) carry

cies funded by CSA this is their usual ing out a CSA program in (name of commu 12-month accounting period which may nity). I have reviewed the accounting system or may not correspond with the fundthat this agency has established and, in my ing period of their grant(s) from CSA. opinion, it includes internal controls ade

It should be noted that CSA no longer quate to safeguard the assets of the agency,

identifies grantee program years by an check the accuracy and reliability of ac

alphabetic designator, that is; Program counting data, promote operating efficiency, and encourage compliance with prescribed

Year A, Program Year B, but is instead management policies of the agency.

awarding funds and identifies grantee expenditures by use of an individual

grantee number. Signature of accountant

8 1068.43–5 Policy. Name of accountant

(a) The period of audit coverage will

be the grantee's 12-month program Name of firm

year. In cases where CSA program of

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(iii) Grant #50100, action 01 (Headquarters) would cover transactions during the period January 1, 1973 to October 31, 1973. If this program is extended or refunded, the period of audit coverage would cover the period through December 31, 1973.

(C) CSA programs that were not included in the scope of the grantee's last audit of its principal grant before January 1, 1972 because of different funding periods should be audited at the end of the funding period even though this occurs after January 1, 1972 but on a one time basis only. Thereafter, these programs should be included in the first complete audit after January 1, 1972, based on the grantee's program year.

fices award funds for periods that do not coincide with the grantee's program year, the audit will also cover the portion of these funds that were expended during the grantee's program year. Subsequent annual audits will cover the balance of these funds.

(b) An example of the funding actions to be included in the scope of a grantee's annual audit is:

(1) Grantee A had a program year that ended on December 31, 1972, and has funds from three CSA offices, as follows:

(i) Grant #50100, action 01, funded by the Regional Office for the program year January 1, 1972 to December 31, 1972.

(ii) Grant #50100, action 02, funded by the Regional Office for the period from March 1, 1972 to June 30, 1972.

(iii) Grant #50100, action 01, funded by the Office of Program Development for the grant period May 1, 1972 to October 31, 1973.

(2) Grant #50100 funded by the Regional Office for the grantee's program year is the principal grant under which the grantee operates. The program year of this grant determines the period of audit coverage for the annual audit. The grantee contracts with its Certified Public Accountants (CPA's) to perform an annual audit and provide one report covering the following funding actions:

(1) Grant #50100, action 01 (Regional) would be reported for the program year January 1, 1972 to December 31, 1972.

(ii) Grant #50100, action 01 (Regional) would cover transactions during the period March 1, 1972 to December 12, 1972.

(iii) Grant #50100, action 01 (Headquarters) would cover transactions during May 1, 1972 to December 31, 1972.

(3) The following year's annual audit would provide coverage as follows:

(i) Grant #50100, action 01 (Regional) would be reported for the program year January 1, 1973 to December 31, 1973.

(ii) Grant #50100, action 02 (Regional) would cover transactions during the period January 1, 1973 to June 30, 1973. If this program were refunded, the report would also cover transactions during the period July 1, 1973 to December 31, 1973.

$ 1068.43-8 Grantees with predeter

mined fiscal year. (a) Exceptions to the above criteria for determining the period of coverage of the annual audit will be made for those grantees who, prior to receiving funds from CSA, had a fiscal year or 12month operating period which does not correspond to the program year or funding period under which CSA grants have been awarded and which elect to use such predetermined fiscal year for this purpose.

(b) Since it is CSA's intention to reduce problems associated with the scheduling of annual audits covering programs with varying refunding or termination dates, grantees who wish to exercise this exception should write or contact the CSA Regional Auditor servicing the geographic area in which they are located.

(c) The Regional Auditor will coordinate the grantee's request to change the annual audit report to the organization's fiscal year with the CSA program offices funding the grantee.

(d) Grantees may change the period of audit coverage only after they have received the written approval of the CSA Regional Auditor. The Regional Auditor will also indicate to the grantee what audit coverage is to be provided during the conversion process.

§ 1068.43–7 Changes to CSA guidance.

Amendments to CSA Manual 2410-1 (the Audit Guide) will be forthcoming to reflect the changes to financial statements to be included in annual

audit reports as a result of this subpart.

Subpart 1068.50-Cost Principles

AUTHORITY: Sec. 602, 78 Stat. 530, (42 U.S.C. 2942).

SOURCE: 45 FR 64940, Oct. 1, 1980, unless otherwise noted.

organization will so inform the CSA Regional or Headquarters office responsible for administering the grant. In such a situation the organization will continue to be bound for the remainder of the funding period by those regulations superseded by the cost principles. However, the cost principles will apply at the start of the next award made to that organization.

8 1068.50-4 Supersession.

The cost principles published in OMB Circulars A-21, A-122, and 744 supersede cost principles previously issued by CSA except those cost principles which have been legislatively mandated.

8 1068.50–1 Applicability.

The provisions of OMB Circular A-21, Cost Principles for Educational Institutions, OMB Circular A-122, Cost Principles for Nonprofit Organizations and Circular 744, Cost Principles applicable to Grants and Contracts with State and Local Governments, are applicable to all grants and agreements made under the Economic Opportunity Act of 1964, as amended, when the assistance is administered by the Community Services Administration. All subawards (delegate agency agreements, subcontracts, etc.) are subject to those cost principles applicable to the particular organization concerned, e.g. if a nonprofit grantee enters into a delegate agency agreement with a nonprofit organization Circular A-122 shall apply; however, if that same grantee contracts with a college or university, Circular A-21 shall apply. 81068.50–2 Purpose.

The purpose of this subpart is to implement the cost principles pursuant to OMB Circulars A-122, A-21, and 74 4 by advising organizations, agencies, units of government and educational institutions funded by CSA of their applicability and to incorporate Circular A-122 into CSA's body of published regulations in order to assure that it is readily accessible to nonprofit organizations. Circulars A-21 and 74 4 may be

e obtained by writing to the Office of Administration, Publications Unit, Room G-236. New Executive Office Building, Washington, DC 20503.



(CIRCULAR NO. A-122] June 27, 1980.

To The Heads of Executive Departments and Establishments

Subject: Cost principles for nonprofit organizations.

1. Purpose. This Circular establishes principles for determining costs of grants, contracts and other agreements with nonprofit organizations. It does not apply to colleges and universities which are covered by Circular A-21; State, local, and federally recog. nized Indian tribal governments which are covered by Circular 744; or hospitals. The principles are designed to provide that the Federal Government bear its fair share of costs except where restricted or prohibited by law. The principles do not attempt to prescribe the extent of cost sharing or matching on grants, contracts, or other agreements. However, such cost sharing or matching shall not be accomplished through arbitrary limitations on individual cost elements by Federal agencies. Provision for profit or other increment above cost is outside the scope of this Circular.

2. Supersession. This Circular supersedes cost principles issued by individual agencies for nonprofit organization.

3. Applicability. a. These principles shall be used by all Federal agencies in determining the costs of work performed by nonprofit or. ganizations under grants, cooperative agreements, cost reimbursement contracts, and other contracts in which costs are used in pricing, administration, or settlement. All of these instruments are hereafter referred to as awards. The principles do not apply to awards under which an organization is not

8 1068.50-3 Implementation date.

The provisions of these Circulars are effective as of October 31, 1980. However, if an organization has an existing award as of October 31, 1980 and does not wish to be governed by these cost principles while under this award, that

required to account to the Government for actual costs incurred.

b. All cost reimbursement subawards (subgrants, subcontracts, etc.) are subject to those Federal cost principles applicable to the particular organization concerned. Thus, if a subaward is to a nonprofit organization, this Circular shall apply; if a subaward is to & commercial organization, the cost principles applicable to commercial concerns shall apply; if a subaward is to a college or university, Circular A-21 shall apply; if a subaward is to a State, local, or federally recognized Indian tribal government, Circular 744 shall apply.

4. Definitions. 2. Nonprofit organizationmeans any corporation, trust, association, cooperative, or other organization which (1) is operated primarily for scientific, educational, service, charitable, or similar purposes in the public interest; (2) is not organized primarily for profit; and (3) uses its net proceeds to maintain, improve, and/or expand its operations. For this purpose, the term nonprofit organization excludes (1) colleges and universities; (11) hospitals; (111) State, local, and federally recognized Indian tribal governments; and (iv) those nonprofit organizations which are excluded from coverage of this Circular in accordance with paragraph 5 below.

b. Prior approvalmeans securing the awarding agency's permission in advance to incur cost for those items that are designated as requiring prior approval by the Circular. Generally this permission will be in writing. Where an item of cost requiring prior approval is specified in the budget of an award, approval of the budget constitutes approval of that cost.

5. Exclusion of some nonprofit organizations. Some nonprofit organizations, because of their size and nature of operations, can be considered to be similar to commercial concerns for purpose of applicability of cost principles. Such nonprofit organizations shall operate under Federal cost principles applicable to commercial concerns. A listing of these organizations is contained in Attachment C. Other organizations may be added from time to time.

6. Responsibilities. Agencies responsible for administering programs that involve awards to nonprofit organizations shall implement the provisions of this Circular. Upon request, implementing instruction shall be furnished to the Office of Management and Budget. Agencies shall designate a liaison official to serve as the agency representative on matters relating to the implementation of this Circular. The name and title of such representative shall be furnished to the Office of Management and Budget within 30 days of the date of this Circular.

7. Attachments. The principles and related policy guides are set forth in the following Attachments:

Attachment A-General Principles
Attachment B-Selected Items of Cost

Attachment C-Nonprofit Organizations Not Subject to This Circular

8. Requests for erceptions. The Office of Management and Budget may grant exceptions to the requirements of this Circular when permissible under existing law. However, in the interest of achieving maximum uniformity, exceptions will be permitted only in highly unusual circumstances.

9. Effective Date. The provisions of this Circular are effective immediately. Implementation shall be phased in by incorporating the provisions into new awards made after the start of the organization's next fiscal year. For existing awards the new principles may be applied if an organization and the cognizant Federal agency agree. Earlier implementation, or a delay in implementation of individual provisions is also permitted by mutual agreement between an organization and the cognizant Federal agency. (CSA funded organizations please note implementation dates in 91068.50-3).

10. Inquiries. Further information concerning this Circular may be obtained by contacting the Financial Management Branch, Budget Review Division, Office of Management and Budget, Washington, DC 20503, telephone (202) 395 4773.

James T. McIntyre, Jr.,

Director. (Circular No. A-122)



Table of Contents A. Basic Considerations 1. Composition of total costs 2. Factors affecting allowability of costs 3. Reasonable costs 4. Allocable costs 5. Applicable credits 6. Advance understandings B. Direct Costs C. Indirect Costs D. Allocation of Indirect costs and Determination of Indirect Cost Rates 1. General 2. Simplified allocation method 3. Multiple allocation base method 4. Direct allocation method 5. Special indirect cost rates E. Negotiation and Approval of Indirect Cost Rates 1. Definitions 2. Negotiations and approval of rates (Circular No. A-122]

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