290 DEPARTMENT RESPONSIBILITY IN MAINTAINING INTERNAL FINANCIAL RECORDS, FILES, AND DOCUMENTATION

APPENDIX II

 

SECTION K - USE OF FEDERAL AND OFFSET FUNDS

  1. General

    Federal and offset fund expenditures must be in furtherance of the project agreement, covered by a plan of work, and provided for in the approved budget for the year.

    Section 5 of the Smith-Lever Act provides that if any portion of the funds received by the State for the support and maintenance of Cooperative Extension work is, by any action or contingency, diminished, lost, or misapplied, no subsequent appropriation may be paid to the State until such funds are replaced. Section 1444 of the Food and Agriculture Act of 1977 makes the same requirement for funds received by the 1890 institutions.

    OMB Circular A-21 (see Exhibit 4), also provides information on the allowability of certain costs. For a cost to be allowable it must meet the following tests:
  1. It must be reasonable.
  2. It must be allocable.
  3. It must be consistent with generally accepted accounting principles.
  4. It must conform to any limitations or exclusions set forth in the cost principles or the enabling legislation (Smith-Lever Act, Food and Agriculture Act of 1977, etc.).
  1. Allowable Items of Expenditures

    The following costs are allowable charges to Federal and offset funds as long as they are allowable under State law and cost principles.
    1. Advertising Costs - Federal or offset funds may be used to pay advertising costs if the costs are for:
  1. recruitment of personnel required for the program,
  2. procurement of goods and services,
  3. The disposal of scrap or surplus materials acquired in the performance of the Extension work; and

  4. other specific purposes necessary to carry out Extension work.

  1. Compensation for Personal Services - The Department requested a clarification from OMB on payroll certification for those Extension employees whose entire (100 percent) salary comes from Federal Extension funds. OMB concurred with the Department's interpretation that these employees are exempt from the payroll certification provisions of Circular A-21. These employees may continue to use their current payroll system, provided there is proper documentation of their salary charges. A revision to OMB Circular A-21 changed the procedures for allocating and documenting salary costs for those employees who hold joint appointments, or whose salary is paid from at least two different fund sources.

    This revision gives universities more flexibility in selecting the method to be used in accounting for salary costs, but still provides strict accountability for Federal funds.

    The previous methods for documenting salary costs--Monitored Workload and Personnel Activity Reports--have been deleted. Examples of three methods that meet the more flexible criteria are:
  1. Plan - Confirmation Method: Involves the distribution of salaries and wages based upon a projection or plan of work activity which will be updated to reflect any significant changes in time allocation.
  2. After-the-Fact Activity Report: Involves a percentage distribution of activity of employees, signed by the appropriate project and institutional officials. For professorial and professional staff, the reports must be prepared no less frequently than every 6 months; for other employees, the reports must be generated at least monthly.
  3. Multiple Confirmation Record Method: The distribution of salaries and wages of professorial and professional staff is documented separately as to direct and indirect cost activities of the employees.

Implementation of any of the three methods may involve the use of estimated charges identified before service is actually performed provided that the charges are promptly adjusted to reflect actual activity if significant changes occur. Other methods which meet the criteria specified in Section J8b(2) of the revised Circular may also be acceptable if a mutually satisfactory alternative agreement is reached between the institution and the cognizant audit agency.

Basically, these revised procedures reflect actual practices followed by State Extension Services before A-21 was extended to education institutions.

The revision does not change the requirement that State Extension Directors maintain separate financial accountability for each source of funding. These systems are not required for full-time (100 percent) ES or Experiment Station employees, but there must be some method to certify that these employees are, in fact, working 100 percent on these programs. The practice has been to review the workload of these full-time employees at least annually to make any necessary adjustments to their salary changes.

  1. Equipment - Equipment acquired for $500 or more per unit and having useful life for more than 2 years must be capitalized. However, consistent with University policy, lower limits may be set.
  2. Fringe Benefits
  1. Employer Contributions to Retirement Systems - Federal funds may be used for making employer contributions to State retirement systems under certain conditions. This policy does not apply to employees eligible to participate or participating in the U.S. Civil Service Retirement Act.

    The following conditions govern the use of Federal funds for this purpose:
  1. Only those employees receiving salary payments from Federal funds are eligible for employer contributions from these funds, and then only in proportion to Federal funds received.
  2. The use of Federal funds for employer contributions to a state retirement system is limited to an amount not exceeding 5 percent of the salary paid from these funds to individual employees who participate in the retirement system.
  3. Employer contributions from Federal funds to a state retirement system must be at least equaled by the total contributions to that system on the part of the individuals concerned and/or the State, either separately or in combination.
  4. Employer contributions from Federal funds toward a state retirement system for Federal employees are prohibited. Employees holding a Federal appointment may belong to a state retirement system providing all employer contributions come from non-offset funds, the employee, or both.
  1. Unemployment Compensation - State Extension employees who hold Federal appointments are covered for unemployment compensation purposes as Federal emp1oyees. Compensation paid for this program is provided by appropriation to the Department of Labor. Therefore, no charge should be made against Federal funds or any other funds available to the State Extension Service for unemployment compensation coverage for these employees. The employer cost to cover State Extension employees who do not hold Federal appointment, including secretarial, clerical, and program aides, is a proper charge to Federal or State funds in proportion to the salaries paid employees from such funds.
  2. Employer Contribution to Health Insurance Program - A Federal Health Insurance Program is available to State ES employees who hold Federal appointments provided the State has entered into an agreement to participate in the program. The employer contribution to a State Health Insurance program is an appropriate charge to Federal and State offset funds in States that are not participating in the Federal Health Insurance program.
  3. Workmen's Compensation - For State Extension employees who hold Federal appointment, the annual appropriation for Injury/Illness Compensation is paid directly from the annual retirement appropriation using a formula based on the prior year's injury/illness claims. For further details see Chapter VII of the Handbook, "Federal Employees Occupational Injury/Illness Compensation."
  1. Pre-Agreement Costs - Extension does not ordinarily allow pre-agreement costs.
    Requests for exception must be submitted in writing to Extension. For pre-agreement costs to be allowable, they must meet each of the following tests:

(1) A program must already exist or have been approved.
(2) Funds must have been appropriated.

(3) The costs must be program related.

ES will rule on allowability of pre-agreement costs on a case by case basis in a manner which ensures a continuing effective system of administration and control of funds.

  1. Workshops or Work Conferences - Federal or offset funds may be used to pay travel and subsistence expenses for State Extension employees to attend inservice training workshops on conferences that are in furtherance of Extension programs. Registration fees required of Extension employees at the workshops or conferences may also be paid from these funds.
  2. Study Leave (Sabbatical) - Federal or offset funds may be used to pay salaries of Extension employees for study leave in accredited course selected primarily to improve efficiency in Extension work and supervised by recognized institutions of higher learning. Payment may also be for tuition costs for courses attended by employees to better equip them to perform their assigned responsibilities. For additional information on this subject, see Section I, Study Leave, in the Personnel chapter of the Administrative Handbook.
  3. Taxes
  1. Federal Excise Taxes - The Revenue Act of 1943 exempts from excise taxes, purchases and other expenditures by the States, territories of the United States or political subdivisions thereof.
  2. Social Security Taxes - Old Age and Survivor Insurance (0ASI) - Taxes imposed upon the employer to match the contribution of Extension employees who are subject to OASI may be paid from Federal or offset funds in proportion to the salary received from such sources.
  3. Medicare Insurance Tax - Section 278 of Public Law 92-248 subjects Federal employees (including appointees) to the hospital insurance portion of the FICA tax. Payment of funds for Medicare Insurance Tax withheld and matching contribution should be deposited in the same manner as deposits for Federal income tax withholdings. Form 941E, Quarterly Return of Withheld Federal Income Tax, should be used for reporting purposes.
  4. State and Local Taxes - Federal funds may be used to pay State and Local taxes if State funds are not exempt from State sales tax.
  1. Moving Costs of Extension Workers - Federal or offset funds can be used to pay for moving costs of Extension workers, subject to the following conditions:
  1. If a Director or 1890 Administrator wishes to transfer a cooperative employee to headquarters in another county or to the State office; or if the employee's services are requested by the Director of another State, involving a change in headquarters and transfer of official station for permanent duty, the employee may be reimbursed from Federal funds for:
  1. Transportation of household goods and personal effects.
  2. Travel expenses for himself and his immediate family.
  1. Relocation costs for a new employee may be paid from Federal or offset funds providing the new employee remains within the State Extension Service for at least 12 months. If the employee leaves within 12 months after hire, the State Extension Service will be required to restore such fund to the Federal or offset account.
  1. Honorariums - Extension employees already on Cooperative Extension payrolls are often brought in from other Stales to attend annual conferences or other Extension activities. It is not proper to approve payment of honorariums that are in addition to necessary travel and subsistencies expenses to Extension employees.
  2. Exhibits at Fairs - Exhibits are prepared for fairs, and charged to Federal or offset Extension funds, should be confined to those illustrating definite phases of Extension work.
  3. Heat, Light, Power and Janitor Service - Charges for heat, light, power, and janitor services should be on a basis consistent with the service rendered to extension. Note: Charges not metered or directly identifiable to the Extension Program are unallowable. Also, if these costs are charged directly to the Extension Program, they cannot be used in the University's indirect cost pool.
  4. Travel Expenses
  1. Travel in or out of State should be reimbursed to the extent that such travel is in furtherance of an approved Extension project. If only partially in furtherance of an Extension project, the expenses should be prorated accordingly.

    Other allowable travel costs include:
  2. Travel of Extension employees taking participants to 4-H camps or other meetings, only if the employee remains to participate in the program.
  3. Travel by other university employees to assist in a demonstration or conducting an Extension sponsored meeting when there is no Extension specialist available, provided that:
  1. The purpose is in furtherance of an approved Extension project and to extend practical information to farmers and others.
  2. The travel is at the request of the State Director or 1890 Administrator.
  1. Travel of prospective employees to the State office or other location for the purpose of a job interview.
  2. Travel expenses of non-staff members serving as lay advisers who are performing services at the invitation of the State Extension Service.
  3. Each instance of foreign travel requires the prior written approval of Extension Service. The exception to this is travel to Canada or Mexico if the travel is directly in connection with work being performed on an approved project.
  1. Joint Employment - Federal funds may not be used to pay salaries or wages for activities other than those specified in the acts authorizing Extension programs. When a person is employed jointly by the State Extension Service and a division of the University, Federal funds will be charged only for Extension's fair share of the salary cost.

    The percentage used to compute the actual payroll charge to Federal funds for each individual should be reviewed prior to the end of each fiscal year to assure that it coincides with the percentage of time actually spent by the employee on Extension programs and adjustments made accordingly.
  2. Purchase of Uniforms - Purchase of uniforms for aides or other Extension employees if the Director or the 1890 Administrator determines that the uniforms are essential to carry out the Extension program.
  1. Unallowable Expenditures

    Federal and offset funds may not be used for any of the following purposes:
  1. Purchase, erection, preservation or repair of any buildings.
  2. Rental of college-owned buildings.
  3. Purchase or rental of land.
  4. Salaries or expenses relating to the offering or conducting of college courses of instruction for credit.
  5. Correspondence courses, unless such courses definitely are to further an approved Extension project.
  6. Printing or distributing announcement of courses offered by the colleges, programs of colleges meetings, or other college announcements.
  7. Extension programs funded in accordance with a formula or other administrative distribution procedures are exempt from imposition of a negotiated overhead or indirect cost rate. Such overhead or indirect costs are not budgeted against these funds as the costs are construed to be part of the State's contribution to these cooperative programs. NOTE: Indirect costs are also an unallowable charge to required matching/offset funds.
  8. Any equipment or services for which the State Director or 1890 Administrator agrees that the cost seems unreasonably high or unnecessary in relation to the utility value to Extension work.
  9. An individual's membership fee to the Association of Land-Grant Colleges or other professional organizations.
  10. Payment of any portion of the salary of college or university staff, unless they regularly perform duties pertaining to Extension work under approved Extension project agreements or plans of work that set forth the nature and extent to these duties, and the portion of their time involved in Extension work.
  11. Printing and distributing reports of proceedings of farm and other organizations, even though the subject matter of these proceedings relates wholly to Extension programs.
  12. Purchase of seeds, fertilizers, food, or other materials for distribution to clientele, participants, or others or for use in field demonstrations, except when it can be clearly shown that such demonstration could not be made in any other way.
  13. Travel, subsistence, tuition, or other expenses of members of 4-H clubs, farm organizations, or other organizations or individuals in attending Club Camps or courses of instruction in schools or colleges, or making tours of observation or purchasing livestock or other materials. However, funds may be used to pay necessary expenses relating to the National 4-H conference or other assemblages of 4-H members called by the Secretary of Agriculture.
  14. Costs associated with volunteer expenses are unallowable charges to Federal funds and cannot be used to satisfy a cost-share, matching or offset requirement. Note: Volunteer costs for training in furtherance of an approved project is allowed.
  15. Feeding and caring for animals belonging to 4-h club members, even when such animals are used as exhibits at fairs.
  16. Expenses of musical entertainment given in connection with demonstrations, meetings, or conferences.
  17. Printing announcements of contests that carry the names of commercial firms offering prizes. Listing the names of commercial firms could be construed as advertising.
  18. The Federal Employees Group Life Insurance (FEGLI) is available to State Extension Service employees holding Federal appointments with the USDA. Federal funds may not be used in payment of the employer's share of a State employees' group insurance program for cooperative employees who are eligible for coverage under the FEGLI Act of 1954. Therefore, even though the employees are not enrolled in the Federal plan, Federal funds may not be charged with the employer's cost of the State plan.
  19. Any losses, whether actual or estimated, arising from uncollectible accounts and other claims, related collection costs and related legal costs.
  20. Contributions to a contingency reserve or any similar provision made for events whose occurrence cannot be foretold with certainty as to time, intensity, or with an assurance of them happening.
  21. Any excess of costs over income.
  22. Costs incurred for parenting or copyrighting materials.
  23. Tuition remission, including tuition incorporated as a part of a fringe benefits program.
  24. Subcontracting of programmatic matters to State agencies. This includes redelegation of Extension program duties to State agencies.
  25. Costs affiliated with donor solicitations for Extension programs.

 

 

 

Revised May 1994