City of Vermillion

The Vermillion City Council learned at its noon meeting Monday that the city will soon need to follow new requirements when administering federal grant funds it receives.

“It’s a new requirement that’s come out,” City Finance Officer Mike Carlson told aldermen at their meeting at Vermillion City Hall. “Also, at the South Dakota Municipal League conference, the Department of Legislative Audit had a presenter that explained the need for written policies and procedures for entities that will be receiving federal grants.”

Officials of the Department of Legislative Audit advised representative of South Dakota municipalities to develop their own policies. Carlson presented a draft policy Monday that he and his staff compiled after researching the topic.

“Since this requirement is fairly new, there wasn’t a lot to be found out there but we did manage to put together these policies with the information we could find,” he said. “They follow the uniform administrative requirements, cost principals and audit requirements for federal grants, and Title 2 Code of Federal Regulations Part 200.

“It requires organization must establish and maintain effective internal controls over federal awards and provides reasonable assurance the city is managing the federal award in compliance with the federal statutes, regulations and terms and conditions of federal awards,” Carlson said. “If we have sub-recipients, we have to have a policy to address them, written procedures for determining the allowable costs for grant, written procedures for payments or cash management, written procedures for procurement and written procedures for a standard of conduct covering conflict of interest.”

Internal Controls

The draft that Carlson presented states that it is applicable to all departments of the City of Vermillion when preparing and submitting grant applications to agencies for funds, materials, or equipment to be received and administered by the city or by an agency for which the city acts as fiscal agent.

It also states that the city manager should be informed of outgoing grant applications at all times.The department preparing a grant application shall submit a Federal Award Request form to the city manager’s office. With the approval of the city manager a department may contract with a third party for the preparation of grant applications. The Federal Award Request is used to document the application for the department with the city manager and finance department.

“Internal controls require a federal award request be approved by the city manager or the city council if required for the grant. The FAA requires city council approval for that grant,” Carlson said. “We’ve received some other smaller grants – the police department has received some for overtime, they’ve received some for transporting individuals to a different location for holding – these don’t require city council approval; we’re not talking huge dollars so the city manager would do that.

“Upon notification of a grant award, the grant award would be filed with the city manager, the finance officer and the department requesting the grant,” he said. “We would review the grant requirements and conditions to see that they could be fulfilled by the city before it’s either accepted by the city manager or the city council.”

The proposed policy states: “City departments are responsible for all aspects of the grant process including planning for grant acquisition, preparing and submitting grant proposals, developing grant implementation plans, managing grant programs, preparing and submitting reports to grantors, and properly closing out grant projects. Department staff and Finance staff will maintain a close working relationship with respect to any grant activity to ensure a clear understanding of the project status. The department will, also, gather information beforehand to help ensure success in meeting deadlines.”

“Departments requesting grants and the finance office will monitor grants and review allowable costs. Grant requests are to be filed after allowable funds have been expended,” Carlson said. “We require grant funds to be direct deposited in the city account; if not, once that request is done we have a procedure to follow to see that monies will be coming in for cash management.”

The federal government has also established procurement procedures for cities to follow involving federal grants.

These are different from the state bid laws; the state bid limit for supplies is over $25,000 and for equipment and improvements it is over $50,000 and there’s no bid requirements in the state of South Dakota for professional services,” Carlson said. He noted that the federal government doesn’t require municipalities to seek bids for any purchase of under $3,000.

“Between $3,000 and $150,000, they suggest that an adequate number of quotes be received to determine what is the best price. Thus, for supplies between $3,000 and $25,000 or for public improvements of between $3,000 and $50,000 we would need to get an adequate number of quotes,” Carlson said. “If it was over the $25,000 or over the $50,000 amounts (for supplies or public improvement projects) we would need to bid the item.”

Carlson said he and other municipal officers were advised by the state Department of Legislative Audit that with professional services that exceed $150,000, “the request by qualification is the process to be used where you’d send out requests asking for proposals from professional services,” he told the city council. “You’d review them based on their qualifications, select the best and then go to the dollar amount that they’d be proposing. If it was financially feasible, you’d go with that or you would maybe go down to the next (bidder).”

The proposal Carlson presented to the council Monday states:

Award Notification and Acceptance

Once the grant award letter has been received by the City a copy will be sent to the corresponding department. The recipient department, City Manager, and Finance Officer are responsible for reviewing the proposed agreement to assure that all conditions required of the recipient department can be fulfilled by the city.

In event that the funds awarded by the granting entity are reduced from those requested in the original grant application, the recipient department must ensure that the goals and objectives can still be accomplished and that adequate funding is available to accomplish the intent of the grant.

The City Manager may accept grant awards on behalf of the city or if the grant agreement requires the approval of the City Council shall include the consideration of acceptance of the grant on the City Council agenda.

Grant Monitoring

Departments are responsible for continuous monitoring of the financial status of grants. The Finance Office will provide departments with all financial reports for such monitoring. Departments must review the monthly expenditure reports and notify the Finance Office promptly of any discrepancies noted and/or any additional reports needed. Departments must also monitor grants for compliance with all applicable federal, state, and local regulations and ensure that grant expenditures are in compliance allowable cost guidelines and with grant procurement policies and procedures.

Some grant may be administered by a third party such as the South Eastern Council of Governments, a department of the State of South Dakota or others. The responsible department and the Finance Office shall work with the third party to monitor the grants for compliance with all applicable federal, state, and local regulations and ensure that grant expenditures are in compliance allowable costs guidelines and with grant procurement policies and procedures. Following the close out of grants administered by a third party the city should be provided with all required documentation that will be required for the annual audit and/or future grant monitoring.

Documentation for Allowable Costs

Expenditures must be aligned with approved grant budget. Any changes or variations from the approved grant budget and grant application need prior approval from the granting agency.

When determining how the city will spend federal grant funds the department head of the department receiving the grant award will review the proposed cost to determine whether it is an allowable use of federal grant funds before obligating and spending those funds on the proposed good or service.

The department head must consider these factors when making an allowability determination:

Title 2 Code of Federal Regulations Part 200 sets forth general cost guidelines that must be considered, as well as rules for specific types of items, both of which must be considered when determining whether a cost is an allowable expenditure of federal funds. The expenditure must also be allowable under the applicable program statute, applicable program regulations and grant award notifications as well as procurement procedures outlined later in this document.

Restrictions in state and local rules or policies also must be considered. Whichever allowability requirements are stricter will govern whether a cost is allowable.

“For federal grants over $150,000, you’d have to use the RF2 process. Included in here concerning pass through entities, we just wrote that they need to comply with the city requirements – if we’re going to pass money through an entity, they have to follow the same bidding laws that we do,” Carlson said.

The proposed policy states:

Cash Management

Request should be made to of the granting agency that all grant reimbursements be direct deposited into the city’s checking account and if a grant reimbursement is received by a recipient department, it should be immediately forwarded to the Finance Office for deposit with information including the purpose of the reimbursement and the name of the grant the reimbursement relates to.

The Finance Office will provide the expenditure account numbers to the recipient department.

Invoices and receipts must be paid and a check cut to the vendor prior to requesting reimbursement; therefore timely submittal of invoices is encouraged.

Work with the departments to ensure all contracts, professional agreements, and invoicing from vendors meet grant specifications for reporting and reimbursement as an allowable cost.

Expenditure

When an invoice is received for grant funded project; it must be thoroughly reviewed to ensure prices are correct, work is complete and/or materials/services received, specifications have been met, and all back-up documentation has been submitted to support the costs contained on the invoice.

Make copies of your reimbursable invoices or receipts to send to the finance office.

Specify whether the invoice is 100 percent reimbursable or what portion is reimbursable.

Specify the grant name, agency, and grant number on the pay request or invoice.

Drawdown

The City must first expend the funds then request reimbursement after payment has been finalized. Grant reimbursements will be requested in the manner set forth in the grant agreement.

The department head along with the finance office will be responsible for preparing the reimbursement request, or reviewing the request if prepared by a third party, before submitting to the granting agency.

The revenue tracked by the finance office to ensure receipt of the grant reimbursement.

Retainage

Some grants will withhold retainage, normally in the amount of 10% from the billing requests, or from the final payment until the project is completed to specifications. At the completion of the grant project, or the expiration of the grant; the City is required to:

Submit all final documents and closeout reports and deliverables

Submit a final billing

Submit a retainage release request in accordance with the grant agreement.

Procurement Procedures

The Uniform Administrative Requirements for Grants and Agreements sets forth standards for use by recipients in establishing procedures for the procurement of supplies and other expendable property, equipment, real property and other services with Federal funds. These standards are furnished to ensure that such materials and services are obtained in an effective manner and in compliance with the provisions of applicable Federal statutes and executive orders.

According to 2 CFR 200.318 (d), procedures must avoid acquisition of unnecessary or duplicative items and states that consideration should be given to consolidating or breaking out procurements to obtain a more economical purchase. Where appropriate, an analysis should be made of lease versus purchase alternatives, and any other appropriate analysis to determine the most economical approach.

All Federal Awards, Cooperative Agreements, or State Awards utilizing Federal Funds must also follow the General Procurement Standards in the Code of Federal Regulations (C.F.R.); Title 2: Grants and Agreements section 200.318 through 326 and South Dakota Codified laws as it applies to when bidding is required whichever is more restrictive. (NOTE: The federal purchase limits may change.)

1.Micro-purchase procedure: Service contracts and purchase contracts costing less than $3,000.

a. May be awarded without soliciting competitive quotations if the City considers the price to be reasonable.

b. Must be distributed equitably among qualified suppliers

2. Small Purchase procedure: Service contracts and purchase contracts costing $3,000 up to $150,000.

a. Price or rate quotations must be obtained from an adequate number of qualified sources.

3. Sealed Bid: Service Contracts and purchase contracts costing greater than $150,000.

a. In order for sealed bidding to be feasible a complete specification is available.

Conflicts Of Interest

“In dealing with conflicts of interest, we wrote in there that the city would need to monitor to insure that the use of sponsored funds by officials or employees of the city or non-governmental recepients or sub-recipients would not have a conflict or the appearance of creating a conflict,” Carlson said. “It (the proposed policy) also noted in the city council’s rules and procedures there is a section that addresses conflicts of interest with council members.”

The policy states: “No employee or official of the City of Vermillion shall have any interest, financial or otherwise, direct or indirect, or have any arrangement concerning prospective employment that will, or may be reasonably expected to, bias the design, conduct or reporting of a grant funded project on which he or she is working.

It shall be the responsibility of the City Manager for each particular grant-funded project to ensure that in the use of sponsored funds, officials or employees of the City and nongovernmental recipients or sub-recipients shall avoid any action that might result in or create the appearance of:

• Using his or her official position for private gain

• Giving preferential treatment to any person or organization

• Losing complete independence or impartiality

• Making an official decision outside official channels

• Affecting adversely public confidence in the grant funded program in particular, and the City in general

• Or any other Conflict of Interest outlined per the specific grant agency

“The draft I’ve handed out to you – we’ve sent them to our auditor to review. He emailed me back and said that he felt that these met the requirements of the current federal registry they have for these grants,” Carlson said. “I thought I’d bring these to you now to see if there are any questions. We’ll bring these to a future council meeting for adoption so we could move forward and have these in place to address federal grants and how we are going to track them and make sure we are complying with the federal requirements.”

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