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FY12-13 Reminders and FY13-14 Contract Changes

Letter Head: Tom Torlakson, State Superintendent of Public Instruction, California Department of Education

June 18, 2013

Dear Executive Directors, Child Care and Development Programs:

FISCAL YEAR 2012–13 YEAR-END REPORTING REMINDERS AND FISCAL YEAR 2013–14 CHILD CARE AND DEVELOPMENT CONTRACT CHANGES

The purpose of this letter is to remind contractors of the due dates and reporting requirements for the fiscal year ending June 30, 2013, and to inform contractors of changes to Child Care and Development contracts and reporting procedures beginning July 1, 2013. Please share this letter with your agency staff, as the information will be useful in both closing Fiscal Year (FY) 2012–13, as well as preparing for FY 2013–14.

Fiscal Year 2012–13 Year-End Reporting
Contracts or Contract Amendments:

All original contracts and any remaining contract amendment(s), with the exception of California Work Opportunity and Responsibility to Kids (CalWORKs) Stage 2 and Stage 3 amendments, for FY 2012–13 must be signed and returned to the Contracts Office by June 30, 2013, in order to be valid. Child Development Fiscal Services (CDFS) cannot make payments based on amended terms, except for maximum reimbursable amount (MRA) reductions, until the amendment has been signed and returned.

Year-End Reports:

Year-end attendance and fiscal reports are due in the CDFS office by July 22, 2013. Postmarks do not qualify as receipt dates. A delinquent report results in withholding any remaining apportionments due for FY 2012–13. Additionally, apportionments for FY 2013–14, beyond the initial payment, will be withheld until the contractor has complied with this contract requirement.

Support Contract Reports:

Support contracts such as Child Care Initiative or Local Planning Council contracts also require a year-end fiscal report (form CDFS 9529) by the July 22, 2013, deadline. Contractors who have expended and reported the full contract amount prior to the end of the year are still required to submit a year-end fiscal report by July 22, 2013.

Reserve Account Activity Reports:

The Reserve Account Activity Report (CDFS 9530-A) for FY 2012–13, which is due by July 22, 2013, requires support documentation in the form of a copy of the contractor’s general ledger report page(s) that reflects the cash balances maintained in the Child Development Reserve Account. Please ensure the beginning balance for FY 2012–13 reported on the Reserve Account Activity Report matches the ending balance per the FY 2011–12 Reserve Account Status Report (CDFS 9530) supplied by CDFS. Additionally, expenditures from the Reserve Account must match income reported on appropriate service contract reports. Incorrect or missing Reserve Account Activity Reports and/or missing support documentation will constitute a delinquent report resulting in the withholding of any remaining apportionments due for FY 2012–13, as well as apportionments for FY 2013–14 beyond the initial payment. Please contact your fiscal analyst if you have any questions. Form CDFS 9530-A is available online at http://www.cde.ca.gov/fg/aa/cd/cdfsforms12.asp.

Alternative Payment (AP) and CalWORKs contractors should note that while the Reserve Account Activity Report is available online, it cannot be filed online but must be mailed to and received by CDFS by July 22, 2013. If you have any questions, please contact your fiscal analyst.

Revised Reports:

Year-end reports must be received by the deadline of July 22, 2013, to avoid being delinquent. However, revisions to year-end reports may be submitted later under limited circumstances. Please refer to the California Department of Education Attendance and Fiscal Reporting and Reimbursement Procedures for Child Development Contracts handbook (referred to as the Greenbook) regarding the due dates for revised reports for various programs. The Greenbook is available online at http://www.cde.ca.gov/fg/aa/cd/.

Five Percent Cap on Center-Based Reserve Accounts:

Assembly Bill 1610 (Chapter 724, Statutes of 2010) amended Education Code (EC), Section 8450, to re-instate a five percent cap on Child Development center-based reserve accounts. The five percent cap is calculated as five percent of the total contract MRAs contributing to the center-based reserve account. Each year, the five percent cap is recalculated based on the MRAs of the contracts contributing to the reserve for the year. (Note: Participation in the voluntary and temporary transfer of funds process does not affect a contractor’s cap.) Transfers to reserve accounts at year-end will only be allowable up to the five percent cap. Upon close-out of FY 2012–13, center-based contractors with a reserve will be billed for any funds in excess of the five percent cap. Contractors are encouraged to evaluate their service earnings in comparison with net reimbursable costs and transfer funds from the reserve to cover any excess costs, especially if there would otherwise be a billing of excess funds in the reserve.

Child Care Initiative Project Contracts:

Child Care Initiative Project (CCIP) contracts in FY 2012–13 may have a match requirement as described in EC Section 8215(d). If a contractor included a match portion from local resources on the CCIP State Match application, the match amount will be included in the MRA and indicated in the language on the contract face sheet. Contractors with a match are required to report funds used toward the match requirement in Section I – Revenue, under Restricted Income titled “Match requirement” on form CDFS 9529. Corresponding expenses must be included in Section II – Reimbursable Expenses under the appropriate line item.

CCIP contracts with a match requirement that are not fully expended by year-end will have an “order” of reimbursement when calculating year-end earnings. The calculation reflects the requirement for contractors to match every dollar of state funding with two dollars from their local resources. This means contractors must meet their match requirement before receiving the full amount of state funds in their contract. Contractors may be billed for any unearned state funds they were advanced.

Facilities Renovation and Repair Contracts:

Beginning in FY 2012–13, contractors are required to report all revenue and expenses for Facilities Renovation and Repair Projects (CRPM) contracts, including revenue and expenses from nonsubsidized enrollment portions of the project (California Code of Regulations, Title 5 Section 18068).

Contractors receiving CRPM funding are required to comply with the funding calculations described in the Facilities Renovation and Repair (FRR) Application, including the proration of costs for subsidized and nonsubsidized enrollment. The proration of costs is determined by the percentages of subsidized and nonsubsidized enrollment provided by the contractor on Form 5 of the FRR Application and subsequently approved by the Child Development Division (CDD).

A new form, CDFS 9529 CRPM, was created to include a line item to report revenue for the nonsubsidized enrollment portion of the project. This is located in Section I – Revenue, under Restricted Income, titled, “Prorated Portion for Nonsubsidized Enrollment.” Contractors are required to use the new form beginning in FY 2012–13 for CRPM0 contracts originally awarded in FY 2010–11. Reports not submitted on the correct form are considered delinquent and could result in a withholding of apportionments. In addition, contractors with CRPM0 contracts were requested to submit a “Fiscal Year 2010–11 Facilities Renovation and Repair Summary of Actual Costs” form to the CDD detailing project descriptions, completion dates, and costs by site.

When reviewing CRPM0 June reports, CDFS will also review the approved Form 5s and Summary of Costs forms to ensure contractors are reporting revenue for the cost of the project that is commensurate with the percentage of nonsubsidized enrollment. The California Department of Education (CDE) will bill contractors for any unauthorized expenditures, or expenditures that do not comply with the cost proration calculations. For additional reporting information, refer to the Greenbook, available on the CDE Web site at http://www.cde.ca.gov/fg/aa/cd/.

CalWORKs Stage 3:

Senate Bill 70 (Chapter 7, Statutes of 2011), as amended by AB 114 (Chapter 43, Statutes of 2011), added EC Section 8263.2 requiring that expenditures for the CalWORKs Stage 3 program do not exceed the amounts appropriated. Upon close-out of FY 2012–13 contracts, CalWORKs Stage 3 contractors must ensure that expenditures do not exceed their MRA.

CalWORKs Billings:

Contractors will be invoiced for any over-advanced CalWORKs contract funds, based on their year-end calculated report. This invoice will be sent to the contractor pre-audit in order to facilitate the disencumbrance of unearned CalWORKs contract funds prior to receipt of the audit. Contractors that need to revise their year-end reports may do so by September 30, 2013. An invoice that becomes 90 days delinquent will result in a withholding of all future apportionments.

Process to Apply For Contingency Funds:

Pursuant to EC Section 8222.1, CDE shall reallocate funds as necessary to reimburse AP programs (excluding CalWORKs) for actual and allowable costs incurred for additional services. An AP contractor may apply for reimbursement of up to three percent of their contract amount, or for a greater amount subject to the discretion of the Department, based on availability of funds. Applications may be submitted as early as May 1, but no later than September 30, 2013. The CDE will approve or deny applications submitted pursuant to the above EC section, and will not consider applications received after September 30 of the current calendar year for additional costs incurred during FY 2012–13.

The CDE will distribute reimbursement funds for each approved application within 90 days of receipt of the application, if it was filed between May 1 and July 22 of the current calendar year. Applications received after July 22, 2013, are not subject to the 90 day requirement for the distribution of funds. If requests for reimbursement pursuant to this section exceed available funds, the CDE will assign priority for reimbursement according to the order in which it receives the applications. Funds received by an AP contractor pursuant to this section that are not substantiated by the program’s annual audit or a year-end report must be returned to the CDE. Billings for contingency funds are not subject to the appeal process.

Fiscal Year 2013–14 Child Care and Development Contract Changes
Contract Funds:

The CDE began issuing direct service, AP, and support contracts for FY 2013–14 on June 1, 2013, based on the Governor’s January Budget. CalWORKs Stage 2 and Stage 3 contracts were issued shortly thereafter based on the Governor’s May Revise. Upon enactment of the final budget, contracts may be amended to reflect any change in each program’s appropriation. Contractors should sign and return their contracts to the Contracts Office promptly, as apportionments cannot be made without a signed contract.

Transfers between General Child Care and State Preschool Contracts for Fiscal Years 2013–14 and 2014–15:

During the year, a contractor may find its projected services or needs have changed, requiring a transfer of funds between their General Child Care (CCTR) and California State Preschool Program (CSPP) contracts. In FY 2013–14, contractors will have two opportunities to request a transfer of funds and amend their CCTR and CSPP contracts.

Contractors will submit transfer requests to their CDD Field Services Consultant. As with CSPP/CCTR transfers in previous years, part-day Preschool funds (Program Cost Account 23038) cannot be transferred into a CCTR contract, so contractors must be aware of the funding structure in their contracts prior to submitting a transfer request. CDD may also require a Program Narrative Change form. The Program Narrative Change form should describe any changes to the number of sites operated by the contractor, any changes to the age groupings of children served by the contractor, and/or any significant changes in the provision of full-day versus part-day services.

Standardized transfer request letters can be found on the CDE Web site at http://www.cde.ca.gov/fg/aa/cd/ after July 1, 2013, for the following transfer periods.

January 1–15, 2014

There are two letters for this period: one to request a transfer for the current year and one to request a transfer for FY 2014–15. These letters are distinguishable by both the title of the letter and the subject within the letter. Please note this is the only opportunity to request a transfer of funds for FY 2014–15.

May 1–15, 2014

There is one letter for this period: to request a transfer of funds for the current year only. CDFS will not accept any requests to transfer funds for FY 2014–15 during this period.

For further information or instructions on completing these letters, please see the instructions document located in the same section of the CDE Web site as the transfer letter or contact your assigned fiscal analyst.

The Program Narrative Change form (CD_3704A) can be found on the CDE Web site at http://www.cde.ca.gov/sp/cd/ci/cddforms.asp. For further information or instructions on completing this form, please contact your CDD Field Services Consultant.

Voluntary/Temporary Transfer of Funds:

EC Section 8275.5 allows for a voluntary and temporary transfer of funds between over-earning contractors and under-earning contractors with like contract types (i.e. CCTR to CCTR) in order to fully utilize child care and development funding. Contractors will self-identify as an over- or under-earner and submit a transfer request that includes an amount of contract funding they expect to be able to temporarily release or accept. Local Planning Council (LPC) designees or an LPC subcommittee group is charged with facilitating the transfer of funds between contractors and submitting requests to the CDE.

The first opportunity to request a voluntary/temporary transfer of funds will be between November 1 and November 15, 2013; the final opportunity will be between May 1 and May 15, 2014. For more information on voluntary/temporary transfers of funds, please visit the CDE Web site at http://www.cde.ca.gov/sp/cd/re/lpc.asp or the FY 2013–14 Greenbook section titled, “Voluntary/Temporary Transfer of Funds.”

Audits and Investigations Division Reminders and Changes
New Audited Attendance and Fiscal Reports Forms:

Visit the Web site for CDE’s Audits and Investigations Division (A&I) at http://www.cde.ca.gov/fg/au/pm/ and view links to the new Audited Attendance and Fiscal Reports (AUD forms) and Instructions for FY 2012–13 (coming soon). Note the new form AUD 9529 CRPM and related instructions that were created especially for Facilities Renovation and Repair contracts.

The AUD forms for FY 2011–12 will remain on the A&I Web site for an additional year.

Audits submitted with obsolete AUD forms may be rejected.

Reminders:

The following audit requirements of the CDE Audit Guide, referenced by section number, are important to discuss with your certified public accountant and your affected staff.

  1. Ensure that the audit engagement letter between the agency and the Certified Public Accountant (CPA) states that the audit will be performed in accordance with the CDE Audit Guide (see Section 160.C.2) and identifies the date that the final audit report must be submitted to the A&I (due dates in Section 210).
  2. Except for child development (CD) program contractors on conditional status, the A&I may grant a CD contractor a one-time-only per year, 30-calendar-day extension of the audit due date, provided the inability of the contractor to submit the audit by the due date was beyond the fault and control of the contractor. The extension request due date and instructions for submission are specified in Section 212..
  3. Section 310.A provides an overview of the AUD forms. Also, see page 2 of the AUD General Instructions (Form AUD 1000) on how to complete the AUD forms.
  4. Preparation of the Audited Reserve Account Activity Report (Form AUD 9530-A) is explained in Section 355, including how the reserve account form AUD 9530-A data aligns with the form CDFS 9530 data. Detailed instructions for preparing the AUD 9530-A form are included as the last two pages of the AUD form instructions.
  5. The AUD forms are required for subcontracts, except from subcontractors that operate CD programs for school districts (Section 350). The contractor is responsible for providing an audit by its subcontractor that includes the AUD forms for any subcontracts (Section 210.D).
  6. When AUD forms report start up expenses (service level exemption), the audit must include a Schedule of Reimbursable Start-Up Expenses (Section 330). Note that part-year Migrant Programs also may contain close-down expenses that would be reported in the same manner as start-up expenses.
  7. Include in the audit report a Combining Statement of Activities (Section 310.C). Revenues reported on the Combining Statement of Activities must be traceable to individual CDE contracts in the revenue section of the respective AUD form.
  8. When CDE reporting requirements differ from those of Generally Accepted Accounting Principles (GAAP), e.g., for depreciation, a Reconciliation of CDE and GAAP Expense Reporting is required (Section 310.D).
  9. Cost Allocation Guidance is provided as Exhibit B to Chapter 700 (Section 718).
Costs Disallowed In Child Development Audits:

Following are examples of costs disallowed in audits of CDE child development programs. When costs are disallowed by CPAs or the A&I, the CDE will not reimburse those costs. Each example is followed by a bracketed citation to identify the applicable requirement in the contract Funding Terms and Conditions (FT&C). Reference the FT&C for the Child Development programs at http://www.cde.ca.gov/fg/aa/cd/index.asp.

  1. Payroll costs for salaries and benefits are disallowed when a contractor does not adequately support its claim for reimbursement, e.g., does not maintain time sheets that indicate the actual amount of time spent (performing direct cost activities) in each program per day for multi-funded employees. (FT&C, § VI.E).
  2. The following costs are disallowed, as they are specifically prohibited by the contract – this is only a partial list (FT&C, § V.G):
    1. Bad debts, except parent fees if collection attempts are adequately documented.
    2. Amusement and entertainment.
    3. Idle facilities for full-year programs, e.g., office or classroom used for storage.
    4. Fines and penalties.
    5. Bonuses not part of a collective bargaining agreement.
    6. Costs incurred outside the contract period, but not audit fees (FT&C, § V.H).
  3. Costs are disallowed if they are not reasonable and necessary to the performance of the contract (FT&C § V.A), for example:
    1. Granite counter tops in kitchen and bathrooms.
    2. Cellular telephones for employees’ spouses and children.
    3. High-end office furnishings.
  4. Depreciation is disallowed when claimed on (a) assets purchased with public funds, (b) donated assets, or (c) idle or excess facilities (FT&C, § III.A).
  5. When a contractor lacks prior written approval from the CDD, costs are disallowed for:
    1. Renovation and repairs (FT&C, § III.F), or subcontracts (FT&C, § IV.C) of $10,000 or more.
    2. Equipment purchases in excess of $7,500 per item (FT&C, § III.C).
  6. Rent is disallowed (FT&C, § II.P):
    1. On property owned by the contractor. An expense may be claimed only as depreciation or use allowance.
    2. On property owned by affiliates, officers or other key personnel of the contractor or their families, unless the contractor obtains (and claims no more than) a fair market rental cost estimate from an independent appraiser licensed by the California Office of Real Estate Appraisers.
  7. In general, claims for reimbursement are disallowed if there is insufficient documentation to support the claim, e.g., no paid invoice or receipt to support an expense. The contractor has the burden of proof. (FT&C, § VI.E).

For additional information, contact the CDE Audits & Investigations Division at 916-322-2288.

Analyst Caseload Assignments:

Please be aware that some analyst caseload assignments have changed. Most contractors will continue to report to the same CDFS analyst. Please refer to http://www.cde.ca.gov/fg/aa/cd/ for your fiscal analyst.

Website Link to Child Development Fiscal Services Forms:

Contractors are requested to always use the most current CDFS report forms. Effective July 1, 2013, please recycle any report forms that you may have made copies of, and use only the forms located at http://www.cde.ca.gov/fg/aa/cd/.

If you have any questions about a specific contract or need clarification about any topic covered in this letter, please contact your assigned CDFS analyst.

Sincerely,

Original signed by Phyllis A. Savage

Phyllis A. Savage, Staff Services Manager III
Child Development and Nutrition Fiscal Services
Fiscal and Administrative Services Division

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