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Fiscal Year 2013-14 Year-End Reporting Reminders

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

June 16, 2014

Dear Executive Directors, Child Care and Development Programs:

Fiscal Year 2013–14 Year-End Reporting Reminders

The purpose of this letter is to remind contractors of the due dates and reporting requirements for the fiscal year ending June 30, 2014. Please share this letter with your agency staff, as the information will be useful in closing Fiscal Year (FY) 2013–14. A subsequent letter will be issued in the coming weeks to inform contractors of changes to child care and development contracts and reporting procedures for FY 2014–15.

Contracts or Contract Amendments:

All original contracts and any remaining contract amendment(s), with the exception of CalWORKs Stage 2 and Stage 3 amendments, for FY 2013–14 must be signed and returned to the Contracts Office by June 30, 2014, 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.

Minimum Days of Operation Changes:

Contractors may request changes to their FY 2013–14 Minimum Days of Operation (MDO) through the Early Education and Support Division (EESD) no later than June 30, 2014. Failure to operate the contracted MDO may result in a reduction to the contract MRA and could result in a billing if the contractor has been paid more than the reduced MRA. For more information, 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), under “Days of Operation”. The Greenbook is available online at http://www.cde.ca.gov/fg/aa/cd/.

Year-End Reports:

Year-end attendance and fiscal reports are due in the CDFS office by July 21, 2014. Postmarks do not qualify as receipt dates. A delinquent report results in withholding any remaining apportionments due for FY 2013–14. Additionally, apportionments for FY 2014–15, beyond the initial payment, will be withheld until the contractor has complied with this contract requirement.

Support Contract Reports:

Support contracts such as Health and Safety or Local Planning Council contracts also require a year-end fiscal report (form CDFS 9529) by the July 21, 2014, 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 21, 2014.

Reserve Account Activity Reports:

The Reserve Account Activity Report (CDFS 9530-A) for FY 2013–14, which is due by July 21, 2014, 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 2013–14 reported on the Reserve Account Activity Report matches the ending balance per the FY 2012–13 CDFS 9530 Reserve Account Status Report (audited report for private contractors) 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 2013–14, as well as apportionments for FY 2014–15 beyond the initial payment. Form CDFS 9530-A is available online at http://www.cde.ca.gov/fg/aa/cd/cdfsforms13.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 21, 2014. If you have any questions, please contact your fiscal analyst.

Revised Reports:

Year-end reports must be received by the deadline of July 21, 2014, to avoid being delinquent. However, revisions to year-end reports may be submitted later under limited circumstances. Please refer to the Greenbook regarding the due dates for revised reports for various programs.

Child Care Initiative Project Contracts:

A new reporting form has been created for Child Care Initiative Project (CCIP) contracts to allow matching funds to be reported as unrestricted income, if so designated by the contributor. Restricted and unrestricted income should now be differentiated depending upon how the income was designated by the contributor. In addition, any revenue received above the match requirement should also be reported dependent upon how it was designated by the contributor. Contractors are required to use the new form, CDFS 9529 CCIP, beginning in FY 2013–14. Reports not submitted on the correct form are considered delinquent and could result in a withholding of apportionments.

Facilities Renovation and Repair Contracts:

Contractors with Facilities Renovation and Repair (CRPM) contracts originally awarded in FY 2011–12 were requested to submit a “Fiscal Year 2011–12 Facilities Renovation and Repair Summary of Actual Costs” form to the Early Education and Support Division detailing project descriptions, completion dates, and costs by site.

When reviewing CRPM1 June reports, CDFS will review the Summary of Costs forms, along with the approved Form 5s, 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, please refer to the Greenbook.

Fees or Income for Non-Certified Children:

Fees and other income for non-certified children must be reported on CDFS report forms. To ensure services for non-certified children do not encroach upon their state subsidy, contractors must collect at least their state subsidy rate for non-certified children. CDFS analysts will be reviewing the reported revenue for non-certified children and will be following up with any contractors who do not appear to be collecting enough income.

Child Nutrition Program Reporting:

Child Nutrition Program revenue received for child development programs must be reported as restricted income on CDFS report forms. This includes revenue from the following programs:

  • Child and Adult Care Food Program (CACFP)
  • National School Lunch Program (NSLP)
  • School Breakfast Program (SBP)
  • Special Milk Program (SMP)
  • Seamless Summer Feeding Option (SSFO)
  • Summer Food Service Program (SFSP)

In addition, the corresponding Child Nutrition Program expenses must also be reported on CDFS report forms under reimbursable expenses.

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, 2014. An invoice that becomes 90 days delinquent will result in a withholding of all future apportionments.

Process to Apply for Contingency Funds:

Pursuant to Education Code (EC) Section 8222.1, CDE shall reallocate funds as necessary to reimburse Alternative Payment (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, 2014. 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 2013–14.

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 21 of the current calendar year. Applications received after July 21, 2014, 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.

Audits and Investigations Division Reminders and Changes
New AUD 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 2013–14 (coming soon).

Please note that a new form AUD 9529 CRPM and related instructions were created last year for Facilities Renovation and Repair (CRPM) contracts. The form AUD 9529 CRPM contains different information than what was on the old form; so please use the form AUD 9529 CRPM for all CRPM contracts.

The AUD forms for FY 2012–13 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 in 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 Early Education and Support Division, 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.

Fiscal Year 2014–15 Contract Funds:

Maximum Reimbursable Amounts (MRAs) for direct service, Alternative Payment (CAPP) and support contracts for FY 2014–15 are based on funding levels proposed in the Governor’s January Budget. CalWORKs Stage 2 and Stage 3 MRAs are based on the funding levels proposed in the Governor’s May Revise.

In an effort to save time and resources, the Contracts Office will distribute all contracts via e-mail for FY 2014–15. Contractors should sign and return their contracts to the Contracts Office promptly, as apportionments cannot be made without a signed contract.

Upon enactment of the final budget, contracts may be amended to reflect any change in each program’s appropriation.

More information on FY 2014–15 child care and development contracts will be issued in a separate letter in the coming weeks.

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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