Comptroller Fiscal Year Memo Letter Head


M E M O R A N D U M

To:Legislative Leadership, Judicial Branch Administrators, Elected Officials, Secretariats, Department Heads, Chief Fiscal Officers, General Counsels and Payroll Directors
From:Martin J. Benison, Comptroller
Jeffrey A. Simon, Director, Office of Infrastructure Investment
Date:August 10, 2009 (Revised 10/15/09)
Re:American Recovery and Reinvestment Act (ARRA) Sub-recipient/Vendor DefinitionsComptroller Memo
FY#2010-05
 

Executive Summary

The purpose of this document is to provide additional guidance to departments with respect to managing and monitoring the use of ARRA funding, including sub-recipient and vendor activity. The guidance provided within this document is drawn from three sources: (1) federal Single Audit Act, OMB A-133; (2) the American Reinvestment and Recovery Act of 2009 ( ARRA) and (3) OMB Guidance M-09-21 on the interpretation and implementation of Section 1512 of ARRA related to reporting requirements. While the first has been in effect for quite some time and departments have been audited in accordance with the requirements mandated in that act, the ARRA dictates additional requirements over and above those of A-133 including detailed reporting requirements. Departments must be especially vigilant in complying with all of the requirements inherent in the primary to sub-recipient relationship.

As part of the ARRA reporting requirements, the primary recipient, the Commonwealth, will be required to obtain information detailed in this document from sub-recipients. The ANF Federal Stimulus Logistics Task Force will issue guidance to affected departments shortly that will provide additional details relative to the method, timing and format for the collection and reporting of the ARRA information required from sub-recipients. Contracts between departments and a sub-recipient, funded from ARRA, should preferably be amended to incorporate these requirements. At a minimum, all contractors should receive a copy of Appendix D notifying them of ARRA reporting requirements.

Defining the Relationship and the Requirements per OMB A-133

Departments are responsible for carefully reviewing the A-133 requirements and examples to determine whether or not a sub-recipient or vendor relationship exists. In some cases, the relationship may not immediately be clear. CTR has provided this guidance to assist departments with the process of making sub-recipient vs. vendor determinations. However, CTR will not approve or make determinations for a department and acceptance of a transaction in the accounting system coded by a department does not mean that CTR has approved the department's coding as appropriate under A-133. Departments should document the process used to reach each determination. Departments may not code encumbrances and payments as vendor activity to avoid the sub-recipient pass through or other reporting requirements.

In accordance with federal requirements, as outlined in OMB A-133 (the Single Audit Act) a primary grant recipient is the one to whom the original grant award was made. The prime recipient is referred to as a "pass-through entity" when the prime provides the federal award to a sub-recipient to carry out the federal program. In passing through a portion of or the entire grant award, the responsibilities inherent in that grant award also "pass down" to the sub-recipient. However, the prime recipient (or pass through entity) remains ultimately responsible for the following, in accordance with OMB A-133:

A prime recipient that serves as a pass-through entity shall perform the following for the Federal awards it makes:

(1) Identify Federal awards made by informing each sub-recipient of CFDA title and number, award name and number, award year, if the award is R&D, and name of Federal agency. When some of this information is not available, the pass-through entity shall provide the best information available to describe the Federal award.

(2) Advise sub-recipients of requirements imposed on them by Federal laws, regulations, and the provisions of contracts or grant agreements as well as any supplemental requirements imposed by the pass-through entity.

(3) Monitor the activities of sub-recipients as necessary to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved.

(4) Ensure that sub-recipients expending $500,000 or more in Federal awards during the sub-recipient's fiscal year have met the audit requirements of this part for that fiscal year, meaning they are subject to the Single Audit.

(5) Issue a management decision on audit findings within six (6) months after receipt of the sub-recipient's audit report and ensure that the sub-recipient takes appropriate and timely corrective action.

(6) Consider whether sub-recipient audits necessitate adjustment of the pass-through entity's own records.

(7) Require each sub-recipient to permit the pass-through entity and auditors to have access to the records and financial statements as necessary for the pass-through entity to comply with this part.

For sub-recipients, OMB M-09-21 dated June 22, 2009 further provides:

A sub-recipient is a non-Federal entity that expends Federal awards received from another entity to carry out a Federal program but does not include an individual who is a beneficiary of such a program. Specifically, sub-recipients are non-Federal entities that are awarded Recovery funding through a legal instrument from the prime recipient to support the performance of any portion of the substantive project or program for which the prime recipient received the Recovery funding. Additionally, the terms and conditions of the Federal award are carried forward to the sub-recipient.

Also included in OMB M-09-21 for vendors:

A vendor is defined as a dealer, distributor, merchant or other seller providing goods or services that are required for the conduct of a Federal program. Prime recipients or sub-recipients may purchase goods or services needed to carry out the project or program from vendors. Vendors are not awarded funds by the same means as sub-recipients and are not subject to the terms and conditions of the Federal financial assistance award.

The characteristics of a vendor that make it distinct from a sub-recipient are summarized below.

A vendor:

(1) Provides the goods and services within normal business operations;
(2) Provides similar goods or services to many different purchasers;
(3) Operates in a competitive environment;
(4) Provides goods or services that are ancillary to the operation of the Federal program and
(5) Is not subject to compliance requirements of the Federal program.

Identifying Sub-Recipients in MMARS by Object Code

Encumbrance and payment activity involving sub-recipients is being identified by the object code entered by the department on the accounting line of the transactions. Certain object codes will be designated for use as sub-recipient only. Fiscal activity in ARRA accounts need to comply immediately.

For the purposes of ARRA reporting on contracts and payments to sub-recipients, activity posted to ARRA-defined accounts will be selected and reported as part of the Commonwealth's quarterly reporting on sub-recipients when the object code used includes any of the following:

H78
M03 MM3 M78
N78
P01 PP1
R03 R09 R11 R14 R15 R21
U78

The x78 object codes have been established in certain subsidiaries that have been identified with possible sub-recipient activity

In determining the reporting of financial activity to sub-recipients, the selection of data will first be made for all accounts that have been coded as ARRA accounts. All encumbrance and payment activity with the above listed object codes will then be selected UNLESS Vendor Type on VCUST is equal to "I" (Individual). All encumbrance and payment activity posted to ARRA identified accounts with these object codes to any vendor type other than an Individual will be reported as sub-recipient activity. Additional information defined in the subsequent section of this memo must be gathered and available to be added to the reporting submitted to the federal government.

Departments should review existing encumbrances for both sub-recipient activity and vendor activity and immediately update the object code on any encumbrances funded by ARRA to ensure they reflect the appropriate object code, as defined in this document. If a department has sub-recipient activity in an object code not listed above then the department should prepare and submit expenditure correction (EX) documents to the Comptroller's General Accounting Bureau with the following in the document comment "sub-recipient activity" and an explanation of the work being performed that qualifies as a sub-recipient relationship.

To the extent that departments have used any of the object codes above for ARRA related activity where the payee is a vendor and NOT a sub-recipient, the department should prepare and submit expenditure correction (EX) documents to the Comptroller's General Accounting Bureau with the following in the document comment "non-sub-recipient activity" and an explanation of the work being performed that qualifies as a vendor relationship. The attachments provide high level guidance to assist with determining whether an expenditure will trigger the sub-recipient or vendor relationship.

Non-ARRA funded encumbrances with vendor activity that will extend beyond 6/30/10 must have the correct object code as of 7/1/10. For questions and assistance, contact Donna Roux at 617-973-2314.

Note: For the purpose of OMB reporting ARRA funds that are contracted between agencies (Intergovernmental Service Agreements) retain the prime recipient identity. For the purpose of OMB reporting, ARRA funds pass to a sub-recipient when the sub-recipient is external to Commonwealth state government.

The ARRA Additions

In addition to all of the OMB A-133 requirements listed previously, sub-recipients receiving awards made from the federal stimulus funds (ARRA) are subject to the following requirements.

Compliance with the Davis Bacon Act The Davis-Bacon Act of 1931 is a United States federal law which established the requirement for paying prevailing wages on public works projects. All federal government construction contracts, and most contracts for federally assisted construction over $2,000, must include provisions for paying workers on-site no less than the locally prevailing wages and benefits paid on similar projects.

With this act, this requirement passes through to sub-recipients who may have previously been exempt from compliance. As a pass-through entity, departments are required to notify sub-recipients of their need to comply with the Davis Bacon Act. Departments should be cognizant of the requirements of the state's prevailing wage law as well.

Compliance with Buy American With certain exceptions, section 1605 of ARRA prohibits use of recovery funds for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. The law requires that this prohibition be applied in a manner consistent with U.S. obligations under international agreements (e.g., the government procurement provisions of the nation's trade agreements). ARRA mandates that this Buy American requirement pass down to sub-recipients. As with the Davis Bacon Act, departments must notify sub-recipients of their need to comply with Buy American.

OMB Transparency and Reporting Requirements

OMB requirements for ARRA transparency and reporting are also passed down to sub-recipients at a level that far exceeds the prior A-133 requirements. In reporting activity involving sub-recipients, in addition to the activity detail from the prime recipient, the Commonwealth as prime must assure that the following is provided:

  1. The DUNS# of the sub-recipient, their legal name, address and type (From VCUST doc format of po_ap_vendor_Customer_w9.doc
)
  2. The sub-award number(The encumbrance document ID)
  3. The total value of the sub-award/contract (The line amount from the contract document in MMARS)
  4. The sub-award date (The date on the encumbrance)
  5. The sub-award grant period (The service begin and end dates on the encumbrance)
  6. The primary performance location/area of benefit (From the Location Code entered on the MMARS documents)

NOTE: All of these data elements should be available in MMARS and will be extracted from MMARS for the transparency and OMB required reporting in accordance with CTR published guidance. Departments should ensure that staff is properly coding any ARRA encumbrances and payments in accordance with this guidance at the time of the expenditure to reduce any corrective actions that will be needed to properly account for and report ARRA expenditures in accordance with the Section 1512 requirements.

Reporting of Sub-awards and Contracts: OMB requires that the Commonwealth report the aggregate number and dollars of sub-awards/contracts. For Commonwealth prime recipients, this will be available through MMARS. This reporting requirement is also passed down to sub-recipients.

Sub-recipient Reporting Requirements

Departments should advise their sub-recipients and amend their existing contracts to ensure that the following data will be available for reporting:

Sub-recipients will be required to report all vendor payments they make with ARRA funds. Detail for these payments must include either the payee vendor DUNS number OR the vendor name and the zip code of the vendor headquarters

Sub-recipients may be also required to report the names and total compensation for the five most highly compensated officers in their organization if:

(1) the recipient in its preceding fiscal year received- (a) 80 percent or more of its annual gross revenues in Federal awards; and (b) $25,000,000 or more in annual gross revenues from Federal awards; and

(2) the public does not have access to information about the compensation of the senior executives of the entity through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986 [26 USC § 6104]. ''Total compensation'' means the cash and noncash dollar value earned by the executives during the sub-recipient's past fiscal year of the following (for more information see 17 CFR 229.402(c)(2)):

(i). Salary and bonus.

(ii). Awards of stock, stock options, and stock appreciation rights. Use the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R.

(iii). Earnings for services under non-equity incentive plans. Does not include group life, health, hospitalization or medical reimbursement plans that do not discriminate in favor of executives, and are available generally to all salaried employees.

(iv). Change in pension value. This is the change in present value of defined benefit and actuarial pension plans.

(v). Above-market earnings on deferred compensation which are not tax qualified.

(vi). Other compensation. For example, severance, termination payments, value of life insurance paid on behalf of the employee, perquisites or property if the value for the executive exceeds $10,000.

As part of the ARRA reporting requirements, the primary recipient, the Commonwealth, will be required to obtain information detailed in this document from sub-recipients.

The ANF Federal Stimulus Logistics Task Force will issue guidance to affected departments shortly that will provide additional details relative to the method, timing and format for the collection and reporting of the ARRA information required from sub-recipients.

Additional guidance in defining sub-recipients is provided in Appendix A doc format of 2010_5_attach_a.doc
.

Additional guidance for the ARRA reporting levels is provided in Appendix B doc format of 2010_5_attach_b.doc

Federal ARRA Programs required to follow the reporting guidance in this document are listed in Appendix C pdf format of 2010_5_attach_c.pdf
(revised 7/13/09); however, at the issue date of this document the federal listing is not complete. When available, CTR will post the final program list with all other ARRA Guidance on www.mass.gov/osc

Appendix D, Notice of ARRA Compliance Responsibilities doc format of ARRA Performance and Reporting Requirements
is attached. (Updated on October 15, 2009 see FY2010-05a and includes two additional attachments to be sent to contractors: ARRA JobQuest Job Posting Flyer pdf format of recovery_jobs_flyer.pdf
; and ARRA Section 1553 Whistleblower Poster pdf format of whistleblower_prov.pdf
.)

OSD will not submit these attachments to statewide contractors. Each department issuing ARRA funds must notify the contract that ARRA funds are being used and provide these attachments.

Departments should ensure that these attachments are provided to any contractor receiving ARRA funds unless this information has already been provided as part of the contract.

 

CCANF Federal Stimulus Logistics
 Internal Distribution