���˶���

LSC's New Financial Guide

Ronald S. Flagg, President
November 10, 2022

•  (PDF)
• Return to Program Letters Home Page

 

In advance of LSC’s new Financial Guide effective date of January 1, 2023, this Program Letter provides a summary of some, but not all, of the new fiscal requirements that will go into effect on that date. I recommend you share this letter with your organization’s board of directors, fiscal team members, and independent public accountant.

As noted in Appendix 2 of the new guide, when the guide states, “recipients must” or “recipients shall,” LSC is requiring that recipients take the proscribed action. When the guide states, “recipients should,” LSC is urging recipients to take the proscribed actions for a particular purpose, though the actions are not required. If a recipient does not take the proscribed actions, then the recipient can still meet LSC’s intended purpose through other actions. Nonetheless, LSC may require that the recipient explain or justify the sufficiency of its alternative actions. If LSC determines that the recipient’s actions are insufficient, LSC may require that the recipient take new or different actions to achieve LSC’s intended purpose. When the guide states, “LSC recommends,” LSC is providing the recommendation as a best practice example, and the proscribed actions are not required. Recipients may take alternative actions, so long as those actions comply with LSC’s regulations, the guide, and applicable laws.

LSC recognizes that it may take recipients time to make necessary changes. LSC plans to work with recipients, throughout 2023 to help them bring their fiscal policies, procedures, and systems into compliance with the new Financial Guide.

Section 2.2.3 -- Reconciliations

The labor cost distribution report, or alternative reports, must be reconciled against individual timekeeping reports. The purpose of reconciling the labor cost distribution report, or alternative reports, to the timekeeping reports is to support and document, at a minimum, that LSC funding is properly being used to pay the costs of an employee’s time spent working directly on LSC-eligible activity. Failing to accurately reconcile the labor cost distribution reports, or alternative reports, may result in the improper allocation of payroll costs to funding sources. Therefore, recipients must reconcile timekeeping reports with the labor cost distribution reports, or alternative reports, on an annual basis, at a minimum, before final fund allocation entries are made in the accounting system. Recipients should exercise professional judgment as to the appropriate frequency of such reconciliations, taking into consideration factors such as, but not limited to, recipient size and the number of funders. Each recipient must adopt written policies and procedures (e.g., oversight, approval) to guide its staff in complying with this section.

Section 2.5.1.a -- Responsibilities of the Financial Oversight Committee

The Financial Oversight Committee is required to review and approve the Executive Director’s (ED) timesheets, expenses, and compensation. The review and approval of the ED’s timesheets can alternatively be performed by an individual in an appropriate level of management who has knowledge of the ED’s daily activities. The review of the ED’s expenses and compensation is generally a responsibility of the Board; however, the review may be performed by any committee of the governing body.

Section 2.5.3 -- Electronic Data Processing and Cybersecurity

Recipients are required to have written security policies and procedures for physical and digital assets including all financial data and records in any form (e.g., electronic data processing (EDP) and cybersecurity policies and procedures). Recipients are required to conduct an annual risk assessment of their physical and digital assets. The risk assessment should also include the organization’s electronic banking policies and procedures to identify areas that need additional safeguards and protections. Risk assessment procedures will vary by grantee, but the process should:

• Identify the physical and digital assets susceptible to cyberattacks.
• Identify risks to those assets (risks should be evaluated annually for changes).
• Evaluate the risks (e.g., high, medium, or low) based on likelihood and impact.
• Document the results of the risk assessment, including the development and implementation of appropriate controls.

Section 3.2.4.a -- Employee Expense Reimbursements

Recipients must have written policies and procedures in place to govern the handling of employee expense reimbursements. The policy should address the following:

• Allowable/reimbursable expenses.
• Specific documentation requirements (e.g., detailed receipts, business purpose, formal reimbursement forms).
• Deadline to submit reimbursement requests.
• Preapproval requirements.
• Review and approval requirements (e.g., identify designated reviewers, evidence of review).

Section 3.2.4.b -- Travel Expenses

Recipients must adopt written travel policies and procedures that address travel approval and reimbursement. The policy is required to identify acceptable mileage rates, spending limits, the definition of per diem allowances, the types of expenses intended to be covered by per diem allowances, and the types of required supporting documentation such as hotel folios, boarding passes, etc. Recipients are required to establish a reasonable threshold for the collection and retention of receipts for travel expenses, except per diem allowances, and establish a reasonable timeframe within which travel expense reports must be submitted for reimbursement.

Section 3.2.4.b.i -- Local Travel

Recipients are required to have detailed local travel policies. LSC recommends that, at a minimum, the policy include the following:

• Definitions of allowable/reimbursable expenses.
• Clear identification of the local travel area for each worksite.
• The requirement that all local travel reimbursement requests be submitted in the name of the traveler.
• The requirement that local travel reimbursements be approved by appropriate supervisors.
• The requirement that local travel reimbursements be delivered to the travelers only and no other staff.
• The requirement for receipts for local travel.
• The requirement to complete a separate and detailed local travel form that captures key information relating to local travel, including the business purpose and applicable case information.
• The requirement to reconcile all work product and case management system entries with travel reimbursement requests.

Section 3.2.4.b.ii -- Travel Advances

In the event a recipient allows employees to request and receive travel advances, the recipient’s travel policy must identify when the employee is permitted to request a travel advance, how much the employee is permitted to request, and the process for such an advance to be approved. The policy should also address those situations where an employee must repay an advance.

Section 3.7.1 -- Cost Allocation

Recipients must have written policies and procedures that allow for third-party review and address the following:

• Direct and indirect cost definitions.
• Indirect cost allocation methodology(ies), including allocation bases (e.g., total direct costs, direct salaries and wages, attorney hours, numbers of cases, numbers of employees).
• Frequency of allocation.
• Who conducts the allocation and who performs the review.
• Documentation requirements to support the allocation (e.g., labor distribution report, personnel activity reports, calculation work papers).
• Reconciliation process related to salaries and wages directly charged to LSC grants and contracts.
• Methodology to address “exception for certain indirect costs.”

Recipients should remember that allocation bases must be cost-driven and therefore, measure the benefits provided to a cost objective (e.g., program, contract). For example, budgeted numbers or percentage of revenue are not allowable allocation bases. In instances of refusals by non-LSC funders to pay indirect costs (in accordance with 45 C.F.R. § 1630.5(g)), recipients must also have written policies and procedures to calculate and allocate those indirect costs consistent with the requirements of and Program Letter 18-2.

Section 3.7.3 -- Disallowed Costs

The following are examples of unallowed costs for all LSC grants:

• Membership fees or dues paid to any private or non-profit organization, whether on behalf of the recipient or an individual.
  • This restriction does not apply to payments for fees and dues mandated to practice a profession (e.g., mandatory bar dues) or required by the recipient as part of an employee’s job position requirement.
• Contributions or gifts to another organization or an individual.
• Alcohol.
• Holiday cards.
• Shot glasses.
• Late fees.

Some items usually are not allowed but may be allowed in some circumstances. For example, flowers, cakes, and promotional items or tokens of appreciation are generally not allowed. Nonetheless, some types of events, such as fundraisers or recognition events for volunteer attorneys, may justify using LSC funds for those expenses within the allowability of 45 C.F.R. Part 1630. A recipient should consult with LSC or seek an advance understanding under 45 C.F.R. § 1630.6(a) about situations that might justify those expenses with LSC funds. Recipients are required to develop procedures to ensure disallowed costs are identified in a timely manner. Recipient fiscal management and staff personnel should be familiar with the prohibited activities and exceptions within the LSC Act and regulations.

Section 3.7.3.a -- Meals and Refreshments

LSC prohibits using LSC funds for meals and refreshments, except for courtesy coffee, tea, and similar beverages and minor refreshments as part of employee recognition events or major substantive workevents, or when they are necessary costs of conducting trainings, fundraising events, Board meetings, and conferences. Barring these exceptions, LSC has determined that costs related to meals and refreshments are unreasonable and unnecessary for the performance of any grant or contract funded by LSC. Although not bound by the Uniform Grant Guidance (UGG), LSC is using its definition of a conference for clarity.

Section 200.432 of the UGG defines a conference as “a meeting, retreat, seminar, symposium, workshop, or event whose primary purpose is the dissemination of technical information beyond the non-Federal entity and is necessary and reasonable for successful performance under the Federal award.”

Section 3.7.4 -- Related Parties

If a recipient has any related party transactions using LSC funding, recipients are required to have policies that describe the methodology by which the transaction/cost was calculated and provide the supporting documentation. For example, a recipient providing financial and administrative services for its wholly owned subsidiary (a non-LSC recipient) would be subject to this requirement. Shared costs may include rent or space, information technology, personnel (including intake personnel), shared management, and any other overhead costs.

Section 3.8.1 -- General Requirements (for Subgrants)

The recipient must conduct a risk assessment and determine, based on that assessment, the level of monitoring, oversight, and timing and frequency of onsite visits to the subrecipient to ensure the proper accountability and compliance with program and financial requirements and the terms and conditions of the subgrant. The risk assessment performed by each recipient will vary. However, the risk assessment should consider the following key risk indicators for each subrecipient:

• The amount of LSC subgranted funds, property, or services awarded to the subrecipient;
• Size of the subrecipient and number of offices;
• Susceptibility to financial and technological errors;
• Fraud, waste, and abuse;
• Internal controls weaknesses found during OCE, Office of Program Performance, OIG, and other funding sources’ compliance reviews and onsite visits;
• Qualified, adverse, and disclaimer audit opinions, material weaknesses, significant deficiencies, questioned costs, and going concern issues; and
• The level of non-compliance with LSC regulations and accounting requirements and the terms and conditions of the subgrant agreement.

For questions regarding how to implement the new Financial Guide, please contact the LSC Fiscal Compliance Analyst assigned to your organization and copy Stuart Axenfeld (axenfelds@lsc.gov), the Deputy Director for Fiscal Compliance.