Most Common Errors Regarding Non-Federal Share
The Head Start program started back in 1965 with the purpose of breaking the cycle of poverty by providing preschool children of low-income families with a comprehensive program to meet their emotional, social, health, nutritional, and psychological needs.
Many agencies applying for the grant for the first time are surprised to find out that 25% of the funds awarded include a non-federal share-funds that the agency is responsible for. Grantees are consistently challenged with how to acquire these funds. Some rely solely on donations, but increasingly, those donations are not enough to meet this requirement. There are some persistent errors that have plagued grantees over the years. That is the reason we decided to outline the most common errors for you. Keep these in mind and try to avoid them throughout the In-Kind collection so you can accomplish your goals every year.
Inadequate or No Documentation
As you already know, every in-kind donation you receive, whether it is volunteer services, cash match or donations, must be properly documented to be counted and included in your Non-Federal Share. Nevertheless, there are still frequent issues regarding documentation, such as mistakes made in the forms or inputting the information on the Agency’s database. Additionally, sometimes there is no documentation at all of the contribution received (this usually happens with volunteer services).
The United States Department of Health and Human Services has published some guidelines about Fiscal Management for Agencies to apply with the purpose of ensuring that all In-Kind contributions are properly documented. Among those guidelines, it is advised for grantees to develop clear policies and procedures for documenting non-federal match, to provide adequate training to staff members assigned to track non-federal match and in-kind donations, and to create an efficient financial management system that maintains individual accounts for both federal and grantee shares.
Although these guidelines are helpful, they still rely on the use of physical forms, paperwork and manual procedures with too many steps and people involved in the process, which leaves a lot of room for errors. As part of our effort in making In-Kind collection a straightforward, easy going and efficient process, we encourage the acquisition of digital platforms and software that have the potential to provide efficient tools and methods to collect, document and keep track of all In-Kind contributions.
In the article Discover how digital in-kind collection can impact your agency, we outline the benefits that come with adopting the use of digital tools regarding in-kind collection, and how they can help you avoid documentation errors as well as gaining efficiency and accuracy.
Overvaluing The Donation of Goods and Services
The in-kind contributions your agency can collect to meet the Non-Federal Share can vary from volunteer time to equipment, buildings or space. As they vary, their valuing method also varies and might require different factors to be taken into account. It is essential to have clarity about the valuation process for each contribution, as any mistake made during this process could prevent the contribution from being counted in your Non-Federal Share, making it difficult to meet your goals.
Additionally, an overvaluation problem could lead an organization to believe that the Non-Federal Share is being met as the value of the contributions collected might seem higher than they really are. If this is not corrected in time, the organization could be facing an end of the year situation in which numbers do not add up and a big portion of the Non-Federal Share is missing. Eventually, this could mean the partial or total loss of the award for the agency.
To avoid this from happening, it is essential to have clarity about the key concepts needed to value a contribution correctly and to follow the requirements established in the Head Start Act. If you want to know more about how to calculate your Non-Federal Share and how to value the contributions you receive, you can read the article Non-Federal Share: How to determine your match and value your donations, where we outline the most important details about the valuation process. You can also download our Non-Federal Share Guide here for more information.
Besides these requirements, it is also important for you to keep in mind that no federal funds can be used to complete your Non-Federal Share, therefore, if the volunteer’s time is being paid under another federal grant, it may not be used for match. However, if the volunteer’s time is being partially or fully paid by State or Local sources, that cost may be used as match if the state or local funding is not already used as a match for the federal funds.
Let’s look at some examples of allowable volunteer contributions and how to value them:
- If a Fire Department staff member assists an agency with the development of its emergency preparedness program, his/her contribution has to be valued based on the Fire Department’s rate of pay plus fringe benefits. This is appropriate as the skills required for this service could not be found within the organization, and it is capturing the actual cost of the service provided for which the agency would have paid otherwise.
- If a parent volunteers in a classroom, the service provided is similar to the one provided by an assistant teacher from the organization, therefore, the service should be valued based on the agency’s rate of pay for that position.
Although volunteer contributions may be the most common ones, you should also look at other types of donations. Donated goods are also a way to match your Non-Federal Share, and the main criteria to value them is their fair market value. Depending on the goods that are donated, that fair market value can be determined in different ways.
Including Items That Would Not Be Allowable Costs
All Federal programs and awards have terms and conditions that determine what contributions can be received and counted to match an organization’s Non-Federal Share, as well as all the requirements that have to be taken into account to spend the Federal Funds. It is fundamental that you ensure all the costs incurred are allowable under the Head Start Act, otherwise, you could be facing the possibility of a disallowance that could take your award from your organization, partially or completely.
The U.S Department of Health & Human Services, through the Administration of Children & Families, has defined the allowable costs as reasonable, allocable, and necessary for the accomplishment of the project objectives. This requires the need to have a proper understanding of each of these concepts to ensure your costs are allowable under the Head Start program.
One of the reasons that has led agencies to make mistakes regarding allowable costs and contributions, is not having a clear understanding of what it means that a cost or contribution benefits the federal award and the organization. A very common error is that agencies include items that are furnished for personal use such as food and clothing in the Non-Federal Share, or count transportation by parents for personal convenience or transportation of employee’s children by the employee as In-Kind.
These activities and contributions must not be included in the Non-Federal Share as they are not related to the child’s education and because they only benefit parents and/or employees on a daily need.
For example, if your agency is holding a Head Start activity with parents and children, and you use federal funds to buy food and snacks to have during the activity, that would be an allowable cost because it was used for the activity and, therefore, the program. However, you cannot use program funds for nor count as in-kind the cost of food provided to employees or clients.
In the same way, if there is a Head Start activity off school grounds, and parents volunteer to provide transportation for the children participating in the activity, that can be counted as an In-Kind contribution. But, parents or employees taking their children to school is part of a daily routine that is not related to the Federal award, so it must not be included either. In this case, you should also consider that if you use the Federal Transportation Allowance to reimburse volunteers for the services provided, those could not be included as in-kind contributions as Federal Funds were used to finance them.
What is allowable then?
First of all, you should ask yourself if the use of the funds is reasonable. According to the Head Start Act Subpart E, 45 CFR § Part 75.404, a reasonable cost is the one that in its nature and amount, does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. In other words, you have to make sure the cost is generally recognized as ordinary and necessary for the operation of your organization; it has to be used towards the proper and efficient performance of your Federal Award.
If you have determined it is an ordinary and necessary cost, then you have to make sure the cost complies with sound business practices; arm’s-length bargaining, that it is comparable with prices for similar goods and services in your local area, and that it does not imply a significant deviation from your established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost. Additionally you must make sure that Federal, state, local, tribal, and other laws and regulations are met, as well as terms and conditions of the Federal award.
If Head Start is the only program your Agency has, you are good to go! If your cost is reasonable and used to accomplish the federal award goals, it is allowable. However, if your agency has other federal awards, you must confirm if the cost incurred will only benefit the Head Start program, or if it will also benefit other programs. From this evaluation process you will know if you need to allocate the cost or not.
An incurred cost has to be allocated in case it benefits two or more federal awards. The allocation’s purpose is to avoid overcharging a federal award beyond the benefits it receives from the cost incurred, and that all federal funds are used proportionately based on the benefit each award receives from it.
There are four main elements to be taken into account when determining the allocation of a cost:
- The cost is incurred specifically for the Federal award.
- The cost benefits both the Federal award and other work of the Non-Federal entity.
- The cost can be distributed in proportions that may be approximated using reasonable methods.
- Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award.
The easiest part of the allocation process is making sure the cost benefits your organization and the Federal Award. However, distributing this cost between several federal awards and your Non-Federal Share might be a little tricky.
The way to make sure every cost is correctly allocated, is to develop a Cost Allocation Plan every year. This is essentially a budget that is created annually, to establish how your funds will be distributed based on the expenditures.
As with any other budget, your Cost Allocation Plan should be based on and contain the following points:
- It should be carefully thought out.
- It should be a reasonable estimate of how an organization will use and charge shared costs and services.
- It should reflect how shared costs will be charged to various funding sources, based on the benefit each of them will get from the cost.
- It should be possible to change throughout the year if there is the need to redefine how costs will be divided and charged to different programs in your agency.
An example of cost allocating funds is if you receive funding from both Head Start and your state for pre-kindergarten classes. Your organization combines four year old children who are funded by Head Start and your state into one class. A class of 20 students has 10 Head Start students and 10 State Pre-K students. The way to cost allocate this class is to fund the teachers at 50% from each funding source and to fund all materials and supplies at 50% from each funding source.
Counting At Home Activities Not Related To Your Curriculum As In-Kind
The educational activities parents carry out with their children at home are a great way to increase your in-kind donations and complete your Non-Federal Share. They are usually easy and engaging activities that can be done at any time, and are a wonderful opportunity to keep parents engaged in the academic development of their children.
Being as it is, sometimes agencies make the mistake of counting every at-home activity parents do with their children, such as washing dishes, working on the garden, or watching a movie, among others as in-kind. Despite the fact that we love to see parents spending time with their kids, not all activities are able to be counted as in-kind donations, and they follow the same rules as other contributions.
As we have mentioned in this article, every contribution and cost has to be completed with the purpose of achieving the Head Start Program goals, and at home activities are not an exception to this rule. In order for these activities to be counted as in-kind donations they have to be related to the school curriculum and the different topics that are being taught in the classrooms.
Consequently, the way to ensure your Non-Federal Share is benefiting from at-home activities, is to have them assigned by teachers directly to parents. Your agency can include several at-home activities within your curriculum so teachers can use them throughout the year, and you also have the option to acquire digital platforms that already provide curriculums and activities to carry-out and can contribute to your in-kind collection while they make the process more efficient.
Improper Use Of Federal Funds
Many times agencies receive funds from a variety of sources and larger agencies may have different staff responsible for the different grants that are awarded. It is important to keep track of all the different funds coming into your organization so that federal funds are not used for the same purpose more than once. This is known as Duplication of Benefits or more commonly as “double-dipping”.
Some common “double-dipping” errors are matching one grant fund with funds from another one, or using match funds for more than one grant. For example, to use Title I dollars to pay for a Head Start teacher or using Title IV funds to pay for technology when you have Head Start funding for this purpose.
Using Head Start funds to purchase a computer for a school principal that houses a Head Start class in an otherwise regular PK-5 school would also be a violation of the use of funds. Purchasing equipment for the CEO of your organization would also be a violation if the CEO does not directly oversee and work with the Head Start program.
There are many examples of the ways that agencies can make mistakes so it is always prudent to review your policies, the Head Start Act and to ask questions if you are unsure.
Another aspect you should take into account regarding the use of Federal Funds is that you should always look into the funding source of the donations you receive. If any donation was purchased using Federal Funds, it cannot be counted and valued to complete your Non-Federal Share, as it has to comply with the rule of not using Federal Funds to complete your Non-Federal match from your awards.
To comply with the proper use of Federal Funds, it is suggested to have a good tracking system for them. This will help to avoid paying for the same thing from two different funding sources. It will also help to track which grants are used for what purposes and how their Non-Federal Share is being completed without any conflicts between the grants.