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      OWB 97-26


      SCSEP Cost Classification and Cost Categories


      To clarify cost classification and allocation of charges to appropriate cost categories for SCSEP sponsors, especially for individuals who plan, execute and review SCSEP budgets, cost allocations and expenditures, including sponsor financial management staff and outside accountants and auditors.




      ERICH W. ("RIC") LARISCH Chief Division of Older Worker Programs

    Date: December 22, 1997

    Expiration Date:  Not Given


      References: General Accounting Office (GAO) November 1995 Report GAO/HEHS-96-4, "Senior Community Service Employment Program Delivery Could Be Improved Through Legislative and Administrative Actions"; SCSEP regulations at 20 CFR Part 641, Subpart D; and Office of Management and Budget (OMB) Circulars A-87, A-102, A-110, and A-122.

      Background: In the response to the GAO on the November 1995 Report on the SCSEP, the Employment and Training Administration (ETA) agreed to examine the GAO concern further to ensure there is no misunderstanding on the part of our grantee partners about how to charge staff and related costs associated with such staff functions as recruitment, assessment, development of appropriate community service assignments, and unsubsidized placements.

      The ETA review did not reveal any widespread misunderstandings about proper charging of costs. Therefore, a decision was made to deal with such concerns on a case-by-case basis. Recently there have been questions about the SCSEP cost categories, however, particularly regarding the categorization of charges as "Administration" and "Other Enrollee Costs" (OEC). Auditors have raised this issue in connection with charges for staff, services, and space used for enrollees, including salaries and travel of field staff. In some cases, auditors have suggested that some of the costs charged to the OEC cost category should have been charged to the Administration cost category. Based on these questions, it was decided that a Bulletin was needed to provide clarification.

      This Bulletin is intended to clarify misunderstandings that might result in questioned costs. In addition, it will elaborate upon ETA's position with regard to the proper charging of costs, and inform auditors, accountants and other interested parties of ETA's policy on these matters.

      In the November 1995 report, the GAO disagreed with the way SCSEP costs were classified, although sponsors charged costs in accordance with ETA instructions. The principle area of disagreement was the distribution of charges between the Administration cost category and the OEC cost category.

      Generally, charging of costs should be based on functions performed. Functions such as recruitment, assessment, eligibility determination, host agency development, counseling, job development and placement, and costs associated with those functions, are appropriately charged to OEC. Costs of functions such as financial management, staff supervision and compliance monitoring, and costs associated with those functions, are properly charged to the Administration cost category. Staff training costs of staff associated with OEC functions should be charged to OEC; staff training costs for administrative personnel should be charged to Administration.

      Part of the confusion that existed when the GAO report was issued revolved around the regulations in effect at the time of the review. While GAO contended that the 1976 regulations governed the grants, ETA placed language in the grant document that specifically directed grantees to use the draft 1985 regulations for operation of the programs. That situation has changed since the report was issued. The final SCSEP regulations were published on May 17, 1995. With regard to the classification of costs, these final regulations were similar to the proposed regulations that ETA had been incorporating by reference into the SCSEP grant packages.

      Discussion: To the extent that they were consistent with the legislative language of the other statutes and other administrative requirements, the 1995 final SCSEP regulations were drafted to parallel the construction of the regulations for other job training/ workforce development programs administered by ETA. Under the Job Training Partnership Act (JTPA), the overwhelming preponderance of the funds are directed to a principal cost category/function, namely "training." In contrast, under the SCSEP, 75 percent of funds must be used for the "Enrollee Wages and Fringe Benefits" (EWFB) cost category, with only 13.5 percent available for Administration (which may be increased up to 15 percent if a waiver request is granted). The remaining 10 to 11.5 percent of funds available may be used for either EWFB or OEC.

      Cost principles for current training programs were carried forward from the rules for cost classification and allocation of earlier employment and training programs. These cost principles were, in turn, based upon those articulated in OMB Circulars A-87, A-102, A-110 and A-122. While most dollars will be used to support the basic objective of the legislation -- employment, training, or some other purpose -- it is also important to stress the critical importance of "Supportive Services." Today, supportive services are more critical than they were when the cost categories were developed over 20 years ago. The SCSEP program has evolved from a limited community service program to a more complex program with comparable goals and policies. For example, initially there was no goal for unsubsidized placements or requirements for individual development plans and, generally, grantees did not pay for physicals and other supportive services. Today, transportation, financial assistance, physical examinations, counseling, etc. often mean the difference between an unsatisfactory experience with a workforce development program, and a successful unsubsidized placement that results in significant improvement in a participant's economic well-being.

      The importance of supportive services was documented in the June 1992 Report GAO/HRD-92-124, "Job Training Partnership Act: Actions Needed to Improve Participant Support Services," which found child care and transportation to be among the most important of supportive services. Although older people may not need child care services, they may need adult day care, housing or transportation. It is important to recognize that such costs often represent the costs of staff salaries, wages and fringe benefits of people who may be performing multiple functions that benefit the program. For instance, the costs of "training" include instructor salaries as well as related costs such as books, materials, supplies, rent, telephones and utilities associated with instructional space. Transportation costs could include the salary of a bus driver transporting enrollees to training, which would be charged to OEC under the SCSEP (unless an enrollee was the driver, in which case the cost would be charged to EWFB). On the other hand, transportation costs of local project staff who perform compliance monitoring would be an administrative cost rather than an OEC cost.

      Project staff also serve as counselors to enrollees, working on individual development plans and arranging for training. The time, travel and related costs while performing such functions are chargeable to the OEC cost category, since these are OEC functions. OEC functions include activities that directly support and involve enrollees such as recruitment, orientation, assessment, testing, counseling, supportive services, workplace safety activities, job development and placement, training, follow-up services, etc. -- indeed, all functions that are not directly related to administering the program, or chargeable to EWFB, and including training of staff to better perform OEC functions.

      Sponsors may reduce amounts charged to Administration and/or OEC by assigning enrollees to activities that would normally be charged to either of these cost categories. In such instances, the costs of these enrollees' wages and fringe benefits would be charged to the EWFB cost category.

      ETA Policy: In general, costs under the SCSEP should be charged by functional area. The charging of costs by function should ensure an accurate reflection of cost category expenses, avoid confusion, and simplify record-keeping requirements. The kind of work actually performed should be the basis on which staff costs are charged to cost categories, and not merely the job title of the staff involved.

      In summary, there is a need to examine specific examples to determine how the costs should be most appropriately allocated. If functions are being performed by enrollees, regardless of the specific function under consideration, the costs should be charged to EWFB.

      Although not directly associated with the discussion above, it should also be noted that the costs of enrollee on-the-job training should be charged to the EWFB cost category as well.

      Procedures for proper allocation of staff and related costs. Most SCSEP projects are operated with a small staff. Local projects are often administered by one or two people. Under these circumstances, it is usually not possible to assign discrete duties to an individual. For example, normally the project director will not be limited to management duties (an administrative charge). Instead, this individual will also perform duties such as counseling and job development, which are appropriately charged to the OEC cost category. A project director may switch roles and therefore perform functions that involve changes in cost categories many times during the work day. Personnel and related non-personnel costs of project staff who perform services that benefit two cost categories may be allocated to the benefiting categories; this should be based on documented distributions of actual time worked or on other equitable cost allocation methods. Consistent with these clarifications, SCSEP grantees should:

      a. Establish procedures to ensure that staff time is charged properly among the cost categories. While many sponsors have already established adequate systems to collect such information, those that have not should do so. The system established should be easily implemented and should not be a significant additional administrative burden. National sponsors should review OMB Circular A-122, specifically Attachment B, Selected Items of Costs, Paragraph 6L.2. a, b, c and d to determine the suitability of the system. States should review OMB Circular A-87, particularly Attachment B, Selected Items of Cost, item 11. h.

      b. Advise ETA of any plans to use a survey method to allocate charges, and describe the methodology and timing as well as the source of the survey method. This notification should provide ETA with adequate time to review and comment on the proposal.

      c. Distribute the personnel time of project staff between the Administration and OEC cost categories. Time distribution sheets, not to be confused with time and attendance reports, should be maintained. Also, if applicable, there should be a distribution of time and costs among different funding sources based on the specific activities conducted for the funding agencies.

      d. Charge a portion of such project costs as rent, utilities, and staff training and travel as appropriate to the OEC cost category. Of course, these charges must be made on a reasonable and justifiable basis. Actual, documented experience, as opposed to estimates, is the preferred allocation approach.

      ETA encourages sponsors to develop their procedures with the assistance of competent fiscal staff or audit firms and the appropriate OMB circulars.

      Special Note: Sponsors should exercise prudence by giving names to staff positions that are appropriate to the job duties. For instance, a staff member whose principal duties are developing jobs, counseling enrollees, and coaching enrollees on work behavior is better described as a counselor than as an enrollee supervisor. It is important that all staff members have job descriptions that clearly and accurately delineate their job duties.

      Action: Sponsors should review this Bulletin and implement such actions as their circumstances dictate, continuing to follow the SCSEP regulations at 20 CFR Sections 641.401 through 641.406, along with all other applicable Federal regulations and circulars.


      Inquiries may be directed to your Federal Representative at (202) 219-5904

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        Washington, DC: U.S. Department of Labor, Employment and Training Administration

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