Adult and Community Learning Services (ACLS)

FY20 Changes for Certain Expenditures for Federal and State AE Grant Funds

April 12, 2019

Dear Program Directors,

I am writing to inform you of changes regarding certain expenditures of federal and state adult education grant funds that will go into effect in FY20. We will have a webinar on Wednesday, April 17 from 11:00 am to 12:00 pm, repeating Thursday, April 18 from 10:00 am to 11:00 am, to review these changes and answer questions.

ACLS received a "finding" pertaining to our administrative cost policy and process during the federal audit conducted in June 2018 by the U.S. Department of Education's Office of Career, Technical and Adult Education (OCTAE). As part of a corrective action plan, ACLS must cap administrative costs at 5%. However, per federal guidelines, we will implement a negotiation process that allows programs to apply for an administrative cost rate higher than 5% based on individual need. The administrative cost cap for adult education programs will continue to be 25%. In addition, the Office of Audit and Compliance has identified an error in how grantees have been permitted to charge approved indirect costs of up to 8% to the grant and additional approved indirect costs to match.

We must correct both these policies¹ in FY20. Below is a description of FY20 policy and processes that programs need to follow. While these changes may require some programs to provide additional information, we anticipate that the practical impact on how funds are allocated will be minimal for most programs.

1. Administrative Costs: As defined by AEFLA and EDGAR 34 Part 463, Subpart C (§463.25, §463.26), not less than 95% of funds must be spent on adult education direct services and literacy activities and not more than 5% of funds may be spent on administrative costs. Please note:
   1. AEFLA defines administrative costs as allowable costs related to the planning, administration (including carrying out performance accountability requirements), professional development, providing adult education and literacy services in alignment with local workforce plans, carrying out one-stop partner responsibilities, and state approved indirect costs charged to the grant.
   2. 100% of budget line one will be considered administrative. ACLS can only approve administrative salaries that directly support the grant. Administrators who provide direct student services need to account for those hours on line two. These hours must be accounted for through time and effort reporting. The administrative costs for sub-grantees must also be factored into the overall administrative cost rate. The FY20 budget form links sub-grantee administrative costs to the overall budget.
   3. AEFLA Sec. 233 states that professional development (pd) expenses are administrative expenses and part of the 5% cap. DESE has further defined administrative pd expenses to include non-SABES registration fees and travel expenses including out of state travel. The FY20 budget form includes a section to identify these pd expenses as administrative costs. Please note that DESE defines SABES training of direct service staff as instructional expenses.
   4. Programs may negotiate on an individual basis to determine an adequate level of funds for non-instructional purposes (i.e., administrative costs) by submitting a written request and rationale with their continuation applications. A form will be created for these requests. Please keep in mind that the approved indirect cost rate is part of the allowed administrative cost. DESE will not grant administrative cost requests that exceed 25%. Programs requesting to expend more than 5% of their grants on administrative costs must apply each year.
   
   
2. Indirect Cost Rates: AEFLA has supplement not supplant requirements. Under EDGAR 34 CFR 76.562-569, grants with the supplement not supplant provision have a restricted indirect cost rate. Grantees can apply for an indirect cost rate of 8% or their calculated indirect cost, whichever is less.
   1. In FY20, grantees must clearly identify their direct and indirect costs. In general, direct costs are directly related to providing direct instructional service to the students. Indirect costs are organization-wide costs that are indirectly related to the program, defined in EDGAR 34 CFR Part 76.565 as General Management costs. The U.S. Department of Education identifies indirect costs as payroll costs, accounting, procurement, human resources, and certain occupancy and maintenance costs as defined in EDGAR 34 CFR Part 568. All costs must be allowable and verifiable with supporting documentation.
   2. Costs included in determining the indirect cost rate cannot be included as direct costs to the program or any other program. Unrecovered indirect costs cannot be used as matching costs. Guidelines for the restricted indirect cost rate can be found in EDGAR 34 CFR 76.562 through 569.
   3. DESE will release additional information regarding indirect costs along with a new application that includes a template for computing indirect cost amounts and a list of information that must be submitted with the application for an approved restricted indirect cost rate. Examples of documentation that will be required are an organizational chart and the most recent IRS Form 990. DESE will also release guidance regarding indirect costs.
   
   

All local matching costs must be supported by documentation and traceable to the financial records of your organization and these costs must be allowable and directly related to the program.

ACLS is working closely with the Office of Audit and Compliance to assist us with proper administration of federal and state adult education grants. I look forward to providing additional information during the April 17 and 18 webinars.

Sincerely,

Wyvonne Stevens-Carter

Note:

¹ These changes will align adult education grants with the Adult Education & Family Literacy Act of 2014 (AEFLA) and EDGAR, 34 CFR Part 462 and 463, the governing law and regulations for adult education grants.