STATE VOCATIONAL REHABILITATION SERVICES VR PROGRAM MAINTENANCE OF

STATE VOCATIONAL REHABILITATION SERVICES (VR) PROGRAM MAINTENANCE OF EFFORT CRAIG MCMANUS, FINANCIAL MANAGEMENT SPECIALIST REHABILITATION SERVICES ADMINISTRATION U. S. DEPARTMENT OF EDUCATION DAVID STEELE, FISCAL UNIT CHIEF REHABILITATION SERVICES ADMINISTRATION U. S. DEPARTMENT OF EDUCATION RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Overview Maintenance of Effort (MOE) refers to a legislative, regulatory, or administrative requirement that a grant recipient must maintain a specified level of non-Federal expenditures (effort) to receive Federal grant funds. Reallotment refers to the legislative, regulatory, or administrative authority that permits a Federal granting agency to reallot to other grant recipients that portion of a recipient’s annual grant that cannot be used. 2 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Overview An MOE and reallotment are interrelated processes under the State Vocational Rehabilitation Services (VR) formula awards. While all of the Rehabilitation Service Administration’s (RSA) formula awards are subject to a reallotment provision, VR is the only RSA formula award that is also subject to an MOE requirement. This presentation provides details regarding the MOE requirement and process and describes the interrelationship with reallotment in the VR program. 3 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Part I: MOE Basics 4 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Requirement The Secretary of Education (Secretary) reduces the amount otherwise payable to a State for any fiscal year by the amount by which the total expenditures from non-Federal sources under the vocational rehabilitation services portion of the Unified or Combined State Plan for any previous fiscal year were less than the total of those expenditures for the fiscal year two years prior to that previous fiscal year (34 C. F. R. § 361. 62(a)). 5 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Requirement (cont. ) If the State provides for the construction of a facility for community rehabilitation program purposes, the amount of the State's share of expenditures for vocational rehabilitation services under the plan, other than for the construction of a facility for community rehabilitation program purposes or the establishment of a facility for community rehabilitation purposes, must be at least equal to the expenditures for those services for the second prior fiscal year (34 C. F. R. § 361. 62(a)). 6 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Calculation For MOE purposes, VR expenditures from non-Federal sources in a given Federal fiscal year (FFY) may include expenditures incurred during that FFY but were reported on Federal Financial Reports for the previous FFY’s carryover year rather than on the inancial reports for the given FFY. The combined non-Federal expenditures incurred in the given FFY, less the non-Federal share of expenditures for construction of facilities for community rehabilitation program (CRP) purposes and the establishment of facilities for RP purposes (34 C. F. R. § 361. 62(b)), as reported on the agency’s financial reports, established the MOE level for the FFY that occurs two years after the given FFY, pursuant to Section 111(a)(2)(B) of the Rehabilitation Act and 34 C. F. R. § 361. 62(a). 7 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Calculation (cont. ) Note: An example would be the FFY 2019 MOE level will include both non-Federal expenditures from the year of appropriation for FFY 2019’s VR award, as well as any non. Federal expenditures made in the carryover year of the FFY 2018 VR award, which is also FFY 2019. 8 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Calculation (cont. ) How is the total non-Federal share amount determined? Ending with the FFY 2020 VR awards, VR agencies must report on line 10 j of the Federal Financial Report (SF-425) all non-Federal expenditures and unliquidated obligations incurred under the VR program during the period of performance for the award, regardless of the source of funding, even if the amount reported exceeds the amount of non-Federal share required to match the total Federal funds awarded. 9 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Calculation (cont. ) Remember the MOE level includes Randolph-Sheppard setaside expenditures on cost categories allowable as VR non. Federal share that must also be reported on Federal reports. This information is necessary for RSA to assess whether the State has met its MOE requirement under Section 111(a)(2)(B) of the Rehabilitation Act and 34 C. F. R. § 361. 62. 10 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE: Calculation (cont. ) Beginning with the FFY 2021 (October 1, 2020) VR awards, VR agencies must report in Sections D and E of the RSA-17 all non-Federal expenditures and unliquidated obligations in the appropriate lines. 11 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Unliquidated Obligations Agencies must track their unliquidated obligations reported on the Federal reports, especially the fourth quarter report. Unliquidated obligations reported on the fourth quarter report, liquidated in a later period, count as MOE for the FFY in which the obligations were made. Funds for obligations reported on the fourth quarter SF-425, cancelled during the carryover period, do not count as MOE for the FFY the obligations were originally made and must be removed from the fourth quarter SF-425 through revision. For the RSA-17, the amount of liquidations from the unliquidated obligations reported on the 4 th quarter report are reported in line E. 32. Any non-Federal funds re-obligated and expended in a qualifying carryover year count as MOE for the FFY the re-obligation occurs, not the FFY that the award was allotted. Note: Non-Federal funds re-obligated after the fourth quarter, during the carryover period, are not counted as match for the period of performance for the award. 12 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Non-Federal Share Reporting – Example 1 A designated State agency (DSA) provides financial services to assist the VR agency (the designated State unit) in paying VR program invoices; staff members are paid by the DSA using State appropriations. If the staff provides services to support the VR program, the staff costs, proportional to the benefit received by the VR program, must be reported on the agency’s RSA-17 as non-Federal expenditures. 13 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Non-Federal Share Reporting – Example 2 The State office in charge of centralized billing for indirect costs has not billed the VR agency for indirect costs in several years. The other State agency pays the VR indirect costs with State funds; however, the VR agency doesn’t report the costs as non-Federal share. This would be a violation of the MOE requirement as such expenditures must be reported on the RSA-17 report. 14 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE : Frequently Asked Question Q. Does an MOE deficit affect the amount of a grantee’s future formula VR allotment? A. No. The Federal VR formula allotments are based on the statutory formula requirements and are recalculated annually. However, if a State has an MOE deficit for a prior FFY, RSA will reduce the State’s grant in a subsequent year by that deficit amount. 15 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Part II: MOE Deficit Determination, Penalties, and Waivers 16 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Deficit: Agency Notification On September 16, 2019, the RSA Commissioner issued a Dear Director letter notifying VR grantees that the process for determining the MOE deficit and assessing MOE penalties will change beginning with the FFY 2020 VR awards. This means that MOE penalties generally have not been levied against the FFY 2020 VR awards, as RSA has not yet assessed the FFY 2019 MOE deficit in accordance with the new process. In addition, MOE penalties will not be assessed against the FFY 2021 VR awards. MOE penalties for FFY 2019 MOE deficits will be levied against FFY 2022 awards (October 1, 2021). 17 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Deficit: New MOE Process The FFY 2019 MOE deficit will be based on the final SF-425 reports submitted by a VR agency for the FFY 2019 VR awards, compared to the FFY 2017 MOE level, and an MOE penalty will be assessed against the State’s subsequent year’s award. Since many State agency final SF-425 reports are submitted after the 8 th quarter of an award, the MOE deficit analysis will occur approximately one year later than has occurred in the past. Note: Due to uniformity, to avoid confusion and potential for error, RSA has determined that all VR agency MOE deficit assessments will be made after the 8 th quarter, regardless of whether a State has submitted a final SF-425 or RSA-17 for any quarter prior to the 8 th quarter. This will provide maximum planning for State agencies and consistent timeframes for when an MOE penalty will be levied. 18 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Deficit: Analysis Process The period of performance for an FFY 2019 VR award that qualified for carryover ended on September 30, 2020. Agencies had 120 days (until January 31, 2021) to submit the final Federal Financial Report. This means the earliest that RSA would determine an FFY 2019 VR MOE deficit would be January 2021 or soon thereafter. 19 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Deficit: Penalties Levied Consistent with the Rehabilitation Act, MOE penalties will be levied against the State’s subsequent year’s award. This means an MOE deficit assessed early in calendar year 2021 after final FFY 2019 VR award SF-425 submission may be levied as an MOE penalty in October 2021 and be deducted from the State’s FFY 2022 VR award allotment. Note: In accordance with Section 111(a)(2) of the Rehabilitation Act and 34 C. F. R. § 361. 62(a)(2), the Secretary will reduce the amount otherwise payable to a State for any FFY by the amount by which the total expenditures from non-Federal sources under the vocational rehabilitation services portion of the Unified or Combined State Plan for any previous fiscal year were less than the total of those expenditures for the fiscal year two years prior to that previous fiscal year. 20 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Deficit: Penalties Levied (cont. ) Once RSA has the information necessary to determine an MOE deficit exists, RSA will formally notify grantees of potential penalties. This occurs after the final SF-425 or RSA 17 report is submitted to RSA. The letter sent to the grantee will provide details regarding how the deficit was determined and what specific data/information the State should submit if it would like to request an MOE waiver. 21 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Waivers The Secretary may waive or modify an MOE penalty if a determination is made that a waiver or modification is necessary to respond to exceptional or uncontrollable circumstances, such as a – • Major natural disaster or • Serious economic downturn, that… causes significant unanticipated expenditures or a general reduction of State programs, or requires the State to make one-time, long term investments for the construction or establishment of CRP facilities. 22 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Waivers (cont. ) States should submit a request for an MOE waiver when the deficit becomes known. Typically, this occurs after receipt of the formal notification from RSA of an MOE penalty. Since the final SF-425 submission indicates the non-Federal share data is final, States may await the RSA notification letter of potential penalty or contact the RSA Financial Management Specialist assigned to their State to identify their intent to submit the MOE waiver request and receive instructions for next steps after the final SF-425 report is submitted. In our FFY 2019 example, if FFY 2019 is the year of the deficit, States with VR awards qualifying for carryover may reach out to the Financial Management Specialist in early calendar year 2021, after submission of the final SF-425 report, expressing their intent to submit an MOE waiver request. 23 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Waivers (cont. ) RSA has the ability to waive an MOE amount, if requirements are met, not the MOE requirement. Therefore, the amount of the deficit must be known to submit the MOE waiver request. VR agencies should work with the Financial Management Specialist assigned to their State to ensure the MOE waiver request includes all the necessary supporting documentation. Note: Recall that VR awards that do not qualify for carryover, with a 4 th or 6 th quarter final SF-425 or RSA-17 report, will not have their MOE deficit determined until all final 8 th quarter reports are submitted by VR grantees nationwide. 24 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

MOE Waivers (cont. ) The waiver request must include sufficient supporting documentation explaining the circumstances that contributed to the MOE deficit and stating how those circumstances were unanticipated or out of the State's control. Only the circumstances described at 34 C. F. R. § 361. 62(d) may provide the basis for an MOE waiver or modification. It is important that agencies provide the supporting documentation listed in RSA’s MOE penalty notification letter and present it in a logical and succinct format so that RSA can make a determination on the merits of the request in a reasonable amount of time. Failure to provide adequate, timely, or proper justification may result in the denial of the request. 25 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Part III: Reallotment 26 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Reallotment The Rehabilitation Act authorizes the Commissioner of RSA to reallot to other grant recipients that portion of a recipient’s annual grant that cannot be used (Section 110(b)(1) of the Rehabilitation Act). The reallotment process maximizes the use of appropriated funds under the VR and other RSA formula grant programs. 27 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Reallotment (cont. ) The total amount of funds available for reallotment in the VR program are dependent upon the amount of: • Funds relinquished by VR agencies for the current FFY; and • MOE deficits incurred by States that are not waived by the Secretary during the current FFY. 28 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Reallotment (cont. ) States that request funds in reallotment and incurred an MOE penalty earlier in the FFY will have the MOE penalty amount deducted from the available pool of reallotment funds before determining the amount of additional VR funds awarded to the State through the reallotment process. This process ensures that a State cannot benefit from its own MOE penalty. Note: States can benefit from other State’s MOE penalties through reallotment. 29 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Reallotment (Example) Using the FFY 2019 example, with an FFY 2019 MOE deficit identified in January 2021 and an MOE penalty levied in October 2021 against the FFY 2022 VR award: • The MOE penalty would be included in the FFY 2022 VR reallotment pool; and • The State VR agency incurring the MOE penalty will not be able to receive those funds back through FFY 2022 reallotment, but may receive other relinquished funds or MOE penalties incurred by other States. 30 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Part IV: Program Considerations 31 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Effects of the New Process MOE penalties will be levied at the beginning of an FFY, when funds are allotted. This means States with MOE penalties will see a reduction to grant award funds or potentially no initial VR funds if VR funds are allotted in small amounts through at least one continuing resolution. States without MOE penalties will receive the full amount of their VR formula allotments (once a full year appropriation is enacted) since RSA no longer retains 15 percent of the State’s allotment for MOE penalty purposes. 32 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Effects of the New Process (cont. ) The MOE assessment process will be based on a State’s final fiscal data on the final SF-425 and RSA-17 reports, instead of an interim report, ensuring more reliable MOE assessments that are less subject to change. Note: Remember, the extent to which a State agency with an MOE penalty receives a reduced grant award notification, or no grant award funds, is based on the size of the MOE penalty, whether VR funds are allotted through a full-year appropriation or continuing resolution, and the duration of the continuing resolution. 33 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Effects of the New Process (cont. ) States can rely on the timeframe of the MOE penalty as all State VR agencies’ MOE deficits nationwide will be assessed after the final SF-425 and RSA-17 reports are submitted by all agencies. MOE penalties solely based on FFY 2019 MOE deficits determined from FFY 2019 VR award SF-425 data will not be levied until the FFY 2022 VR award is issued. This means States may not incur VR MOE penalties against FFYs 2020 and 2021 VR awards unless MOE deficits are identified through activities (e. g. , monitoring, audits) other than the scheduled MOE assessment process. This also means the reallotment pools for FFYs 2020 and 2021 VR awards will generally not include MOE penalty funds. 34 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Frequently Asked Question Q. How can I best ensure I am prepared for the new MOE assessment process? A. VR agencies should consider the following as a best practice when reviewing their internal control policies and procedures: • Does the agency have detailed written fiscal procedures, including reporting requirements and due dates for fiscal reports, to enable a person unfamiliar with the processes to ensure requirements are met in the event of unexpected turnover of key personnel? • Contact your Financial Management Specialist with questions. 35 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Frequently Asked Question (cont. ) As required by the Uniform Guidance, does your agency have written internal control processes for ensuring that the agency expends program funds—both Federal and non. Federal funds—only for allowable activities? Does your agency have written procedures that would enable an individual to know readily the amount of non-Federal expenditures that were incurred in prior years so the individual could ensure MOE requirements are satisfied in subsequent years? 36 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

Technical Assistance (cont. ) If you have any additional questions, please email them to RSAfiscal@ed. gov. 37 RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE U. S. DEPARTMENT 38 SERVICES OF EDUCATION RSA REHABILITATION SERVICES ADMINISTRATION OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES