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Small Business
Administration
Section I
Introduction
As the SBA’s Financial Examiner (FE), you will be responsible for the financial
management of the program. The key criteria governing this arena is 13 CFR §
130.350 (b), which states that the "SBDC Director shall direct and monitor
program activities and financial affairs of the SBDC network to deliver effective
services to the small business community, comply with applicable laws,
regulations, OMB Circulars and Executive Orders, and implement the Cooperative
Agreement." It is your responsibility to ensure that the SBDC director
understands and complies with this critical criteria. This function is known as
financial control
financial control. The criteria listed under Section XX of this guide will be your
primary tools, in addition to:
Notice of award;
Program announcement;
Related memoranda;
Common business practice; and
the attached checklists.
conflict You will apply conflict management techniques and sound business judgment in
management this arena, which includes problem solving, negotiating, and disputes resolution.
Conflict management is most often applied to deal with the conflict arising from
the program's terms and conditions and the recipient’s application of them in
their financial management policies and systems. An understanding of the
recipient's financial policies and the SBDC network's guidelines are important
concepts to apply to achieve a win-win situation. You should approach financial
management from the following perspective/goal: any financial management
system can be adapted to support the implementation of the SBDC
program's financial requirements. It is your job to ensure that you provide
the recommendations to assist the SBDC network to achieve this goal, through
you financial analysis.
Before we begin Before we begin, let's define some key concepts that are unique to the financial
management arena: financial control and the difference between "accounting
management" and "financial management."
Definition Financial control involves the use of financial measures to assess organization
financial control and management performance. The focus of attention is on financial results,
provides a counter-point to the balanced scorecard view that links financial
results to the SBA's designated drivers. Financial measures do not identify what
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Prepared by: Office of Small Business Development Centers /Financial Branch
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is wrong, but they do provide a signal, or at the very least that expectations were
not met, and that attention, explanation, and possibly even action are needed.
When the SBA applies financial control tools to evaluate SBDC networks, the
resulting information is usually used internally; and is not usually distributed to
outsiders. The following table will help in understanding the difference between
financial accounting and managerial accounting:
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What’s reasonable?
In its simplest form, a reasonable cost has a rational
basis of value and a bona fide purpose. A rational basis
in value may be established through competitive
purchasing, institutional experience, and local market
conditions. A bona fide purpose is one that is
traditionally accepted as necessary for the successful
implementation of the program in accordance with its
guidelines. Some examples of unreasonable
expenditures might include costs of items or services
solely for the benefit of an individual and not the
program; purchase of items which showed no particular
usefulness to the program; or the charge of a lump
sum payout to a retiring employee which reflects an
accrued benefit well exceeding the term appointment
to the SBDC program.
The FE performs the tasks of financial management for the OSBDC; the SBDC
director, on the other hand, performs the tasks of accounting management.
This can be the cause of conflict, because the FE responds to regulated
restrictions; while the SBDC director responds to the management and strategic
operational needs of the recipient. Interpersonal and negotiation skills are used
to bring both parties together for the integrity and benefit of the SBDC program.
When does the The FE begins the implementation of financial management upon receipt of the
FE begin the
assigned networks from the Director of Financial Analysis, OSBDC. This occurs at
implementation
of financial the end or beginning of the Fiscal Year. The FE starts by reviewing past reports,
management? event planning, and preparation of the notification letter.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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This guide will provide guidance for the following financial management
In this guide processes:
Attachments:
1. Notification Package
2. SF 269 package
3. Lead Center Work Program
4. Service Center Work Program
5. Summary of findings
6. Worksheet
7. File Index
8. Follow-up Validation Report
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Prepared by: Office of Small Business Development Centers /Financial Branch
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Section II
Available Tools
The tools that are used for the SBDC financial examination are as follows:
• grant file
o proposal
o notice of award
o SF 269 package
o Associated SF 270
o Letters between the SBA grants manager and SBDC director
pertaining to financial issues and requirements
o Carry-over documentation to include the same as above.
• Applicable program announcement
• 13 CFR 130 and 143
• OMB Circulars A21, A87, A102, A110, and A122
• SBDC network’s complete notification package
• Laptop containing Word and Excel
The tools needed for each objective will be provided for each of their processes
as they are presented.
An additional tool; that you may wish to invest in, is a financial management
reference guide. There are many that can be found in the business section of a
good book store; or by accessing google.com or ask.com.
annotate report “annotate report” is a term used through-out to express the process that the FE
uses to take notes and then later transfer those notes to the draft and final
financial examination report.
summary sheet A summary sheet should be prepared for each examination to accumulate,
consolidate, and analyze conclusions made as a result of the segmented
examination procedures. Work-paper conclusions should be used to consolidate
the work performed linking the examination steps performed during the review
process. To the extent practical, summary sheets should be developed as the
exam progresses. The summary sheet should contain at least one entry for each
specific examination area.
• Follow-up on Prior examinations
• Service Center Monitoring
• Cash Disbursements (Federal and Cash Match)
• In-Kind Contributions
• Indirect Costs
• Program Income
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Prepared by: Office of Small Business Development Centers /Financial Branch
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summary of A summary of findings, includes but is not limited to, can be found under
findings Attachment 5.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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elements of a finding
definition A finding develops a concise statement of the condition and resultant effects. The
statement of condition should be clear, the significance or degree of the problem
should be shown.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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HINTS:
Know your purpose. Know your objective.
For each exam step, ask yourself how the results contribute to the
accomplishment of the exam objective. Will the results be usable
in your write-up?
There should be a purpose for each exam function, and should be
tied to a specific objective. Without a purpose there are normally
no useful results.
Plan the development effort as soon as a condition is identified so
that the cause and effect is fully developed. The significance here
is that the condition should be developed. Try to identify tangible
savings or major impact to program goals or day to-day operations.
Provide examples of where the condition caused increased cost,
show how the major functions/goals (SBA Funds) were adversely
influenced or exposed to risk. Provide specific examples rather
than theory.
the work-sheet The worksheet that is used for the SBDC financial examinations can be found
under Attachment 6. Now we will introduce the elements of a worksheet.
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• Variance analysis
• Electronic data maintained on CDs (or equivalent)
e. Memorandums of discussions with agency, contractor, or other officials
f. Audit Leads resulting from the review to share w/Examiners or to
include as a review step in the work program
g. Examination notes pertaining to exceptions and extraordinary matters.
h. Misc documentation, current correspondence e-mail, etc.
All data above, might be found on the CD, or equivalent. A file index can be found
under
Attachment 7.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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Section III
Pending
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Prepared by: Office of Small Business Development Centers /Financial Branch
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Section IV
Examination Preparation
Start The examination process starts with the assignment of examinations for the
Federal fiscal year. The assignments are usually the result of a team meeting
and approval from the Director of Financial Analysis, OSBDC. The current
process is now being redesigned; therefore a solid process is pending.
After receiving the assignments, the FE’s prepare a tentative schedule and
notifies the applicable SBDC director for confirmation. After the confirmation
has been confirmed, the FE prepares a notification package which is enclosed
as Attachment 1 to this guide.
caution After receiving the notification package, the FE should review the package for
completeness, expedite the reconciliation process for the SF 269, as indicated
below, use the general ledgers to identify a sample list of expenses. This
should be done as early as possible to facilitate the examination processes.
Section IV
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
start document in
previous report if current report
end
This concludes the objective for previous corrective actions. Next we will
consider the objective for service center monitoring.
criteria 13 CFR 130.350(b), which suggests that the SBDC Director shall direct and
monitor program activities and financial affairs of the SBDC network to deliver
effective services to the small business community, comply with applicable
laws, regulations, OMB Circulars and Executive Orders, and implement the
Cooperative Agreement. The SBDC Director has authority to control
expenditures under the Lead Center’s budget.
This process determines whether the lead center has an adequate service
center financial monitoring program. When dealing with the service centers it
is important to remember that SBA does not have a contractual relationship
with the service centers. The recipient (represented by the lead center
director) has an agreement with the service centers, in most cases (there
may be exceptions); ergo, the service centers are generally known as sub-
recipients. Your oversight of the program is to determine whether recipient is
properly managing the program. One of the barometers that can be used to
make this determination is to identify whether the recipient is conducting
service center monitoring. Service center monitoring is a similar process but
which is conducted by the recipient. You may participate in discussions with
the sub-recipients, but only with the concurrence of the recipient (this can be
accomplished via telecon or email).
In some cases, the sub-recipient may have an agreement with another entity
to implement the program. Under these conditions the lead center director
should ensure that such recipients conduct service center
monitoring.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
OMB Circulars
start
SBDC work anal if
program yze
document in
end current report
This concludes the process for service center monitoring. Next we will determine
the process for cash disbursements. Cash disbursements include the Federal and
the cash match outlays. These outlays should be reported separately because
they do have separate sub-processes and criteria; however, what you look at and
what you consider support are most likely the same, except for additional support
documents, as prescribed in the program announcement, for cash match outlays.
We will identify process deviations for both, as we proceed.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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before you Before we begin we need to answer the question: "What is the difference between
begin Federal and cash match outlays?"
difference Federal outlays include funds that come from the Federal government. They are
funds that come from taxpayers nationwide. Cash match outlays, on the other
hand, tend to come from the State, and/or local governments, and/or the entity,
and or external donations.
caution State funds can come from what is known as “community block grant funds."
These are funds that come from the Federal government and are routed through
the State government to other entities (i.e. local governments, county government,
etc). Block grants are the only Federal funds that can be used for cash match. No
other federal funds can be used. Funds that are donated from reputable firms can
also be used as cash match. However, it is best to let the OSBDC examiners
determine the allowability of these. It is sufficient to know that under some
conditions, donated funds cannot be used as cash match, these donated funds can
be used as a form of program income.
to determine Claimed in-kind contributions should be based on actual contributions, and not
if in-kind budgeted, estimated or proposed amounts. Claimed in-kind contributions should
contributions be supported by adequate documentation.
are
An in-kind contribution certification form should be prepared by individuals
accurately
providing in-kind contributions. This form should include: name of donor, phone
shown.
number of donor, donor’s signature, date of donation, hours donated (i.e.
presentation and preparation time), labor rate with justification for the rate, total
donated amount, narrative description of service provided or item donated with
justification of cost of the item donated.
We request as part of the examination process, a detailed list of the in-kind
reported by each Service Center. The detailed support will be reviewed by the
examiner at the Lead Center or Service Center. In-kind contributions should not
include expenses already included in the Facilities and Administration (F&A) indirect
cost rate.
criteria The various versions of the program announcement address what constitutes cash
match outlays. The program year 2007 program announcement is provided as
follows:
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Prepared by: Office of Small Business Development Centers /Financial Branch
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I Saw The Match And It
“C. Cash Match
Requirement“
There is a tale of an occasion
Applicant must provide
match of at least equal to the
federal dollars provided.
Cash match in an amount not
less than 50 percent of the
federal funding is required.
The remainder may be taken
in the form of indirect and/or
in-kind match. No portion of
the match may be from
federal sources (except
applicable Community
Development Block Grant
funds). Program income (i.e.
fees collected from clients
and/or attendees for training)
are also excluded from
match.”
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Prepared by: Office of Small Business Development Centers /Financial Branch
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before you Figure 1; below, is a pyramid that illustrates the hierarchy of supporting
begin documentation for financial reviews:
Figure 1
The
hierarchy of
supporting
documentati SF
on for 269
financial
reviews
SF 269 spreadsheet
indirect cost
summary
reimbursement invoices
caution All amounts claimed in the higher levels of the pyramid MUST equal the next lower
level. In short, all amounts reported should be equal as you move up the pyramid
from supporting documents, to the general ledgers ,to the reimbursement invoice
,to the SF 269 spread sheet, and finally to the SF 269, without exception.
Exceptions require an explanation.
Additionally, the FE should request samples to minimize the time and effort for the
following processes.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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b. Obtain copies of financial reports (SF 269 financial reporting package, see
sample under Attachment 1) and determine if they were submitted on a timely
basis (13 CFR 130.820). The SF 269 (Financial Status Report) and the SF 272
(Report of Federal Cash Transactions), and the SBA form 2113 (Program
Income, to be discussed in a later section) should be submitted semiannually.
c. Verify that the first reports (SF269 – Financial Status Report) and the SF 272 –
Report of Federal Cash Transactions) were submitted to the SBA Project Officer
no later than 30 days after completion of six months of operation. Reconcile
the SF 269 to the attached spreadsheet, SF 272, and the related Oracle
transaction reports.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
Start
SBDC Internal
Controls
Adequate
processes in Go to the
effect next process
SBDC Internal and Compare outlays reported of IF they match proceed to next
Management controls SF 269 with attached process.
spreadsheet, SF 272, and
SF 269 Oracle. IF they do not match THEN
investigate reason AND annotate
SF 272 Verify that report was findings in report.
Related Oracle transactions submitted 30 days after 6
months into program year.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
judgement.
FE’s
based on the
skipped
can be
process that
intermediate
an
Note: This is
SBDC Internal and
1a management
controls
SF 269 SF 272
Oracle transactions
submitted 60 days
SF 269 after start of
sub- veri IF applicable program
process fy year
No Yes
Then
annotate current Go to next
report process
d. Verify that the second report, which serves as the annual report was
submitted no later than 90 days after the end of the budget period.
SBDC Internal and Compare outlays reported of IF they match proceed to next process.
Management controls SF 269 with attached
spreadsheet, SF 272, and IF they do not match investigate
SF 269 Oracle. reason annotate finding for report,
THEN proceed to the next process.
SF 272 Verify that report was
Related Oracle submitted 90 days after the
transactions final day of the applicable
program year.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
is made.
processes
other
exercise of
which the
from
process,
required
is
Note: This
1b
the
SBDC Internal and
Management controls
SF 269 package
SF 269 sub- SF 272
process
RELATED Oracle
transactions
veri
fy
no
annotate report
IF
yes
then
Go to next
process
2
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Prepared by: Office of Small Business Development Centers /Financial Branch
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remember Indirect cost claimed to the Federal outlay is not readily available. FE must look at
the indirect cost summary to determine how much of the Federal outlay is indirect
cost.
All claimed indirect cost must equal, but not exceed, the indirect cost on the NOA.
This process does not constitute verification of the claimed costs on the final SF
269.
flowchart
2
Item numbers on SF
269
IF
no yes
then
annotate go to the next
process
3
report
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Prepared by: Office of Small Business Development Centers /Financial Branch
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This concludes the sub-process for reviewing the SF 269. The SF 269 is on the top
of our hierarchy pyramid, the next level down is the SF 269 spreadsheet.
What is the SF The SF 269 spreadsheet (herein referred to as spreadsheet) is a tool that serves as
269 a bridge between the SF-269 (Financial Status Report), service center
spreadsheet? reimbursement invoices, indirect cost summary sheet, and general ledgers. See
Attachment 2 for a sample of the SF 269 spreadsheet, under what is known as the
“SF 269 package.” The spreadsheet supports lines, "e", "f", "h", and "i" of the SF-
269. When we discuss the processes for in-kind contributions and indirect cost we
will draw your attention back to the SF 269 spreadsheet.
caution Service center reimbursement invoices are not uniform. In fact, some SBDC
networks do not call them "reimbursement invoices." Additionally, some invoices
are automated. It is incumbent upon the FE to become familiar with the network's
program reimbursement system. This reimbursement system and process should
be addressed in the network’s internal control system. The SBDC network's internal
control system is a tool that can be used to assist you to understand the
methodology.
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Prepared by: Office of Small Business Development Centers /Financial Branch
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flowchart
3
annotate no
report IF
recalcul
yes ate
then
proceed to
next process
This concludes the process for analyzing the spreadsheet, now we will look at the
processes that are used to verify the spreadsheet to the reimbursement invoices.
This process is known as the "reconciliation process." This is the most time
intensive process because it deals with each individual cost category. To reduce
the intensity of the review, a sample should have been requested from the lead
center director as early as possible. Each cost category is a separate sub-process.
To avoid laborious process tables and flowcharts, these sub-processes will be
discussed. Because different business entities use different accounting
management systems, it is difficult to provide a uniform sub-process that will
meet national needs. However, we will present the applicable tools that may be
used. The terms we use may not be the terms that are used at the service centers
and lead center, that is where you will need to use your financial management
reference book as a guiding tool. Additional tools to use in the reconciliation
process are generally spreadsheet, the service center reimbursement invoices,
and the general ledgers. These processes will be discussed in this handbook,
rather than broken down into process tables and flowcharts as previously given.
before we Before we begin, it now necessary to introduce Attachments 4 and 5, the work
begin program checklists. Respectively, the checklists are entitled the “Lead Center
Work Program” (Attachment 4), and “Service Center Work Program” (Attachment
5). The work programs are similar in structure, with differences unique to the lead
center and service centers.
Before we begin, it is now necessary to introduce the definition of "direct costs."
definition Direct costs is a cost that can be directly traced to producing specific goods and
services. The operative word in this definition is "specific."
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Prepared by: Office of Small Business Development Centers /Financial Branch
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table 1 The following table lists the general cost categories. Some networks may use
other terms, or additional terms, but the elements tend to fall into these
categories.
Personal services
Fringe benefits
Travel
Equipment/Supplies
Contracts
Consultants
Other direct costs
where is the From now on a flowchart does not follow the process because they are essentially
flowchart? the same, with few exceptions, as follows:
Apply defined
4 Obtain process per
applicable tools. checklist
anal
yze
not in compliance
annotate if
report
in compliance
then
Go to next sub-
process
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