Approved Substitute System for Time Accounting

Dear County and District Chief Business Officials, Categorical Program Directors, and Charter School Administrators:

Approved Substitute System for Time Accounting for Federal Programs

We are pleased to announce that the United States Department of Education (USDE) has approved a new substitute system for time accounting for federal programs for use by all local educational agencies (LEAs). This new substitute system is in addition to the substitute system previously approved for California LEAs in 1998.

Substitute systems are intended to simplify recordkeeping for LEAs that must substantiate salary and wage charges to federal programs through the use of personnel activity reports (PARs) or equivalent documentation. Unless the LEA uses an approved substitute system, PARs must be prepared at least monthly for employees who work on multiple activities or cost objectives of which at least one is federal.

This new substitute system was approved by the USDE on September 7, 2012. It can be used by all LEAs, at their option and subject to approval, retroactive to July 1, 2012. Under this new substitute system, an LEA may use alternative documentation—such as a teacher’s course schedule—instead of PARs to document the time and effort of an individual who works on multiple activities or cost objectives but on a predetermined, or fixed, schedule. An individual documenting time and effort under this new substitute system is permitted to certify time and effort on a periodic basis (at least semiannually) rather than monthly.

The California Department of Education (CDE) is authorized to approve California LEAs to use this substitute system for time-and-effort reporting in accordance with the following guidelines. In permitting an LEA to use this substitute system, the CDE must obtain from the LEA a management certification that only eligible employees will participate in this substitute system and that the system used to document employee work schedules includes sufficient controls to ensure that the schedules are accurate. Additionally, the certification must include a full disclosure of any known deficiencies with the substitute system or known challenges with implementing the system. This certification may be used by auditors and by CDE oversight personnel when conducting audits and sub-recipient monitoring of the substitute time-and-effort system.

To be eligible to document time and effort under this substitute system, employees must:

• Work on a schedule that includes multiple activities or cost objectives that must otherwise be supported by monthly PARs.
• Work on specific activities or cost objectives based on a predetermined schedule.
• Not work on multiple activities or cost objectives at the exact same time on their schedule.

Under this new predetermined schedule substitute system, in lieu of PARs, eligible employees may support a distribution of their salaries and wages through documentation of an established work schedule that meets the standards described below. An acceptable work schedule may be in a style and format already used by an LEA.

Employee schedules must:

• Indicate the specific activity or cost objective that the employee works on for each segment of the employee’s schedule.
• Account for the total hours for which the employee is compensated during the period reflected on the employee’s schedule.
• Be certified at least semiannually and signed by the employee and by a supervisory official having firsthand knowledge of the work performed by the employee.

A sample periodic certification is provided in Attachment A. A sample employee schedule is provided in Attachment B.

Revisions to an employee’s established schedule that will continue for a prolonged period, such as revisions at the start of a new semester or trimester, must be documented and certified in accordance with the requirements described above. A periodic certification might therefore be supported by more than one written schedule. The effective dates of revisions to the schedule must be clearly indicated.

Significant deviations from an employee’s established schedule that would require the employee to work on multiple activities or cost objectives at the exact same time, including but not limited to lengthy, unanticipated schedule changes, must be documented by the employee using a PAR that covers the pay period during which the deviation occurred. A deviation from an established schedule that would warrant the individual reverting to a PAR would include any deviation from a scheduled activity that represents more than an incidental benefit to the unscheduled activity. To avoid classification as a significant deviation, the time spent on the unscheduled activity must meet each of the following three criteria:

• The time spent on the other activity must not take away from the benefit of the intended beneficiaries of the scheduled activity.

• The time spent on the other activity must not be planned or foreseen at the beginning of the period covered by the schedule.
• The time spent on the other activity must be immaterial. For this purpose, materiality is defined as five percent of the employee’s schedule for the day on which the deviation occurs.

The five percent threshold applies daily. When an employee deviates from his predetermined schedule by five percent or more on any day, he has deviated by five percent for that period and must revert to a PAR for that period.

Unplanned, unforeseen, and infrequent deviations of less than five percent of the predetermined schedule are generally not considered significant. However, even small deviations, if planned or foreseeable at the outset, are considered significant regardless of their size and would warrant a reversion to a PAR for the pay period.

A PAR is required only for the period in which the deviation from the predetermined schedule occurs. For example, if a deviation from an employee’s predetermined schedule occurs during the third month of a six-month period, the employee could still prepare a periodic certification for months one and two but would prepare a PAR for month three. He could then prepare a periodic certification for months four through six, and another periodic certification for months seven through twelve. Alternatively, he could prepare a periodic certification for months one and two and a PAR for month three, a periodic certification for months four through nine (a six-month period), and a periodic certification for months ten through twelve (the remaining two months of the fiscal year). The guiding principles are that a periodic certification must be prepared at least semi-annually but could be prepared more frequently, and that a PAR must be prepared at least monthly and must coincide with a pay period. For some employees, a pay period might be less than monthly, every two weeks for example.

Approval and Implementation of the Predetermined Schedule Substitute System: LEAs implementing the new predetermined schedule substitute system require approval from CDE. Approval is automatically granted once the LEA provides the required management certification. The certification and approval process will be administered through the Consolidated Application and Reporting System beginning in 2013–14. Because USDE’s approval of the new system is retroactive to 2012–13, the Consolidated Application and Reporting System for 2013–14 will also provide for retroactive approval for 2012–13.

Note that because the substitute system previously approved in 1998 relies on sampling methods and requires that all eligible employees must participate, the existing sampling method substitute system and the new predetermined schedule substitute system cannot be implemented in conjunction with one another.

As with all time documentation methods, written policies and procedures are essential to implementing an effective substitute system for time accounting. LEAs should develop forms and provide employee training before implementing a substitute system. It is suggested that a trial run be done before beginning the actual substitute system process.

The following elements should be addressed as an LEA implements a substitute system for time accounting:

1. Proper completion of PARs or periodic certifications, including how frequently data must be recorded and what constitutes adequate documentation.
2. Required review and approval cycle.
3. Handling of completed forms.
4. Internal review process to ensure compliance.

Generally, this information should provide enough detail to permit an understanding of how the substitute system will operate from the point labor is expended to the point it is recorded in the accounting records and charged to federal awards.

The decision to use any substitute system for allocating salaries and wages to federal programs is totally at the option of each LEA. After examining this substitute system, LEAs may wish to continue their current methods of substantiating salary and wage charges to federal programs rather than use the predetermined schedule substitute system. Information on the requirements for documenting salary and wages can be found in the California School Accounting Manual Procedure 905.

For questions about the predetermined schedule substitute system, the sampling method substitute system, or the requirements for documenting employees’ salaries and wages charged to federal programs, please contact the Office of Financial Accountability and Information Services by phone at 916-322-1770 or by email at sacsinfo@cde.ca.gov.

A copy of this letter may be found on the web site at http://www.cde.ca.gov/fg/ac/co/.

Sincerely,


Peter Foggiato, Director
School Fiscal Services Division