Compact Implementation Guidance

Grant Accrual Guidance

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1. Purpose

The purpose of the Grant Accrual Guidance is to outline the required participation for each AE Accountable Entity (AE) in:

  • Providing a reasonable estimate of accrued expenses, or payments owed for goods, services, or work provided during the quarter, on a quarterly basis for incorporation into the Millennium Challenge Corporation’s (MCC) financial statements.
  • Assisting MCC on an as needed basis in the validation of the prior quarter’s submission.

Through the AE’s efforts on meeting these requests, it enables MCC to accurately represent its assets and liabilities and comply with federal reporting regulations and generally accepted accounting principles (GAAP).

2. Scope

The grant accrual estimate is prepared on a quarterly basis for all Compact and Threshold program funded activities that are not included in the advances and retentions data call.

3. Relevant Documents

  1. Grant Accrual Estimation Template. The grant accrual estimation template summarizes anticipated contract payments for goods, services, or work provided during the quarter but not yet paid. It comprises sections for 1) in house invoices and 2) work completed but not yet invoiced, or billed, as of the end of the quarter.
  2. Supporting Documentation provided by AE. As necessary, MCC’s Administration & Finance (A&F)/Financial Management Division (FMD) may request supporting documentation for amounts provided in the grant accrual estimate, to include IPCs, invoices, contracts, etc.

4. Key Definitions

Term Definition
Accrual The accrual is snapshot at a point of time of the estimated liability as of the quarter end for work completed but not yet billed or invoiced.
Advance The part of a contractually due sum that is paid or received in advance for goods or services, while the balance included in the invoice will only follow the delivery.
Grant Accrual Represents the carrying value of obligations assumed for works, goods, and services performed/rendered/delivered but not yet invoiced or paid by the end of the quarter.
In-house Invoices Invoices that have been received by the AE for specific amounts owed to vendors but not yet paid by CPS cut-off. If unpaid at the end of a period, these invoices are used to determine what payments will be made in future periods.
Period of Performance The contractually stipulated span of time during which work is completed/services are rendered/equipment is delivered.
Questioned Cost Refers to a cost that is questioned for one or more of the following reasons:

  • an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds,
  • a finding that, at the time of the audit, such cost is not supported by adequate documentation
  • a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.
Retention Liability Represents a percentage of invoice amounts retained by the AE as a guarantee for completion of works contractually agreed upon.

5. Assumptions and Exceptions

Assumptions.

MCC grantees operate on a modified accrual basis or a cash basis of accounting.

MCC’s global portfolio of grants for Compacts and Thresholds is comprised of various projects and activities at:

    1. various stages of implementation,
    2. various sectors of intervention,
    3. different level of complexity,
    4. in countries with varying level of implementation capacity.

As the executer of the grant funding, AEs have the best available information for works completed but not yet paid as of the end of the quarter. Therefore, MCC requires AEs to prepare the grant accrual estimate consistent with MCC’s policies with respect to liabilities in that if it is determined probable that an expense has been incurred and it can be reasonably estimated then the amount should be accrued as a liability.

The grant accrual estimate is comprised of two sections: 1) in-house invoices and 2) work completed but not yet invoiced, or billed, as the end of the quarter. The first section of the grant accrual estimate, in house invoices, is based on actual invoices already in possession by the AE. The second section is an estimate prepared by the Engineers or Project Directors based on expenses incurred for existing contracts as of the end of the reporting period.

MCC will conduct a quarterly review of the degree of variance between past estimates and actual disbursements. Please refer to the Grant Accrual FMD Guidance for further information.

MCC reviews ongoing compact audits annually and determines if any of the significant findings reported in past program audits affect the grant accrual.

Exceptions

An accrual amount is not recorded for any Compact or Threshold that have closed and are past the 120-day closure period per Compact or Threshold agreement and MCC guidelines.

6. Acceptable Methodologies for Determining the Accrual

While there may be additional situations that result in the recognition of liabilities, accruals must generally be recognized in the accounting period in which:

  • the title to goods is received and accepted;
  • services are rendered; or
  • progress is made in contract performance.

When a contractor builds or manufactures facilities or equipment to the AE’s specifications, formal acceptance of the products by AE is not the determining factor for accounting recognition. Constructive or de facto receipt occurs in each accounting period as work stages progress toward the end-product deliverable.

NOTE: MCC prepares its financial statements in accordance with US GAAP.

For facilities or equipment constructed or manufactured by contractors or grantees according to agreements or contract specifications, amounts recorded as payable must be based on an estimate of work completed under the contract or the agreement.

Accruals should be based on the best available information on expenditures for an activity. Base the accruals for expenditures on an analysis of the projected expenditure rate or actual expenditures, when feasible. Use estimates where documentation is not available. Where estimating techniques are used, every effort should be made to ensure that reasonable estimates are recorded and that the estimation technique is consistently applied.

In determining the accrual, the preparer at the AE may utilize a variety of techniques dependent on the nature of the contract:

  • Receiving reports showing quantities received and determining whether a given shipment is complete or partial are useful in determining the amount of the accrual when the invoice has not been received.
  • A prior actual accrual or a trend of several previous periods may be appropriate when estimating a current accrual.
  • Quarterly performance reports from grantees should be used to accrue expenditures for grants.
  • Estimates should be obtained from project managers or other operating officials who are familiar with progress under the contract or grant if reports from contractors or grantees are not available or are not feasible.
  • Contractual Services. Accruals should be based on progress reports and/or certificates of performance to ensure that services have been rendered in accordance with the contract provisions. Certificates of performance are generally accompanied by a billing from the contractor. Burn-rates and/or the contract clauses themselves may also be used when needed to generate the accruals.

Some alternative methods for establishing the accrual for contractual services include:

  • Distribute the entire total estimated cost evenly over the entire period of the performance on a quarterly basis;
  • Distribute a fixed percentage of the total estimated cost on a quarterly basis over the period of performance; and
  • Distribute a fixed dollar amount quarterly over the period of performance.

7. Accounting for Advances

Where an invoice for an advance is received but not yet paid this should be reported as an in-house invoice and an annotation notating that it is for an advance.

8. Responsibilities

  1. Financial Management Division (FMD). FMD sends the grant accrual estimation template on a quarterly basis and consolidates the AE responses to determine the total accrual value.
  2. Accountable Entity (AE). The AE prepares and transmits the grant accrual estimation to FMD. The individual responsibilities of the Fiscal Agent and the Director of Administration and Finance (or equivalent thereof) are set out in the Fiscal Accountability Plans for each A but, in general, these responsibilities for these roles are
    1. Director of Administration and Finance (DAF):  the DAF maintains overall responsibility for the completion of the data calls.  The DAF reaches out to Project Directors / Engineers and the Fiscal Agent, as necessary to coordinate the development of the accrual estimate and obtain the necessary data to populate the report template.  The DAF is responsible for ensuring:
      • Adequate documentation and training is provided to the Project Directors / Engineers involved in the grant accrual process.
      • Estimates reported to MCC agrees with the support documentation used by the AE to complete the grant accrual.
      • Data calls are submitted to MCC on or before the due date.
    2. Project Directors / Engineers, where appropriate, are responsible to obtain accrual estimates when asked to do so by the DAF, and/or to certify (see certification later in this document) accrual estimates as reasonable when, for example, the estimate is provided by another party.  They may work with their staff such as sector managers and specialists to obtain needed information, however, they may not delegate responsibility to those staff.
    3. Fiscal Agent (FA):  will not have direct responsibility for the data call output but does have responsibility to assist the AE upon request to provide accurate details of, for example, in-house invoices awaiting payment, or assistance with the determination of period of performance.  The FA also assembles support documentation files that underlie the accrual estimate and provides details of contracts and/or populates certain fields with contact data.
  3. Program Financial Services (PFS) Lead. The PFS Lead provides oversight and guidance to the AE throughout the grant accrual estimation process.

9. Procedures

  1. Grant Accrual Estimation Transmittal
    1. Template Distribution. In the final week of the quarter, FMD sends the grant accrual estimation excel template to each AE and PFS Lead via email, along with a set of instructions for filling out the template.
  2. Complete the Grant Accrual Estimation Template
    1. Purpose of Estimation. The AE must use the template to capture anticipated contract payments for goods, services, or works provided during the quarter but not yet paid.
    2. Exchange Rate. For in house invoices and grant accrual estimates denominated in currencies other than US dollars these should be converted using the exchange rate at the end of the quarter and applied consistently.
    3. These anticipated payments are broken out into two sections:
      1. Section 1: In-House Invoices.
        1. The AE must identify the invoices that have been received but not yet paid and add them to section 1 of the template.For the purposes of the accrual In-House Invoices are defined as both:
          • Invoices received within the accounting system but not paid as of the end of the reporting period.
          • Invoices physically on hand but not entered into the accounting system where the period of performance is prior to the accrual date.
        2. Invoices received during the period between the accrual period ending date and the grant accrual estimate due date (as set out in Appendix A) should be reported in the Grant Accrual Estimate section (see (b) below).

        Note: Please be sure to review the Interior Business Center (IBC) invoice processing cut-off dates in Appendix A.

        1. Manually update the country name in the first row.
        2. Update the Document Management Numbers in Column “A”. Please add additional rows if applicable.
        3. Manually enter the requested data in columns “B” through “H” for each invoice row.
        4. Select either “USD” or “Local” in the drop-down menu in Column “I” to indicate the currency used in the invoice.
        5. The amount in Column “J” should be the invoice Gross Amount.
          Column “J” invoice Gross Amount
        6. Enter the exchange rate at the end of the quarter in Column “Q”, row 2.
        7. If applicable, manually enter any VAT amounts, or advances or retentions amounts in columns “L” through “N” for each invoice row. This will ensure that VAT amounts, advances, and retentions are not captured in the estimation. Please note that columns “O” and “P” are formula driven and should not be modified by the AE.
        8. Ensure that the Section 1 total formula in column “P” captures all lines and accurately reflects the total amount of in-house invoices.
          Section 1 total formula in column “P”
      2. Section 2: Works Completed but Not Invoiced as of Quarter End.The AE must estimate the value of goods, services, or works provided during the quarter but not yet invoiced. Please work with contractors and vendors to determine appropriate estimations for each contract identified.
          1. Update the Document Management Numbers in column A. Please add additional rows if necessary. Manually enter the requested data in columns “B” through “J”, with the exception of Invoice Number and Invoice Date.
            Invoice Number and Invoice Date columns
          2. If applicable, manually enter estimated value added tax (VAT) in column “L”, as well as any estimated advances or retentions (based on contract percentage), in columns “M” and “N”.
          3. Please note that columns “O” and “P” are formula driven and should not be modified by the AE. Please utilize the Comments column as necessary.
          4. Ensure that the Section 2 total formula in column “P” captures all lines and accurately reflects the total estimated amount of goods, services, or works provided during the quarter but not yet invoiced.
            Column “P”
          5. Ensure that the total formula does in fact capture the sub-totals from both Section 1 and Section 2.

        Key Considerations:

        General Instructions

            1. Advances and/or retentions activity must be manually entered in both Section 1 and 2 in order to ensure they are properly subtracted from the estimate total.If any portion of the invoice or accrual relates to an advance then the amount related to the advance should be in the Advances column as well (Column M).

              Advances and retentions must be captured only in the advances and retentions data call; please see AE Advances and Retentions Data Call Guidance.

            2. Do not include MCDR’s submitted for processing as either an in-house invoice or accrual estimate.
            3. Should the AE administer sub-grants guidance should be sought directly from MCC’s FMD to determine if there should be an accrual or allowance recorded to account for potential questioned costs this will be based on historical questioned cost trends, if applicable.
            4. Retain all supporting documentation used to calculate the grant accrual estimate – as this may be requested in the future either by MCC or MCC’s external auditors.
            5. The accrual estimate will be validated on a continual basis subsequent to the period the accrual was booked to ensure a reasonable estimate is captured for each AE. See the Country Grant Accrual Validation AE Guidance for further information.

        In House Invoices

            1. For each item in section 1, In-House Invoices, the reported amount should match the amount on the related physical invoices, for each item in Section 2, Works Completed but Not Invoiced as of Quarter End, the amount should be an estimate.
            2. Where an in-house invoice is on hand for the initial advance under an agreement but has not yet been paid – the invoice should be forwarded to MCC as part of the data call. It should not be recorded on the Advances data sheet – MCC will determine the appropriate course of action.

        Grant Accrual Estimates

            1. Ensure that accrual estimates only include costs that will be paid with either Compact, CFF and / or Threshold funds; dependent on the AE (i.e. do not include costs associated with VAT amounts and government contributions).
            2. Where the accrual relates to consultant costs and the contractual deliverable was accepted prior to the accrual date but not invoiced, the value attributable to the deliverable should be accrued.
            3. Where an accrual needs to be made for consultant costs and the deliverable has not been submitted or has not been accepted as of the accrual date, then an estimate should be made of the % completed, in consultation with the project manager / director as appropriate. Having determined the % complete this should then be used to calculate the value of the work completed as of the accrual date.
            4. If the AE entity is aware of work being performed under a contract and amount to be paid is contingent on data measurements not known at the end of the quarter please forward details to MCC who will determine the appropriate course of action.
            5. The AE should develop an internal process with its Project Directors and Engineers on how to capture work completed but not yet billed or paid as of the end of the period. This process must be captured in a desktop procedure manual to ensure compliance on a quarterly basis.
            6. Where there is a dispute between MCA project directors or engineers and the contractor as to the percentage completed then consistent with MCC’s accounting policy for liabilities the MCA’s estimate of the minimum amount of the percentage range will be accrued.
            7. The AE must develop an internal process to ensure completeness of the preparation of the accrual. Specifically, the AE should review the previous quarter end grant accrual submissions to identify those accruals reported that have yet to be paid and confirm that an appropriate amount is re-accrued. If it is determined that it is not appropriate to re-accrue the amount this should then be documented by the AE.

        Programs in Compact Closure Period

          1. For those programs in the compact closure period (i.e. 120 days after the Compact End Date or equivalent) the DAF and Fiscal Agent should confirm that there are no additional liabilities arising from amendments from implementation agreements and Implementation Letters that should be accrued for in the data call submission.
          2. In addition, the DAF should review system generated reports of procurement actions to ensure the completeness of the accrual prior to submitting the data call to MCC.
      3. Grant Accrual Estimation Submission.
        1. The completed grant accrual estimation template is due to MCC FMD before 11:59 PM Washington, DC time, on the date listed in Appendix A.
        2. Submit all items to MCC to the following email addresses: mccaccruals-retentions-advances@mcc.gov
          1. MCC can also provide flexibility around the timing of requests in order to conform to AE personnel scheduling around the holiday season. If the AE has any concerns that personnel will be available to respond to sample requests, please send any questions or concerns to the MCC PFS Lead working with your team and to the Department of Administration and Finance at: mccaccruals-retentions-advances@mcc.gov.

10. Subsequent Follow-up

In accordance with US Generally Accepted Accounting Principles MCC is required to validate grant accrual estimates submitted by the AE by comparing the estimates with subsequent reporting, i.e. payments and where appropriate re-accrual.

MCC will be primarily responsible for the validation of the estimates on a monthly basis. Where necessary MCC will reach out to the AE to request additional information regarding subsequent payments on an as needed basis. MCC will provide an excel spreadsheet containing the relevant payment/s to be validated.

  1. Responding to MCC Requests.Upon receipt of excel spreadsheet, the AE mustcomplete the below actions:
    1. For each payment, confirm the Period of Performance.
      1. If the payment is related to goods, works, or services provided before the accrual date (e.g. September 30), select ‘Yes’ by using the drop-down list in column U.
      2. If the payment is related to goods, works, or services provided after the final day of the accrual date, select ‘No’ by using the drop-down list in column U.
    2. For each payment, determine the cumulative percentage related to work completed prior to the end of the accrual date.
      Cumulative percentage column
      1. If the payment is related to work performed completely as of the accrual date, please manually enter 100% in column V.  If the payment is related to work performed in part as of the end of the accrual date, please manually enter the percentage related to the accrual date in column V.
        1. MCC recommends working with the project leads and vendors to determine a reasonable %, if possible.
        2. ’Feel free to include comments to explain what factors determined the response. This will aid in MCC’s validation of the data and help minimize the need for further requests.
      2. If a response of ‘No’ was provided in column U, the formulas will populate 0% in column V. Any response of ‘No’ and a percentage other than 0% will necessitate follow up from the FMD Accountant.
    3. If the payment relates to work performed as of the accrual date the AE must confirm whether or not an accrual was made at the accrual date by entering either Yes or No in column X. Where an accrual was not made then the AE must provide in column Y an explanation as to why the accrual was not made.
      Accrual date columns
    4. Determine whether any in-house invoices relate to goods, works, or services provided before the end of the accrual date but remain unpaid at the end of the first month after the validation period (i.e. an invoice received in January for work completed before 12/31, but not yet paid at the end of January). Provide an explanation for any items identified.
      1. MCC validates 90 days of paid invoices, but also wants to capture any other work that has been completed but not yet paid. This helps identify all the data pertaining to the grant accrual calculation.
        1. MCC requires utilizing an excel spreadsheet to track unpaid in-house invoices. The following data elements are required:
          1. Invoice Number
          2. Invoice Date
          3. Invoice Period of Performance
          4. Invoice Amount
          5. Remarks – Note what portion of the invoice relates to work completed during the accrual period, or any relevant special circumstances. Extra information can aid it MCC’s validation of the submission
Remarks column

Appendix A – FY 2021 Submission Schedule.

Quarter Accrual Period Ending Grant Accrual Estimate Due Date IBC Payment Cut-off Date
Quarter 1 December 31 Monday, January 11, 2021 Friday, December 18, 2020
Quarter 2 March 31 Monday, April 11, 2021 Wednesday, March 24, 2021
Quarter 3 June 30 Monday, July 12, 2021 Wednesday, June 23, 2021
Quarter 4 September 30 Monday, October 11, 2021 Thursday, September 23, 2021