1-85-20 RECIPIENT REQUIREMENTS

1. The recipient is required to establish and maintain a system of accounting and internal controls and to ensure that an adequate system exists for each of its subrecipients, contractors and for any delegated programs.

2. The recipient is responsible for establishing and maintaining a system of internal controls to adequately safeguard grant funds and resources; to check the accuracy and reliability of the grant accounting and financial data; to promote its operational efficiency; and to encourage adherence to prescribed managerial policies.

1-85-30 CRITERIA FOR AN ACCOUNTING SYSTEM

1. For OSM programs, an acceptable and adequate accounting system is one which:
   1. Provides the recipient with financial data for planning, control, measurement, and evaluation required for efficient and economical operation of the grant funded programs;

   2. Provides sufficient controls to ensure that the expenditures of funds and use of property are in conformance with Federal regulations and OSM requirements;

   3. Ensures, by means of cost and property control and prudent management, that efficient use is made of the grant funds;

   4. Meets the prescribed requirements for periodic financial reporting of operations; and

   5. Classifies and presents the projected and historical cost of the grant, as required for budgetary and evaluation purposes.

2. An accounting system is comprised of a series of operations that involve classifying, recording, summarizing, and reporting transactions. Elements of the system shall consist of an account structure, accounting records, source documents, a system for coding financial transactions, and written procedures prescribing the manner in which and by whom these operations are performed. To be adequate and acceptable to OSM, a recipient's accounting system shall meet the following criteria:
   1. Accounting records shall identify the receipt and the expenditure of funds for each recipient, subrecipient, contractor, and delegated program.

   2. The accounting system shall provide accurate, current, and complete financial reporting information.

   3. The coding or classification of the system shall permit the summarization and reporting of grant expenditures and receipts using the cost classifications included in the approved budget.

   4. The accounting system shall be integrated with a system of internal controls to safeguard grant funds and properties, determine the accuracy and reliability of accounting data, promote operational efficiency, and encourage adherence to prescribed management policies.

1-85-40 CRITERIA FOR INTERNAL CONTROL SYSTEMS

1. The internal controls required of a recipient are comprised of a plan or organization (its policies, structure, division of staff functions, procedures, staff qualifications, etc.) designed to provide the recipient with effective financial and operational control over both direct and indirect programs. While the degree of internal control is dependent upon the size of the recipient and the funds and resources for which the recipient is responsible, the following criteria are basic to an adequate system of internal control.
   1. The operating policies shall be clearly stated; systematically communicated throughout the organization; in conformance with applicable laws and external regulations and policies; and designed to promote the execution of authorized activities effectively, efficiently, and economically.

   2. An organizational structure shall define and assign responsibility for the performance of all duties necessary to carry out the functions of the project.

   3. Responsibility for assigned duties and functions shall be classified according to authorization, performance, recordkeeping, custody of resources, and review, to provide proper internal checks on performance and to minimize unauthorized, fraudulent, or otherwise irregular acts.

   4. A system of forward planning embracing all phases of the operation shall be developed to determine and justify financial, property, and personnel requirements and to carry out project operations effectively, efficiently, and economically.

   5. An adequate system of authorization, recordkeeping, and transaction coding procedures shall be designed by the recipient to ensure compliance with OSM's accounting requirements and restrictions of applicable laws, regulations, and internal management policies; to prevent illegal or unauthorized transactions; and to provide proper accounting records for the expenditure of grant funds.

   6. An adequate and efficiently operated information system shall provide prompt, essential, and reliable operating and financial data to those officials responsible for making decisions or reviewing performance.

   7. The performance of all duties and functions of recipient personnel shall be properly supervised. All performance is to be subject to adequate review under an effective internal audit and management review program to determine whether performance is effective, efficient, and economical; management policies are adhered to; applicable laws, prescribed regulations, and grant conditions are obeyed; and unauthorized, fraudulent, or otherwise irregular transactions or activities are minimized.

   8. The qualifications of officials and other personnel as to education, training, experience, competence, and integrity shall be appropriate for the responsibilities, duties, and functions assigned to them.

   9. Each official and employee shall be fully aware of his/her assigned responsibilities and understand the nature and consequence of his/her performance. Each person is to be held fully accountable for the honest and efficient discharge of his duties and functions, including, where applicable, the custody and administration of funds, property, and compliance with grant regulations and legal requirements.

   10. Effective procedures shall be implemented to ensure that needed goods and services are acquired at the lowest possible cost; that the goods and services paid for are actually received; that the quality, quantity, and prices are in accordance with the applicable contracts or other authorizations by recipient organization officials; and that such authorizations are consistent with applicable statutes, regulations, policies, and grant conditions.

   11. All funds, property, and other resources for which the recipient is responsible shall be appropriately safeguarded and periodically inventoried to prevent misuse, unwarranted waste, deterioration, destruction, or misappropriation.

FEDERAL ASSISTANCE MANUAL
January 2, 1998