Letterhead - OSC

MEMORANDUM NO. 2016-13

May 9, 2016

TO THE HEADS OF ALL STATE AGENCIES

Attention:   Chief Fiscal Officers, Business Managers, Payroll and Human Resources Officers
Subject:   Treatment of SEBAC v. Rowland Employee Payments for Federal Programs

Overview
SEBAC v. Rowland Settlement related personal leave and vacation payments to employees are considered non-allowable costs and should not be charged directly to Federal programs. In addition, based on Federal guidance, these settlement payments should not be treated as indirect costs in state agency Federal indirect cost proposals or cost allocation plans.

Background
As the result of the SEBAC v. John G. Rowland settlement, certain State employees who are class action members received personal leave (PL) and/or vacation hours as compensation. In order to differentiate these payments from normal PL and vacation hours, separate earnings codes were created in the Core-CT HRMS system. Settlement related payments are charged in the Core-CT Financials system with expenditure account 51155 - Other Settlements-Reportable, which helps separate them from typical salary and wage accounts used for personal leave and vacation hours.

To assist agencies with identifying the amounts in question, the Core-CT earnings code - expenditure account mapping for the SEBAC v. Rowland payments appear below:

HRMS Earnings Codes and Descriptions    Corresponding Core-CT Expenditure Account
AJ3 - SEBAC Vacation Used    51155 - Other Settlements Reportable
AJ4 - SEBAC Vacation Payout    51155 - Other Settlements Reportable
AJ7 - SEBAC PL Used    51155 - Other Settlements Reportable

Federal Guidance on the Treatment of Settlements
Title 2 of the Code of Federal Regulations (CFR) Part 200, Section 200.441 contains clear guidance on the treatment of settlements as they relate to Federal programs:

200.441 Fines, penalties, damages and other settlements.
Costs resulting from non-Federal entity violations of, alleged violations of, or failure to comply with, Federal, state, tribal, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency.

Therefore, state agencies should make every effort to avoid charging SEBAC v. Rowland settlement payments to their Federal grants. In addition, state agencies should not treat these amounts as indirect costs in their Federal indirect cost proposals or cost allocation plans.

Spreadsheet Journal Corrections
State agencies are directed to review employee SEBAC v. Rowland settlement payments to determine whether any of these amounts have been charged to Federal programs. If so, agencies should process journal corrections in Core-CT to transfer these expenditures to an appropriate budgeted funding source such as the General Fund, Special Transportation Fund, or other budgeted special revenue fund. The source code for the spreadsheet journals should be PC - payroll correction.

Higher education units that administer Federal grants should transfer settlement payments and any associated fringe benefit amounts to an appropriate non-Federal funding source.

Fringe Benefit Impact
SEBAC v. Rowland settlement amounts are reportable payments to employees and therefore are subject to all applicable fringe benefits. These fringe benefits can include group life insurance, medical insurance, unemployment compensation, FICA-Social Security, FICA-Medicare and the specific retirement plan in which the employee is enrolled. Agencies transferring settlement payments will also need to submit a CO-826 form to identify a proportional amount of the fringe benefits to be credited back to the Federal grant.

Completed electronic copies of CO-826 forms should be sent by e-mail to the following mailbox for processing: Osc.CO-826@ct.gov

Questions
Questions concerning this memorandum should be directed to the Cost Reporting Unit of the Budget and Financial Analysis Division at (860) 702-3352.

 

KEVIN LEMBO
STATE COMPTROLLER

KL: REG

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