Head Start recipients receive a wide variety of rebates, tax credits, refunds, discounts, and similar cost savings that affect the net cost of goods and services or are received as cash payments, such as insurance proceeds and cash-back credit card rewards. Applicable credits are addressed in the Uniform Guidance at 45 CFR §§75.406, 75.402, 75.453, and within the HHS Grants Policy Statement I-22, II-28, II-62, II-65, B-2. As defined in 45 CFR §75.406:

(a) Applicable credits refer to those receipts or reduction-of-expenditure-type transactions that offset or reduce expense items allocable to the federal award as direct or indirect (F&A) costs. Examples of such transactions are as follows: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non-federal entity relate to allowable costs, they must be credited to the federal award either as a cost reduction or cash refund, as appropriate.

(b) In some instances, the amounts received from the federal government to finance activities or service operations of the non-federal entity should be treated as applicable credits. Specifically, the concept of netting such credit items (including any amounts used to meet cost sharing or matching requirements) must be recognized in determining the rates or amounts to be charged to the federal award. (See §§75.436 and 75.468, for areas of potential application in the matter of federal financing of activities.)

The purpose of this Information Memorandum (IM) is to provide guidance on cost-saving measures and how the savings should be treated by the recipient toward the Head Start award. The IM will also guide recipients in ensuring that direct and indirect cost reductions or cash refunds that relate to a Head Start award are reflected in the recipient’s accounting practices, allocated correctly, and returned to the federal award appropriately. This IM supersedes ACF-IM-HS-12-09.

Example of the E-Rate Program

The E-Rate program was implemented in 1997 by the Federal Communications Commission (FCC) and is administered by the Schools and Libraries Division of the Universal Service Administrative Company (USAC). The E-Rate program is intended to ensure that all eligible schools and libraries have affordable access to telecommunications and information services. Some Head Start and Early Head Start recipients are eligible for E-Rate program participation. Service discounts range from 20% to 90% depending upon local income and urban or rural location. In order to be eligible to receive support from the E-Rate program, Head Start entities must meet the federal and state definitions of elementary school. This means that the state must first consider these facilities to be schools and then USAC will determine if Head Start schools in a particular state are eligible.

It is possible that some Head Start programs in a state will be able to meet both parts of the test and, therefore, be eligible for funding, while others will not. For example, a Head Start center that is not considered a school in a particular state is not eligible for funding even if the Eligibility Table indicates that Head Start facilities in that state are eligible. You should check with your state department of education for more information on your status.

E-Rate participants have two payment options (exercisable at the participant's discretion) for their covered telecommunications and information services:

1. The user pays only the non-discount portion of the telecommunications and information services cost to the service or equipment provider, who, in turn, seeks reimbursement from the E-Rate Program Administrator for the discounted amount.
   OR
2. The user pays their telecommunications and information services bill in full and seeks reimbursement payments for the amount of the discount from the E-Rate Program Administrator via the service or equipment provider.

Additional information can be found at the FCC and USAC E-Rate sites.

Option 1 is recommended for E-Rate participants to fully realize the benefit of the program. This option allows the recipient to take the discounted amount before the transaction and maintain the savings in the current operations budget. If the recipient chooses to utilize option 2, the reimbursement is categorized as applicable credits. Applicable credits cannot be classified as program income and, as such, are not included in the total cost of a federal award. In these instances, the applicable credits must be credited to the federal government as a cost reduction (if received during the same project period as charges were made) or cash refund (if received after the project period in which charges were incurred has ended). Recipients should refer to the Program Support Center (PSC) guidance on returning funds/interest. For records and awareness, the recipient must provide the Office of Grants Management with a copy of the documentation submitted to PSC.

Because of the diverse characteristics and accounting practices of recipient organizations, it is not possible to specify every type of receipt or reduction-in-expenditure that recipients may encounter. Using the table below as a guide, recipients must ensure that all direct and indirect cost reductions or cash refunds that relate to a Head Start award are reflected in the recipient’s accounting practices and allocated to the cost of necessary Head Start goods and services. Please note, it is not the Office of Head Start’s intention that changes be made to recipients’ accounting systems or policies on the basis of this IM. Recipients may continue with current accounting practices for applicable credits if compliant with 45 CFR Part 75 and the generally accepted accounting principles.

If you have any questions regarding this IM, please contact your regional office.

Sincerely,

/ Khari M. Garvin /

Khari M. Garvin
Director
Office of Head Start