Third Party In-Kind Match

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					                            Third Party In-Kind Match

Background: California has been using third party in-kind match to pull down
federal money. California has done this through cooperative agreements with
local school systems and mental health providers. The question has arisen as to
whether third party in-kind match is allowable as part of the state share to pull
down federal match. To answer this question, one must look at the Code of
Federal Regulations (CFR), the Education Department General Administrative
Regulations (EDGAR), and the Office of Management and Budget (OMB)

Code of Federal Regulations:

There are two sections of the CFR that are pertinent to a discussion of third party
in-kind match:

       ●34 CFR 361.60 “Matching requirements” – Section (b)(2) states that
       “Third party in-kind contributions. Third party in-kind contributions
       specified in 34 CFR 80.24(a)(2) may not be used to meet the non-federal
       share under this section.”

       ●34 CFR 80.24 “Matching or cost sharing” – Section (a)(2) states that
       “The value of third party in-kind contributions applicable to the period to
       which the cost sharing or matching requirements applies.”

       *** Reading the above two sections together, third-party in-kind
       contributions may not be used to satisfy the VR agency’s matching

California has relied upon the following code provisions to support its third party
in-kind match program:

       ●34 CFR 80.24 “Matching or cost sharing” – Section (b)(7) states “Special
       standards for third party in-kind contributions. (i) Third party in-kind
       contributions count towards satisfying a cost sharing or matching
       requirement only where, if the party receiving the contributions were to
       pay for them, the payments would be allowable costs.”

       ●34 CFR 80.22 “Allowable costs” – Defines allowable costs for state
       government as those outlined in the cost principles of OMB Circular A-87,
       as amended on June 9, 1987.

       ●34 CFR 361.28 “Third-party cooperative arrangements involving funds
       from other public entities” – This section basically states that the
       designated state unit may enter into third-party cooperative arrangements
       for providing or administering vocational rehabilitation services with

       another state agency or a local public agency that is furnishing part or all
       of the non-federal share.

       *** These sections state that expenditures made by other agencies
       pursuant to third-party cooperative agreements with the VR agency
       may be used to satisfy the VR agency’s match requirements. For
       example, if RSC were to enter into third-party cooperative agreements
       with school districts to provide specialized VR services to VR consumers
       in transition, RSC may be able to count expenditures for those services
       towards satisfying its matching requirements. RSC would need to ensure
       that: (1) the services provided were not the customary services provided
       by the school districts; (2) the services are provided only to VR applicants
       and consumers; (3) the expenditures and staff providing the services are
       under the supervision of RSC; and (4) all VR state plan requirements are

OMB Circulars: OMB Circular A-87 outlines ten factors to consider when
determining allowable costs. Based on these factors, direct costs are allowable
costs. Direct costs include, but are not limited to: compensation for employees
for the time devoted and identified specifically to the performance of federal
awards; the costs of materials acquired, consumed, or expended specifically for
the purpose of those federal awards; and equipment and other approved capital

Conclusion: RSC is required by section 101(a)(3) of the Act to participate in the
cost of providing vocational rehabilitation services by contributing the non-federal
share of the cost of those services. The federal share is defined at section
7(14)(A) of the Act as 78.7 percent; therefore, RSC must contribute non-federal
funds to cover 21.3 percent of the cost of providing VR services. EDGAR at 34
CFR 80.24 set forth the general matching requirements that state agencies must
satisfy when accepting grants from the U.S. Department of Education. The VR
regulations at 34 CFR 361.60 set forth the specific matching requirements that
RSC must satisfy while administering the VR program. It is not completely clear
from the CFR and OMB Circulars whether third party in-kind match is allowable
to meet the state share. The benefits of entering into these types of agreements
include avoidance of a MOE penalty and fostering relationships and collaboration
between RSC and community partners. However, the potential of an audit
finding if RSA determines that in-kind match is not allowable would be significant.
Since the code provisions are not clear, it would be beneficial to ask RSA for
approval before entering into these agreements or to wait until RSA issues its
monitoring results on the California VR program.