Introduction

This chapter compiles the applicable federal, state and agency requirements governing insurance. In the event of conflict between these standards and federal or state statute or regulation, the federal or state statute or regulation will apply.

Record retention and access requirements are provided in Appendix K to this manual. All financial and programmatic records, supporting documents, statistical records, and other records pertaining to an award of federal or state funds must be retained and made available to authorized entities or their representatives in accordance with applicable administrative requirements.

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Bonding Requirements

A fidelity bond, or other method to secure funds against loss must be in place, and submitted to the Agency as required by this Section.

All Contractors, except educational institutions, must obtain a fidelity bond that indemnifies the Agency against loss arising from a fraudulent or dishonest act of the Contractor’s officers and employees holding positions of fiduciary trust; i.e., individuals responsible for receiving or depositing Agency funds, or issuing financial documents, checks or other instruments of payment.  The Contractor must be the insured entity and the Agency must be the assigned certificate holder.  The Contractor must submit the bond to the Agency’s Payables Department within 15 calendar days of the beginning date of a grant award.  Failure to do so may result in termination of the grant award.  Under no circumstances will the Agency disburse to the Contractor an amount of cash that exceeds the coverage provided by the fidelity bond that is on file with the Agency.  Contact information for the Agency’s Payables Department is provided in Appendix E to this manual.

Amount.  The fidelity bond must be in an amount that is sufficient to cover the largest cumulative amount of all cash requests submitted on a given day or the cumulative amount of funds on hand at any given point.  Such amount will be determined based on cumulative amounts drawn during any consecutive three-day period for single or multiple funding sources.

In addition, Commission rule at 40 TAC §802.21(b) requires a Board or its workforce service provider to secure an additional amount of funds against loss as follows:

  • If the amount secured by the Board's fidelity bond is "sufficient to cover the largest cumulative amount of all cash requests submitted on a given day or the cumulative amount of funds on hand at any given point," but is less than 10% of the funds subject to the control of its workforce service providers, the difference must be secured through bonds, insurance, escrow accounts, cash on deposit, or other methods in accordance with the requirements of 40 TAC §802.21.
  • If, when the Board conducts a fiscal integrity evaluation in accordance with 40 TAC §802.21(a), the Board determines that more than 10% of the funds subject to the control of its workforce service providers must be secured against loss, the additional amount must be secured through bonds, insurance, escrow accounts, cash on deposit, or other methods in accordance with the requirements of 40 TAC §802.21.
  • If the Board’s fidelity bond is sufficient to cover all amounts required above, no additional funds must be secured against loss.

When determining whether coverage is sufficient to secure 10% of the funds subject to the control of the Board’s workforce service providers, the Board should only consider the amount of funds that are drawn by and in the possession of its subcontractor during any consecutive three-day period, not the total contract amount.

Escrow Accounts.  If a Board or workforce service provider establishes an escrow account to secure funds under 40 TAC §802.21, the escrow of funds must meet the following criteria:

  • The funds placed in escrow require the signature of persons other than the persons with signatory authority for the Board's workforce service providers.
  • The funds do not lapse due to requirements for timely expenditure of funds.
  • This provision does not conflict with any provision in contract, rule, or statute for the timely expenditure of funds.

Cost.  Contractors are responsible for the cost of a fidelity bond to provide the coverage described in this Chapter 3 of this manual.  For Boards, when this coverage is not sufficient to satisfy the requirements of the Commission rule at 40 TAC §802.21, the Board may at its discretion pay for the additional bonding, insurance, other protection methods; or the Board may require its workforce service provider to fund the cost to the extent allowable under federal and state law.  The cost is reimbursable with Texas Workforce Commission (TWC) funds.

Sureties.  Fidelity bonds must be executed by a corporate surety or sureties holding certificates of authority, authorized to do business in the State of Texas, and acceptable to the Agency.  If a surety upon a bond loses its authority to do business in the State of Texas, or the bond is cancelled, reduced or otherwise amended, the Contractor must immediately notify the Agency and provide a replacement bond that is adequate to cover the terms and conditions of its contract and this manual.  Until such time that an adequate replacement bond is secured by the insurer and provided to the Agency, no further disbursements will be made to the Contractor.

Verifications.  For Boards, when amounts that are in addition to the Board’s fidelity bond must be secured in accordance with 40 TAC §802.21, the Board must ensure, based on the schedule referenced in 40 TAC §802.21(a)(2), that each of its workforce service providers is required to verify that:

  • The insurance or bond policy is valid, premiums are paid to date, the company is authorized to provide the bonding or insurance, and the company is not in receivership, bankruptcy or some other status that would jeopardize the ability to draw upon the policy
  • The escrow account balances are at an appropriate level
  • The method of securing the funds has not been withdrawn, drawn upon, obligated for another purpose, or is no longer valid for use as the method of security
  • Other such protections as are applicable and relied upon by the Board are verified as in force

Changes.  A Board shall ensure that the workforce service providers are required to disclose any changes in and circumstances regarding the method of securing or protecting funds under the workforce service contractors' control.

Authority:

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Other Insurance Requirements

Insurance coverage must comply with applicable federal, state and agency requirements.

Costs of insurance that are required or approved and maintained pursuant to a federal or state award are allowable. Costs of other insurance in connection with the general conduct of activities (i.e., general liability) are allowable subject to the following limitations:

  • Types and extent and cost of coverage are in accordance with the organization’s policy and sound business practice
  • Costs of insurance or contributions to any reserve covering the risk of loss of, or damage to, federal government or state property are unallowable except to the extent that the awarding agency has specifically required or approved such costs

Actual losses that could have been covered by permissible insurance are unallowable, unless expressly provided for in the award.

Costs incurred because of (1) losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, and (2) minor losses not covered by insurance, such as spoilage, breakage, and disappearance of small hand tools, which occur in the ordinary course of operations, are allowable.

The following insurance coverage is required by federal, state or agency requirements:

Property. Provisions for property insurance are addressed in Section 13.18 of this manual.

Errors and Omissions. All workforce center providers must carry “errors and omissions” insurance, or the equivalent.

Worker’s Compensation for Workforce Investment Act (WIA) Participants. Recipients and service providers must ensure that all WIA participants engaged in work experience are provided with appropriate insurance coverage. To the extent that the state workers' compensation law applies, workers' compensation must be provided to participants in programs and activities under Title I of WIA on the same basis as the compensation is provided to other individuals in the state in similar employment. If the workers' compensation law applies to a participant in work experience, workers' compensation benefits must be available for injuries suffered by the participant in such work experience. If the workers' compensation law does not apply to a participant in work experience, insurance coverage must be secured for injuries suffered by the participant in the course of such work experience.

Authority:

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