County of Santa Clara Super Circular – ICRP – CAP BILLING RATES – FEES March 2016 training By Cost Management of the Controller-Treasurer Department

1. OMB – Code of Federal Regulations – Super Circular 2. Audit Requirement 3. Pass-Through Entities 4. Indirect Cost Rate Plan 5. Cost Allocation Plan 6. Cognizant Federal Agency 7. Indirect Cost Rate 8. Fees /Billing Rates

Office of Management and Budget (OMB) – Title 2 of the Code of Federal Regulations (CFR) Chapter I, and Chapter II, Parts 200, 215, 220, 225 and 230 effective December 26, 2014 OBJECTIVES: ◦ Eliminating Duplicative and Conflicting Guidance ◦ Focusing on Performance ◦ Efficient Use of Information Technology and Shared Services ◦ Providing For Consistent and Transparent Treatment of Costs ◦ Limiting Allowable Costs ◦ Setting Standard Business Processes ◦ Encouraging Family-Friendly Policies ◦ Strengthen Oversight ◦ Audit Requirements on Risk of Waste, Fraud and Abuse

Consolidation of all superseded Circulars into a single Circular aka Super-Circular OBM Circular Prior to Description Super Circular Effective A-21Cost Principles for Educational Institutions Section B: Subpart F: Cost Principles A-87 Cost Principles for State, Local, and Indian Tribal Governments A-122Cost Principles for Non-Profit Organization A-89Federal Domestic Assistance Program Section A: Subparts A-E: Administrative Requirements A-102 Grants and Cooperative Agreements with State and Local Governments A-110 Grants and Other Agreements with Institutions of Higher Education, Hospital A-50Single Audit Section C: Subpart F: Audit Requirements A-133Audits of State and Local

Cross-references Subtitle ADescriptionCFR 200 Subpart AAcronyms and Definitions § – § Subpart BGeneral Provisions § – § Subpart CPre-Award Requirements § – § Subpart DPost Award Requirements § – § Subpart E Cost Principles: General Provision § – § Cost Principles: Basic Consolidations § – § Cost Principles: Direct and Indirect Costs § – § Cost Principles: State, Local Governments and Indian Tribal § – § Cost Principles: Institutions of Higher Education § – § Cost Principles: Selected items of Cost (criteria for Allowable or non- allowable, direct or indirect) § – § Subpart FAudits

 Capitalization for Software: Capitalize in accordance with GAAP (Generally Accepted Accounting Principle) $5,000 Capitalization Threshold Software  Eliminate the percentage Use Allowance for facilities/buildings (2%) and equipment (62/3%).  Use Allowance used of facilities / buildings and equipment are based on depreciation. Compare the two methods (use allowance vs. straight line depreciation) for determination of whether the depreciation is allowable Cost of asset has been fully recovered or Asset outlived its useful life  Others

AUDIT

A non-Federal entity that expends $750,000 or more during the non-Federal entity's fiscal year in Federal awards must have ◦ a single audit or ◦ program-specific audit conducted for that year

SINGLE AUDIT: Expends $750,000 or more during the non- Federal entity's fiscal year in Federal awards conducted for that year § PROGRAM –SPECIFIC AUDIT: Expends Federal awards under only one Federal program (excluding R&D) and the Federal program's statutes, regulations, or the terms and conditions of the Federal award do not require a financial statement audit of the auditee, the auditee may elect to have a program-specific audit conducted §

PASS-THROUGH ENTITY

 A non-Federal entity (state, local government, Indian tribe, institution of higher education, or nonprofit organization) that provides a sub award to a sub-recipient to carry out part of a Federal program. §  Responsibilities : ◦ Provide necessary information to sub-grantees ◦ Enforce Federal Government regulations n ◦ Evaluate each applicant for sub-grant for risk of non-compliance in order to determine appropriate monitoring  Frequency of reporting quarterly or annually  Record retentions  Timely and reasonable access to employees  Promptly report any known problems or significant events  Agree-upon procedures audit  Implementation of Indirect Cost Rate ◦ Accept Federal Government negotiated rate, when applicable ◦ Negotiate an indirect cost rate using Federal cost principles ◦ Allow a minimal rate of 10% of modified total

Sub-recipient § /§ (a) :  Performance measured against grant objectives  Responsible for programmatic decision-making  Required adherence to Federal grant rules Vendor/Contractor § /§ (b) :  Provides goods and services in normal course of business (private and public sectors)  Operates in a competitive environment  Not subject to Federal assistance program rules

Find the definitions for the Sub-recipient and Vendor / Contractor a) Provide the same goods or services to others b) Has the ability to make decisions on how to carry out the federal requirements for the program c) Determines requirements for participating in the federal program d) Demonstrate a financial need for funding to carry out the federal program or provide a service to public e) Does not assume risk for failure and will be reimbursed for only actual costs f) Subject to Single Audit and/or Agreed-Upon procedures audit g) Normal business to provide the goods or services being purchased in the agreement

INDIRECT COST RATE PLAN (Proposal)

 Documentation prepared by non-Federal entity to substantiate its request for the establishment of an indirect cost rate - CFR§  Documents that identify cost in a logical and systematic manner for both allowable direct and indirect costs to benefiting activities.  The approved reimbursement rate or rates negotiated between the federal government and an entity which reflects the indirect costs incurred by the entity in the conduct of Federal programs.

 Determine the data needed to compute the indirect costs rate (including support documents)  Comply to state and federal requirements  Compute the Indirect costs rate for state and federal requirements in accordance to the applicable provisions of Super Circular 2 CFR 200 subparts A, B, C and D.

 A ratio of indirect costs over direct costs in a reasonable manner  A negotiated indirect cost rate as approved by the federal cognizant agency applied to total direct cost OR  A de Minimis indirect cost rate of 10% of modified total direct cost

The 1st step in the indirect cost rate (ICR) calculation involves:  Separating the ‘allowable’ direct costs from all other costs – the allowable indirect cost. AND  Identifying the direct expenses for the function or department or grant and related cost sharing.

Identifiable expenses that are directly or specifically for a particular program or a function or a cost objective 1. Program structure or 2. Operation / Activities or 3. Grant

Should the costs for the rate be based upon ◦ Budgeted cost data - Why? ◦ Actual data - Why? ◦ Historical cost data - Why? ◦ Combination of data – Why? Should the roll (carry)-forward (be included? Carry forward = different of estimate in compare with actual

Generally: 1. Previous year’s actual data : if there is little change to the program structure and related costs. 2. Budget data + actual fund balance : if the program structure (and related costs) has expended or changed considerably or newly created organization 3. Historical data : for the new program.

The 2 nd step in the ICR calculation is analyzing and identifying the allowable INDIRECT cost pool: 1. Cost or expenses incurred for a joint or common benefit and cannot be directly or specifically identified with the benefiting cost objectives or activities. 2. Indirect costs must be allocated proportionally to the benefiting cost objectives or activities. 3. The total allowed indirect costs amount represents the numerator used in the fractional computation of an indirect cost rate.

* conditional for grant Salaries & Fringe Benefits Equipment Rental Utilities Building Maintenance Membership [*] Photocopying /Printing Services Office Supplies IT Services Telephone Training & Travel Professional Services

 Be necessary and reasonable ( Ordinary, sound business and established practices and policy, arms-length transactions)  Be allocable  Be treated consistently (Like costs in like circumstances are treated in the same manner)  No double dipping  Be adequately documented and authorized  Reduced by any applicable credits  Conform to the cost principles and award  Conform to General Accepted Accounting Principles  Be consistent with policies, regulations, and procedures that apply equally to state and federal and non-state or non- federal activities.

 Allocable indirect costs must be distributed to all benefiting activities (including unallowable activities and donated services).  Cannot reallocate to avoid restrictions imposed by law or for other reasons

Should the allocable cost for a particular state /federal program be charged to other state/federal program(s), to make up for funding deficiencies?

 Costs excluded because they would distort the allocation base. Examples: Capital (equipment), debt service, cost already been reimbursed by a revenue sources.  Costs that cannot be charged to State or federal programs (grants/cost reimbursements) either as a direct cost or included as part of the indirect cost pool when calculating an indirect cost rate. Examples: bad debt, contingencies, contributions and donations, entertainment (including meals) fines and penalties, interest, other financial costs, and governance.

 Amounts that reduce or offset allocable direct or indirect costs.  Applicable credits include purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments for overpayments or erroneous charges.  Credits must be allocated to the federal award as applicable as a cost reduction or cash refund.

1. Should lawsuit settlement amount be allocated (both credit and expenses)? 2. Which of the below cost principles is true? a)The cost must not have been identified as unallowable. b)The costs must be allocable. c)A prudent person would have paid this amount. d)Similar kinds of expenses must be charged the same way. e)All of the above.

3. The best definition of allocable is the: a)Expense must not be an unallowable cost. b)Expense must benefit the activity to which it is being allocated. c)Expense must reflect what a prudent person would pay. d)Method used to allocate expenses to multiple accounts must be reasonable.

4. Is Allowable Cost? a)Ordinary and necessary b)In conforming to the established policies and practices c)Non arms-length transactions d)All of the above

COST ALLOCATION PLAN

 The mechanism by which central services costs are identified in a logical and systematic manner for reimbursement or cost recovery from the receiving department.  A set of documents that identify, accumulate, and distribute allowable indirect costs to benefiting activities. Documents such as: ◦ Narrative of changes to the accounting treatment of any expense category (e.g., a change in building/equipment costing methodology, a change in changing an expense from direct to indirect) ◦ Reconciliations are required for :  Salaries / Wages – Direct and Indirect  Revenues /Credits  Split of Direct cost and Indirect cost ◦ Reconciliations of Unallowable expenses that have been eliminated from the indirect cost pool (A schedule of details of the unallowable expenses)

◦ Analysis of Significant expenses (in compare with prior year) ◦ Allocation methodology (narrative of services provided by one department to another, rationale for the allocation) Central Service Departments : Departments that provide services to other Departments throughout the county. Receiving Departments : Departments that receive services from Central Service Departments. Allocated Cost : Allowable, supportable and appropriate allocable. Credits : Conditionally allowable. Direct Bills : Allowable.

1.Can a department be both Central services provider and receiver? 2.Is the MOU or LOU considered as support document for services being charges? 3.Should the cost that were not recovered from departments with MOU and LOU be allocated to the departments without MOU or LOU for the same services?

* the county may pay for these expenses  Personal amusement, social activities, or entertainment (outside of activities directly related to functions or purposes, including employee-employer relations, performance improvement, etc.).  Personal social club or association dues.  Parking permits for employees[**]  Traffic citations for either personal or county vehicles.  Disallowed costs by State or State department policy.

1. Name 3 types of expenses that are not allowable under CFR 2. Name 3 types of expenses that are Conditionally (may or may not be) allowable under CFR

 Determining the full cost of an operation  Setting user fees  Recovering costs for internal services  Projecting costs for inter-governmental charges  Estimating costs on proposed grants

Cognizant Federal Agency

 A Federal agency with the largest dollar amounts of negotiated contracts  Responsible for reviewing, negotiating, and approving the ICRP or CAP submitted by local agencies on behalf of all other federal agencies;  Responsible to Single Audit compliance.

 The Department of Health and Human Services (DHHS) is assigned for all States, most Cities, and Hospital.  The Department of Interior is assigned for all Indian tribal governments and interior contracts.  The Department of Labor is assigned all Labor contracts.  The Federal Department of Transportation (DOT) is assigned for all transportation contracts.  The United States Department of Agriculture is assigned for all agricultures  The Environmental Protection Agency  The Housing and Urban Development Agency  The Department of Justice

1. The federal agency responsibility for reviewing and approving the County CAP is : ◦ State Controller Office ◦ Department of Health and Human Services 2. A County department does not need to submit an ICRP to reimburse reimbursement from the federal or state government. ◦ True ◦ False

3. Federal delegated state agency for reviewing and approving the County Roads and Airport’s CAP is a)California Transportation Department (Caltrans) b)State Controller c)Federal Department of Transportation 4. Federal delegated state agency for reviewing and approving the Local Health Department’s CAP is a)State Health and Human Services Agency b)State Controller c)State Department of Public Health

Three different types of indirect cost rates can be approved by the cognizant agency for indirect cost negotiation: Predetermined- established for current or multiple future period(s) based on current data and are not subject to adjustment, except under very unusual circumstances. Fixed – established for a current period based on current data with a carry forward adjustment to the rate computation for a subsequent period. Provisional – temporary rates used for funding and billing indirect costs, pending the establishment of a final rate for a period.

Which of the ICR type requires carry forward adjustment 1. Predetermined 2. Fixed 3. Provisional

INDIRECT COST RATE

 County departments can negotiate several different indirect cost rates with the State or Federal government for cost reimbursement.  County departments can negotiate indirect cost rates with the non-governmental organization if allowed to do so.

The ICR developed by State of California or Federal Agency Example: 1. County Welfare Department has an option to accept the ICR developed by California Department of Social Services or to develop its own ICRP. 2. County Roads and Airport Department has an option to accept the ICR developed by California Department of Transportation or to develop its own ICRT

1. The negotiated indirect cost rates are applied to a base for billing the State or Federal government. 2. Each County department will comply with the County's full cost recovery policy. 3. Each County department must include the applicable indirect cost rate in computing its fees unless there is an exception.

 Requires departments to recover full costs whenever goods or services are provided for cost reimbursements or fees.  The full cost of goods or services includes all costs attributable directly to the activity plus a fair share of indirect costs, which can be ascribed reasonably to the goods or services provided. Exception: When the rates or costs are not Compatible in providing same services to others

 Methodology: Justification as to why the method used is the most appropriate for the activity  Estimated expenditures (expenses): Budget or Actuarial reports completed by a third party net of excess reserves  Unreserved Retained Earnings 60 days working capital = ( O perating Expense – Depreciation expense)/6 Assets replacement Cost Rolling average to avoid a rate fluctuation  Activity Tracking: of services provided to the users or usage of services by the users

 User Fees / Impact Fees : o Charges for services provided to the department by county internal services fund. o Charges for services provided to public  Regulatory Fees : pay for the costs of issuing licenses and permits, performing inspections, and enforcing agency laws and regulations.  Statutory Fees : set by legislations or by law for providing services.

 Self Insured Premium  Car rental  Services billing rates

Match the fees with the categories the following a. Increase the Vehicle License fee1. User Fees b. Food Safety Certification Fee2. Regulatory Fees c. AB1020 State Fee3. Statutory Fees d. Building Permit and Plan review e. Use Permit f. Witness fees g. 911 Receiving Hospital Designation Fee

Hourly Rate = (Labor Cost for each job code + Indirect cost) / Annual productive hours = Chargeable Rate to provide per hour of services 1. Labor cost: Salary + Benefits [Medical, Employer Tax, Pension, Others] 2. ICR: Departmental or Function level 3. Total annual Productive Hours – computed by Controller- Treasurer’s Department.

Unit Rate = Rate charge for a task or services = (Time x Hourly Rate) + material cost ◦ Time study: How much time does it take to complete the task ◦ Hourly Rate ◦ Material Cost

Full cost recovery: Labor + Overhead Labor rate X time spent on the project Time Study : time sheet signed by both employee and supervisor per case Labor rate : standard base (salary and benefit total) divided by productive hourly rate plus Indirect cost rate Office Expense and Supplies per case

Non- Full cost recovery requires exception from the Board

The fees charges for the services cannot be greater than the cost incurred in providing the services

Was the fee in existence prior to November 3, 2010? Is the fee imposed and collected by local? Retained ?