CMAA: Indirect Costs & Cost Pool 6 April 19, 2017 Patrick Sutton LGA MAA/TCM Annual Conference

AGENDA Indirect Costs Direct Costs County Cost Allocation Plan (CAP) External vs. Internal Indirect Costs Cost Pool 6

INDIRECT Costs Indirect Costs are those that are incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted without effort disproportionate to the results achieved. OMB Circular A-87

DIRECT Costs Direct Costs are those that are clearly and directly associated with a cost objective. They are generally under the control of the manager who has responsibility for the cost objective. It is extremely important to define the cost objective carefully when trying to determine if a cost is direct or indirect. “Essentials of Cost Accounting for Health Care Organizations”, 3rd Edition – Finkler, Ward and Baker.

DIRECT Costs Examples of Direct Costs: Salaries & Benefits – staff who time survey, or who fall into the direct supervisor or direct support categories. Materials & Supplies – that can be directly tied to time survey/direct supervision/direct support staff. Communications – that can be directly tied to time survey/direct supervision/direct support staff. Cost Allocation and Applying for an Indirect Cost Rate PPT – April/May 2010, Division of Cost Determination

Other Costs Other Costs can take the form of either Direct Costs or Indirect Costs. Generally speaking, Other Costs are defined as normal day-to- day and monthly operating expenses necessary to run a claiming unit. Other Costs also include department/agency (internal) and countywide/citywide (external) overhead or indirect costs. CMAA Program Manual. 2011

Other Costs Other Costs can be allowable or non-allowable. Non-Allowable Other Costs should be recorded in CP 3. Other Costs not directly attributable to Cost Pool 1, Cost Pool 2 or Cost Pool 3, should be placed in Cost Pool 6, if they are an allowable expense. Non-personnel costs associated with the performance of MAA may be direct charged. CMAA Program Manual, 2011

Other Costs Examples of Allowable Other Costs: Office Supplies Office Furniture Computers and software Data processing costs Utility costs Building/space costs Personnel and payroll services Legal representation for the agency CMAA Program Manual, 2011

County cost allocation plan The OMB A-87 Cost Allocation Plan is a document that distributes or allocates County indirect costs. Examples of County indirect costs include: Accounting, Purchasing, Human Resources and Information Technology. The primary purpose for preparing the OMB A-87 Cost Allocation Plan is to identify the true cost of County general fund incurred indirect costs that support various operating departments, divisions and funds.

External vs. internaL The OMB A-87 Cost Allocation Plan costs are sometimes referred to as External Indirect Costs; they come from outside the budget unit and/or claiming unit. Internal Indirect Costs come from within the budget unit and/or claiming unit. Internal Indirect Costs can encompass both labor and non- labor costs.

Indirect Costs & Cost Pool 6 All allowable Indirect Costs should be placed in Cost Pool 6. All non-allowable Indirect Costs should be placed in Cost Pool 3. Indirect Costs do not belong in Cost Pool 1 and 2. Only Direct Costs belong in Cost Pools 1 and 2. Non-Labor Costs can be either a Direct Cost or an Indirect Cost.

Overhead costs Overhead Costs are generally Indirect Costs and cannot be easily identified with, for purposes of CMAA, a particular time survey participant. Overhead Costs require some form of aggregation and then allocation to CMAA reimbursable and non-reimbursable costs. The tool to perform the necessary allocation is Cost Pool 6.

Cost Pool 6 Cost Pool 6 is referred to as the Indirect Cost – Cost Pool. Both labor and non-labor costs can be placed here if they: Are not Direct Costs Are Allowable Indirect Costs CMAA Manual (revised), 2011

Cost Pool 6 Costs include general and administrative staff in the claiming unit: Who did not time survey; Whose costs are not included in any department/program (internal) or in the countywide (external) indirect rate; Whose costs are not direct charged; AND Who, by the nature of their work, support the staff in other cost pools These staff may include management, secretarial, fiscal, supervisory and clerical staff not included in other cost pools. CMAA Manual (revised), 2011

Cost Pool 6 “Other Costs” include the normal day-to-day and monthly operating expenses necessary to run the claiming unit. “Other Costs” may include internal and external overhead or indirect costs. External indirect costs are the countywide cost allocation plan (CWCAPs) – they are typically prepared by the county/city Auditor-Controller’s Office and then submitted to the State Controller’s Office for review and approval.

PPL 16-004 Besides updating Checklists, this PPL established a new requirement for supporting documentation for all invoices with salary and benefit expenses in Cost Pool 6. Individuals whose salary and benefit expenses that appear in Cost Pool 6 must also appear in a spreadsheet that includes their: Name Job Classification Salaries Benefits Total

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