Maximizing the De Minimis Rate NACCA - Leading Excellence in Research Costing Practices General Conference: 10/3 – 10/5, 2017

Presenters Carrie Hurney (Moderator) Andres Chan Mike Legrand Senior Director Huron Consulting Group Andres Chan Director, Financial Analysis University of Southern California Mike Legrand Director, Costing Policy and Analysis University of California Davis

Agenda De Minimis Defined Considerations for De Minimis Rate Negotiating Rates with Subs Sample Calculation Panelist Discussion FAQ Updates Agency Guidance Questions/Comments

De Minimis (According to Webster) “too trivial or minor to merit consideration…” “lacking significance or importance…”  synonyms: chicken, negligible, footling, inconsequential, inconsiderable, insignificant, measly, minute, niggling, no-account, nominal, paltry, peanut, petty, picayune, piddling, piffling, pimping, slight, trifling, Mickey Mouse

Uniform Guidance Says… § 200.414 (f) …any non-Federal entity that has never received a negotiated indirect cost rate…may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC) which may be used indefinitely. If chosen, this methodology once elected must be used consistently for all Federal awards until such time as a non-Federal entity chooses to negotiate for a rate…

Applying the De Minimis Rate Important Considerations Meant for entities who have never negotiated an indirect cost rate If sub already charging all costs directly, cannot apply 10% on top of it Supporting documentation not required

Negotiating Rates with Subs Important Considerations The prime recipient is responsible for setting rates with subrecipients Follows same procedures as a prime would in negotiating rates with their cognizant agency Rate must be supported and subject to audit Must negotiate the time period (annually? Project period?)

Negotiating Rates with Subs Approach Follow simplified rate calculation process Data Needs Financial report Expense detail Groupings between direct and indirect costs Exclusions, Unallowable costs identified

Less: Exclusions & Unallowables Non-Profit Example Cost Category Total Costs All Funds Less: Exclusions & Unallowables Indirect Costs Total Direct Costs Federal Program Non-Federal Programs Salaries 1,314,000   373,250 940,750 141,000 799,750 Fringe Benefits 352,000 99,988 252,012 37,772 214,240 Consultant Services 26,000 14,000 12,000 1,800 10,200 Staff Travel 94,000 20,000 74,000 11,100 62,900 Bad Debts 10,000 10,000 (1) Office Rent 170,000 150,000 22,500 127,500 Consumable Supplies 161,000 11,000 68,000 57,800 Subcontracts 175,000 107,000 (2) Lease, Purchase Equipment 82,000 22,100 (2) 59,900 Telephone 109,400 55,000 54,400 8,200 46,200 Entertainment 1,800 (1) Printing & Reproduction 48,000 37,000 5,500 31,500 Insurance and Bonding 42,000 Fundraising 120,000 Postage and Delivery 34,000 5,100 28,900 4,300 24,600 Depreciation 28,800 8,800 3,000 17,000 Allowances 148,000 148,000 (2) Emergency Assistance 54,000 54,000 (2) Training Materials 12,300 69,700 Participant Support Costs 36,000 36,000 (2) Total Costs 3,088,000 378,900 870,038 1,839,062 257,672 1,581,390 Indirect Rate             ( c ) 47.31% ( d )

Questions for Panelists Who is responsible for negotiating rates at your institution? What is the volume of rates that you are negotiating each year? What is your approach for reviewing and setting the rates? Challenges?

FAQ Updates .331-5 Indirect Cost Rates and Entities Who Do Not Have Indirect Costs “…Not all entities charge indirect cost rates. Will they now be forced to establish such rates?” No. Non-Federal entities that are able to allocate and charge 100% of their costs directly may continue to do so. Claiming reimbursement for indirect costs is never mandatory; a non-Federal entity may conclude that the amount it would recover thereby would be immaterial and not worth the effort needed to obtain it.

FAQ Updates .331-6 Pass-through Entities and Indirect Cost Rate Negotiation “…Is it acceptable to require a subrecipient to accept a rate lower than 10% MTDC via negotiation, or in lieu of their negotiated F&A rate? If a subrecipient requests to establish a rate via negotiation, does the pass-through entity have to establish the rate via negotiation?” If the subrecipient already has a negotiated F&A rate with the Federal government, the negotiated rate must be used. It also is not permissible for pass-through entities to force or entice a proposed subrecipient without a negotiated rate to accept less than the de minimis rate…Pass-through entities may, but are not required, to negotiate a rate with a proposed subrecipient who asks to do so.

FAQ Updates .331-8 Pass-Through Entities That Have Previously Paid Indirect Costs * “Can a pass-through entity that paid actual or negotiated indirect costs to a subrecipient prior to the Uniform Guidance now impose the 10 percent de minimis rate on that same subrecipient?” No…If a pass-through entity paid negotiated or actual indirect costs to a specific subrecipient in the past, they should continue to negotiate and award indirect costs to that subrecipient in accordance with their prior practice… If the pass-through entity negotiated an approved indirect cost rate with its subrecipient in the past, a de minimis rate cannot be applied.

FAQ Updates .414-9 De Minimis Rate and Breaks in Federal Relationship “Our organization previously had a negotiated indirect cost rate. However, all federal awards expired causing a break in our relationship with the federal government. During the break in relationship our negotiated indirectcost rate expired. Our organization has now received a new federal award. Are we eligible to receive the 10percent de minimis rate?” No. Organizations that experience a break in federal relationship are not eligible to receive the 10 percent de minimis rate upon receipt of a new award…It is expected that organizations that have experience developing and negotiating rates have adequate resources to develop a new indirect rates.

FAQ Updates .414-10 De Minimis Rate and Period of Applicability “If an organization elects the 10 percent de minimis rate at the beginning of an award, is the de minimis rate applicable to the period of performance of the award?” The de minimis rate may not be applicable during the entire period of performance of an award. A non-Federal entity may use the 10 percent de minimis rate indefinitely until it elects to negotiate an indirect cost rate, which the non-Federal entity may apply to do at any time. Indirect cost rates are generally negotiated based on a nonfederal entity’s fiscal year (not the period of performance of an award)…

FAQ Updates .414-11 De Minimis Rate and non-Federal entity with Single Function “Can a non-Federal entity conducting a single function, which is predominately funded by Federal awards elect to charge the 10% de minimis rate if they currently charge all costs as direct costs to Federal programs?” No, the 10% de minimis rate must only be used to pay for overhead costs that are not directly charged to Federal awards. If all costs are charged directly to the Federal award (e.g., space costs, utility and administrative costs) then the recipient should not also charge the 10% de minimis rate. As described in 2 CFR section 200.403, costs must be consistently charged as either indirect or direct cost, but may not be doubled charged or inconsistently charged as both.

FAQ Updates .414-12 Providing Proof of Indirect Costs for De Minimis Rate * “Does a non-Federal entity that uses the 10 percent de minimis indirect cost rate need to provide documentation to prove that its indirect costs are at least 10 percent of its organization’s modified total direct costs?” No. A non-Federal entity that has never received a negotiated indirect cost rate and that uses the 10 percent de minimis rate does not need to provide proof of its indirect costs. The 10 percent de minimis rate was designed to reduce burden for small non-Federal entities... The non-Federal entity has to report in its SEFA whether it has elected to use the 10% de minimis rate for its Federal programs (see §200.510(b)(6)).

FAQ Updates .414-13 Is the De Minimis rate the de facto rate? “Many pass-through entities are willing to pay only the 10 percent of modified total direct costs (MTDC) to subrecipients. Is the 10 percent de minimis rate meant to be the de facto indirect cost rate?” No. The 10 percent de minimis rate is not meant to be the de facto indirect cost rate...Pass-through entities must recognize: 1) An approved federally recognized indirect cost rate negotiated between the subrecipient and the federal government or, 2) If no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient or the 10 percent de minimis rate.

Agency Guidance U.S. Department of Health and Human Services: https://rates.psc.gov/ National Science Foundation: https://www.nsf.gov/bfa/dias/caar/docs/idcsubmissions.pdf U. S. Department of Education: https://www2.ed.gov/about.offices/list.ocfo/fipao/guideigcwebsite.pdf U.S. Department of Labor: https://www.dol.gov/oasam/boc/dcd/np-comm-guide.htm. U.S. Department of the Interior: https://www.doi.gov/ibc/services/finance/indirect-cost-services U.S. Department of Agriculture: National Institute of Food and Agriculture (NIFA): https://nifa.usda.gov/indirect-costs USAID: http://www.usaid.gov/work-usaid/resources-for-partners/indirect-cost-rate-guide-non-profitorganizations

Contact Information Carrie Hurney churney@huronconsultinggroup.com 773-368-7413 Andres Chan andres.chan@usc.edu 213-821-1939 Mike Legrand mrlegrand@ucdavis.edu 530-752-4621

Questions/Comments? Thank you!