2017 CALACT Spring Conference & Expo Presentation Supplement OMB Guidance: An Overview of the “Super Circular” April 24, 2016 Presented at the: 2017 CALACT Spring Conference & Expo Olympic Valley, CA Presented by Richard Garrity RLS & Associates, Inc. . .

Key TERMS & Definitions Appendix A Key TERMS & Definitions

Key Definitions NEW – Budget Budget Means the Financial Plan for the Project or Program That the Federal Awarding Agency or Pass-through Entity Approves During the Federal Award Process or in Subsequent Amendments to the Federal Award It May Include the Federal and Non-Federal Share or Only the Federal Share, as Determined by the Federal Awarding Agency or Pass-through Entity Note that Budget refers to a Financial Plan, not just the line item spreadsheet. 6

Key Definitions NEW – Capital Asset Capital Assets Means Tangible or Intangible Assets Used In Operations Having a Useful Life of More Than One Year Which Are Capitalized in Accordance With GAAP Note that Budget refers to a Financial Plan, not just the line item spreadsheet. 6

Key Definitions NEW – Capital Asset Capital Assets Include: Land, Buildings (Facilities), Equipment, and Intellectual Property (Including Software) Whether Acquired by Purchase, Construction, Manufacture, Lease-Purchase, Exchange, or Through Capital Leases Additions, Improvements, Modifications, Replacements, Rearrangements, Reinstallations, Renovations or Alterations to Capital Assets that Materially Increase Their Value or Useful Life (Not Ordinary Repairs And Maintenance) Note: Exception, by Legislation, in Transit Law permits maintenance to be reimbursed at the capital ratio, but it does not make maintenance a capital asset 6

Key Definitions NEW – Closeout Closeout Means the Process by Which the Federal Awarding Agency or Pass-Through Entity Determines That All Applicable Administrative Actions and All Required Work of the Federal Award Have Been Completed 6

Key Definitions NEW – Cognizant Agency for Indirect Cost Cognizant Agency for Indirect Costs Means the Federal Agency Responsible for Reviewing, Negotiating, and Approving Cost Allocation Plans or Indirect Cost Proposals The Cognizant Agency for Indirect Cost is Not Necessarily the Same as the Cognizant Agency For Audit In recipient/subrecipient arrangements, the recipient may serve as the cognizant agency for indirect costs. Cognizant agency for Audit is either: (a) named by OMB; or (b) determined by agency that provides the most Federal funds to the subrecipient. 6

Key Definitions NEW – Cognizant Agency for Indirect Cost Cognizant Agency for Indirect Costs Means the Federal Agency Responsible for Reviewing, Negotiating, and Approving Cost Allocation Plans or Indirect Cost Proposals The Cognizant Agency for Indirect Cost is Not Necessarily the Same as the Cognizant Agency For Audit In recipient/subrecipient arrangements, the recipient may serve as the cognizant agency for indirect costs. Cognizant agency for Audit is either: (a) named by OMB; or (b) determined by agency that provides the most Federal funds to the subrecipient. 6

Key Definitions NEW – Computing Devices Computing Devices Means Machines Used to Acquire, Store, Analyze, Process, and Publish Data and Other Information Electronically, Including Accessories (or “Peripherals”) for Printing, Transmitting and Receiving, or Storing Electronic Information A computing device is a supply if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5,000, regardless of the length of its useful life. 6

Key Definitions NEW – Computing Devices Computing Devices Means Machines Used to Acquire, Store, Analyze, Process, and Publish Data and Other Information Electronically, Including Accessories (or “Peripherals”) for Printing, Transmitting and Receiving, or Storing Electronic Information A computing device is a supply if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5,000, regardless of the length of its useful life. 6

Key Definitions NEW – Contractor Super Circular Makes Clear Distinction Between A Third Party Contract Relationship and a Pass-Through Relationship Contract Means a Legal Instrument by Which A Non-Federal Entity Purchases Property or Services Needed to Carry Out the Project or Program Under a Federal Award In even if a “contract” exists between a primary recipient and lower tier pass-through subrecipient, the lower tier entity is not considered a contractor. 6

Key Definitions NEW – Cooperative Audit Resolution Means the Use of Audit Follow-Up Techniques Which Promote Prompt Corrective Action By Improving Communication, Fostering Collaboration, Promoting Trust, and Developing An Understanding Between the Federal Agency and the Non-Federal Entity Emphasize the need to resolve audit findings due to new Risk Assessment in grant awards 6

Key Definitions NEW – Cooperative Audit Resolution This Approach is Based Upon: A Strong Commitment by Federal Agency and Non-Federal Entity Leadership to Program Integrity Federal Agencies Strengthening Partnerships and Working Cooperatively With Non-Federal Entities and Their Auditors Non-Federal Entities and Their Auditors Working Cooperatively With Federal Agencies . 6

Key Definitions NEW – Cooperative Audit Resolution This Approach is Based Upon: A Focus on Current Conditions and Corrective Action Federal Agencies Offering Appropriate Relief for Past Noncompliance When Audits Show Prompt Corrective Action Has Occurred Federal Agency Leadership Sending a Clear Message That Continued Failure to Correct Conditions Identified By Audits Which Are Likely to Cause Improper Payments, Fraud, Waste, or Abuse Is Unacceptable and Will Result In Sanctions 6

Key Definitions NEW – Federal Audit Clearinghouse FAC Means the Clearinghouse Designated By OMB as the Repository of Record Where Non-Federal Entities Are Required to Transmit the Reporting Packages Required By Subpart F— Audit Requirements 6

Key Definitions NEW – Federal Interest Federal Interest Means The Federal Share of Total Project Costs Current Fair Market Value of The Property, Improvements, or Both, To the Extent the Costs of Acquiring or Improving the Property Were Included as Project Costs 6

Key Definitions NEW – Internal Controls Internal Controls Means a Process, Implemented by a Non-Federal Entity, Designed to Provide Reasonable Assurance Regarding the Achievement of Objectives in the Following Categories: Effectiveness and Efficiency of Operations Reliability of Reporting for Internal and External Use Compliance With Applicable Laws and Regulations Note the new emphasis on recipient/subrecipient management of internal control – not waiting for the once/year assessment by auditors. 6

Key Definitions NEW – Micro-Purchase Micro-Purchase Means a Purchase of Supplies or Services Using Simplified Acquisition Procedures, the Aggregate Amount of Which Does Not Exceed The Micro-Purchase Threshold The Micro-purchase Threshold Is Set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 Current Threshold: $3,500 Recommend that every purchasing policy recognized micro-purchases. Note that this has been a part of FTA 4220.1F for some time. 6

Key Definitions NEW – Total Modified Direct Costs MTDC Means All Direct Salaries and Wages, Applicable Fringe Benefits, Materials and Supplies, Services, Travel, and Subawards and Subcontracts Up to the First $25,000 of Each Subaward MTDC Excludes Equipment, Capital Expenditures, Rental Costs, Tuition Remission, Scholarships and Fellowships, Participant Support Costs, and the Portion of Each Subaward/Subcontract In Excess of $25,000 6

Key Definitions NEW – Supplies Supplies Means All Tangible Personal Property Other Than Those Defined as Equipment A Computing Device is a Supply If The Acquisition Cost is Less than the Capitalization Level Established by the Non-Federal Entity for Financial Statement Purposes or $5,000, Regardless of the Length of Its Useful Life 6

Cost Allocation & Indirect Cost Rate Proposals Appendix B Cost Allocation & Indirect Cost Rate Proposals

Confusion on Cost Allocation The Term “Cost Allocation” Has Been Used to Describe a Wide Range of Allocation Needs Among Public Transit Operators In Transit, “Cost Allocation” Can Refer to a Series of Distinct Management/Accounting Practices Each Cost Allocation Problem Requires a Separate Methodology, Typically Referred to As “Cost Allocation” 6

Types of Cost Allocation Financial Based Cost Allocation Service Based Cost Allocation Plans 6

Financial Based Cost Allocation #1 Central Services Cost Allocation Plan A Publicly Sponsored Transit Program Benefits from the Services of Other Governmental Units and Desires to Claim Costs Incurred by these Units Under its Various Federal Awards The Public Entity or Governmental Unit Must Prepare a “Central Services Cost Allocation Plan” 6

Fundamental Financial Management for Rural Transit Operators CSCAP Preparation Instructor’s Manual

Financial Based Cost Allocation #2 Indirect Cost Allocation Plan An Entity (Public or Private Nonprofit) Provides Multiple Program Services Certain Overhead and Administrative Costs Incurred by the Entity Benefit All Programs and Services, Including Transit The Agency Seeks to Recoup These Costs in Their Billings to Various Federal Agencies The Entity Requires an Approved “Indirect Cost Allocation Rate” in Order for Such Costs to be Reimbursable by the Federal Government” 6

Service Based Cost Allocation Allocate Costs to Various Types/Modes/Services Charter Cost Allocation Local Match Allocation Plan 6

Service Based Cost Allocation #1 A Public Transit Agency Coordinates Service With Various Human Service Agencies In The Area The Transit Provider Has A Policy That Public Transit Funds Cannot Be Used To Subsidize Human Service Agency Client Transportation The Transit Agency Needs A “Fully Allocated Cost Analysis” To Determine How To Price Contract Services 6

Service Based Cost Allocation #2 A Transit Agency Provides Charter Service in Accordance with 49 CFR part 604 The Transit Agency Must Demonstrate That it Fully Recovers the Cost of Charter Service The Agency Requires a “Charter Service Allocation Plan” 6

Service Based Cost Allocation #3 A Regional Transit Authority Provides Service Over a Multi-Jurisdictional Service Area Each Participating Local Entity Must Share Responsibility for Funding a Portion of the Local Share The Authority Must Allocate Local Funding Needs In An Equitable Manner To All Participating Jurisdictions 6

Multiple Cost Allocation Plans Some Public Transportation Projects May Require Multiple Types of Cost Allocation Central Service Cost Allocation Plan Indirect Cost Allocation Plan Service Based Cost Allocation Plan 6

Multiple Cost Allocation Plans Fundamental Financial Management for Rural Transit Operators Multiple Cost Allocation Plans Instructor’s Manual

Methods Simplified Method Multiple Allocation Base Method Special Indirect Cost Rates New, de minimis Rate For Entities That Have Never Sought An Indirect Cost Rate with the Federal Government, a New Process is Permitted An Automatic Ten Percent Rate May Be Used No Indirect Cost Rate Proposal is Required 6

Simplified Methods Where a Governmental Unit's Department or Agency Has Only One Major Function, or Where All Its Major Functions Benefit From The Indirect Costs To Approximately The Same Degree, the Allocation of Indirect Costs and the Computation of An Indirect Cost Rate May Be Accomplished Through Simplified Allocation Procedures This Method Works For Smaller Units Quite Well 6

Simplified Methods Both the Direct Costs and the Indirect Costs Must Exclude Capital Expenditures and Unallowable Costs Unallowable Costs Must Be Included in the Direct Costs if They Represent Activities Which Indirect Costs Are Properly Allocable 6

Simplified Methods Distribution Base Options Modified Total Direct Costs (MTDC) Excludes Capital Expenditures and Other Distorting Items, Such As Pass-through Funds, Subcontracts In Excess of $25,000, Participant Support Costs, etc. Direct Salaries and Wages (S&W) Another Base Which Results In an Equitable Distribution Usually, the First Two Methods are Used 6

Multiple Allocation Methods Where a Non-Federal Entity's Indirect Costs Benefit Its Major Functions in Varying Degrees, Such Costs Must Be Accumulated Into Separate Cost Groupings. Each Grouping Must Then Be Allocated Individually To Benefitted Functions By Means of a Base Which Best Measures the Relative Benefits This Method Usually Appropriate for Larger, More Complex, Public Entities 6

Documentation in ICRP Indirect Cost Rate Proposals (ICRP)Need Not Be Complex Generally Derived on Existing Data Computation of Rate Subsidiary Worksheets Other Relevant Data 6

Documentation in ICRP Documentation Required Cross-Reference of Rate Computations to Financial Data Comprehensive Annual Financial Report (CAFR) Audit Other Financial Data Financial Data is Typically Audited Data If Unaudited Data is Used, Adjustments Will Be Required in a Subsequent Proposal 6

Documentation in ICRP Documentation Required Direct Base Costs Incurred in Federal Grant Awards Schedule Must Distinguish Between Salaries & Wages (S&W) and Other Direct Costs Organizational Chart Also Include a Narrative Description of the Functional Responsibilities of all Units that Comprise the Governmental Unit One-Time Submission Unless Organizational Structure Changes 6

Documentation in ICRP Documentation Required Required Certification Every Submittal Must Contain a Certification that is a Verbatim Recital of the “Certificate of Indirect Costs” Found in Appendix VII to 2 CFR part 200 6

Submission Submission Should be Made to the Cognizant Agency for Indirect Costs This is the Entity Responsible for the Following in Indirect Cost Rate Proposals: Review Negotiation Approval 6

Cognizant Agency for Indirect Costs Public Entities That Receive More Than $35,000,000 Must Submit Its Indirect Cost Rate Proposal to the Cognizant Agency for Indirect Costs Other Public Entities Develop Indirect Cost Rate Proposals, Use the Rates, and Maintain All Proposal Documentation On File Submit Upon Request 6

Cognizant Agency for Indirect Costs KEY Element For Pass-Through Entity and Subrecipients Where a Non-Federal Entity Only Receives Funds As a Subrecipient, the Pass-through Entity Will Be Responsible For Negotiating and/or Monitoring the Subrecipient's Indirect Costs NCDOT = Pass-Through Entity 6

Implementation Upon Approval, the Rate is Typically Applied for a One-Year Period Coinciding to the Entity’s Fiscal Year The New Super Circular Provides New Authority That Enables Indirect Cost Rates to Be Applied for Longer Than One Year 6

Implementation Any Non-Federal Entity That Has a Federally Negotiated Indirect Cost Rate May Apply For a One-Time Extension of a Current Negotiated Indirect Cost Rates For a Period of Up To Four Years 6

ICRP Preparation Evaluate Your Current Chart of Accounts Use of a Standardized Chart of Accounts Is Essential to Indirect Cost Allocation Modify or Expand the Chart of Accounts to Meet Needs Ensure that Salaries and Wages are Captured Separately From Other Expenses Ensure that Funds/Programs/Activities in Your Accounting Software Are Sufficiently Robust to Segregate, Accumulate, and Allocate Direct Expenses to the Benefitting Activity Accumulate Unallowable Expenses Separate 6

ICRP Preparation Technical Guidance The Best Guidance, and the Document Most Recommended, Remains a Publication Produced by the U.S. Department of Health and Human Services Almost Two Decades Ago Still Widely Available for Download at: https://rates.psc.gov/fms/dca/ASMBc-10.pdf 6

ICRP Preparation Technical Guidance The Best Guidance, and the Document Most Recommended, Remains a Publication Produced by the U.S. Department of Health and Human Services Almost Two Decades Ago Still Widely Available for Download at: https://rates.psc.gov/fms/dca/ASMBc-10.pdf 6

Fundamental Financial Management for Rural Transit Operators ICRP Preparation This is the cover to the HHS publication: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Agreements with the Federal Government: A Guide For State, Local and Indian Tribal Governments. Instructor’s Manual

Types of Rates Final Rate Fixed Rate Predetermined Rate Provisional Rate Distribute Handout – Types of Rates 6

Fundamental Financial Management for Rural Transit Operators ICRP Preparation Instructor’s Manual