COST ALLOCATION for Federal Programs SAAABA Business Seminar Thursday April 26, 2018 David Lynn, President Sequoia Consulting Group

Overview Review of Different Types of Cost Plans Definition of Costs Statewide Cost Allocation Plan (SWCAP) Public Assistance Cost Allocation Plan (PACAP) Indirect Cost Plan/Rates Definition of Costs Direct and Indirect Allowable and Unallowable Cost Bases (Salary and Wage, Modified Total Direct Costs) Time Reporting Random Moment Time Studies Time and Effort Reporting Questions

Federal Cost Allocation Rules and Regulations Former Circular A-87 – Cost Principles for State and Local Governments and Indian Tribes 2 CFR 200 – Uniform Guidance 45 CFR 75 – HHS Implementing Regulations DHHS Program Support Center – Cost Allocation Services

Different Types of Cost Allocation Plans Statewide Cost Allocation Plan (SWCAP) Section 1 - General Government Section 2 – Billed Services, including Internal Service Funds Public Assistance Cost Allocation Plans Cover most Human Service Agencies Programs covered under these plans usually include Medicaid, TANF, Child Welfare, Child Support and Food Stamps Narrative Plan and associated numerical methods that allocate costs on a contemporary basis

Different Types of Cost Allocation Plans Indirect Cost Plans Usually prepared for an agency that uses the plan to claim indirect costs or to develop indirect rates. Based on historical costs, typically 2 years in arrears (FY18 claims based on FY16 costs)

Indirect Cost Rate Types Provisional Rate (Temporary subject to true-up) Negotiated with first time rate applicants Used for interim billing when rate has expired Subject to change – converts to “Final” Final Rate (Permanent rate not subject to change) Common practice Annual Proposal required Fixed Rate (Permanent, not subject to change) Carry forward provision for under/over recovery Rate adjusted annually Annual Proposal Required

Indirect Cost Rate Types Predetermined Rate (Permanent, not subject to change) Allowed for Colleges/Universities Cannot be used if grantee has federal contracts Multiple years may be negotiated

Indirect Cost Rate Types De-Minimis 10% Indirect Cost Rate (10% of Modified Total Direct Costs) New Grantee – Only for those who have not had an approved Indirect Cost RATE. Not Available to State/Local Government Departments receiving more than $35 million in Direct Federal awards. May be used indefinitely No documentation required

Definition of Costs Direct Costs – Costs that can be identified specifically with a final cost objective such as a specific activity, program or grant (Direct program costs) Can benefit more than on program, but can be easily allocated to the funding sources that benefit (direct allocation costs) Are approved for payment by the Federal grant officer or their representative

Definition of Costs Indirect Costs Incurred for common or joint objectives and cannot be readily identified with a particular final cost objective or funding source Necessary to the general operation of the organization Approved by the cognizant agency’s cost negotiator through an indirect cost rate or cost allocation plan

Allowable Costs Necessary and Reasonable Consistent with Policy and Procedures Treated Consistently Adequately Documented

Unallowable Costs Fund Raising Public Relations Lobbying Investment management

Cost Bases for Indirect Rates Salaries and Wages Total Direct Salaries and Wages (S/W Base) Salaries and Wages with Fringe Benefits Total Direct Salaries and wages including all fringe benefits (S/W + FB Base) Modified Total Direct Costs (MTDC) Total Direct Costs excluding capital expenditures, that portion of each sub-award in excess of 25k and flow-thru funds (MTDC)

Time Reporting Random Moment Time Studies Automated process of identifying employees efforts related to specific programs 2,500 to 2,700 random samples per quarter to employees who identify program and activity they are working on at the time of the sample. At the end of the quarter the percentages of samples by program are used to allocate both direct and indirect cost to programs Confidence level of 95% +/- 2%

Time Reporting Time and Effort Reporting Report activity in contemporaneously SIGMA Labor Distribution Payroll Reports (LDPR) Some employees can directly allocate to programs, usually when they work on a small number of programs consistently (certifications are no longer required)

Questions?