Using Data For cost allocation Bonnie Graham, Esq. bgraham@bruman.com WWW.BRUMAN.COM Brustein & Manasevit, PLLC © 2018. All rights reserved.

Costing Options Direct vs. Indirect Brustein & Manasevit, PLLC © 2018. All rights reserved.

What is an indirect cost? Indirect costs (200.56): Costs incurred for common purpose benefitting more than one cost objective and not readily assignable to the cost objectives without effort disproportionate to the results achieved. General management costs (76.565): Costs of activities that are for the direction and control of the grantee’s affairs that are organization-wide. E.g. accounting, payroll preparation, or personnel management. But excluding divisional admin (one component), governing body, CEO, component heads and immediate offices. Brustein & Manasevit, PLLC © 2018. All rights reserved.

how are indirect costs allocated? Once you identify indirect costs, select a distribution base that will equitably distribute these costs to both federal and nonfederal funds. *SPOILER* It’s “Modified Total Direct Costs” Calculate your rate: Indirect costs MTDC Brustein & Manasevit, PLLC © 2018. All rights reserved.

how are indirect costs allocated? For example: If your indirect cost rate is 8%, then if you spend a dollar on a (modified) direct cost ($1.00), you charge the grant ($1.08). The $.08 is reimbursement for the “general management costs” (i.e., indirect costs) you could not accurately capture and charge to the grant directly. Brustein & Manasevit, PLLC © 2018. All rights reserved.

Higher Indirect Cost Rate Pro: Recovery does not have federal accountability (more flexibility) Con: Less dedicated funding/ funding for direct program expenses Brustein & Manasevit, PLLC © 2018. All rights reserved.

Indirect rate does not change the Total Grant Award! Brustein & Manasevit, PLLC © 2018. All rights reserved.

Recommendation Negotiate a higher rate  Grantees can choose to recover less than the full amount of indirect, or not charge indirect costs at all, to particular programs or grants Note: Keep in mind consistent treatment of costs. This does not mean grantees can direct charge the same type of costs on one grant that are covered in the indirect rate and charged indirectly on another grant. Brustein & Manasevit, PLLC © 2018. All rights reserved.

Data and cost allocation Where we’ve been, and where we are going… Brustein & Manasevit, PLLC © 2018. All rights reserved.

Time & Effort Guidance - 1992 Problem: Employee performs administrative, training, teaching, technical assistance, or other functions on a project that benefit more than one program or cost objective, such that the employee is unable to divide the time between each of the programs or cost objectives Solution: “Costs may be charged to the programs or cost objectives on a basis other than the time spent, provided that charges are equitably distributed among funding sources.” Brustein & Manasevit, PLLC © 2018. All rights reserved.

Time & Effort Guidance - 1992 For example: State employee preparing a manual for LEAs to use in improving parental participation in programs supported by ED and other grants. One manual is produced. Prorate the costs to each grant in question on the basis of the proportion of funds allocated for each of the grants benefitting from the manual For example: Teacher teaches class composed of TI and special education students with similar educational needs. Prorate teacher’s time based on proportion of students eligible under each program** Brustein & Manasevit, PLLC © 2018. All rights reserved.

Time & Effort Guidance - 1992 Substitute Systems may include: Random sampling, Case counts, Client counts, Transaction counts, or Other quantifiable measure of employee effort *If certified by accountant, did not need ED approval Brustein & Manasevit, PLLC © 2018. All rights reserved.

State Substitute systems Adopted in mid-1990s under OMB Circular A-87 Actual, detailed time and effort records kept periodically (2, 3 or 4 times a year, depending on the system) Actual records used to adjust prior budgeted figures and revise estimated allocations for next quarter Brustein & Manasevit, PLLC © 2018. All rights reserved.

In RE North Carolina (1993) Background: Between 1987 and 1990, North Carolina expended Perkins funds to pay for a membership in and use of an automated computer cataloging system (Solinet contract) for its libraries at 58 community colleges. The parties agreed that all students benefitted from the system: including liberal arts students who were not designated recipients under Perkins. QUESTION: Could NC have charged the Solinet contract in proportion to the number of Perkins-eligible students? Brustein & Manasevit, PLLC © 2018. All rights reserved.

In RE North Carolina (1993) “North Carolina's proposed cost allocation plan does not establish the extent that the Solinet contract expenditures provided authorized benefits to vocational and technical students or unauthorized benefits to other students. This approach assumes that the overall percentage of vocational and technical students within the student body attending the community colleges somehow proves the amount of the Solinet contract expenditures allocable to this group. There is no evidence in this case which establishes that benefits and costs are directly related to the percentages of students.”  Brustein & Manasevit, PLLC © 2018. All rights reserved.

Cost Allocation Guide - 2009 (Final draft 2017) Guidance document for state and local government on indirect cost and allocation methodologies Question: Is it permissible to allocate costs (either directly or indirectly) on the basis of revenue or on the basis of funds available under federal grants or contracts? No. The allocation of costs by either of these methods is unacceptable. Cost must be allocated on the basis of costs/expenditures incurred. Brustein & Manasevit, PLLC © 2018. All rights reserved.

Uniform guidance 200.405 Direct cost allocation principles: If a cost benefits two or more projects in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If not, then “the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.” Brustein & Manasevit, PLLC © 2018. All rights reserved.

reasonable documented basis? Centrally located copier: Shared by three programs: QUESTION: Allocate 1/3, 1/3, 1/3? Brustein & Manasevit, PLLC © 2018. All rights reserved.

reasonable documented basis? Centrally located copier: Shared by three programs: Program A – 12 staff (30%) Program B – 6 staff (15%) Program C – 22 staff (55%) QUESTION: Allocate 30%, 15%, 55%? Brustein & Manasevit, PLLC © 2018. All rights reserved.

reasonable documented basis? Centrally located copier: Shared by three programs: Program A – 12 staff (30%) Program B – 6 staff (15%) Program C – 22 staff (55%) Each program assigned usage code. QUESTION: Allocate by usage of the copier? Brustein & Manasevit, PLLC © 2018. All rights reserved.

One more thing… Brustein & Manasevit, PLLC © 2018. All rights reserved.

Cost allocation vs funding allocation OMB makes a distinction between cost allocation and funding allocation Cost allocation: required if the full cost is not allowable to the grant/cost objective Funding allocation: single cost objective, with multiple funding sources. Fully allowable under each contributing source. “The government can make a business decision regarding what combination of funds made available under these programs would be applied to this cost objective.” Implementation Guide to A-87 (ASMB C-10) “[Prohibition on cost shifting] would not preclude the non-federal entity from shifting costs that are allowable under two or more federal awards[.]” 2 CFR 200.405(c) Brustein & Manasevit, PLLC © 2018. All rights reserved.

Legal Disclaimer This presentation is intended solely to provide general information and does not constitute legal advice or a legal service.  This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct.  Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney- client relationship with Brustein & Manasevit, PLLC.  You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. Brustein & Manasevit, PLLC © 2018. All rights reserved.