Cost Allocation/Indirect Costs Cost Allocation/Indirect Costs November 2 nd 2009

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AGENDA Back to Basics Emerging Cost Allocation Issues Indirect Cost Group Operations Questions

Back to Basics

What are Direct Costs? Costs that can be specifically identified with a particular cost objective. Program Salaries Space Costs for Program Activities Travel Equipment

Back to Basics What are Indirect Costs? Costs incurred for common or joint purposes, benefiting more than one cost objective, and are not readily assignable to a specific cost objective. Administrative Salaries Related Occupancy Expenses Supplies Communication

Back to Basics What is an Indirect Cost Rate? Ratio of the Indirect Costs to a Direct Cost Base: Indirect Costs ($100) Direct Costs ($1,000) $100/$1,000 = 10%

Back to Basics Executive Administration Executive Administration Accounting Human Resources Human Resources Programs U.S. Department of Education U.S. Department of Education USDA Non-Federal

Back to Basics What should be the result? Allowable costs in the pool calculation Allocation of indirect costs to benefiting activities/programs Distribution of indirect costs is fair and equitable

Back to Basics Next Steps? Indirect Cost Rate Proposal is submitted to Cognizant Federal Agency Proposal & documentation are reviewed Negotiated Indirect Cost Rate Agreement (NICRA) is executed Documentation requirement of OMB Circular is met Management information is generated

Emerging Cost Allocation Issues 1.American Recovery and Reinvestment Act (ARRA) Funds 2.Unused Leave Payments 3.Subaward Treatment 4.Time Distribution 5.Retirement Incentives

Emerging Cost Allocation Issues 6.Subrecipient Oversight 7.Restricted Indirect Cost Rates 8.Treatment of Equipment 9.Administrative Cost Limitations 10.Cost Allocation Audit Findings

ARRA - OMB Memorandum  Memo 09-18, dated 5/11/09  Allows flexibility – use of “estimated” Central Services Costs  NTE 0.5% of total ARRA funds  Administrative costs related to carrying out ARRA programs

ARRA - OMB Memorandum – cont’d.  Requirements - oversight, reporting and audit requirements  Reported at “State-wide” level  Allocated to governmental units  Supplemental SWCAP submitted to HHS/DCA

ARRA - Guidance  HHS FAQ’s  OMB guidance / Clarifying guidance  Technical assistance from ED

ARRA - Impact on SEAs & SAs  Allocated amounts from SWCAP to SEAs/SAs  Supplemental Indirect Cost Rate for ARRA programs  Regular Indirect Cost Rate for all programs

ARRA - Impact on SEAs & SA- cont’d.  Evaluate impact of additional funding from ARRA  Include appropriate expenditures in the base (in accordance with agreement)  Fixed Rates – Determine the effect on later fiscal years  Predetermined Rates

ARRA - Impact on Subrecipients  ARRA funding impact  Include appropriate expenditures in the base (in accordance with agreement)  Fixed Rates – Determine effect on later fiscal years  Predetermined Rates  SWCAP (may or may not be an issue)

ARRA - Fixed Rate Considerations Affect on Rate Calculation Significant Change!! Significant Over Recovery

ARRA - Fixed Rate Considerations Stable Rate Calculation

ARRA - Do’s  Monitor impact on Indirect Cost Rates  Adjust billings  Call/ questions & concerns  Request technical assistance

Unused Leave Payments OMB Circular A- 87, Attachment B, 8.d.(3), states in part: “Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment provided they are allocated as a general administrative expense to all activities of the governmental unit or component.” Payments cannot be charged directly to federal programs.

Unused Leave Payments Important language included on rate agreements Ensure appropriate treatment in rate calculation Ensure appropriate treatment in rate application

Subaward Treatment Federal policy on $25,000 amount Consider subgrants and subcontracts To exclude or not to exclude – case by case basis Simplify

Time Distribution OMB Circular A- 87, Attachment B, 8.h. Support of Salaries & Wages Based on payroll documentation Charges to a single Federal award “Semi-annual Certification” Charges to multiple cost objectives “Personnel Activity Reports (PARs)”

Time Distribution - PARs More than one Federal award A Federal award and a non-Federal award An indirect cost activity and a direct cost activity Two or more indirect activities which are allocated using different allocation bases An unallowable activity and a direct or indirect cost activity

Retirement Incentives All costs associated with the event Buyouts, Special Severance Packages, Early-Outs (abnormal costs) C-10 outlines guidance/criteria for allowability and allocability OMB Circular A-87 requires prior approval

Subrecipient Oversight Prime Recipient’s considerations: Rate calculation & application Emerging cost issues & treatment Impact of funding changes on rates Audit issues

Restricted Indirect Cost Rates Programs with Supplement-not- Supplant requirement Listing of “Restricted” programs on website Grantees must use the Restricted Rate to recover indirect costs

Treatment of Equipment Determine capitalization threshold Cost of equipment cannot be included in rate calculation Consistency must be observed Rate cannot be applied to the cost of equipment

Administrative Cost Limitations Programmatic limitation on costs Must consider direct & indirect charges Two-step calculation ARRA Funds – same treatment

Cost Allocation Audit Findings Unused Leave Retirement Incentives Normal Severance Pay Monitoring Indirect Cost Rate Calculations

Indirect Cost Group Operations Review/Approve Indirect Cost Rates Resolve Cost Allocation issues in audits Provide assistance on Cost Allocation policies Provide training on Cost Allocation

Organizational Structure

Team 2 Team 1

Useful Websites OMB Circulars ED’s Indirect Cost Group Website EDGAR HHS - C-10 & Other Reference Information

Contact Information U.S. Department of Education OCFO / FIPAO / ICG Attn: Mary Gougisha, Room 21H1 830 First Street, NE Washington, DC Phone: (202)

Questions Answers