1. By Cost Management of the Controller-Treasurer Department
County of Santa Clara
Super Circular
– ICRP – CAP
BILLING RATES – FEES
March 2016 training
By Cost Management of the Controller-Treasurer Department

2. Topics OMB – Code of Federal Regulations – Super Circular
Audit Requirement
Pass-Through Entities
Indirect Cost Rate Plan
Cost Allocation Plan
Cognizant Federal Agency
Indirect Cost Rate
Fees /Billing Rates

3. Authoritative Source
Office of Management and Budget (OMB) – Title 2 of the Code of Federal Regulations (CFR) Chapter I, and Chapter II, Parts 200, 215, 220, 225 and 230 effective December 26, 2014
OBJECTIVES:
Eliminating Duplicative and Conflicting Guidance
Focusing on Performance
Efficient Use of Information Technology and Shared Services
Providing For Consistent and Transparent Treatment of Costs
Limiting Allowable Costs
Setting Standard Business Processes
Encouraging Family-Friendly Policies
Strengthen Oversight
Audit Requirements on Risk of Waste, Fraud and Abuse

4. Major change
Consolidation of all superseded Circulars into a single Circular aka Super-Circular
OBM Circular
Prior to
Description
Super Circular Effective
A-21
Cost Principles for Educational Institutions
Section B: Subpart F: Cost Principles
A-87
Cost Principles for State, Local, and Indian Tribal Governments
A-122
Cost Principles for Non-Profit Organization
A-89
Federal Domestic Assistance Program
Section A: Subparts A-E: Administrative Requirements
A-102
Grants and Cooperative Agreements with State and Local Governments
A-110
Grants and Other Agreements with Institutions of Higher Education, Hospital
A-50
Single Audit
Section C: Subpart F: Audit Requirements
A-133
Audits of State and Local

5. Super-Circular Cross-references Subtitle A Description CFR 200
Subpart A
Acronyms and Definitions
§ – §
Subpart B
General Provisions
§ – §
Subpart C
Pre-Award Requirements
§ – §
Subpart D
Post Award Requirements
§ – §
Subpart E
Cost Principles: General Provision
§ – §
Cost Principles: Basic Consolidations
§ – §
Cost Principles: Direct and Indirect Costs
§ – §
Cost Principles: State, Local Governments and Indian Tribal
§ – §
Cost Principles: Institutions of Higher Education
§ – §
Cost Principles: Selected items of Cost (criteria for Allowable or non-allowable, direct or indirect)
§ – §
Subpart F
Audits

6. Changes in Cost Principle
Capitalization for Software:
Capitalize in accordance with GAAP (Generally Accepted Accounting Principle)
$5,000 Capitalization Threshold Software
Eliminate the percentage Use Allowance for facilities/buildings (2%) and equipment (62/3%).
Use Allowance used of facilities / buildings and equipment are based on depreciation.
Compare the two methods (use allowance vs. straight line depreciation) for determination of whether the depreciation is allowable
Cost of asset has been fully recovered or
Asset outlived its useful life
Others

7. AUDIT

8. AUDITS REQUIREMENT
A non-Federal entity that expends $750,000 or more during the non-Federal entity's fiscal year in Federal awards must have
a single audit or
program-specific audit
conducted for that year

9. AUDIT
SINGLE AUDIT: Expends $750,000 or more during the non- Federal entity's fiscal year in Federal awards conducted for that year §
PROGRAM –SPECIFIC AUDIT: Expends Federal awards under only one Federal program (excluding R&D) and the Federal program's statutes, regulations, or the terms and conditions of the Federal award do not require a financial statement audit of the auditee, the auditee may elect to have a program-specific audit conducted §

10. PASS-THROUGH ENTITY

11. Pass-through Entity (PTE)
A non-Federal entity (state, local government, Indian tribe, institution of higher education, or nonprofit organization) that provides a sub award to a sub-recipient to carry out part of a Federal program. §200.86
Responsibilities:
Provide necessary information to sub-grantees
Enforce Federal Government regulations n
Evaluate each applicant for sub-grant for risk of non-compliance in order to determine appropriate monitoring
Frequency of reporting quarterly or annually
Record retentions
Timely and reasonable access to employees
Promptly report any known problems or significant events
Agree-upon procedures audit
Implementation of Indirect Cost Rate
Accept Federal Government negotiated rate, when applicable
Negotiate an indirect cost rate using Federal cost principles
Allow a minimal rate of 10% of modified total

12. Vendor/Contractor or Sub-recipient
Sub-recipient § /§ (a) :
Performance measured against grant objectives
Responsible for programmatic decision-making
Required adherence to Federal grant rules
Vendor/Contractor § /§ (b) :
Provides goods and services in normal course of business (private and public sectors)
Operates in a competitive environment
Not subject to Federal assistance program rules

13. Quiz
Find the definitions for the Sub-recipient and Vendor / Contractor
Provide the same goods or services to others
Has the ability to make decisions on how to carry out the federal requirements for the program
Determines requirements for participating in the federal program
Demonstrate a financial need for funding to carry out the federal program or provide a service to public
Does not assume risk for failure and will be reimbursed for only actual costs
Subject to Single Audit and/or Agreed-Upon procedures audit
Normal business to provide the goods or services being purchased in the agreement
Sub-recipient: b, c, d, f
Vendor/Contractor: a,e,g

14. INDIRECT COST RATE PLAN (Proposal)

15. Indirect Cost Rate Proposal (ICRP)
Documentation prepared by non-Federal entity to substantiate its request for the establishment of an indirect cost rate - CFR§200.57
Documents that identify cost in a logical and systematic manner for both allowable direct and indirect costs to benefiting activities.
The approved reimbursement rate or rates negotiated between the federal government and an entity which reflects the indirect costs incurred by the entity in the conduct of Federal programs.

16. ICRP Preparation
Determine the data needed to compute the indirect costs rate (including support documents)
Comply to state and federal requirements
Compute the Indirect costs rate for state and federal requirements in accordance to the applicable provisions of Super Circular 2 CFR 200 subparts A, B, C and D.

17. Indirect Cost Rate (ICR)
A ratio of indirect costs over direct costs in a reasonable manner
A negotiated indirect cost rate as approved by the federal cognizant agency applied to total direct cost OR
A de Minimis indirect cost rate of 10% of modified total direct cost

18. ICR - Computation
The 1st step in the indirect cost rate (ICR) calculation involves:
Separating the ‘allowable’ direct costs from all other costs – the allowable indirect cost.
AND
Identifying the direct expenses for the function or department or grant and related cost sharing.

19. Direct Cost
Identifiable expenses that are directly or specifically for a particular program or a function or a cost objective
Program structure or
Operation / Activities or
Grant

20. COST for ICR Should the costs for the rate be based upon
Budgeted cost data - Why?
Actual data - Why?
Historical cost data - Why?
Combination of data – Why?
Should the roll (carry)-forward (be included?
Carry forward = different of estimate in compare with actual

21. COST
Generally:
Previous year’s actual data: if there is little change to the program structure and related costs.
Budget data + actual fund balance: if the program structure (and related costs) has expended or changed considerably or newly created organization
Historical data: for the new program.

22. Indirect Cost
The 2nd step in the ICR calculation is analyzing and identifying the allowable INDIRECT cost pool:
Cost or expenses incurred for a joint or common benefit and cannot be directly or specifically identified with the benefiting cost objectives or activities.
Indirect costs must be allocated proportionally to the benefiting cost objectives or activities.
The total allowed indirect costs amount represents the numerator used in the fractional computation of an indirect cost rate.

23. Example of Indirect Cost
• Salaries & Fringe Benefits
• Equipment Rental
• Utilities
• Building Maintenance
• Membership [*]
• Photocopying /Printing Services
• Office Supplies
• IT Services
• Telephone
• Training & Travel
• Professional Services
*conditional for grant

24. Allowable
Be necessary and reasonable ( Ordinary, sound business and established practices and policy, arms-length transactions)
Be allocable
Be treated consistently (Like costs in like circumstances are treated in the same manner)
No double dipping
Be adequately documented and authorized
Reduced by any applicable credits
Conform to the cost principles and award
Conform to General Accepted Accounting Principles
Be consistent with policies, regulations, and procedures that apply equally to state and federal and non-state or non- federal activities.

25. Allocable
Allocable indirect costs must be distributed to all benefiting activities (including unallowable activities and donated services).  
Cannot reallocate to avoid restrictions imposed by law or for other reasons

26. Quiz
Should the allocable cost for a particular state /federal program be charged to other state/federal program(s), to make up for funding deficiencies?  
A: No. Unless it is approved by the Pass-through entity for the others.

27. Unallowable or excluded cost
Costs excluded because they would distort the allocation base.
Examples: Capital (equipment), debt service, cost already been reimbursed by a revenue sources.
Costs that cannot be charged to State or federal programs (grants/cost reimbursements) either as a direct cost or included as part of the indirect cost pool when calculating an indirect cost rate.
Examples: bad debt, contingencies, contributions and donations, entertainment (including meals) fines and penalties, interest, other financial costs, and governance.

28. Credits
Amounts that reduce or offset allocable direct or indirect costs.
Applicable credits include purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments for overpayments or erroneous charges.
Credits must be allocated to the federal award as applicable as a cost reduction or cash refund.  

29. Quiz
Should lawsuit settlement amount be allocated (both credit and expenses)?
Which of the below cost principles is true? 
The cost must not have been identified as unallowable.
The costs must be allocable.
A prudent person would have paid this amount.
Similar kinds of expenses must be charged the same way.
All of the above.
A1: No
A2: e

30. QUIZ The best definition of allocable is the:
Expense must not be an unallowable cost.
Expense must benefit the activity to which it is being allocated.
Expense must reflect what a prudent person would pay.
Method used to allocate expenses to multiple accounts must be reasonable. 
A3. b

31. Quiz 4. Is Allowable Cost? Ordinary and necessary
In conforming to the established policies and practices
Non arms-length transactions
All of the above
A4 : a Ordinary and Necessary

32. COST ALLOCATION PLAN

33. COST ALLOCATION PLAN
The mechanism by which central services costs are identified in a logical and systematic manner for reimbursement or cost recovery from the receiving department.
A set of documents that identify, accumulate, and distribute allowable indirect costs to benefiting activities. Documents such as:
Narrative of changes to the accounting treatment of any expense category (e.g., a change in building/equipment costing methodology, a change in changing an expense from direct to indirect)
Reconciliations are required for :
Salaries / Wages – Direct and Indirect
Revenues /Credits
Split of Direct cost and Indirect cost
Reconciliations of Unallowable expenses that have been eliminated from the indirect cost pool (A schedule of details of the unallowable expenses)

34. COST ALLOCATION
Analysis of Significant expenses (in compare with prior year)
Allocation methodology (narrative of services provided by one department to another, rationale for the allocation)
Central Service Departments: Departments that provide services to other Departments throughout the county.
Receiving Departments: Departments that receive services from Central Service Departments.
Allocated Cost: Allowable, supportable and appropriate allocable.
Credits : Conditionally allowable.
Direct Bills: Allowable.

35. QUIZ Can a department be both Central services provider and receiver?
Is the MOU or LOU considered as support document for services being charges?
Should the cost that were not recovered from departments with MOU and LOU be allocated to the departments without MOU or LOU for the same services?
A1: Yes
A2: Yes
A3: No

36. Examples-CFR’s unallowable cost *
*the county may pay for these expenses
Personal amusement, social activities, or entertainment (outside of activities directly related to functions or purposes, including employee-employer relations, performance improvement, etc.).
Personal social club or association dues.
Parking permits for employees[**]
Traffic citations for either personal or county vehicles.
Disallowed costs by State or State department policy.
* *privilege for few

37. Quiz Name 3 types of expenses that are not allowable under CFR
Name 3 types of expenses that are Conditionally (may or may not be) allowable under CFR
Organization Costs, General Government Expenses, Lobbying, Fines/Penalties/Settlements, Investment Management Cost, Losses due to Fraud, Depreciation on the Assets purchased with the Federal / State grants, Donations ( )
Memberships, Professional Services, Termination Costs, Conference costs,

38. Cost Allocation - Usage
Determining the full cost of an operation
Setting user fees
Recovering costs for internal services
Projecting costs for inter-governmental charges
Estimating costs on proposed grants

39. Cognizant Federal Agency

40. Cognizant Federal Agency
A Federal agency with the largest dollar amounts of negotiated contracts
Responsible for reviewing, negotiating, and approving the ICRP or CAP submitted by local agencies on behalf of all other federal agencies;
Responsible to Single Audit compliance.

41. Cognizant Federal Agency
The Department of Health and Human Services (DHHS) is assigned for all States, most Cities, and Hospital.
The Department of Interior is assigned for all Indian tribal governments and interior contracts.
The Department of Labor is assigned all Labor contracts.
The Federal Department of Transportation (DOT) is assigned for all transportation contracts.
The United States Department of Agriculture is assigned for all agricultures
The Environmental Protection Agency
The Housing and Urban Development Agency
The Department of Justice

42. QUIZ
1. The federal agency responsibility for reviewing and approving the County CAP is:
State Controller Office
Department of Health and Human Services
2. A County department does not need to submit an ICRP to reimburse reimbursement from the federal or state government.
True
False
A1. Department of Health and Human Services
A2. True – If the Department selects the de Minimis rate of 10%

43. QUIZ
3. Federal delegated state agency for reviewing and approving the County Roads and Airport’s CAP is
California Transportation Department (Caltrans)
State Controller
Federal Department of Transportation
4. Federal delegated state agency for reviewing and approving the Local Health Department’s CAP is
State Health and Human Services Agency
State Department of Public Health
A3: a Caltrans
A4: a State Health and Human Services Agency

44. Different types of ICR
Three different types of indirect cost rates can be approved by the cognizant agency for indirect cost negotiation:
• Predetermined- established for current or multiple future period(s) based on current data and are not subject to adjustment, except under very unusual circumstances.
• Fixed – established for a current period based on current data with a carry forward adjustment to the rate computation for a subsequent period.
• Provisional – temporary rates used for funding and billing indirect costs, pending the establishment of a final rate for a period.

45. QUIZ Which of the ICR type requires carry forward adjustment
Predetermined
Fixed
Provisional
A: may be

46. INDIRECT COST RATE

47. Negotiation of Indirect Cost Rates  
County departments can negotiate several different indirect cost rates with the State or Federal government for cost reimbursement.
County departments can negotiate indirect cost rates with the non-governmental organization if allowed to do so.

48. DESIGNATED Indirect Cost Rate
The ICR developed by State of California or Federal Agency
Example:
County Welfare Department has an option to accept the ICR developed by California Department of Social Services or to develop its own ICRP.
County Roads and Airport Department has an option to accept the ICR developed by California Department of Transportation or to develop its own ICRT

49. Implementation of the ICR
The negotiated indirect cost rates are applied to a base for billing the State or Federal government.
Each County department will comply with the County's full cost recovery policy.
Each County department must include the applicable indirect cost rate in computing its fees unless there is an exception.

50. FEES / BILLING RATES

51. County Policy: Full Cost Recovery Policy  
Requires departments to recover full costs whenever goods or services are provided for cost reimbursements or fees.
The full cost of goods or services includes all costs attributable directly to the activity plus a fair share of indirect costs, which can be ascribed reasonably to the goods or services provided.
Exception: When the rates or costs are not Compatible in providing same services to others

52. ISF: BILLING RATES
Methodology: Justification as to why the method used is the most appropriate for the activity
Estimated expenditures (expenses): Budget or Actuarial reports completed by a third party net of excess reserves
Unreserved Retained Earnings
60 days working capital = (Operating Expense – Depreciation expense)/6
Assets replacement Cost
Rolling average to avoid a rate fluctuation
Activity Tracking: of services provided to the users or usage of services by the users

53. FEES User Fees / Impact Fees:
Charges for services provided to the department by county internal services fund.
Charges for services provided to public
Regulatory Fees: pay for the costs of issuing licenses and permits, performing inspections, and enforcing agency laws and regulations.
Statutory Fees: set by legislations or by law for providing services.

54. RATES
Self Insured Premium
Car rental
Services billing rates

55. Quiz Match the fees with the categories the following
a. Increase the Vehicle License fee 1. User Fees
b. Food Safety Certification Fee 2. Regulatory Fees
c. AB1020 State Fee 3. Statutory Fees
d. Building Permit and Plan review
e. Use Permit
f. Witness fees
g. 911 Receiving Hospital Designation Fee
A1: d,e
A2: a,b,c, g
A3: a, c, f

56. Common components for computation of Fees (as applicable)
Hourly Rate = (Labor Cost for each job code + Indirect cost) / Annual productive hours = Chargeable Rate to provide per hour of services
Labor cost: Salary + Benefits [Medical, Employer Tax, Pension, Others]
ICR: Departmental or Function level
Total annual Productive Hours – computed by Controller- Treasurer’s Department.

57. Common components for computation of Fees (as applicable)
Unit Rate = Rate charge for a task or services = (Time x Hourly Rate) + material cost
Time study: How much time does it take to complete the task
Hourly Rate
Material Cost

58. Common components included in Fees (as applicable)
Full cost recovery: Labor + Overhead
Labor rate X time spent on the project
Time Study : time sheet signed by both employee and supervisor per case
Labor rate : standard base (salary and benefit total) divided by productive hourly rate plus Indirect cost rate
Office Expense and Supplies per case

59. Common components included in Fees (as applicable)
Non- Full cost recovery
requires exception from the Board

60. PROP 26 COMPLIANCE
The fees charges for the services cannot be greater than the cost incurred in providing the services

61. Proposition 26 Checklist
•Was the fee in existence prior to November 3, 2010? •Is the fee imposed and collected by local? •Retained ?