Applying for a State/Local Government Indirect Cost Rate

Applying for a State/Local Government Indirect Cost Rate
On-Line Financial Management Workshops Applying for a State/Local Government Indirect Cost Rate June 2009

Financial Management Workshop: State/Local Indirect Cost Rate
Applying for a State/Local Government Indirect Cost Rate This Financial Management Workshop was originally created by cost negotiator staff of the Division of Cost Determination in the US Department of Labor’s Office of the Assistant Secretary for Administration and Management. This workshop covers the processes to be utilized by governmental organizations in applying for indirect cost rates and federally approved cost allocation plans.

This is a refresher course. Most government agencies have been submitting indirect rate proposals or cost allocation plans (CAPs) for years If you already have an approved CAP or ICR, don’t change what you are doing without first discussing with your negotiator! For most organizations, this should be a refresher course. However, we all know that many staff currently responsible for the process are not the same as those who originally prepared the governmental entity’s indirect cost rate (ICR) proposal or cost allocation plan (CAP). Most, but not all, government agencies have been preparing and submitting ICR proposals or CAPs for many years. If you already have one, talk to your cost negotiator before even thinking about whether or not there is any need to change what you are currently doing.

Submission requirements for a cost allocating plan
Topics We Will Cover Cognizance Submission requirements for a cost allocating plan Submission requirements for an indirect rate proposal Other issues In this workshop we will cover the concept of cognizance and how to determine which federal agency is cognizant for your organization, the requirements associated with the process of submitting a cost allocation plan and/or an indirect cost rate proposal; and some other issues including changes in allocation methods or accounting systems and the impact of tax collection activities.

…and most importantly… Answers to your questions!
Topics We Will Cover …and most importantly… Answers to your questions! It is hoped that the material included in this presentation will provide the answers to the questions in your mind about indirect costs incurred at governmental agencies.

ASMB C-10: Implementation Guide for OMB Circular A-87
Important Reading OMB Circular A-87 ASMB C-10: Implementation Guide for OMB Circular A-87 The requirements and guidance applicable to the topics of cost allocation plans and indirect cost rate proposals for government organizations are found in OMB Circular A-87 and an implementation guide for the circular entitled “A Guide for State, Local and Indian Tribal Governments” which is designated as ASMB C-10. The implementation guide which is prepared and issued by the US Department of Health and Human Services (HHS) Office of the Assistant Secretary for Management and Budget (ASMB) is done primarily in a question and answer format addressing the various attachments and sections of the A-87 Circular, including Attachments C, D & E which address cost allocation plans and indirect cost rate proposals.

First, Something About the Division of Cost Determination Office of the Assistant Secretary for Administration and Management (OASAM) Is independent of ETA Tasked with negotiating CAPS and indirect rate agreements for all DOL-grantees (when cognizant) If the US Department of Labor (DOL) is the cognizant agency for your governmental unit, the cost negotiation staff who will work with you on the review and approval of your cost allocation plans and indirect cost rate proposals are located in the Division of Cost Determination (DCD) of the Office of the Assistant Secretary for Administration and Management (OASAM). This unit and its staff are totally independent of the Employment and Training Administration (ETA) which has its own Assistant Secretary.

Division of Cost Determination
Across the US: About 500 reviews per year 90% of work for ETA Every year DCD staff review approximately 500 indirect cost rate proposals and cost allocation plans at all of its locations combined. A relatively small portion of those are for governmental organizations because most governmental entities have a federal cognizant agency other than DOL. Most of DCD’s work is with organizations which receive awards from ETA.

Cost Negotiation vs. Audit
DCD is responsible for negotiating indirect cost rates with State and local governments, business entities, and other organizations with which the Department of Labor conducts business. In addition to negotiating indirect cost rates and cost allocation plans with state and local government agencies, DCD also negotiates indirect cost rates with business entities, non-profit organizations and other entities which receive federal awards from DOL. While DCD does review and analyze the data which is submitted with proposals, it does not conduct audits of the data.

Cost Negotiation vs. Audit
The OIG performs audits of indirect costs, rates, cost allocation plans, agreements, and functions, either as requested by DCD or as selected by the OIG. OIG can (and does) audit the ICR agreement. The Department’s Office of Inspector General (OIG) performs audits. Such audits may be audits of the indirect costs themselves, that is the costs which comprise the indirect cost pool, audits of indirect cost rates – to assure that they were appropriately calculated for the proposal, and/or audits of an agency’s cost allocation plan or indirect cost rate agreement. In addition, the OIG might conduct an audit review of an organization’s functions, systems and federal awards which include review and analysis of the impact of findings on indirect costs. Sometimes these OIG audits are conducted because the OIG chooses to do them, sometimes they are at the request of DCD, and sometimes at the request of the awarding agency – like ETA.

Which Federal agency is Cognizant?
Which Agency? HUD DOL EPA Which Federal agency is Cognizant? Agriculture So, which federal agency is the cognizant agency responsible for negotiating the indirect cost rate or cost allocation plan for my governmental agency?? HHS Education DOJ

Cognizant Assignments
OMB designated cognizant assignments pertaining to government agencies and local governments. Cognizant agency negotiates a rate on behalf of all Federal agencies For those entities not listed by OMB, cognizance is generally established based on the Federal agency providing the greatest dollar support that is subject to indirect cost rates. The Office of Management and Budget (OMB) has designated certain federal agencies as cognizant for some identified state and local government agencies. We will show the list for state agencies in a couple of slides. For those state and local government agencies which do not have an OMB designated cognizant agency, the federal agency which provides the greatest amount of direct funding that is subject to indirect cost rates becomes the cognizant agency. The cognizant agency negotiates the governmental entity’s indirect cost rate on behalf of all federal agencies and the negotiated rate(s) is to be used for all direct federal awards subject to any award specific limitations, including caps and/or ceilings.

Cognizant Assignments
HHS is cognizant for all SWICAPs HHS is cognizant for Public Assistance Cost Allocation Plans HHS may act as cognizant where there is no direct federal funding The US Department of Health and Human Services (HHS) is cognizant for all State-Wide Cost Allocation Plans (SWCAPs), often referred to as SWICAPs. Because it is the federal agency which provides the preponderance of funding to public assistance agencies, including Temporary Assistance to Needy Families (TANF), Medicaid, Food Stamps, Child Support Enforcement among others, HHS is also cognizant for Public Assistance Cost Allocation Plans. It is the general federal policy that federal agencies will not approve indirect cost rates when an organization does not receive direct federal awards subject to indirect support. By letter dated December 11, 2006, the US Department of Education requested OMB concurrence on its understanding there is no federal responsibility for approving cost allocation plans or indirect cost rates of organizations that only received federal funding indirectly through pass-through agencies based on language included in both Attachments C & E of OMB Circular A-87. OMB concurred with the Department of Education position that when an entity received no direct federal funding, the pass-through entity is responsible for deciding on the acceptability of its subrecipients’ cost allocation plans or indirect cost rates. The pass-through entity can fulfill its obligation either by review of the subrecipient’s indirect cost rate proposal or by reviewing a subrecipient’s audit which includes a statement that the indirect cost rate was prepared in accordance with the applicable cost principles. However, HHS does have the authority to act as the cognizant agency for governmental organizations which have no direct federal funding when there is a particular federal interest in doing so.

State Agencies This slide identifies a number of the major agencies in state governments [although not necessarily by the exact same title as is used in each individual state] and indicates the federal agency which is cognizant according to OMB designation. You will note that the two state agencies for which the US Department of Labor (DOL) is designated as cognizant are: State Employment Development agencies and State Industrial Relations agencies. It should also be noted that the US Department of the Interior is cognizant for all Indian Tribal governments.

Review, Negotiation, and Approval of CAPs and Rates
OMB Circular A-87 places considerable discretion with the cognizant Federal agency assigned to particular recipients. It permits the cognizant agency to determine, within reasonable bounds, the level of detail that is appropriate to support a cost allocation plan and/or an indirect cost rate proposal. This discretion carries over to the review and approval process as well. Under OMB Circular A-87, federal cognizant agencies are given considerable discretion to decide on the amount of detail that is adequate to support a cost allocation plan or an indirect cost rate proposal. The extent of information may be reduced when the allocation plan or indirect rate will have a relatively small or no real impact on federal awards. Additional information may be requested when there is an anticipated long term need for future years. This cognizant agency discretion may also be applied to the review and approval process. In some cases a cognizant agency may direct that the state or local government agency develop its cost allocation plan and/or indirect cost rate proposal and then maintain it and the related supporting documentation for audit. When DOL is cognizant, the Division of Cost Determination ordinarily requires that the plan or proposal and its supporting documentation be submitted for review, negotiation and approval.

Potential Levels of Indirect Costs
in a State Agency SWICAP Departmental Administration Many state agencies are apt to be impacted by multiple levels of indirect costs. Note the three potential areas of indirect cost that might have an effect on an agency’s federal award. At the top is the State-Wide Cost Allocation Plan (the SWICAP) which distributes central service costs [such as accounting, purchasing, personnel administration, motor pools and computer costs] to the operating agencies of the state government. Some of these costs are typically billed to the operating agencies on an individual fee for service basis which is based on direct usage by the operating agency while other central services costs are allocated on some reasonable basis which should reflect the relative benefit received by each operating agency. The SWICAP includes all central services costs whether billed or allocated. The second tier of potential indirect costs are those associated with the administration of the State Agency or Department which receives or includes the unit which receives the federal award. And the third layer of indirect costs are those associated with the administration of the Division where the actual operational activity for the federally awarded program occurs. Divisional Administration

Statewide Cost Allocation Plans (SWCAP)
If the current year’s SWICAP has not been approved, you may use the latest Federally approved amount with an adjustment once HHS approves the current year’s amount (A87, Att. E, D(1)(d)). Verify any billed central services costs are calculated per the approved SWICAP agreement. SWICAP costs have to be allocable to federal programs. If the governmental agency’s indirect charges includes an amount attributable to the Statewide Cost Allocation Plan and the current year’s SWICAP has not yet been approved, it is allowable to use the latest federally approved amount. Any difference which results from the ultimate approval of the current year’s plan will be compensated for with an adjustment in a subsequent period. It is important to confirm that all billed central services costs are calculated in conformance with the approved SWICAP agreement. All costs included in a Statewide Cost Allocation Plan have to be allocable to federal programs in order to be a legitimate cost to a federal award. It is important that State Workforce Agencies understand that even though HHS may have approved a SWICAP, no item of cost included in the approved plan can be charged to a particular federal program if that program does not receive a benefit from the cost. For example, when a SWICAP includes the costs of a state motor pool but the federal program makes no use of motor pool services, then the federal program cannot be charged for any of the motor pool costs. Likewise, when the SWICAP includes costs for a central state computer system but the agency unit operating the federal program has its own federally funded computer system designed for the federal program, then the federal program cannot be charged for the costs of the central computer system which it does not use and from which it derives no benefit.

Cost Allocation Plan (CAP) Submissions
So what gets submitted with a proposed Cost Allocation Plan??

Generic CAP Checklist 1. Background information: submit once unless changes are observed: 1a. Organizational chart, 1b. Employee time sheet sample, providing for distribution of hours to direct/indirect functions. 1c. Cost Policy Statement, describing all accounting policies and narrating in detail the proposed Cost Allocation Plan. This plan must describe the procedures used to identify, measure and allocate all costs to each benefiting activity. This policy must be signed by a duly authorized official. The following items need to be included the first time that a cost allocation plan is submitted. 1. An organizational chart in sufficient detail to show the operations [including central services], duties and responsibilities of all units of the governmental unit with an indication of whether or not a unit benefits from any central services costs. 2. A sample copy of an employee time sheet which shows the distribution of employee hours to direct and indirect cost functions based on the personal activity reports required by Attachment B, item 8.h.(4) of A-87. 3. The organization’s cost policy statement which describes all of the entity’s accounting policies and explains in detail the proposed cost allocation plan [i.e., it’s not simply the numbers]. The written narrative description of the plan must explain the procedures that were used to identify, measure and allocate all of the included items of cost to each benefiting activity of the governmental organization. The cost policy statement must be signed by a duly authorized official of the government agency. After the above items have been submitted once, there is no need to include them with subsequent year’s submittals unless there has been a change in any of the included information.

Generic CAP Checklist 2. A Cost Allocation Plan providing the following schedules: 2a. Personnel Cost Worksheet, including fringe benefits breakdown. 2b. Allocation of Personnel Worksheet, providing indirect/direct time charges. 2c. Fringe Benefits Worksheet Both a cost allocation plan and an indirect cost rate proposal should include a “Personnel Cost Worksheet” which identifies the annual salary and includes a breakdown of the fringe benefits provided for each staff position, an “Allocation of Personnel Worksheet” which indicates the distribution of staff time charges between indirect and direct charges as well as the distribution among direct charged programs, and a “Statement of Employee Fringe Benefits Worksheet”. Examples of these three worksheets are shown on the next three slides.

USDOL/Cost Determination
Personnel Cost Worksheet 2.a The Personnel Cost Worksheet identifies all of the positions in the organization and provides the total annual salary for the position. Note that when there are more than one staff in a particular position title [e.g., the 4 Program Planners], the total annual salary is the sum total for all of the staff with that job title. For each of the categories of fringe benefits provided [FICA, UI, Worker’s Compensation, Health Insurance and Retirement contributions], the employer contribution amount is identified for each position. Back USDOL/Cost Determination

Allocation Worksheet 2.b Back The Allocation of Personnel Worksheet breaks out the annual salary for each job position between indirect and direct costs and then shows the distribution of the direct costs against all of the direct program activities. In this example, the organization has activities funded by three federal agencies, a source of state funding, private foundation funding, and fund raising activities all properly designated as direct cost activities. USDOL/Cost Determination

Statement of Employee Benefits 2.c This sample Statement of Employee Benefits shows two different methods for establishing a “fringe benefits rate”. Method A includes the costs of FICA (Social Security), UI, Worker’s Compensation, Health Insurance and Retirement Pensions and allocates those costs against total salaries. Method B includes all of the same costs but also adds in the costs of annual vacation leave earned, sick leave taken and holiday pay [the sum of these three categories is called “release time”] and then distributes the total against a base that subtracts the release time costs from the total salaries cost. The decision on which method is actually used for an organization depends upon the nature of the organization’s accounting system and the time distribution system which it uses to allocate staff salaries. Back USDOL/Cost Determination

Generic CAP Checklist 2. Continued….
2d. Statement of Total Costs, segregated between the indirect and direct costs incurred by line item of expense (salaries, fringes, rent, etc.), identified by Federal agency, specific government grant, contract, and other non-Federal activities. Note: that the allocation base and the amount of indirect costs allocated to each funding source should be identified. In addition to the previous three worksheets, the cost allocation plan and/or indirect cost rate proposal should be accompanied by a “Statement of Total Costs” which lists all of the costs incurred by the organization by line item category [somewhat more detailed than the budget line item breakout included with the grant application budget form SF-424A] and shows the distribution of those costs between indirect costs and the various sources of funding, both federal and non-federal, and/or program activities of the organization. When a Statement of Total Costs is submitted with a proposed Cost Allocation Plan, the schedule must show for each of the line item categories of cost to be allocated, the allocation base that is to be used to distribute those costs to each of the benefitting funding sources.

Generic CAP Checklist 3. Audited financial statements or CAFR for the applicable fiscal year. Approved budget for provisional proposal, if needed. Note: The Statement of Total Costs (2d. above) must reconcile to Financial Statements. If not, please provide a reconciliation statement. The next item that needs to be submitted is a copy of the organization’s audited financial statements or its comprehensive annual financial report for the appropriate fiscal year. The amounts on the Statement of Total Costs which we just talked about must reconcile with the audited financial statements. If they do not, a reconciliation narrative statement which explains and justifies the differences must be provided. If the cost allocation plan or indirect cost rate proposal is a provisional proposal for the current or a future period, the approved budget for that period should also be included.

Generic CAP Checklist 4. Signed and dated Certificate of Indirect Costs . Signed by an individual no lower than chief financial officer of the governmental unit that submits the proposal or component covered by the proposal. No cost allocation plan or indirect cost rate shall be approved unless the plan or rate proposal has been certified. When the governmental unit has not submitted a certified proposal, the Federal Government may either disallow all indirect costs or unilaterally establish such a plan or rate. A Certificate of Indirect Costs must accompany each submittal. It must be dated and signed by an individual who holds a position not lower than that of the chief financial officer of the governmental organization submitting the proposal or the component of the organization covered by the proposal. No federal cognizant agency is to approve a cost allocation plan or indirect cost rate unless the plan or the proposal has been certified. When a governmental organization fails to submit a certified proposal, the federal cognizant agency may either disallow all indirect costs charged to federal awards or it may unilaterally establish a cost allocation plan or indirect cost rate. It should also be noted that the organization cannot charge its indirect costs as direct costs when the cognizant agency issues a decision to disallow the organization’s indirect costs.

Certificate of Cost Allocation
CERTIFICATE OF COST ALLOCATION PLAN This is to certify that I have reviewed the cost allocation plan submitted herewith and to the best of my knowledge and belief: (1) All costs included in this proposal [identify date] to establish cost allocations or billings for [identify period covered by plan] are allowable in accordance with the requirements of OMB Circular A 87, "Cost Principles for State, Local, and Indian Tribal Governments," and the Federal award(s) to which they apply. Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan. (2) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the awards to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently. I declare that the foregoing is true and correct. Governmental Unit: _____________________ Signature: ____________________________ Name of Official: _______________________ Title: ________________________________ Date of Execution: _____________________ This slide is a sample certificate for a cost allocation plan.

Generic CAP Checklist 5. A listing of grants and contracts by all funding sources, total dollar amount, period of performance, and the indirect cost limitations (if any) applicable to each Include copies of Federal grant or contract award – but check with cost negotiator first! The governmental organization’s proposal must also include a listing of all of its awards [grants and contracts] provided by all of its various funding sources [both federal and non-federal], the total award amount for each, the period of performance for each award, and the indirect cost limitations [if there are any] applicable to each award. Before including actual copies of each federal award, it is suggested that the organization first check with its cost negotiator who will decide whether or not copies are necessary or if the listing is sufficient.

Generic CAP Checklist 6. A schedule listing any funding sources excluded from indirect cost allocations and the reasons for the exclusions. 7. Copy of HHS approved SWICAP, if SWICAP costs are allocated to federal programs. The governmental entity should submit a schedule which lists any funding sources which are excluded from indirect cost allocations and the reasons why the exclusions exist. If Statewide Cost Allocation Plan costs are allocated to federal programs, a copy of the HHS approved SWICAP should also be provided.

9. Support for the budgetary rate calculation, if a rate is requested.
Generic CAP Checklist 8. A list of all non-UI programs that utilize the UI tax collection system. A separate tax sharing agreement must be negotiated prior to the collection of non-UI funds using the UI tax collection system. 9. Support for the budgetary rate calculation, if a rate is requested. DOL’s Division of Cost Determination is ordinarily cognizant for the state governmental units which operate the unemployment insurance program. For those governmental units, a list must be provided which identifies all of the non-UI programs that utilize the UI tax collection system. For all such programs, a separate tax sharing agreement must be negotiated before the UI tax collection system can be used to collect non-UI funds. The list must be submitted and the tax sharing agreement negotiated even when the cognizant agency is other than DOL. If a governmental entity is requesting a budgetary rate, support for the rate calculation must be submitted.

Tax Collection Activities
If Federally funded program used to collect state taxes, a cost sharing agreement must be approved in which a fair share of the tax collection cost is allocated/paid by the State. Whether the governmental agency is applying for approval of a cost allocation plan or an indirect cost rate, it has additional responsibilities whenever it uses a federally funded program to collect state taxes. The state agency must develop and get federal approval for a cost sharing agreement under which the costs attributable to the collection of those state taxes are properly allocated to and paid by a state [non-federal] funding source. All costs included in a cost sharing agreement must be fairly allocated to the benefitting activity based on the relative benefit received by that activity.

Other Services Provided to State Programs
Provide a list of all services provided to State programs by Federal programs, such as UI processes used to provide income verification information to the State. A cost sharing agreement should be implemented to provide for the State’s share of any costs benefiting State programs. Another situation which would create a need for the development, approval and implementation of a cost sharing agreement would be to ensure that federal funds are not being improperly used to support activities which are inherently state governmental costs and that all benefiting federal programs pay their fair share. Thus, a state agency must provide a list of all of the services provided under federally funded programs which are used to benefit programs of the state government. An example would be the Unemployment Insurance (UI) program processes that verify income of applicants to determine eligibility for UI payments. When the state uses the UI program and processes for income verification for state program purposes, it must pay for its fair share of the process. Another system to which this concept applies is the State Income and Eligibility Verification System provided for under UNEMPLOYMENT INSURANCE PROGRAM LETTER (UIPL) NO That directive indicates that an amendment to Title XI of the Social Security Act provided that States establish an income and eligibility verification system for exchange of information among State agencies administering programs for AFDC [now TANF], Medicaid, Food Stamps, UI, and any State program under a plan approved under Title I, X, XIV, or XVI of the Social Security Act. There is no one system that is prescribed and some of the different systems are administered in different state agencies. However, the administration of any income and eligibility verification system would require a cost sharing agreement to fairly distribute the costs of the process among the benefitting federal and state programs in proportions which reasonably reflect the relative benefit received by each.

Cost Sharing Agreement
The SWA must certify annually the amount of money transferred to the UI program per the cost sharing plan. The State Workforce Agency which has an approved cost sharing agreement for state activities funded by the UI program must certify annually the amount of money transferred to the UI program in accordance with the cost sharing plan.

Sample Format for the Certification
SWA Name Certificate of Tax Cost Sharing Plan I hereby certify that as a result of the execution of the approved Tax Cost Sharing Plan, $X,XXX,XXX was paid from non-federal sources for FYE 00/00/00. ____________________________ Signature of Certifying Official Title Date This slide shows an example of an annual Certificate of Tax Cost Sharing Plan which a State Workforce Agency would submit to indicate the dollar amount of non-federal funds paid to support the activity which benefitted state activities.

Indirect Rate Submissions
What should be included when an indirect cost rate proposal is submitted instead of a cost allocation plan??

Indirect Cost Submissions
Same schedules as for CAPs, but with the following: Worksheet showing the calculation of the indirect rate claimed Certification of Indirect Costs. In addition to the “Personnel Cost Worksheet”, the “Allocation of Personnel Worksheet”, and the “Statement of Employee Fringe Benefits Worksheet” already discussed with the cost allocation plan submittal, an indirect cost rate proposal should be accompanied by a “Statement of Total Costs” similar to the one submitted for a cost allocation plan which lists all of the costs incurred by the organization by line item category [somewhat more detailed than the budget line item breakout included with the grant application budget form SF-424A] and shows the distribution of those costs between indirect costs and the various sources of funding, both federal and non-federal, and/or program activities of the organization. However, when a Statement of Total Costs is submitted with an Indirect Cost Rate proposal, the schedule must also display the options available as the indirect cost allocation bases and the amounts allocated to each funding source using the different bases. This can be seen on the two page sample schedule which follows. In addition, an Indirect Cost Rate Proposal must be accompanied by a Certification of Indirect Costs.

Schedule of Total Costs 2.d This sample Statement of Total Costs shows the amount of total costs for each of the listed budget categories distributed among indirect costs, and all of the federal and non-federal programs of the organization. It also indicates all of the amounts that are either unallowable [such as bad debts, or entertainment costs] or exclusions [such as large equipment purchases, emergency assistance costs and a significant portion of subcontracts] which would be excluded from a modified total direct cost allocation base. USDOL/Cost Determination

Calculation of Indirect Cost Rates Back The left side of this second page of the schedule shows two methods for calculating the indirect cost rate – Method A uses direct salaries and benefits as the allocation base and Method B uses modified total direct costs as the allocation base. The right side of the page shows the distribution of indirect costs among the federal and non-federal programs using each of the two allocation bases. Note that the total amount of indirect costs recovered is the same regardless of the allocation basis used.  USDOL/Cost Determination

Certificate of Indirect Costs
This is to certify that I have reviewed the indirect cost rate proposal submitted herewith and to the best of my knowledge and belief: (1) All costs included in this proposal [identify date] to establish billing or final indirect costs rates for [identify period covered by rate] are allowable in accordance with the requirements of the Federal award(s) to which they apply and OMB Circular A 87, "Cost Principles for State, Local, and Indian Tribal Governments." Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan. (2) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the agreements to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently and the Federal Government will be notified of any accounting changes that would affect the predetermined rate. I declare that the foregoing is true and correct. Governmental Unit: ________________________ Signature: _______________________________ Name of Official: __________________________ Title: ____________________________________ Date of Execution: _________________________ This slide is a sample certificate for a cost allocation plan. It is to be completed and signed by an authorized official of the government entity. For example, it might be completed and signed by the agency head or the director of finance.

ICR and “Admin” Division of Cost Determination (DCD) negotiates an ICR based on the appropriate cost principles (e.g., A-87 or A-122) DCD does not negotiate an admin rate (e.g., WIA administrative cost limitation) It is important to understand that indirect costs and administrative costs are not exactly the same things. Indirect costs include many items of cost that are administrative costs [e.g., the costs of accounting, auditing, purchasing, and personnel office services] under the WIA definition but also includes many items of cost that are not administrative costs [e.g., the costs of program leadership and planning, facilities, receptionists, and the library of a community college]. Also, administrative costs are not always indirect costs. Program specific monitoring of fiscal and administrative functions are most often direct costs that are classified as administrative costs under the WIA definition. The DOL Division of Cost Determination (DCD) negotiates Indirect Cost Rates in accordance with the cost principles applicable to the organization requesting the rate [e.g., A-87 for governmental organizations and A-122 for non-profit entities]. DCD does not negotiate administrative rates which are really limitations on the amount of administrative costs, both direct and indirect, which can be recovered under a particular grant award. The most common limitation for ETA grantees is the WIA administrative cost limitation defined at 20 CFR of the WIA regulations. It is not uncommon for grant proposals to be funded by WIA appropriations to include an SF-424A budget form on which the line item for indirect costs includes an amount equal to exactly 10% of the total grant award amount. This line item is for the amount of indirect costs to be charged to the grant program and not for the amount of administrative costs which the proposing entity plans to claim.

ETA determines compliance with WIA admin limits
ICR and “Admin” (cont.) ETA determines compliance with WIA admin limits Grantees should work with their regional ETA fiscal officer to determine how to support compliance with WIA admin limits It is the Employment and Training Administration (ETA) which sets the administrative cost limitation, provides the definition for administrative costs and determines whether or not an award recipient is in compliance. ETA grant recipients are encouraged to work with the fiscal staff in their assigned regional office Division of Financial Management & Administrative Services (DFMAS) when they have questions or concerns about compliance with any imposed administrative cost limitation.

90-day Billing (initial grant award) Provisional/Final
Types of Rates 90-day Billing (initial grant award) Provisional/Final Fixed with carry forward (mainly gov’t) Predetermined (rare) There are different types of indirect cost rates which might be applied to federal grant awards. The first is the “Billing Rate” which is ordinarily imposed for a 90 day period of an organization’s first direct federal grant award. It is not a negotiated rate, nor is it developed by the cognizant agency cost negotiator. Rather, it is imposed by the awarding agency grant officer to allow for the recovery of indirect costs incurred by the grantee organization during the initial 90 days of the grant award when the organization is supposed to be submitting its first indirect cost rate proposal to the cognizant federal agency. The most commonly approved rates negotiated by DCD are of the Provisional/Final variety. Based on the organization’s indirect cost rate proposal, a provisional rate is negotiated for the current fiscal year and the next fiscal year. Once the audit of the current fiscal year is completed next year, the grantee submits a new proposal and the final indirect cost rate is negotiated for the year that has been audited and a new provisional rate for the subsequent fiscal year is also negotiated. The grantee initially recovers its indirect costs based on the provisional rate and may need to make an adjustment when that rate becomes final. When the final rate is lower than the provisional rate, the grantee must repay the excess amount which it charged. When the final rate is higher than the provisional rate, the grantee may recover the additional amount to which it is entitled so long as it has not already spent all of the funds provided by the grant. The next type of indirect cost rate is the Fixed Rate with a carry forward. This type of rate is mainly used for governmental organizations and we will discuss it with the next slide. The other type of indirect cost rate is the rarely used Predetermined Rate. These rates are not usually adjusted and are typically used when the cost experience of the organization and other pertinent facts are sufficient to enable the parties involved to reach an informed decision that the amounts to be recovered truly represent the probable level of indirect costs to be incurred. Also not that this is sometimes used when the information is sufficient to demonstrate what the likely level of indirect costs will be and the organization makes a decision that it would rather recover at a predetermined level that is less than the likely costs in exchange for not having to annually submit a new proposal.

Fixed with Carry Forward Rate
A fixed rate is based on an estimate of future costs. The difference between estimated and actual costs is carried forward to future years. A Fixed Indirect Cost Rate is similar to a predetermined rate in that it is based on estimates of the likely future amounts of indirect costs and the organization has a demonstrated cost experience which is relatively constant from year to year. However with a Fixed rate, the difference between the estimated indirect costs and the actual allowable indirect costs of the period covered by the rate is carried forward as an adjustment to the rate computation for a subsequent period.

Additional Considerations
Prior Written Approval from DCD required for: Changes in allocation methodology; and Changes to state accounting system. When change impacts approved ICR We already covered the issues related to tax collection activities which need to be the subject of a cost sharing agreement and the related annual certification about the amount of non-federal funds paid to support the cost sharing plan. The other remaining issues relate to changes which have an impact on the indirect cost rate and the recovery of indirect costs. Whenever a grantee organization plans to implement changes in its allocation methodology or changes to its accounting system which could impact on the applicability of the approved indirect cost rate, the indirect cost rate agreement requires that the cost negotiator be provided with written notification and that prior written approval from DCD be obtained before any changes are implemented. Failure to comply with this condition of the indirect cost rate agreement could result in disallowed costs.

If you have questions, please contact your Federal Project Officer
It is very important that you maintain on-going communication with your Federal Project Officer. That is the person who can guide and direct you as you navigate through all of the rules and regulations and take steps to apply them and comply with them, while implementing your ETA grant. They are your first point of contact with ETA and will ensure that your questions are addressed. We thank you for participating in this Fiscal Management Workshop on Applying for a State/Local Government Indirect Cost Rate. We hope you have found it useful!!! There are many other topics covered in ten additional Financial Management Workshops that we think you will find interesting and helpful. Check them out soon. If you have questions, please contact your Federal Project Officer

Applying for a State/Local Government Indirect Cost Rate

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Applying for a State/Local Government Indirect Cost Rate

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Presentation on theme: "Applying for a State/Local Government Indirect Cost Rate"— Presentation transcript:

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About project

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