1. Cost Allocation
December 6, 2017

2. About Me Where do I work? My current responsibilities
My experience in cost allocation
Why does cost allocation interest me?

4. What does this have to do with me?
If you receive federal funding through your State Agency, Local Government, or Academic Institution this applies to you!
Our audience – tell us about yourself
Some research I did…
State of Arizona Central Service Cost Allocation Plan
University of Arizona

5. Where does the guidance come from?
Cost Principles 2 CFR 200 Subpart E
Combined several OMB Circulars to create UGG – uniform grant guidance
Uniform administrative requirements, cost principles, and audit requirements for Federal awards to non-Federal entities
Who does this apply to? Requirements are applicable to all costs related to Federal awards!
One of those circulars is A-87 Cost Principles – this is now Subpart E in 2CFR200

6. What’s the meaning of this?
Cost Objective
Cost of running a program or federal award
Direct Costs
Identified specifically with a cost objective
Indirect Costs
For a common or joint purpose
Benefitting more than one cost objective
Composition of costs
Total costs = Direct + Indirect

7. AR Joke

8. Who’s in the Pool? Cost Pool Allocation Basis Allocation
A grouping of similar costs that can be allocated using the same allocation basis
Allocation
Assigning a group of costs to one or more cost objective
Allocation Basis
An equitable method to allocate costs to cost objectives

9. Would you allow this? Allowable Costs Necessary and Reasonable
Conform to limitations or exclusions of the federal award
Consistent treatment
In accordance with GAAP
Not used as match
Be adequately documented

10. Don’t be unReasonable! Reasonable Costs
Does not exceed what would be incurred by a prudent person
Ordinary expense of operations
Would not violate federal, state or local law or terms & conditions of the federal award

11. What will it cost you? Allocable Costs Disallowable Costs
A cost that is assignable to a cost objective in accordance with relative benefits received
Disallowable Costs
Un-allowed costs in accordance with federal statutes regulations or terms & conditions of the federal award

12. Parts is Parts Subpart E – Cost Principles
Guidance on allowability of more than 50 items of cost
A few examples
Bad debts (debts which have been determined to be uncollectable), unallowable
Fines, penalties, damages and other settlements
are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency.

13. Are you a rebel?

14. What’s the Plan? Central Service Cost Allocation Plan
developing billing rates based on the allowable costs of services provided by a state, local government, or Indian tribe on a centralized basis to its departments and agencies.
Public Assistance Cost Allocation Plan
Major federally-financed programs typically administered by state public assistance agencies include: TANF, Medicaid, Food Stamps, Child Support Enforcement
Indirect cost Rate Proposal
All require certification

15. Certification
Expenditures are proper and in accordance with the terms and conditions of the federal award
Quarterly, annual, final fiscal reports:
“By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and objectives set for the in the terms and conditions of the Federal award…”
360 degree reconciliation: support for calculations, general ledger, draws, federal revenue, federal accounts receivable, federal reports, Schedule of Expenditures of Federal Awards (SEFA) and financial statements

16. Cloud joke

17. Steps Involved in Calculating a Rate Under the Simplified Method
Adjust indirect costs for the following:
costs directly reimbursed through a federal award
administrative salaries included in the pool that were funded as direct in a grant
unallowable costs
Equipment and other capital expenditures (unallowable as indirect costs)
Adjust Direct Costs for the following:
Flow-through funds
Capital expenditures (Capital expenditures for improvements to land, buildings, or equipment which materially increase their value or useful life are unallowable as a direct cost except with the prior written approval of the Federal awarding agency)

18. Our Example
Distribution of indirect costs of a state or local government department and the divisions/bureau of the department
Indirect costs for each division/bureau level are indicated
Method we reviewing if the ratio of indirect costs to direct salaries and wages (or other base) of each division of bureau is approximately the ratio of the each division
If the indirect/direct rate varies significantly then the multiple rate method should be used

19. Notes to help us solve our example
A Exclusions
Flow-through funds
Water Quality Management 1,800
B Unallowable
Air Quality 37
Community Environmental Control 22
Water Quality Management 10
Solid Waste Disposal
106
Park and Forests
115
Total
290
C Direct and Indirect costs can be identified during procurement with chart of accounts

20. Sample Indirect Cost Rate Proposal – Simple Method
Total
Exclusions
Unallowable
Indirect Costs
Direct Salaries & Wages
Direct All Other Costs
Division/Bureau
Air Quality
450
3,200
147
Community Environmental Control
700
3,000
127
Water Quality Management
2,400
3,500
117
Solid Waste Disposal
1,150
6,800
306
Park and Forests
850
4,200
188
Subtotal
5,550
20,700
885

21. Sample Indirect Cost Rate Proposal – Simple Method (some answers)
Total E
Exclusions A
Unallowable B
Indirect Costs D
Direct Salaries & Wages
Direct All Other Costs
Division/Bureau
Air Quality
450 37
413
3,200
147
Community Environmental Control
700 22
678
3,000
127
Water Quality Management
2,400
1,800 10
590
3,500
117
Solid Waste Disposal
1,150
106
1,044
6,800
306
Park and Forests
850
115
735
4,200
188
Subtotal
5,550
290
3,460
20,700
885

22. Calculate the Overall Indirect Rate
Add departmental indirect costs and cost incurred by other governmental agencies
Calculate indirect rate as a %age of direct salaries and wages

23. Calculate the Overall Indirect Rate
Total
Exclusions & Unallowable
Indirect Costs
Salaries & Wages
All Other Costs
6,268
2,090
4,178
20,700
885
Indirect Cost Rate
20%

24. What if you want to use multiple rates?
You can use a different rate on each division OR you can choose to lower the rate of one division
Show calculation for each division and explain the rate submission
This is a negotiation
d) Indirect Ratio
Indirect Costs
Salaries & Wages
Ratio
Division/Bureau
Air Quality
413
3,200
13%
Community Environmental Control
678
3,000
23%
Water Quality Management
590
3,500
17%
Solid Waste Disposal
1044
6,800
15%
Park and Forests
735
4,200
18%
3460
20,700

25. Steps in Calculating Rates Under the Multiple Rate Method – Different Allocation Basis
We will use the same state or local government from the first example
Classify departmental indirect costs into functional cost pools
Select appropriate basis for allocation of indirect costs
Distribute each cost pool to the benefitting division

26. Some notes on our Multiple Rate Example
Departmental Indirect Costs
Allocation Base
Total Indirect Cost
Office of the Director
Number of Employees
122
Financial Management
Number of transactions
155
Administrative Services
Expenditures 87
Subtotal
364

27. Office of the Director Allocation
Division/Bureau
Number of Employees
Percentage
Off of Director
Air Quality 60
10% 13
Community Environmental Control 95
16% 20
Water Quality Management
200
34% 42
Solid Waste Disposal
125
21% 26
Park and Forests
105
18% 22
Total
585
100%
122

28. Financial Management Allocation
Division/Bureau
Number of transactions
Percentage
Fin Mgt
Air Quality
700 6% 9
Community Environmental Control
800 7% 11
Water Quality Management
7,200
62% 95
Solid Waste Disposal
1,200
10% 16
Park and Forests
1,800
15% 24
Total
11,700
100%
155

29. ASD Allocation Division/Bureau Expenditures Percentage ASD Air Quality
3,347
16% 13
Community Environmental Control
3,127
14%
Water Quality Management
3,617
17% 15
Solid Waste Disposal
7,106
33% 29
Park and Forests
4,388
20% 18
21,585
100% 87

30. Public Assistance Cost Allocation Plan (PACAP)
Public Assistance programs: Medicaid, Temporary Assistance for Needy Families (TANF), Supplemental Nutritional Assistance Program (SNAP), Child Support Enforcement Assistance and Childcare Assistance
Narrative description of cost pools, allocation basis and major programs
Describe how you are going to complete the allocation and what tools you will use
Allocation may require software for random moment sampling (RMS) or time and effort

31. Some details about PACAPs
Most public assistance programs require quarterly federal reporting
Cost pool data is gather monthly and so are stats for allocation basis
What are feds looking for in review?
You are applying stats to costs of the same time frame
Justification for changing an allocation basis
If you make a change in plan include a cost impact – before and after to each federal program

32. How do you submit your indirect cost proposal for approval?
Through PSC – Program Support Center
Hosted by the US Department of Health & Human Services (HHS)
Indirect Cost Negotiations
Largest multi-function shared service provider to the federal government

33. Donna Sandoval, CGFM New Mexico Department of Information Technology ASD Director/CFO