Indirect Costs, Cost Allocation, and Resource Sharing

Indirect Costs, Cost Allocation, and Resource Sharing
To Accountability…and Beyond!! Brustein & Manasevit Fall Forum November 30 – December 2, 2016 Indirect Costs, Cost Allocation, and Resource Sharing Bonnie L. Graham, Esq. Michael Brustein, Esq.

Why Indirect Costs? “Major element of the reform” OMB Top 10
Brustein & Manasevit, PLLC © All rights reserved.

Why Indirect Costs? GAO Report 2010
Executive directive to reduce administrative burden 2011 Stakeholder input: Overwhelming admin burden for indirect rates Inconsistent rates Uneven allowances Why Indirect Costs? Brustein & Manasevit, PLLC © All rights reserved.

July 2016: $9.5 Million False Claims Settlement btwn Columbia University and DOJ
Why Indirect Costs? Brustein & Manasevit, PLLC © All rights reserved.

Total Cost of Federal Awards

Purpose of Indirect Cost Rate?
Allows agency to recover some costs incurred to run federal programs that are otherwise too integrated to identify Take portion of grant as “recovery”; treat as non-federal funding Background Brustein & Manasevit, PLLC © All rights reserved.

What’s new? Consistent application of negotiated rates De minimis rate
Extension of negotiated rate Classification of administrative and clerical staff Pass-through responsibilities What’s new? Brustein & Manasevit, PLLC © All rights reserved.

Consistent application of negotiated rates

Consistent application 200.414(c)
Federal agencies must accept a nonfederal entity’s negotiated rate Exceptions: Rate set by statute or regulation Approval of Federal agency head, documented justification OMB approval Public notice Consistent application (c) Brustein & Manasevit, PLLC © All rights reserved.

State and local governments, and their subgrantees, must use a restricted rate for programs with a non- supplanting provision 34 CFR Consistent application (c) Brustein & Manasevit, PLLC © All rights reserved.

Question: Voluntary under- charging or choosing to waive indirect cost recovery? Allowed, but “must not be encouraged or coerced in any way by the federal agency or pass-through entity.” Consistent application (c) Brustein & Manasevit, PLLC © All rights reserved.

Non-federal entities may receive a de minimis indirect cost rate of 10% of MTDC if the non-federal entity never had a negotiated indirect cost rate Received without any review of actual costs De minimis rate is allowable for use indefinitely De minimis rate (f) Brustein & Manasevit, PLLC © All rights reserved.

But: State or Local Government and Indian Tribe receiving over $35M - Not eligible (Appendix VII)
Some federal agencies argue all states/LEAs are ineligible De minimis rate (f) Brustein & Manasevit, PLLC © All rights reserved.

FAQ If the non-federal entity previously had a negotiated rate, but then there was a break in its relationship with the federal government, the non-federal entity is not eligible to receive the 10 percent de minimis rate upon receipt of a new award. If organization uses de minimis rate at the beginning of an award, it is not necessarily applicable to the entire period of performance. If a rate is negotiated, the organization would switch to that rate for any continuation or future installments of the award. A non-federal entity conducting a single function predominantly funded by federal awards cannot elect to charge the de minimis rate if it currently charges all costs as direct costs De minimis rate (f) Brustein & Manasevit, PLLC © All rights reserved.

De minimis rate 200.414(f) Ineligible for de minimis rates:
State and local governments EDGAR and requires States to negotiate rates with LEAs; accordingly, these entities have a negotiated rate. What about new LEAs/charters? What if a State only negotiated restricted rates, and an LEA has never negotiated an unrestricted rate? Restricted rate programs De minimis rate is an “unrestricted” rate. Cannot be used for programs with supplement not supplant provisions. Training rate programs, as defined under EDGAR De minimis rate (f) Brustein & Manasevit, PLLC © All rights reserved.

So who can use this rate? De minimis rate 200.414(f)
For example, if an SEA administers Child Care and Development Block grant and subgrants to a non-LEA that has never negotiated an indirect cost rate before De minimis rate (f) Brustein & Manasevit, PLLC © All rights reserved.

Entities with an approved federally negotiated indirect cost rate may apply for a one-time extension, without further negotiation subject to the approval of the negotiating federal agency Extension for “up to” 4 years (may be fewer) Must renegotiate after extension to ensure rates continue to be based on actual costs Rate extension (g) Brustein & Manasevit, PLLC © All rights reserved.

Only applicable with predetermined or final rates
What’s the catch? Only applicable with predetermined or final rates Rate extension (g) Brustein & Manasevit, PLLC © All rights reserved.

Rate extension 200.414(g) Remind me:
There are four types of indirect cost rates: (1) Provisional (2) Final (3) Fixed with carry forward (4) Predetermined Most SEAs/LEAs use fixed with carry forward But grantees can convert to predetermined before making the extension request Rate extension (g) Brustein & Manasevit, PLLC © All rights reserved.

Requests for extensions must be submitted 60 days prior to the due date for indirect cost proposals
What documentation must be included? ED has not said. COFAR FAQs: “Documentation requirements … should be kept to a minimum.” HHS: submit a request along with the most current audited financial statements and a listing of the federal funding (awards) for the last 3 years. HHS will decide if a 4-year extension, or less, is warranted. Rate extension (g) Brustein & Manasevit, PLLC © All rights reserved.

If the entity seeks an extension of its final rate, must wait until the final rate is based on the latest applicable audit and completed fiscal year under 2 CFR 200. Assuming a July – June fiscal year, then the earliest rate extension would likely not be until July 2017 (once you have audited data from 14-15). Rate extension (g) Brustein & Manasevit, PLLC © All rights reserved.

Classification of administrative staff

Classification of admin staff 200.413(c)
Salaries of administrative and clerical staff should be treated as “indirect” unless all of following are met: Such services are integral to the activity Individuals can be specifically identified with the activity Such costs are explicitly included in the budget Costs not also recovered as indirect Classification of admin staff (c) Brustein & Manasevit, PLLC © All rights reserved.

If you charge costs directly to your federal grants, you cannot include the same type of costs in your indirect cost pool, as this will result in double- charging of federal grants. 2 CFR (d) Classification of admin staff (c) Brustein & Manasevit, PLLC © All rights reserved.

Pass-through requirements

Pass-through requirements 200.331(a)(4)
Pass-through entities must provide an indirect cost rate to subrecipients, which may be the de minimis rate. Pass-through requirements (a)(4) Brustein & Manasevit, PLLC © All rights reserved.

COFAR FAQs: Not required for nonfederal subawards No limit on number of layers of subrecipients Pass-through required to reimburse indirect costs even if temporarily using state funds while waiting for federal funds Pass-through requirements (a)(4) Brustein & Manasevit, PLLC © All rights reserved.

COFAR FAQs: Advance agreement to determine single indirect cost rate for blended subawards Subrecipients are not required to establish ICR – may direct charge all costs If pass-through refuses to honor federally negotiated ICR, “remind” them of obligation under UGG Pass-through requirements (a)(4) Brustein & Manasevit, PLLC © All rights reserved.

Pass-through Responsibilities and Allocation of Shared Costs
To Accountability…and Beyond!! Brustein & Manasevit Fall Forum 2016 November 30 – December 2, 2016 Pass-through Responsibilities and Allocation of Shared Costs

Query My organization does not have an Indirect Cost Rate!!??

Step One: Determining Cognizance
For Direct Awards (e.g. Gear-Up, TRIO), normally depends on which Agency provides most funds Brustein & Manasevit, PLLC © All rights reserved.

2 CFR 200, Appendix V, F. 1 SEAs/LEAs  cognizance assigned to ED

Step Three: Is the award subject to a non-supplant provision?
Restricted vs. Unrestricted Brustein & Manasevit, PLLC © All rights reserved.

For LEAs Each SEA, on the basis of a plan approved by the Secretary, shall approve indirect cost rate for each LEA that requests it to do so. 34 CFR (b) Brustein & Manasevit, PLLC © All rights reserved.

For IHEs and Non-Profits
Pass-through entity may negotiate rate (if no federal rate) or use 8% flat rate 34 CFR (c) 2 CFR (a)(4) Brustein & Manasevit, PLLC © All rights reserved.

Must ED or HHS approve the “plan” used by pass-through for IHE/Non-Profits?
OCFO  No! May conduct informal review Recommend consult with internal auditors Brustein & Manasevit, PLLC © All rights reserved.

Illustration (cont.) Does not mean pass- through limits indirect cost rate to 5% Rather, the cap limits the recovery of indirect costs to 5% of award amount Brustein & Manasevit, PLLC © All rights reserved.

North Carolina Community College Illustration
Informed by ED, if no HHS rate, IHE had no authority to negotiate with pass-through on restricted rate for Perkins/AEFLA North Carolina Community College Illustration Brustein & Manasevit, PLLC © All rights reserved.

Alternatively, pass- through could assign 8% rate under 34 CFR 76
Alternatively, pass- through could assign 8% rate under 34 CFR (c), if college has no rate from HHS and pass- through determines 8% rate is “reasonable” 6/24/2016 – OCFO Brustein & Manasevit, PLLC © All rights reserved.

Does the pass-through entity have the capacity to perform necessary analysis?

ALLOCATION OF SHARED COSTS

Blending, Braiding, Commingling, Consolidating Funds How do I allocate costs to benefitted programs?

One-Stop Concept One stop center is not direct recipient of federal awards – (think “consortium arrangement”) Location where several w/f programs (CTE, AEFLA, WIOA) operate, and make services available to program beneficiaries Brustein & Manasevit, PLLC © All rights reserved.

Costs of one stop may be:
Direct costs that benefit one program Indirect costs incurred for common purposes, but not readily assignable to one program Shared direct costs that can be readily allocated to the different one stop programs Brustein & Manasevit, PLLC © All rights reserved.

Strange saga of infrastructure costs and developing MOU

Some costs of one stop environment benefit multiple w/f programs:
Utilities Common supplies/equipment Telephone systems Common reception area Informational services Data input on consumers Maintenance of space Brustein & Manasevit, PLLC © All rights reserved.

These costs must be allocated to the benefitting programs, based on benefits received, not availability of funds. Cannot shift costs that are not allowable. Brustein & Manasevit, PLLC © All rights reserved.

Aggregate – partners cover all of the one-stop’s shared costs
3 Approaches: Aggregate – partners cover all of the one-stop’s shared costs Activity basis – partners pay allocable share of total costs of one activity or function (e.g., common intake) Item of cost – partners pay allocable share of each item – computers (or any combination) Brustein & Manasevit, PLLC © 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 © All rights reserved.

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