1. Grants – Brown Bag Lunch Series April 2014 By: Tracy Morkunas, CPA Controller’s Office

2.  A direct cost is an expense that is directly related to your program Program Coordinator’s salary & fringe Bus rental for students under the grant program Anything directly identifiable to your program 2

3. OMB Circular A-21 refers to Indirect as “Facilities & Administration” costs (F&A)  Some define it as: any costs shared between multiple programs for which a definitive amount can not be directly attributed to a specific grant  Basically, it’s overhead 3

4.  Depreciation & Use Allowances Building & Equipment improvements  Operation & Maintenance expenses Utilities, janitors, security, etc.  General Administration expenses Accounting, Payroll, Purchasing, Audit, etc.  This presentation! 4

5.  Dept. of Education defines it as: “…a mechanism for determining…what proportions of Departmental/organization administration costs each program should bear. An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures.”  It’s a percentage of direct costs 5

6. INDIRECT COST POOL INDIRECT ALLOCATION BASE The organization’s indirect costs (in aggregate) The total expenditures that created the indirect costs 6 The pool & base can vary, i.e. could be all indirect costs vs. total expenses, or could be all indirect payroll costs vs. total payroll costs.

7. 7 Indirect Cost Rate Indirect Cost Pool Indirect Cost Allocation Base

8.  Organizations can apply for a rate  The cognizant Federal agency approves indirect cost rates  CCRI engages an external vendor to assist us in calculating the indirect costs They determine what is the best allocation base to use given the structure of our expenditures Once they calculate the rate, it goes to the Fed’s for approval 8

9.  CCRI engaged an outside firm to determine the best indirect cost base and rate  CCRI’s Federally approved indirect rate (thru FY14) is based upon total salaries For On-campus activities: 65% of Salaries only For Off-campus activities: 25% of Salaries only 9

10.  Although CCRI has obtained a Federally approved indirect rate, most grants have an indirect cost limitation Every contract is allowed to specify a ceiling rate and cost basis. Here’s some examples:  8% of total expenditures excluding equipment  20% of Salary & Fringe  0% - indirect is not allowed!  Each contract can make a more restrictive rate, but cannot increase the rate above our actual costs 10

11.  Periodically, CCRI must obtain a new rate We’re in that process now  The vendor recalculates what the actual indirect rate/cost was for the previous time period and adjusts the new rate accordingly  If the rate changes during a grant term, we USUALLY can’t increase the rate charged without funding source approval 11

12.  Depending on the grant, Accounting charges indirect costs to your grant on either a monthly or quarterly basis Typically done when we bill to the Funding Source  Accounting sets up rules in Banner so that Banner automatically calculates it 12

13.  The dollars go to the College’s general indirect income line This helps the College to fund the enormous amount of indirect costs related to all grants Q: Why can’t I decide how my grant’s indirect dollars are spent? A: We don’t have enough to cover all grant’s indirect expenditures! 13

14.  If an indirect cost is expressly unallowable under a Federal grant: Penalty equals the amount of the disallowance plus any interest paid (if any) and could be doubled under certain circumstances There may also be other administrative, civil, & criminal penalties  The cognizant contracting officer decides if the penalties are to be assessed or waived & if a criminal investigation is necessary 14

15.  The Grant Director must ensure that all expenditures are hitting the correct account lines in Banner  Review Banner often!  Accounting applies indirect based upon what is in Banner If expenses are misclassified, Accounting won’t know they’re applying indirect incorrectly 15

16.  Assume your grant has an 8% indirect rate applied to all expenses EXCEPT capital (equipment)  If your Admin Assistant enters a requisition for $20,000 piece of equipment on the Education Supplies account (714221) instead of Equipment, Banner will apply the indirect rate on the equipment Your grant will be OVERcharged by $1,600 16

17.  Indirect costs are basically overhead costs that can’t be quickly identified  There’s lots of indirect costs on all grants whether or not they’re charged  CCRI has a Federally approved rate  Grant Directors need to make sure expenses hit the right lines so that indirect isn’t incorrectly applied 17

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