1. Omni Circular Key Area #5 Indirect Costs and the Omni Circular: What to Expect
Leigh Manasevit, Esq.
Brustein & Manasevit, PLLC
Spring Forum 2014

2. Total Cost of Federal Awards

3. Costing Options: Direct Charge Cost Allocation Plan (CAP)
Indirect Costs/Facilities and Administrative (F&A) Costs

4. What are Direct Costs?
Costs that can be identified specifically with a particular final cost objective
“Cost objective” means a function, organizational subdivision, contract, grant, or other activity for which cost data are needed and for which costs are incurred
EX. Compensation of employees for effort on the performance of the award; materials and equipment; travel expenses

5. What are Indirect Costs?
Costs incurred for common or joint purposes
Cost cannot be readily and specifically identified with a particular cost objective without effort disproportionate to the results achieved
EX: Accounting; Human Resources; Payroll; Legal Division; Utilities
Facilities and Administration (A-21, A-122)
Facilities costs include: depreciation and use allowances on buildings, capital improvements, operation and maintenance, library expenses, etc.
Administrative costs include: normal administrative expenses and other types of expenditures not listed specifically under the facilities category

6. What Are Indirect Costs? (Cont.)
Selected Items of Costs
Audit costs other than A-133 audit costs are allowable as indirect costs
OMB A-87, Attachment B, 4.b
Unused leave payments must be charged indirectly
OMB A-87, Attachment B, 8.d.(3)
Severance pay associated with normal turnover must be charged as indirect costs
Abnormal or mass severance pay only if prior approval by ED
OMB A-87, Attachment B, 8.g(1)-(2)
Proposal costs should normally be treated as indirect costs (may be charged directly only with prior approval by ED)
OMB A-87, Attachment B, 33

7. What Is The Purpose Of The 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.
Creates tension in agency because reallocates funds from the program

8. How To Get An Indirect Cost Rate?
Non-federal entities apply to “cognizant agency”
Unless specified by OMB, generally the “cognizant agency” is the federal agency with the preponderance of direct funding.\
“Cognizant agency” authority may be delegated to nonfederal agencies
For example, SEAs have methodology approved through “delegation authority” from ED. LEAs apply to SEA.

9. Submission of Indirect Cost Rate Proposals
Organization Chart
Cost Policy Statement
Financial Reports
Personnel Cost Worksheet And Allocation, Direct Versus Indirect
Statement of Employee Benefits

10. Continued…
Indirect Cost Rate Proposal(s) reconciled with the financial report of budget. Total Costs Concept.
A completed Certificate of Indirect Costs
Support Schedules (equipment, depreciation, terminal leave payments, subawards)
Listing of grants and contracts

11. How Are Indirect Costs Charged to Federal Awards?
Calculation: It’s a fraction!!
Top: “Indirect Cost Pool”
Bottom: “The Base”
Can be “Total modified direct cost base” or “Salaries and Wages”, etc.

12. Top: Indirect Cost Pool
EX: Accounting; Personnel; Legal; Utilities
All employees must be paid with non-federal funds (even though giving some benefit to federal programs)
Would not keep time distribution records (as long as not split between indirect and direct)

13. Bottom: “Modified Total Direct Cost Base”
All direct costs (All federal and non-federal expenses)
Must show benefit to federal program
Minus:
equipment
alterations/renovations,
portion of each subaward / subcontract exceeding $25,000 (i.e., only first $25k is included in base)

14. Applying the Rate
Apply rate (percentage) to the base (apply to your current year direct costs minus capital expenditures, etc., NOT entire grant!)
That “reimbursement” has no federal accountability

15. Wrong Way/Right Way: Modified Total Direct Cost Base (MTDC)

16. Applying the Rate - Frequency
Can claim indirect costs periodically (monthly, quarterly, annually)
Must be based on actual expense already incurred (i.e., couldn’t take all at beginning of year)

17. Consistent Treatment
NO Double Dipping!!!!

18. Administration vs. Indirect
Administrative costs may be direct OR indirect
Administrative Cost Cap
Limit applies against total grant amount
Grantee should list administrative costs in budget breakout

19. Administration vs. Indirect
All costs of administrative activities count towards the administrative cost cap
Must review Indirect Cost pool and identify which costs meet program definition of administrative
Admin cap will NOT limit indirect costs associated with programmatic / non-administrative costs!!!

20. Restricted Indirect Cost Rate
Special rules for non supplant programs
Restricted indirect cost rates
EDGAR 34 CFR

21. Restricted Indirect Cost Rate
Applies to all programs with non-supplant requirements
All major education state administered grants

22. Restricted Indirect Cost Rate
Purpose – Disallows inclusion in rate calculation of admin expenses that would otherwise be incurred
Formula:
General management costs and fixed costs
Other expenditures

23. Restricted Indirect Cost Rate
General management costs
Direction and control of agency
Organization wide
Certain Occupancy and space

24. Restricted Indirect Cost Rate
General management Does Not include
Divisional administration
Governing body
Chief executive officer
Chief executive officer funding component
Operation of immediate offices of those officers

25. Restricted Indirect Cost Rate
Other expenditures
Grantee total expenditures
Occupancy and space
Costs excluded above
Subgrants
Capital outlays
Others

26. OMB Revised Administrative, Cost, Audit Rules Governing All Federal Grants
The Super Circular – “Omni Circular” The One-Stop Shop for Federal Assistance

27. Key Dates: Feb 1, 2013 Dec 19, 2013 Dec 26 2013 April 2014
NPRM
Feb 1, 2013
Final
Dec 19, 2013
Federal Register
Dec
New OMB Compliance Supplement
April 2014
ED Draft EDGAR Changes
June 26, 2014
Final EDGAR Published
Dec 26, 2014

28. Date of Applicability of Revised Rules
OMB stated in Jan All incremental and new federal funding after December 26, 2014
? ? ?

29. What is covered? A-102 A-110 A-87 A-21 A-122 A-133
Administrative Rules State / Local – Part 80 – EDGAR
A-102
Administrative Rules Postsecondary – Part 74 – EDGAR
A-110
Cost Rules – State / Local
A-87
Cost Rules – Rules – Postsecondary
A-21
Cost Rules – Nonprofit
A-122
Audit Rules (>$750,000)
A-133

30. Who is covered?
All “nonfederal entities” expending federal awards

31. Reasons for the Change? Simplicity Consistency
Obama Executive Order on Regulatory Review
Increase Efficiency
Strengthen Oversight

32. Who crafted the changes?
“COFAR”
Council on Financial Assistance Reform, and Key Stakeholders

33. Inconsistency Between Program Statute and Circular
If federal program statute or regulation differs from Omni Circular, then statute / regulation governs.
EX: Restricted Rates for Education Grants!!!!!

34. Definitions
“Administration” is defined as general administration and general expenses such as the director’s office, accounting, personnel, and all other types of expenditures not listed specifically in “Facilities”
Nonprofits – includes library expenses
IHEs – library expenses included in “Facilities”
“Facilities” is defined as depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses

35. NEW: Consistent Application of Negotiated ICRs
Federal agencies must accept a non-federal entity’s negotiated indirect cost rate
A different rate may be used for a class of Federal awards or single Federal award only if:
Required by statute or regulation, e.g. ED Restricted Rates, or
Approval of Federal awarding agency head (per delegations authority) based on documented justification
Further, deviations from negotiated rates must be publicly available, established in policies, and included in announcement of funding opportunity
Federal awarding agency must notify OMB of any approved deviation
Section (c)

36. NEW: De Minimis Rate
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
Section (f)
But: State or Local Government and Indian Tribe receiving over $35M - Not eligible (Appendix VII)

37. NEW: Requirements for Pass-through Entities
Pass-through entities must provide an indirect cost rate to subrecipients, which may be the de minimis rate.
Section

38. NEW: Extension of Negotiated ICR
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
Section (g)

39. NEW: Direct v. Indirect Costs Administrative Costs
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
Section

40. NEW: Indirect (F&A) Costs Identification and Assignment for IHEs
Appendix III
1.3% Utility Cost Adjustment
OMB and Federal Agencies reviewing cost implications of full reimbursement of actual costs

41. NEW: Indirect (F&A) Costs Identification and Assignment for Nonprofits
Appendix IV
Treatment of participant support costs expanded to all types of organizations

42. What’s Next?
Changes/clarifications in 2014 Compliance Supplement (April 2014*)
Federal Agencies have until Dec. 26, 2014 to finalize conforming regulations (draft due June 26, 2014)
Agencies must get OMB approval if they want to promulgate more restrictive rules
OMB approval is NOT required if agency simply “clarifies” OMB rules

43. Effective Date
Administrative requirements and cost principles will apply to new awards and to additional funding (funding increments) to existing awards made after Dec 26, 2014
Existing Federal awards will continue to be governed by the terms and conditions of the Federal award

44. Agency Regulations Two theories on agency regulations:
Agencies will simply adopt corresponding omni circular language
Agencies will draft own regulations, with possible changes or interpretations

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