1. Indirect Cost Recovery (ICR) Policy 2nd comprehensive review for the year ended December 31, 2009 Secretariat for Administration and Finance

2. What is ICR? ICR (indirect cost recovery) is a tool to enhance transparency in cost management. ICR is about appropriately allocating the costs of activities to enable informed decisions. ICR is a mechanism to partially recover costs incurred in the administration of projects (e.g. incremental costs of human resources, audits, financial transactions, office space, procurement). ICR is not a new concept; its an industry standard in the public sector. (e.g. PAHO, United Nations and World Bank).

3. Why is ICR needed in the GS/OAS? The Regular Fund partially covers indirect costs (e.g. basic operational costs and infrastructure) of projects supported by Specific Funds. The trend in recent years of virtually all budget increases coming in Specific Funds with an almost static Regular Fund budget, has had a heavy impact on the Organizations ability to finance administrative support to Specific Fund projects. Thus, a mechanism to partially recover the incremental costs on basic operations and infrastructure is needed.

4. Why is ICR needed in the GS/OAS?

5. How is ICR collected? Most Specific Fund project budgets contemplate a line item with 11% or 12% ICR, as required by OAS General Standards and Executive Order 07-01 Rev 1. This ICR is expensed in the corresponding project and credited to the ICR account (where the ICR is centrally managed). Unless otherwise agreed with donors financing Specific Fund projects, any interest income earned on project balances is credited to the ICR account as well. In 2009, ICR inflows (collection + interest) to the ICR account amounted to USD 7.1 million.

6. How was ICR collected in 2009?

7. How is ICR allocated? ICR is allocated to cover the following indirect cost priorities: Technical Areas (indirect costs) ICR = Administration (indirect costs) Regular Fund ++ FAQ: What is the allocation percentage to each one? Answer: There is no definite percentage as it depends on indirect cost requirements. Thus, ICR distributed to cover personnel costs in these areas does not necessarily bear a direct relationship to the ICR collected by each area. FAQ: Why pay back the Regular Fund? Answer: To partially reimburse the Regular Fund for basic operational and infrastructure costs.

8. How was ICR allocated in 2009?

9. Looking forward Due to the extreme pressure on the Regular Fund in 2010 it was necessary for the ICR account to provide the full amount of USD 2.5 million to the Regular Fund. In 2010, there was a significant gap between demand for ICR support to administrative costs and the level of ICR collection. Significant administrative and management reform with emphasis on containing administrative costs of Specific Fund programs is required to make the ICR policy sustainable in the long run. GS/OAS will implement a more coherent and efficient financial and administrative support structure (AMS Sections) in 2011. Identify administrative personnel costs throughout the Organization. Reduce duplication of administrative support funding within each Secretariat. Standardize administrative job descriptions and functions. When fully implemented, this strategy is expected to increase efficiency, better capture, distribute and contain administrative costs.