1. Cost Allocation/Indirect Costs Cost Allocation/Indirect Costs November 2 nd 2009

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3. AGENDA Back to Basics Emerging Cost Allocation Issues Indirect Cost Group Operations Questions

4. Back to Basics

5. What are Direct Costs? Costs that can be specifically identified with a particular cost objective. Program Salaries Space Costs for Program Activities Travel Equipment

6. Back to Basics What are Indirect Costs? Costs incurred for common or joint purposes, benefiting more than one cost objective, and are not readily assignable to a specific cost objective. Administrative Salaries Related Occupancy Expenses Supplies Communication

7. Back to Basics What is an Indirect Cost Rate? Ratio of the Indirect Costs to a Direct Cost Base: Indirect Costs ($100) Direct Costs ($1,000) $100/$1,000 = 10%

8. Back to Basics Executive Administration Executive Administration Accounting Human Resources Human Resources Programs U.S. Department of Education U.S. Department of Education USDA Non-Federal

9. Back to Basics What should be the result? Allowable costs in the pool calculation Allocation of indirect costs to benefiting activities/programs Distribution of indirect costs is fair and equitable

10. Back to Basics Next Steps? Indirect Cost Rate Proposal is submitted to Cognizant Federal Agency Proposal & documentation are reviewed Negotiated Indirect Cost Rate Agreement (NICRA) is executed Documentation requirement of OMB Circular is met Management information is generated

11. Emerging Cost Allocation Issues 1.American Recovery and Reinvestment Act (ARRA) Funds 2.Unused Leave Payments 3.Subaward Treatment 4.Time Distribution 5.Retirement Incentives

12. Emerging Cost Allocation Issues 6.Subrecipient Oversight 7.Restricted Indirect Cost Rates 8.Treatment of Equipment 9.Administrative Cost Limitations 10.Cost Allocation Audit Findings

13. ARRA - OMB Memorandum  Memo 09-18, dated 5/11/09  Allows flexibility – use of “estimated” Central Services Costs  NTE 0.5% of total ARRA funds  Administrative costs related to carrying out ARRA programs

14. ARRA - OMB Memorandum – cont’d.  Requirements - oversight, reporting and audit requirements  Reported at “State-wide” level  Allocated to governmental units  Supplemental SWCAP submitted to HHS/DCA

15. ARRA - Guidance  HHS FAQ’s  OMB guidance / Clarifying guidance  Technical assistance from ED

16. ARRA - Impact on SEAs & SAs  Allocated amounts from SWCAP to SEAs/SAs  Supplemental Indirect Cost Rate for ARRA programs  Regular Indirect Cost Rate for all programs

17. ARRA - Impact on SEAs & SA- cont’d.  Evaluate impact of additional funding from ARRA  Include appropriate expenditures in the base (in accordance with agreement)  Fixed Rates – Determine the effect on later fiscal years  Predetermined Rates

18. ARRA - Impact on Subrecipients  ARRA funding impact  Include appropriate expenditures in the base (in accordance with agreement)  Fixed Rates – Determine effect on later fiscal years  Predetermined Rates  SWCAP (may or may not be an issue)

19. ARRA - Fixed Rate Considerations Affect on Rate Calculation Significant Change!! Significant Over Recovery

20. ARRA - Fixed Rate Considerations Stable Rate Calculation

21. ARRA - Do’s  Monitor impact on Indirect Cost Rates  Adjust billings  Call/email questions & concerns  Request technical assistance

22. Unused Leave Payments OMB Circular A- 87, Attachment B, 8.d.(3), states in part: “Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment provided they are allocated as a general administrative expense to all activities of the governmental unit or component.” Payments cannot be charged directly to federal programs.

23. Unused Leave Payments Important language included on rate agreements Ensure appropriate treatment in rate calculation Ensure appropriate treatment in rate application

24. Subaward Treatment Federal policy on $25,000 amount Consider subgrants and subcontracts To exclude or not to exclude – case by case basis Simplify

25. Time Distribution OMB Circular A- 87, Attachment B, 8.h. Support of Salaries & Wages Based on payroll documentation Charges to a single Federal award “Semi-annual Certification” Charges to multiple cost objectives “Personnel Activity Reports (PARs)”

26. Time Distribution - PARs More than one Federal award A Federal award and a non-Federal award An indirect cost activity and a direct cost activity Two or more indirect activities which are allocated using different allocation bases An unallowable activity and a direct or indirect cost activity

27. Retirement Incentives All costs associated with the event Buyouts, Special Severance Packages, Early-Outs (abnormal costs) C-10 outlines guidance/criteria for allowability and allocability OMB Circular A-87 requires prior approval

28. Subrecipient Oversight Prime Recipient’s considerations: Rate calculation & application Emerging cost issues & treatment Impact of funding changes on rates Audit issues

29. Restricted Indirect Cost Rates Programs with Supplement-not- Supplant requirement Listing of “Restricted” programs on website Grantees must use the Restricted Rate to recover indirect costs

30. Treatment of Equipment Determine capitalization threshold Cost of equipment cannot be included in rate calculation Consistency must be observed Rate cannot be applied to the cost of equipment

31. Administrative Cost Limitations Programmatic limitation on costs Must consider direct & indirect charges Two-step calculation ARRA Funds – same treatment

32. Cost Allocation Audit Findings Unused Leave Retirement Incentives Normal Severance Pay Monitoring Indirect Cost Rate Calculations

33. Indirect Cost Group Operations Review/Approve Indirect Cost Rates Resolve Cost Allocation issues in audits Provide assistance on Cost Allocation policies Provide training on Cost Allocation

34. Organizational Structure

35. Team 2 Team 1

36. Useful Websites OMB Circulars http://www.whitehouse.gov/omb/circulars/ ED’s Indirect Cost Group Website http://www.ed.gov/about/offices/list/ocfo/fipao/icgindex.html EDGAR http://www.ed.gov/policy/fund/reg/edgarReg/edgar.html HHS - C-10 & Other Reference Information http://rates.psc.gov/

37. Contact Information U.S. Department of Education OCFO / FIPAO / ICG Attn: Mary Gougisha, Room 21H1 830 First Street, NE Washington, DC 20202-4450 Phone: (202) 377-3835 Email: Mary.Gougisha@ed.gov

38. Questions Answers