2. Cost Allocation & Indirect Costs Requirements, Steps & Administrative Costs

3. COST ALLOCATION Costs Share

4. Federal Guidance OMB Circular A-87 OMB Circular A-122 OMB Circular A-21 48 CFR Part 31 45 CFR Part 74, Appendix E Guidance on direct and indirect costs

5. Types of Costs Direct –Single cost objective Shared –Multiple cost objectives, or –Multiple fund sources Indirect – Overhead

6. Cost Objectives Intermediate –Cost pools or cost centers Final –Funding source –Cost category

7. Treatment of Costs Consistent treatment –In accounting system –Over time Measuring benefit –Critical requirement of cost allocation –Benefit determines allocation

8. Cost Pools Actual costs only Any combination of like costs Types of pools –Administrative cost pools –Operating costs –Facilities or maintenance

9. Managing Pools Distribution based on formulas Formulas are allocation bases –Vary by type of pool Liquidated for reporting

10. Allocating Personnel Services Based on documented & approved payrolls Supported by time distribution system Method of allocation & support for allocation varies Major part of allocated costs

11. Unacceptable Allocation Bases Fails to meet standards Distorts final results No direct relationship to costs Developed from plans, budgets or estimates Allocation must result in EQUITABLE distribution of costs

12. Cost Allocation Process

13. Cost Allocation Plans Written documentation of –Direct and allocated costs –Allocation methods used Supported by formal accounting records Signed by authorized agency official

14. Types of CAP’s Indirect Cost Plan –Addressed in Circulars –Federal Agency approval (more on this soon..) Cost Allocation Plan of the Organization –Shared direct costs –Awarding agency approval –Example— Cost charged to 2 cost categories

15. CAP Elements Background & mission statement Organizational chart Financial statements & budgets Description of pooled or joint costs Methods used to allocated costs Certification

16. Keep in Mind… Simple Replicable Organizational Structure Structure & capabilities Prudent changes

17. What are direct costs? Those costs that can be readily identified with a particular cost objective. Examples: (program specific) –Salaries –Space –Supplies –Communications

18. What are indirect costs? Those costs which are not readily identifiable with a particular cost objective. Examples: –Salaries –Space –Supplies –Communications

19. What is a Cost Allocation Plan (CAP)? A document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution. Federally-approved Cost Allocation Plan

20. What is an Indirect Cost Rate? (ICR) The ratio, expressed as a percentage, of an indirect cost pool and some direct cost base. PBR (Pabst Blue Ribbon) Pool/Base=Rate

21. Indirect Cost Rate Example: Indirect Cost Pool =$ 10,000 Distribution Base =$100,000 (Salaries & Benefits) Indirect Cost Rate = 10%

22. Who needs an approved indirect cost rate? $ Single Funding Source Indirect cost rate not needed $$$ Multiple Funding Sources Indirect cost rate needed

23. GRANTEES SUBJECT TO: OMB CIRCULAR A-87 At least one source of direct Federal funding More than one source of revenue (Federal and Non-Federal) - Cost Allocation Plan (CAP), OR - Indirect Cost Rate (ICR) SUBJECT TO COGNIZANT AGENCY REVIEW AND APPROVAL

24. GRANTEES SUBJECT TO : OMB CIRCULAR A-122 At least one source of direct Federal funding More than one source of revenue (Federal and Non-Federal) APPROVED INDIRECT COST RATE

25. NO APPROVED ICR?? Must seek approval within 90 days of grant approval Where? –Cognizant Agency (determined based on Fed. Agency providing largest amount of Fed. Funds) –If Earmark grant is only Federal award, DOL is cognizant

26. QUESTIONS ??? Department of Labor Office of Cost Determination Telephone: 202-693-4102 “A Guide for Indirect Cost Rate Determination”

27. WHY do you need a rate? Management Information Compliance with Federal regulations;e.g., OMB Circulars A-87, A-21 & A-122 Documentation for auditors

28. Indirect Cost Rate Allocation Bases Select the base which results in allocation of indirect costs according to “benefits received”, the golden rule of Federal cost principles.

29. EXAMPLE: Grantee approved indirect cost rate of 20% Grantee (org.-wide) direct salaries & wages are $300,000 Total Indirect Costs to be spread to all fund sources are $60,000 Earmark grant is $100,000 Total direct salary & wages are $50,000 Indirect costs charged to Earmark-$10,000

30. EXAMPLE: Earmark grant is $100,000 Admin. Limit is 10% ($10,000) Indirect costs to be charged to grant are $10,000: 20% (ICR) X $50,000 (total direct salaries & wages) DOES THIS MEAN I MAY EXCEED MY ADMINISTRATIVE COST LIMIT??

31. NO Review costs of your organization that comprise indirect cost pool (component of indirect cost rate calculation) Break out all of those costs between program and administration –Using the WIA definition of Administrative Costs

32. Pool of Indirect Costs Accounting System A Procurement System A Director P&A Receptionist P&A Facilities P&A Assume this calculates to 80% admin. and 20% program

33. Then, Apply the 80% - 20% ratio to the total indirect costs of $10,000 for Earmark grant, as calculated in example. Administration costs are $8,000 Program costs are $2,000

34. Types of Indirect Cost Rates

35. Billing Rate Rate stated in the award to allow recovery of indirect costs until an indirect cost proposal is completed and submitted. Normally only valid for 90 days.

36. Ceiling Rate Set by the Contract/Grant Officer The maximum rate at which indirect costs may be recovered under a particular award

37. Provisional Rate A rate based on projected information, historical information, or a combination of the two for the organization’s fiscal year This rate allows for recovery of indirect costs during the contract/grant period until the rate can be finalized

38. Final Rate The experienced indirect cost rate based on actual data for the organization’s fiscal year All provisional indirect cost rates must eventually be “finalized”

39. Fixed Rate A permanent rate that is not subject to change Any differences between estimated and actual costs are carried forward as adjustments to rate computations in future periods Seldom issued to nonprofit organizations

40. Predetermined Rate A rate negotiated for a certain length of time, usually several years Not subject to change

41. QUESTIONS????