Cost Allocation/Indirect Costs Cost Allocation/Indirect Costs

November 2nd 2009

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AGENDAAGENDABack to Basics

Emerging Cost Allocation Issues

Indirect Cost Group Operations

Questions

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Total Cost of Federal Awards

DirectIndirect

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What are Direct Costs?Costs that can be specifically identified with a particular cost objective.

• Program Salaries• Space Costs for Program Activities• Travel• Equipment

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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

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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%

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Executive Administration

Accounting HumanResources Programs

U.S. Departmentof Education

USDA

Non-Federal

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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

Back to BasicsBack to BasicsNext 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

Emerging Cost Allocation IssuesEmerging Cost Allocation Issues

1. American Recovery and Reinvestment Act (ARRA) Funds

2. Unused Leave Payments

3. Subaward Treatment

4. Time Distribution

5. Retirement Incentives

Emerging Cost Allocation IssuesEmerging Cost Allocation Issues

6. Subrecipient Oversight

7. Restricted Indirect Cost Rates

8. Treatment of Equipment

9. Administrative Cost Limitations

10. Cost Allocation Audit Findings

ARRA - OMB MemorandumARRA - 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

ARRA - OMB Memorandum – ARRA - OMB Memorandum – cont’d.cont’d.

Requirements - oversight, reporting and audit requirements

Reported at “State-wide” level

Allocated to governmental units

Supplemental SWCAP submitted to HHS/DCA

ARRA - GuidanceARRA - Guidance

HHS FAQ’s

OMB guidance / Clarifying guidance

Technical assistance from ED

ARRA - Impact on SEAs & SAsARRA - 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

ARRA - Impact on SEAs & SA-ARRA - Impact on SEAs & SA-cont’d.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

ARRA - Impact on SubrecipientsARRA - 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)

ARRA - Fixed Rate ConsiderationsARRA - Fixed Rate Considerations

FY 2010 FY 2012 FY 2014 (Based on 2008) (Based on 2010) (Based on 2012)

(C) Fixed Rate (A / B) 7.9% 9.2% 5.3%

(B) Direct Base 44,000,000 50,000,000 69,000,000

Pool:Departmental 3,200,000 4,000,000 4,975,455Central Services 280,000 250,000Carry Forward 0 325,455 (1,338,673)

------------- ------------- -------------(A) Total Pool 3,480,000 4,575,455 3,636,782

Actual Costs:

(D) Direct Base 50,000,000 69,000,000

Departmental 4,000,000 4,400,000Central Services 280,000 250,000Carry Forward 0 325,455

------------- -------------(E) Total Pool 4,280,000 4,975,455

Carry Forward Adjustment:

Recovered = Fixed Rate (C) XActual Base (D) = (F)

(F) Recovered Indirect Costs 3,954,545 6,314,127(E) Actual Indirect Costs 4,280,000 4,975,455

-------------- --------------(G) (Over)/Under Recovery 325,455 (1,338,673)

XYZ State Department of Education

Fixed Rate with Carry-Forward Adjustment

Affect on RateCalculation

SignificantChange!!

Significant Over Recovery

ARRA - Fixed Rate ConsiderationsARRA - Fixed Rate Considerations

FY 2010 FY 2012 FY 2014 (Based on 2008) (Based on 2010) (Based on 2012)

(C) Fixed Rate (A / B) 7.9% 7.3% 7.2%

(B) Direct Base 44,000,000 70,000,000 69,000,000

Pool:Departmental 3,200,000 4,500,000 4,975,455Central Services 280,000 250,000Carry Forward 0 325,455 (27,494)

------------- ------------- -------------(A) Total Pool 3,480,000 5,075,455 4,947,961

Actual Costs:

(D) Direct Base 50,000,000 69,000,000

Departmental 4,000,000 4,400,000Central Services 280,000 250,000Carry Forward 0 325,455

------------- -------------(E) Total Pool 4,280,000 4,975,455

Carry Forward Adjustment:

Recovered = Fixed Rate (C) XActual Base (D) = (F)

(F) Recovered Indirect Costs 3,954,545 5,002,948(E) Actual Indirect Costs 4,280,000 4,975,455

-------------- --------------(G) (Over)/Under Recovery 325,455 (27,494)

Fixed Rate with Carry-Forward Adjustment

XYZ State Department of Education

StableRateCalculation

ARRA - Do’sARRA - Do’s

Monitor impact on Indirect Cost Rates

Adjust billings

Call/email questions & concerns

Request technical assistance

Unused Leave PaymentsUnused 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.

Unused Leave PaymentsUnused Leave Payments

• Important language included on rate agreements

• Ensure appropriate treatment in rate calculation

• Ensure appropriate treatment in rate application

Subaward TreatmentSubaward Treatment

• Federal policy on $25,000 amount

• Consider subgrants and subcontracts

• To exclude or not to exclude – case by case basis

• Simplify

Time DistributionTime 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)”

Time Distribution - PARsTime 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

Retirement IncentivesRetirement 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

Subrecipient OversightSubrecipient Oversight

Prime Recipient’s considerations:

• Rate calculation & application

• Emerging cost issues & treatment

• Impact of funding changes on rates

• Audit issues

Restricted Indirect Cost RatesRestricted 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

Treatment of EquipmentTreatment 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

Administrative Cost LimitationsAdministrative Cost Limitations

• Programmatic limitation on costs

• Must consider direct & indirect charges

• Two-step calculation

• ARRA Funds – same treatment

Cost Allocation Audit FindingsCost Allocation Audit Findings• Unused Leave

• Retirement Incentives

• Normal Severance Pay

• Monitoring

• Indirect Cost Rate Calculations

Indirect Cost Group OperationsIndirect 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

Organizational StructureOrganizational StructureOffice of the

Chief FinancialOfficer

Post AuditGroup

Indirect CostGroup

Contracts andAcquisitions

Management

Financial Improvementand Post Audit

Operations

Internal ControlEvaluation

Group

ExecutiveOffice

FinancialManagementOperations

GeneralAccounting

Group

AccountsPayableGroup

AccountsReceivable

Group

Reporting and Analysis

Group

ProgramContracts

Group

OperationsContracts

Group

EducationSciences

Group

Performanceand Logistics

Group

INDIRECT COST GROUP

Mary Gougisha Director

Katrina McDonald Management Analyst

Brandi Jefferson Office Automation Clerk

Paul Brickman Cost Negotiator

Nelda Barnes Cost Negotiator

David Gause Cost Negotiator

Hanan Hardy Cost Negotiator

Frances Outland Cost Negotiator

Richard Koris Cost Negotiator

Phillip Luster Cost Negotiator

John Masaitis Deputy Director

Vacant Cost Negotiator

Team 2

Team 1

Useful WebsitesUseful WebsitesOMB 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/

Contact InformationContact InformationU.S. Department of EducationU.S. Department of EducationOCFO / FIPAO / ICGOCFO / FIPAO / ICGAttn: Mary Gougisha, Room 21H1Attn: Mary Gougisha, Room 21H1830 First Street, NE830 First Street, NEWashington, DC 20202-4450Washington, DC 20202-4450

Phone: (202) 377-3835Phone: (202) 377-3835Email: Mary.Gougisha@ed.gov Email: Mary.Gougisha@ed.gov

Questions

Answers