GPD Indirect Cost Rate Training - PowerPoint Presentation

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GPD Indirect Cost Rate Training

OMB Circular A-110 (2 CFR Part 215) 2 CFR Part 230Appendix A – General Principles GPD Indirect Cost Rate Agreement

Chief,

Operational Oversight Division

Joseph E. Baldwin

Project Review:

July 2015

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Topics

Review of OMB A-110Cost AllocationWhat is the difference between Direct and Indirect Costs?

What is an Indirect Cost Rate Agreement and do I need one? How do I calculate Indirect Cost Rates? 2 CFR Part 200 (Super Circular)

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OMB Circular A-110

What is “OMB Circular A-110”?Provides uniform administrative requirements for grants and agreements with non-profit organizationsCodified in the Code of Federal Regulations at 2 CFR Part 215

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OMB Circular

A-110(Continued)OMB Circular A-110 requires a Financial Management System that provides: Accurate, current and complete disclosure of the financial results of

EACH federally-sponsored project or program. Records that identify adequately the source and application of funds for federally-sponsored activities. 4Slide5

OMB Circular A-110(Continued)Accounting

records including cost accounting records that are supported by source documentationWritten procedures for determining the reasonableness, allocability and allowability of costs in accordance with the provisions of the applicable Federal cost principles (OMB Circular A-122)

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Cost Allocation

Cost Allocation is the process of identifying, aggregating, and assigning costs to cost objects. A

cost object is any activity or item for which you want to separately measure costs. 6Slide7

Cost Allocation Plan

A Cost Allocation Plan is t

he organization’s written policy that discloses its accounting practices, policies, and procedures for allocating direct and indirect costs.

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Cost

Allocation (Continued)

Costs for each particular cost objective must be segregatedA cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:

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Cost

Allocation (Continued)

(1) Is incurred specifically for the award.(2) Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received, or

(3) Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown.9Slide10

Cost

Allocation (Continued)

Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award.10Slide11

Cost Allocation Plan

(Continued)A Cost Allocation Plan will help the Grantee to ensure that it is recovering all

*allowable costs incurred by the organization and the plan is often the only way to determine total costs of operating programs. *Allowable costs are discussed in 2 CFR 230 Appendix B Selected Items of Cost and 2 CFR 200 Subpart E Cost Principles, General Provisions for Selected Items of Cost.

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Direct Costs

Costs identified specifically with awards are direct costs of the awards and are to be assigned directly to the award

Costs identified specifically with other final cost objectives of the organization are direct costs of those cost objectives and are not to be assigned to other awards directly or indirectly12Slide13

Indirect Costs

After direct costs have been determined and assigned directly to awards or other work as appropriate, indirect costs are those remaining to be allocated to benefiting cost objectives

Indirect Costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective13Slide14

Indirect

Costs (Continued) A cost may not be allocated to an award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to an award as a direct cost

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Total Costs = Direct + Indirect

Total costs The sum of the allowable Direct and allocable Indirect

costs less any applicable credits. Direct Costs Can be identified specifically with a particular final cost objective (i.e., a particular award, service or direct activity)Indirect Costs Incurred for common or joint objectives and cannot be readily identified with a particular final cost objective

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Indirect Cost Rate Proposal

Documents the organization is required to submit in order to negotiate indirect cost rates with their cognizant agency. The proposal is the basis for establishing an indirect cost rate agreement.

The Federal agency with the largest dollar value of awards with an organization will be designated as the cognizant agency for the negotiation and approval of the indirect cost rates.

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Indirect Cost Rate

An Indirect Cost Rate is the ratio between the total indirect cost and some direct cost base. The indirect cost allocation method(s) used by each Grantee depend on its own structure, program functions, and accounting system.

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Indirect Cost Rate

An Indirect Cost Rate (ICR)is a percentage calculated as follows:

ICR = Total Indirect Costs Direct Cost BaseThe Direct Cost Base is used to distribute indirect costs to individual Federal awards. An indirect cost rate must be applied to a direct cost base in order to determine the amount of indirect cost. 18Slide19

ICR Example

Grantee John Doe administers four (4) grants Grantee John Doe’s Indirect Costs = $100,000Grantee John Doe’s Direct Cost Base = $1,000,000

Indirect Cost Rate (%) = Total Indirect Costs Direct Cost Base Indirect Rate = 10% $100,000 $1,000,000

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Is an Indirect Cost Rate Necessary?

If a Grantee would like to be reimbursed for certain types of indirect costs under Federal awards than a Federally approved ICR is

required. The Super Circular, effective December 26, 2014, includes a 10% de minimus* rate for organizations that have not had an indirect cost rate. 20Slide21

Is an Indirect Cost Rate Necessary?

(Continued) If a Grantee

determines there is not a cost benefit in obtaining a Federally approved ICR, then it should not seek to negotiate one. A Grantee is not required to obtain an approved ICR; it is voluntary. 21Slide22

Methods of ICR Calculation

There are three basic methods for calculating indirect cost rates: Simplified

Multiple RateDirect 22Slide23

Simplified Method

The

Simplified Method may be used whenever the major functions of an organization benefit from its indirect costs to approximately the same degree. 23Slide24

Simplified Method

(Continued)This method is accomplished by:

1.classifying the total cost for the base period (usually the organization’s fiscal year) as either direct or

indirect and 2.dividing the total allowable indirect costs (net of applicable

credits) by an equitable distribution

base.24Slide25

Simplified Method

(Continued)

This method also requires that: 1. capital expenditures and unallowable costs are excluded from both the direct and the indirect costs. 2. however, unallowable costs must be included

in the direct cost base if they represent activities, such as fundraising. 25Slide26

Simplified Method

(Continued)

The result of the above process is an indirect cost rate which is applicable to and used to distribute indirect costs to individual Federal awardsSpecifically the formula is as follows: Total Allowable Indirect Costs / Allocation Base = ICR%

$150,000 / 400,000 = 37.50%26Slide27

Simplified Method Calculation

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For an organization that receives more than $10 million in Federal funding of direct costs in a fiscal year, a breakout of the indirect costs into two components; Facilities and Administration,

is required. The rate shall be stated as a percentage which the amount of Facilities and Administration is, of the applicable distribution base used for each component. In addition, specific bases may be required for allocating these categories of cost.

Simplified Allocation Method28Slide29

Multiple Allocation Method

More appropriate where an NPO’s indirect costs benefit its major functions in varying degrees

indirect costs shall be accumulated into separate cost groupingsgrouping shall constitute a pool of expenses that are of like character in terms of functions they benefit and in terms of the allocation base which best measures the relative benefits provided to each function

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Multiple Allocation

Method(Continued)Facilities is defined as depreciation and use allowances on buildings, equipment and capital improvements; interest on debt associated with certain buildings, and operations and maintenance expenses.

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Multiple Allocation

Method (Continued)Administration

is defined as general administration and general expenses such as the director's office, accounting, personnel, library expenses and all other types of expenditures not listed specifically under one of the subcategories of "Facilities", (including cross allocations from other pools, where applicable).31Slide32

Multiple Allocation

Method(Continued)

Allocation BasisWhen a cost grouping benefits a single function, the costs should be allocated directly to the benefiting functionCost groupings of a general nature should be allocated using a base which produces results that are equitable to both the Federal Government and the organization

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Multiple Allocation

Method (Continued)

Allocation BasisUnless it can be demonstrated that a different base would result in a more equitable allocation of costs (or a more readily available base would not increase the costs charged to awards), costs should be allocated in accordance with the methodologies described in OMB Circular A-122 (subparagraph D.3.c. of Appendix A to 2 CFR Part 230)

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Direct Method

The Direct Allocation Method is used by organizations that treat all costs as direct costs except general administration and general expenses (G&A). These organizations generally separate their costs into three (3) basic categories: 1. general administration and general expenses,

2. fund raising, and 3. other direct functions (including projects performed under Federal awards). 34Slide35

Direct Method

(Continued)This method is acceptable provided each joint cost is prorated using a base which accurately measures the benefits provided to each

final cost objective or other activityAll direct allocation methods must be disclosed in a Cost Policy Statement.Indirect Cost consist exclusively of general administration and general expenses Compute indirect cost rate using Simplified Allocation Method

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Selecting Rate Methodology

The following should be considered in selecting a Rate Methodology:Amount of Federal Funding

Size of the Organization (major functions)Service VariancesTypes of Programs

Cognizant Federal Agency

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Types of Rates

OMB Circular A-122 describes the different types of indirect costs that can be negotiated. The GPD office typically issues provisional and final rates, described below:

Provisional rate or billing rate means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on awards pending the establishment of a final rate for the period.

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Types of Rates

(Continued)Final rate

means an indirect cost rate applicable to a specified past period which is based on the actual costs of the period. A final rate is not subject to adjustment. Note that a final indirect cost rate is established after an organization's actual costs are known, typically a fiscal year. Once established, a final indirect cost rate is used to adjust the indirect costs claimed on grants and contracts.

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2 CFR Part 200 (Super Circular)

Administrative Costs –OMB added a provision that administrative costs, like salaries of administrative and clerical staff, now can be charged as direct cost in certain circumstances

1. The administrative or clerical service is integral to the project or activity

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2 CFR Part 200 (Super Circular)

(Continued) Administrative Costs –

2. The administrative or clerical costs are budgeted or have the prior written approval of the Federal awarding agency3. The costs are not also recorded as indirect costs

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2 CFR Part 200 (Super Circular)

de minimusIndirect Cost Rates –

10 Percent de minimus:The new grants guidance includes a new 10 percent de minimus rate on modified total direct costs (MTDC) for indirect costs for those that have never received a negotiated indirect cost rate in the

pastNo documentation needs to be maintained to support the use of this rate41Slide42

2 CFR Part 200 (Super Circular)

de minimus (Continued) Indirect Cost

Rates – 10 Percent de minimus:Rate may be used indefinitely, but must be applied across the board to all grants for which indirect cost rates are chargedIf you already have a negotiated rate and that negotiated rate is lower (or higher), you cannot choose to use the new 10 percent de

minimus threshold

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2 CFR Part 200 (Super Circular)

Federal agencies are now required to accept the negotiated indirect cost rate from another Federal agency, unless an exception is required by statute or regulation

Rate may be extended on a one-time basis, for a period of up to 4 yearsThis is not automatic, approval must be obtained43Slide44

Preparing an Indirect Cost Rate Proposal

Preliminary StepsOrganization

Review If one does not already exist, prepare a formal organizational chart(s), or a rough draft version, and provide any information or material explaining the various services and/or functions for each unit.Determine which units are indirect (administrative) functions of the

organization.Determine the services that are allowable and allocable to Federal grants and contracts per the applicable cost principles.

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Preparing an Indirect Cost Rate Proposal

(Continued)2. Review Federal and Non-Federal Funding

Prepare a list of all funding sources for all service and functions identified above.illustrate the list of funded programs on a copy of the organization chart.

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Preparing an Indirect Cost Rate Proposal

(Continued)3.

Review the Accounting Structure Obtain a chart of accounts, or some other list of accounts for your organization, in which the actual dollars expended can be related to various programs and/or organization structure. Reconcile the accounting structure to the organization chart. If necessary, determine changes to implement an indirect cost rate system of billing.

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Preparing an Indirect Cost Rate Proposal

(Continued)4. Determine the indirect cost methodology

Based on the steps completed above determine if the current indirect cost allocation methodology complies with the requirements set forth under OMB Circular A-122, or develop and implement a methodology that does comply. 5. Review/Develop/Update the Cost Policy Statement Review the CPS to ensure it is current, accurate, and complete.

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Preparing an Indirect Cost Rate Proposal

(Continued)The following types of Exhibits are common examples of what would be included as part of an ICRP:

Personnel Costs Exhibit A document that summarizes the total compensation costs for each employee or job position. This can be combined with the Statement of employee Benefits.

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Preparing an Indirect Cost Rate Proposal

(Continued)2. Allocation

of Personnel Costs Exhibit A document that summarizes how all personnel costs, for each employee or job position, are charged to major functions and/or each Federal and Non-Federal cost objective. The percentage of time per position may be entered in addition to the dollar amount. All personnel costs must be allocated for each position. 49Slide50

Preparing an Indirect Cost Rate Proposal

(Continued)3. Allocation of Employee Benefits

A document that calculates an Employee (Fringe) Benefit rate and identifies the cost elements assigned to the pool and base. This document is only required if the organization allocates Employee Benefits via the indirect rate method. 50Slide51

Preparing an Indirect Cost Rate Proposal

(Continued)4. Statement of Total Costs

This document should contain all line items of costs included in the entities’ chart of accounts, Statement of Functional Expenses, and/or the CPS, with applicable columns for direct costs (by cost center), indirect costs, (overhead, G&A, etc.) and unallowable costs (if applicable). 51Slide52

Preparing an Indirect Cost Rate Proposal

(Continued) 5. Allocation of Indirect Costs Exhibit

This document should contain all line items of costs included in the indirect cost “pool(s)”,the applicable allocation base(s), and the resulting indirect cost rate(s). 52Slide53

Preparing an Indirect Cost Rate Proposal

(Continued)6. Total Costs by Federal Award Exhibit

This document lists each Federal grant and contract and includes information such as the Federal agency, period of performance, $ amount of the award, and allocation of costs. 53Slide54

Preparing an Indirect Cost Rate Proposal

(Continued)

Prepare other supporting documents and informationA Certificate of Indirect Costs that is signed by the Executive Director, or other designated official with signature authority. Other

supporting documentation as required 54Slide55

Preparing an Indirect Cost Rate Proposal

(Continued)Submit to the GPD Program Office•

Prepare a transmittal cover letter and/or e-mail to request an ICRP, designate contact personnel, reference the checklist, and provide additional relevant information.• Complete the ICRP Checklist (See Appendix E) to ensure all required information and documents are submitted.• Assemble transmittal cover letter/e-mail, checklist, ICRP, and all other documents identified on the checklist.

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Preparing an Indirect Cost Rate Proposal

(Continued)Send to the GPD using

of the following delivery methods:Email to: yvette.green@va.govIdentify name of organization and “ICR Proposal” in the subject

lineMail to: Department of Veterans Affairs

GPD Field

Office 10770 N 46th Street, Suite C-100 Tampa, FL 3361756Slide57

Questions?

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