Cost Allocation and Applying for an Indirect Cost Rate

1. Cost Allocation andApplying for anIndirect Cost Rate Presented by: Division of Cost Determination April/May 2010 USDOL/Cost Determination

2. This is a basic course. USDOL/Cost Determination

3. Topics We Will Cover • What is an indirect rate? • How do you prepare an indirect rate proposal? • Where do you submit the proposal, and when is it due? USDOL/Cost Determination

4. Federal vs. Upper-Tier • DOL is responsible for negotiating indirect cost rates with organizations with direct federal funding • Upper-tier grantees stand in-place of the federal government with respect to ensuring that the lower-tier grantees comply with A-122 • Upper-tier grantees negotiate rates with lower-tier grantees • Most sub awards have a flow-down clause for recovery of questioned costs due to non compliance with federal requirements (continued) USDOL/Cost Determination

5. Federal vs. Upper-Tier • Upper-tier (continued) • If a federal monitor questions costs at a sub grantee, the feds take it from the federal awardee • The upper-tier takes it from you USDOL/Cost Determination

6. Types Of Costs USDOL/Cost Determination

7. Direct costs • Indirect costs • Administrative costs – separate workshop • Program costs – separate workshop • Allowable costs – separate workshop • Unallowable costs – separate workshop USDOL/Cost Determination

8. Direct costs… • Those costs that can be specifically identified with a particular cost objective. Examples: (program specific) • Salaries – program and admin direct staff • Space – sq. ft. occupied by direct staff • Materials and Supplies – used by directstaff • Communications – used by directstaff USDOL/Cost Determination

9. Indirect Costs… • Incurred for common or joint objectives • Cannot be readily identified with a grant or project. • The cost is necessary to the general operation of the organization. (cont…) USDOL/Cost Determination

10. Levels of Indirect For Large Entities • States, Counties, Other Organizations: SWCAP or COWCAP or ORGCAP • Central Services cost • examples • LOCAP/Umbrella entity • Entity that labor is usually cognizant agency for who operate multiple programs USDOL/Cost Determination

11. Indirect Rates vs. Cost Allocation Plans • Non-profits: negotiate a rate • State or local government (as defined by OMB Circular A-87): • Either ICR or CAP • Note: submission requirements the same under either method USDOL/Cost Determination

12. Boy Oh Boy! What are Indirect Costs? USDOL/Cost Determination

13. Indirect Costs … • Allocated using an indirect cost rate • Be aware: Allocable vs. allowable • Be aware: Allocable Indirect vs. Allocable Direct USDOL/Cost Determination

14. Indirect costs… • Examples • Salaries – Executive Director, Finance Officer, Receptionist, etc (allocable portion) • Space – sq. ft. occupied by indirect staff • Supplies – used by indirect staff USDOL/Cost Determination

15. Briefly, Indirect Costs vs. Administrative Costs • Admin costs are generally support-type costs • Are defined in the federal statute or grant • May be either direct or indirect USDOL/Cost Determination

16. Are administrative costs and indirect costs the same? No! USDOL/Cost Determination

17. TYPES OF COSTS TOTAL COSTS DIRECT INDIRECT OMB PROGRAM PROGRAM ADMINIS- TRATIVE ADMINIS- TRATIVE Grant USDOL/Cost Determination

18. ICR and “Admin” • Div. of Cost Determination (DCD) negotiates an ICR based on the appropriate cost principles (e.g., A-122) • DCD does not negotiate an admin rate by program (e.g., WIA admin) USDOL/Cost Determination

19. ICR and “Admin” (cont.) • ETA determines compliance with admin limits • Grantees should work with their regional ETA fiscal officer to determine how to support compliance grant admin limits USDOL/Cost Determination

20. INDIRECT RATE… An indirect cost rate is simply a method used to determine what proportion of indirect costs each program (funding source) should pay. USDOL/Cost Determination

21. HOW IS AN INDIRECT RATE CALCULATED? Indirect Costs (POOL) --------------------------------- == RATE Direct Costs (BASE) USDOL/Cost Determination

22. Example: Indirect Cost Rate • Simple Example: Indirect Cost (Pool) = $ 10,000 Direct Costs (Base) = $100,000 (E.g., Direct Salaries & Benefits) Indirect Cost Rate = 10% USDOL/Cost Determination

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25. Indirect Cost RateMost Common Allocation Bases • Direct Salaries/Wages, including Fringes • Direct S/W including release time, but excluding all other fringes • Modified Total Direct Cost (various) • Total Direct Costs excluding capital expenditures and flow-through funding • Usually excluding contracts in excess of 25K USDOL/Cost Determination

26. Do I Even Need a Rate? • No rate is needed if an organization has only one project • No rate is needed if all federal funding consists of fixed price awards • A rate is required if the organization has more than projects USDOL/Cost Determination

27. Multiple projects Private Funding DOL Funding State Funding ICR Proposal Needed Multiple Funding Sources USDOL/Cost Determination

28. Multiple projects • Caution: Fundraising and lobbying are treated as funding sources • Included in the base to absorb itsshare of indirect costs • Even if not reimbursed USDOL/Cost Determination

29. So, a rate is needed. Where do I submit it? • If you have an award directly with the federal government • An indirect cost rate proposal should be submitted to the organization’s cognizant Federal agency USDOL/Cost Determination

30. Cognizant Agency Concept • The Federal agency with the most funding directly with the grantee • Typically will not be changed for 3 years • Cognizant agency negotiates a rate on behalf of all Federal agencies USDOL/Cost Determination

31. To whom is the rate submitted? • If DOL is your cognizant agency, submit your proposal to office in Appendix III of the DOL’s “Guide for Indirect Cost Rate Determination” booklet. • To find the Guide on-line: Search (as in Google) “DOL Indirect” USDOL/Cost Determination

32. So, a rate is needed. Where do I submit it? • If you do NOT have an award directly with the federal government • Each upper-tier federal awardee USDOL/Cost Determination

33. Why do you need an approved indirect cost rate? • Compliance with Federal regulations; e.g., OMB Circulars A-122/A-87 • Management Information • Documentation for monitors and auditors USDOL/Cost Determination

34. Types of Rates • 90-day Billing (initial grant award) • Approved by DOL Grant Officers • If rate proposal is submitted and not yet approved – may request extension of the billing rate • Provisional/Final (most common) • Fixed with carry forward (mainly gov’t) • Predetermined (rare) USDOL/Cost Determination

35. Billing Rate • Rate stated in the award • To allow recovery of indirect costs until an indirect cost proposal is completed and submitted. • Typically valid for 90 days USDOL/Cost Determination

36. Provisional Rate • Budgetary rate based on projected information, historical information, or a combination of the two for the organization’s current and future fiscal years • Allows for recovery of indirect costs during the contract/grant period until the rate can be finalized USDOL/Cost Determination

37. Final Rate • Experienced indirect rate based on actual data for the organization’s fiscal year (in other words, an actual rate) • All provisional indirect cost rates must eventually be “finalized” USDOL/Cost Determination

38. Proposal Submission USDOL/Cost Determination

39. How do you prepare an indirect cost rate proposal? • Use the checklist on page II-4 of the DOL Guide for Indirect Rates. • The next set of slides will show the basic documents which must be submitted in the indirect cost rate proposal. USDOL/Cost Determination

40. ICR Proposal Documentation • Background information • Organization chart (Checklist 1a) • Should reconcile with the accounting structure USDOL/Cost Determination

41. Direct vs. Indirect Costs CPS Ind S/W Supplies Space Program S/W Supplies Space USDOL/Cost Determination

42. ICR Proposal Documentation • Background information • A listing of awarded grants and contacts by Federal agency, total dollar amount, period of performance, and cost limitations (if any) (Checklist 5) USDOL/Cost Determination

43. ICR Proposal Documentation • Cost Policy Statement • See example at Page III-14 (Checklist 1c) • Personnel Costs Worksheet • See example at Page III-2 (Checklist 2a) USDOL/Cost Determination

44. ICR Proposal Documentation • Allocation of Personnel Worksheet • See example at Page III-4 (Checklist 2b) • Statement of Employee Benefits • See example at Page III-6 (Checklist 2c) USDOL/Cost Determination

45. ICR Proposal Documentation • Statement of Total Costs • See examples at Pages III-7&9 (Checklist 2d) • Statement of Indirect Costs • See left-hand corner of III-7&9 (Checklist 2e) USDOL/Cost Determination

46. ICR Proposal Documentation • Audited financial statements (Checklist 3) • OMB A-133 and supplemental information • Or, IRS Form 990 (non-profits) if audited financial statements not required. USDOL/Cost Determination

47. ICR Proposal Documentation • Note: The Statement of Total Costs (2d. above) must reconcile to Financial Statements. USDOL/Cost Determination

48. ICR Proposal Documentation • Certificate of Indirect Costs • See Page III-19 (Checklist 4a and 4b) • This must be signed and dated or the proposal will be rendered unacceptable USDOL/Cost Determination

49. So when is this proposal due? • For lower-tier grantees with no awards directly from the federal government -- TALK TO YOUR UPPER-TIER AWARDING AGENCY! • For your first indirect cost rate • Proposal due three months after sub-grant award • For all subsequent proposals • Proposal due six months after the close of the organization’s fiscal year. USDOL/Cost Determination

50. So when is this proposal due? • For your first Federally-approved indirect cost rate • Proposal due three months after the effective date of the DOL award • For all subsequent proposals • Proposal due six months after the close of the organization’s fiscal year. • Extensions of time may be granted USDOL/Cost Determination