2015 LEA INDIRECT COST APPLICATION

1. 2015 LEA INDIRECT COST APPLICATION AASBO Tuscaloosa, Alabama February 12, 2014

2. Authorization • The Alabama State Department of Education has been delegated the authority to establish Indirect Cost Rates for the LEA’s in Alabama by the U S Department of Education. • The methodology currently being used was reviewed and approved by the USDE, Indirect Cost Group in 2009. • Current agreement goes through September 30, 2014.

3. The Indirect Cost process is a method used to distribute allowable administrative costs that are paid from state and local funds to Federal Grants. This is a reimbursement process, not a revenue source.

4. Indirect Costs are costs that have been incurred for common or joint purposes. Indirect costs benefit more than one cost objective and cannot be readily identified with a particular final cost objective. Examples would be purchasing, accounting, and human resources.

5. Indirect Cost Rates are devices used for determining, in a reasonable manner, the proportion of indirect costs each program should bear. The indirect costs are included in the pool (numerator) and the direct costs are included in the base (denominator). The result is expressed as a percentage (rate) of the indirect costs to direct costs. Types of indirect cost rates are Provisional, Final, Fixed, and Predetermined.

6. Getting Started • Is your 2013 Financial Statement approved? The 2015 Indirect Cost Application cannot be completed and submitted until final 2013 expenditures have been approved. • Pull out your approved 2013 Indirect Cost Application (completed in the spring of 2012). Amounts from the 2013 application will be used on the fixed with carry-forward calculation page to compare the 2013 estimated indirect cost pool to the actual indirect costs incurred. If you cannot locate a copy, ask your system accountant to email you one.

7. Retrieve IDC Proposal Form From LEA Accounting Website

10. Reports to Print from http://www.alsde.edu/leareports/Under Optional Reports • Unrestricted Indirect Cost Rate Data – Unadjusted – Fiscal Year 2013 Period 12 • Restricted Indirect Cost Rate Data – Unadjusted – Fiscal Year 2013 Period 12

13. For Unrestricted and Special Child Nutrition Program Indirect Cost Rates, Total Expenditures are divided into three cost pools: Excluded, Indirect, and Direct.

14. Special Child Nutrition Program Rate • Special Child Nutrition Program rates apply to LEAs that pay their utilities directly from the USDA – Food and Nutrition Fund Source 5101. These LEAs either have separate utility meters in their lunch rooms or have usage studies performed by a utility company. Expenditures for system-wide utilities are subtracted from the indirect cost pool in calculating this special rate.

16. Approved MethodologyFixed Rate with Carry-Forward Adjustments • Fixed rates with adjustment for the difference in estimated (2011 adjusted General Purpose Financial Statements) and actual recovery (2013adjusted GPFS) are established on an annual basis. The 2015 rate calculations reflect carry-forward adjustments.

17. Indirect Cost Calculation • For the 2015 rate calculation pages, we are asking for input from Fiscal Year 2011 and 2013. This information can be found on the LEA’s approved 2013 Indirect Cost Application and also on the LEA Accounting website in excel spreadsheet format. The prior years’ information is used to calculate the actual under or over recovery of indirect costs versus the estimated recovery that the rate was based on at the time it was negotiated. Input items have a reference number (1-7) as well as a footnote of where the data can be found.

18. Indirect Cost Calculation (cont’d) • Many LEA’s negotiated zero percent indirect costs rates in 2012 because of the ARRA funding situation. • For positive negotiated indirect cost rates, the full amount of the 2011 recovery carry forward (both positive and negative) should be entered 2013 item (7). • For indirect cost rates that were negative and negotiated at zero percent, the amount of the entry in 2013 item (7) should be equal to the indirect cost amount in the line above, returning a zero percentage at the top of the column.

28. Excluded Cost Pool: Extraordinary or Distorting Items • Extraordinary or distorting items are excluded when calculating the rate and the indirect cost reimbursement because the activities require minimal administrative support. Expenditures of food are generally referred to as “distorting items” since they do not generate administrative overhead or benefit from it, to the same degree as most other direct cost objects (such as salaries and wages). Excluded expenditures are the same for unrestricted, CNP, and restricted rate calculations.

29. Expenditures Excluded on the Data Reports (Column A) • Fund Sources – 7XXX - Local School Funds – Public and Non-Public • Account Codes 7XXX - Capital Outlay – Real Property • Account Codes 8XXX - Debt Service – Long Term • Account Codes 9XXX – Other Fund Uses • Object Code 461 - Purchased Food • Object Code 462 - USDA Commodities • Object Code 464 - Food Processing Supplies • Object Codes 5XX - Equipment

30. Expenditures Excluded on the Data Reports (Column A) cont’d • Other Object Codes 600-619, 627, 690-899, 900-997 • Short Term Debt • Doubtful Accounts Expense • Depreciation Expense • Building and Land Improvements less than $50,000 • Indirect Costs Recovered • Operating Transfers • Refunds • Fines and Penalties • Judgments • Other Claims

31. Expenditures to Exclude That Require Adjustments • Advertising, legal, and other expenses associated with construction projects that are not coded to capital outlay • Settlements and judgments against the LEA that are not coded to be automatically excluded. . .for example, coded to object code 325 - Legal Fees.

32. Expenditures to Exclude That Require Adjustments (cont’d) • Flow through transactions where the LEA only serves as fiscal agent and does not provide administrative services. An example would be State Supported Special Education Facilities funded through the Foundation Program where the LEA only forwards the funds and does not issue purchase orders or pay salaries directly. Other examples could include HIPPY and At-Risk Special Use 0054organizations.

33. Indirect Cost Expenditures on the Unrestricted Data Report (Column C) • Account Codes 3XXX - Operation & Maintenance Services • Account Codes 62XX - Executive Administrative Services • Account Codes 63XX - Business Support Services • Account Code 64XX - Information Services, Data Processing Services, Staff Services, Printing, Publishing, Duplicating Services, and Central Support Services • Account Codes 65XX & 69XX- Central Office Services

34. Possible Adjustments in CalculatingtheUnrestricted, CNP, and Restricted Rate • Auditing – Object Code 323 – charged to Account Code 61XX should be adjusted out of Column D into Column C

35. Possible Adjustments in Calculating the Unrestricted, CNP, and Restricted Rates • McAleer and INOW maintenance agreements that are coded to Fund Type 14, Account Code 6XXX would not be included in the indirect cost pool but should be moved there if paid from state or local funds.

36. Possible Adjustments in CalculatingtheUnrestricted, CNP, and Restricted Rate • Legal – Object Code 325 – Coded to Account Code 61XX will all be in direct costs. If any of the fees are eligible for indirect (retainer fees, etc.), moved out of Column D into Column C.

37. Possible Adjustments in Calculating the Unrestricted, CNP, and Restricted Rate • Flexibility used in Fund Source 1320 or 2120 to pay for allowable indirect costs but coded to Fund Type 14 instead of 11. Utilities for Unrestricted/CNP would be moved out of Column D into Column C

38. Adjustments Required in Calculating the Restricted Rate • Ensure that the CSFO salary, benefits, and expenses are not included in the indirect cost pool. Expenditures to Object Code 116 from a state or local fund are automatically shown in not allowed. • Account Code 62XX expenditures are categorized as not allowed on the data report. Any allowable indirect costs that are coded there will need to be moved out of Column B into Column C.

39. Indirect Cost Expenditures that would constitute supplanting are Moved in the Restricted Rate Data Report from Column C to Column B – Not Allowed • Account Codes 3XX – Operations and Maintenance • Account Codes 62XX - Executive Administration • Object Code 116 - CSFO Salary • Fund Source 1221 - Technology Director

40. Adjustments Required in Calculating the Restricted Rate • Auditing Coded to Account Code 62XX will need to be moved out of Column B into Column C

41. Adjustments Required in Calculating the Restricted Rate • Eligible Legal costs coded to 62XX will need to be moved out of Column B into Column C

42. Budgeting Indirect Cost • Example of budgeting for indirect costs: Assume an LEA’s approved indirect cost rate is 8.00 percent and the grant amount is $10,000. The LEA plans to spend the entire $10,000 in the same fiscal year and does not expect to spend any of the $10,000 on excluded costs. Since the grant amount is for $10,000, and indirect costs are part of the grant amount rather than in addition to it, you must back into a budgeted indirect cost amount that keeps the grant from exceeding $10,000. To do this, divide $10,000 by 1.08, which equals $9,259.26. Then subtract $9,259.26 from $10,000, which equals $740.74. The $740.74 is the maximum amount the LEA could budget for indirect costs. (To test this, $9,259.26 times 8.00 percent equals $740.74, and $9,259.26 plus $740.74 equals $10,000.)

44. Budgeting Indirect Cost (cont’d) After a budget file has been uploaded, verify that the indirect costs budgeted by fund source are correct. http://www.alsde.edu/leareports/ From the above link, under optional reports, pull the Indirect Cost Earned vs. Budgeted report and check for any negative variances. Some negative variances can be explained and are acceptable. Direct federal grants are allowed to charge the unrestricted rate. Administrative fees earned are coded to Object Code 910 and are allowed by the signed agreement.

48. Applying the Approved Indirect Cost Rate Multiply total expenditures less exclusions by the appropriate rate. After uploading financial statement data, verify the indirect costs amounts charged by going to: http://www.alsde.edu/leareports/ Under optional reports pull: Indirect Cost Earned vs. Collected Indirect Cost Earned vs. Collected – CNP Funds by Cost Center

49. Applying the Approved Indirect Cost Rate (cont’d) • LEA Accounting system accountants use these reports to verify that excess indirect costs have not been charged to Federal Programs or CNP during their annual financial statement review. • Fund sources that have an administrative expense limit that is lower than the LEA’s approved indirect cost rate, the lower is used for the calculation. On the Mobile example, their approved rate is 4.01% but Neglected & Delinquent (4116) does not allow administrative charges and the ELA (4150) administrative limit is 2%.