Allowable and Unallowable Costs

1. Allowable and Unallowable Costs 13th Annual Title Programs Conference June 17-18, 2015 Atlanta, Georgia

2. Allowable and Unallowable Costs Judy Alger Title I Education Program Specialist School Improvement Title Programs Division jualger@doe.k12.ga.us (229) 321-9305

3. SCHOOL IMPROVEMENT & DISTRICT EFFECTIVENESS

4. Allowable and Allocable Costs Following Necessary and Reasonable Guidelines

5. Transition to 2 C.F.R. Part 200,Uniform Administrative Requirements, Cost Principles, and Audit Requirements • The purpose of 2 C.F.R. Part 200 is to streamline the federal guidance on administrative requirements, cost principles, and audit requirements

6. Transition to 2 C.F.R. Part 200 2 C.F.R. Part 200 supersedes, consolidates, and streamlines requirements from 8 OMB circulars: • The two that primarily concern Title I are A-87, and A-133 • A-87, Cost Principles for State, Local and Indian Tribal Governments • A-133, audits of States, Local Governments, and non-Profit Organizations

7. Transition to 2 C.F.R. Part 200 • This session will focus on 2 C.F.R. Part 200, Subpart E– Cost Principles to determine whether or not a cost is allowable and allocable to a Title I, Part A grant. • Also included are federal guidelines for cost principles, time distribution records, financial management systems, procurement systems and inventory management systems.

8. Prior Written Approval 200.407 (pg 144) NEW: In order to avoid subsequent disallowance: • Non-federal entity may seek prior written approval of cognizant agency (for indirect cost rate) or federal awarding agency in advance of the incurrence of special or unusual costs

9. Factors Affecting Allowability of Costs 200.403 (pg 143) All Costs Must Be: • Necessary, Reasonable and Allocable • Conform with federal law & grant terms • Consistent with state and local policies • Consistently treated • In accordance with GAAP • Not included as match • Net of applicable credits (moved to 200.406) • Adequately documented

10. Factors Affecting Allowability of Costs 200.403 (pg 119) • Be consistent with policies and procedures that apply uniformly to both federally- financed and other activities of the non-Federal entity. • Be accorded consistent treatment • Can not charge cost as both direct and indirect • Be determined in accordance with GAAP • Not be included as a cost or used to meet cost sharing or matching

11. Factors Affecting Allowability of Costs 200.403(g) (pg 143) • Adequately documented • Amount of funds under grant • How the funds are used • Total cost of the project • Share of costs provided by other sources • Records that show compliance and performance • Other records to facilitate an effective audit (see 76.730 page 68)

12. Methods for Collection, Transmission and Storage of Information 200.335 (pg 138) NEW: When original records are electronic and cannot be altered, there is no need to create and retain paper copies. • When original records are paper, electronic versions may be substituted through the use of duplication or other forms of electronic media provided they: • Are subject to periodic quality control reviews, • Provide reasonable safeguards against alteration; and • Remain readable.

13. Cost Principles: Basic Guidelines All costs must be: • Be in accordance with generally accepted accounting principles (GAAP) • Not be used to meet cost sharing or matching requirements of any other grant program • Be adequately documented

14. Cost Principles: Basic Guidelines 7) Written Allowability Procedures200.302(b)(7) (pg 119) NEW: Written procedures for determining allowability of costs in accordance with Subpart E – Cost Principles • Procedures can not simply restate the Uniform Guidance Subpart E • Should explain the process used throughout the grant development and budget process • Training tool and guide for employees

15. Necessary & Reasonable 200.404 (pg 143) Consideration must be given to: • Whether cost is a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award; • The restraints or requirements imposed such as: • Arms length bargaining (hint: procurement processes); • Federal, state and local laws; and • Terms of the grant award.

16. Necessary & Reasonable • Market Prices for comparable goods or services in the geographical area; • Whether the individuals acted with prudence under the circumstances considering their responsibilities; and • No significant deviation from established prices.

17. Necessary & Reasonable: Use Data Driven Decision Making

18. Necessary & Reasonable Practical Questions • Do I really need this? • Is the expense targeted to valid programmatic/ administrative need? • Is this the minimum amount I need to spend to meet my need? • Do I have the capacity to use what I am purchasing? • Did I pay a fair rate? • If I were asked to defend this purchase, would I be able to?

19. Allocable Costs 200.405 (pg 143) A cost is allocable to a federal award or cost objective if the goods or services involved are chargeable or assignable in accordance with relative benefits received. • Incurred specifically for the award • Benefits both award and other work and can be distributed in proportions that may be approximated using reasonable methods; and • Necessary to the overall operation of the entity and assignable to the award in accordance with this Part

20. Allocable Costs Can only charge in proportion to the value received by the program • Example: Agency purchases a computer to use 50-percent on the federal grant program and 50-percent on a state program – can only charge half the cost to the grant. • Allocable costs can be direct or indirect costs

21. Allocable Costs Direct v. Indirect Costs 200.413(c) (pg 146) NEW: Salaries of administrative and clerical staff should be treated as “indirect” unless all of following are met: • Such services are integral to the activity • Individuals can be specifically identified with the activity • Such costs are explicitly included in the budget • Costs not also recovered as indirect

22. Allocable Costs Collection of Unallowable Costs 200.410 (pg 145) NEW: Payments made for costs determined to be unallowable by either the Federal awarding agency or pass-through must be refunded (including interest) to the Federal government in accordance with instructions from the Federal agency that determined the costs are unallowable.

23. Allocable Costs • Practical Aspects of direct allocation • Can I prove the program benefited? • Time distribution records • Inventory management records • Can I prove other programs are not benefiting? • Ensuring only authorized use • Incidental benefit

24. Direct Costs Direct costs are covered in §200.413. This section is largely unchanged from previous OMB cost principles. • Direct costs are identified specifically with the federal award or can be easily and accurately assigned to activities of the award. Typical direct costs include employee compensation, fringe benefits, materials and other items attributable to the award.

25. Direct Costs Direct costs are covered in §200.413. This section is largely unchanged from previous OMB cost principles. • If directly related to a specific award, certain costs that would otherwise be included with an indirect cost rate can be direct charged, such an extraordinary utility consumption, cost of materials supplied from stock or services from specialized facilities or other institutional service operations.

26. Indirect Costs Indirect costs are covered in §200.414. This section is largely unchanged from previous OMB cost principles. • Facilities: depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements and maintenance expenses. • Administration: general administration and general expenses such as the director’s office, accounting, personnel and all other types of expenditures not listed specifically under a subcategory of facilities

27. Selected Items of Costs • Advertising/PR 200.421 (pg 150) • Allowable for programmatic purposes including: • Recruitment • Procurement of goods • Disposal of materials • Program outreach • Public relations (in limited circumstances)

28. Selected Items of Costs 200.423 (pg 151) Alcohol • Never allowable Collections of Improper Payments 200.428 (pg 152) • The costs incurred by the non-federal entity to recover improper payments are allowable as either direct or indirect costs, as appropriate.

29. Selected Items of Costs Conferences 200.432 (pg 158) • Prior Rule: Generally allowable • Includes Meals / Conferences / Travel and Family Friendly Policies • Allowable conference costs include rental of facilities, costs of meals and refreshments, transportation, unless restricted by the federal award • NEW: Costs related to identifying, but not providing, locally available dependent-care resources • Conference hosts must exercise discretion in ensuring costs are appropriate, necessary and managed in manner than minimizes costs to federal award

30. Selected Items of Costs Travel Costs 200.474 (Changed) (pg 176) • Travel costs may be charged on actual, per diem, or mileage basis • NEW: Travel charges must be consistent with entity’s written travel reimbursement policies • NEW: Allows costs for “above and beyond regular dependent care” • Grantee must retain documentation that participation of individual in conference is necessary for the project • NEW: Travel costs must be reasonable and consistent with written travel policy / or follow GSA 48 CFR 31.205-46(a)

31. Selected Items of Costs Compensation - Fringe Benefits • Allowable if • Established written leave policies • Cost equitably allocated to all related activities • Accounting basis consistently followed

32. Selected Items of Costs Defense and Prosecution of Criminal and Civil Proceedings and Claims • Legal expenses required in the administration of federal programs are allowable • Legal expenses for prosecution of claims against the federal government are not allowable

33. Selected Items of Costs Employee health and welfare costs • Must be equitably apportioned to all activities of the LEA • Are allowable but must be based on LEAs documented policies for improving working conditions, employer-employee relations, employee health, and employee performance • Health or first aid clinics, employee counseling services are allowable Entertainment Costs • amusement, diversion and social activities not allowable

34. Selected Items of Costs Equipment and other capital expenditures • Generally unallowable • Capital expenditures for special purpose equipment provided that items with a unit cost of $5,000 or more have the prior written approval of the Federal awarding agency and pass-through entity Exchange rates • Allowable subject to availability of funding Fines, penalties, damages and other settlements • Unallowable except under specified conditions

35. Selected Items of Costs • Fund raising and investment management costs • Generally not allowable unless associated with investment covering pension, self-insurance then allowable but charged as indirect cost • Gains and losses on disposition of depreciable assets • Allowable under very specific conditions

36. Selected Items of Costs • General costs of government • Includes costs of general types of government services normally provided to the general public • Unallowable except as provided under travel costs • Goods or services for personal use • Unallowable • Pre-approved housing costs are allowable • Idle facilities and idle capacity • Unallowable with specific exceptions

37. Selected Items of Costs • Insurance and indemnification • Insurance required or approved and maintained, pursuant to the federal award, are allowable • Intellectual property (Royalties and other costs for the use of patents) • Generally Allowable but subject to limitations • Interest Costs • Allowable/Unallowable depending on situation

38. Selected Items of Costs • Losses on other awards or contracts • Unallowable • Maintenance and repair costs (Utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance • Allowable to keep property in efficient operating condition

39. Selected Items of Costs • Materials and supplies costs, including costs of computing devices – Allowable • Lobbying costs • Unallowable

40. Selected Items of Costs • Memberships, subscriptions, and professional activity costs • Membership in business, technical, and professional organizations are allowable • Subscriptions to business, technical, and professional organizations are allowable • Membership in any civic or community organization are allowable with prior approval by the federal awarding agency or pass-through entity • Membership in social, dining club, or organization for lobbying unallowable

41. Selected Items of Costs • Organization costs • Unallowable except with prior approval, examples: brokers’ fees, attorneys • Participant support costs • Allowable with prior approval of awarding agency • Plant and security costs • Necessary and reasonable costs are allowable

42. Selected Items of Costs • Pre-award costs • Allowable only to the extent that they would have been allowable if incurred after the date of the federal award and only with the written approval of the federal awarding agency • Professional Service costs • Allowable if allocable to grant • Proposal costs • Treated as indirect costs and allocated to all activities of the non-federal entity

43. Selected Items of Costs • Publication and printing costs • Generally Allowable Professional Service costs • Rearrangement and reconversion costs • Restoration and rehabilitation of government unit to same condition as immediately prior to commencement of federal award (less costs related to normal wear and tear) – capital outlay – no for Title I • Recruiting costs • Allowable with limitations

44. Selected Items of Costs • Relocation costs of employees • Allowable with limitations • Rental costs of real property and equipment • Allowable with limitations • Scholarships and student aid costs • Costs of scholarships, fellowships, and other programs of student aid are discussed in reference to Institutions of Higher Education

45. Selected Items of Costs • Selling and marketing • Unallowable with exceptions • Specialized service facilities such as computing facilities, wind tunnels • Allowable with limitations • Student activity costs • Unallowable unless specifically provided for in the federal award • Taxes that a governmental unit is legally required to pay are allowable

46. Selected Items of Costs • Termination costs • Allowable under specific cost principles • Training and education costs • Is allowable for employee development • Transportation costs • Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, or delivered, are allowable

47. Time and Effort Documentation

48. Time & Effort Documentation Documentation for Personnel Expenses200.430(i) (pg 154) • NEW: Charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. • How staff demonstrate allocability • If employee paid with federal funds, then must show that the employee worked on that specific federal program cost objective 200.403(a)

49. Time & Effort Documentation Who must participate?200.430(i)(1) and (i)(4) (pg 154, 155) • Must be maintained for all employees whose salaries are: • Paid in whole or in part with federal funds • Used to meet a match/cost share requirement • NOT contractors

50. Does “X” Employee have to keep time and effort records?