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Cost Allocation/Indirect Costs

Cost Allocation/Indirect Costs. November 2 nd 2009. Sound Check. Audio is via phone- at 1-800-621-7432 Pass Code: 7320616 Close any boxes you don’t need. Move Q&A box so that slides are visible. AGENDA. Back to Basics Emerging Cost Allocation Issues

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Cost Allocation/Indirect Costs

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  1. Cost Allocation/Indirect Costs November 2nd 2009

  2. Sound Check Audio is via phone- at 1-800-621-7432 Pass Code: 7320616 Close any boxes you don’t need. Move Q&A box so that slides are visible.

  3. AGENDA • Back to Basics • Emerging Cost Allocation Issues • Indirect Cost Group Operations • Questions

  4. Back to Basics

  5. Back to Basics • What are Direct Costs? • Costs that can be specifically identified with a particular cost objective. • Program Salaries • Space Costs for Program Activities • Travel • Equipment

  6. Back to Basics • 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

  7. Back to Basics • 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%

  8. Back to Basics Executive Administration Accounting Human Resources Programs U.S. Department of Education USDA Non-Federal

  9. Back to Basics • 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

  10. Back to Basics • Next 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

  11. Emerging Cost Allocation Issues American Recovery and Reinvestment Act (ARRA) Funds Unused Leave Payments Subaward Treatment Time Distribution Retirement Incentives

  12. Emerging Cost Allocation Issues • 6. Subrecipient Oversight • 7. Restricted Indirect Cost Rates • 8. Treatment of Equipment • Administrative Cost Limitations • 10. Cost Allocation Audit Findings

  13. ARRA - 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

  14. ARRA - OMB Memorandum – cont’d. • Requirements - oversight, reporting and audit requirements • Reported at “State-wide” level • Allocated to governmental units • Supplemental SWCAP submitted to HHS/DCA

  15. ARRA - Guidance • HHS FAQ’s • OMB guidance / Clarifying guidance • Technical assistance from ED

  16. ARRA - 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

  17. ARRA - Impact on SEAs & SA-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

  18. ARRA - 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)

  19. ARRA - Fixed Rate Considerations Affect on Rate Calculation Significant Change!! Significant Over Recovery

  20. ARRA - Fixed Rate Considerations Stable Rate Calculation

  21. ARRA - Do’s • Monitor impact on Indirect Cost Rates • Adjust billings • Call/email questions & concerns • Request technical assistance

  22. Unused 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.

  23. Unused Leave Payments • Important language included on rate agreements • Ensure appropriate treatment in rate calculation • Ensure appropriate treatment in rate application

  24. Subaward Treatment • Federal policy on $25,000 amount • Consider subgrants and subcontracts • To exclude or not to exclude – case by case basis • Simplify

  25. Time 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)”

  26. Time 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

  27. Retirement 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

  28. Subrecipient Oversight • Prime Recipient’s considerations: • Rate calculation & application • Emerging cost issues & treatment • Impact of funding changes on rates • Audit issues

  29. Restricted 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

  30. Treatment 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

  31. Administrative Cost Limitations • Programmatic limitation on costs • Must consider direct & indirect charges • Two-step calculation • ARRA Funds – same treatment

  32. Cost Allocation Audit Findings • Unused Leave • Retirement Incentives • Normal Severance Pay • Monitoring • Indirect Cost Rate Calculations

  33. Indirect 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

  34. Organizational Structure

  35. Team 1 Team 2

  36. Useful Websites OMB 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/

  37. Contact Information U.S. Department of Education OCFO / FIPAO / ICG Attn: Mary Gougisha, Room 21H1 830 First Street, NE Washington, DC 20202-4450 Phone: (202) 377-3835 Email: Mary.Gougisha@ed.gov

  38. Questions Answers

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