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Cost Allocation & Indirect Costs. Requirements, Steps & Administrative Costs. COST ALLOCATION. Costs. Share. Share. Share. Federal Guidance. OMB Circular A-87 OMB Circular A-122 OMB Circular A-21 48 CFR Part 31 45 CFR Part 74, Appendix E Guidance on direct and indirect costs.
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Cost Allocation & Indirect Costs Requirements, Steps & Administrative Costs
COST ALLOCATION Costs Share Share Share
Federal Guidance • OMB Circular A-87 • OMB Circular A-122 • OMB Circular A-21 • 48 CFR Part 31 • 45 CFR Part 74, Appendix E • Guidance on direct and indirect costs
Types of Costs • Direct • Single cost objective • Shared • Multiple cost objectives, or • Multiple fund sources • Indirect • Overhead
Cost Objectives • Intermediate • Cost pools or cost centers • Final • Funding source • Cost category
Treatment of Costs • Consistent treatment • In accounting system • Over time • Measuring benefit • Critical requirement of cost allocation • Benefit determines allocation
Cost Pools • Actual costs only • Any combination of like costs • Types of pools • Administrative cost pools • Operating costs • Facilities or maintenance
Managing Pools • Distribution based on formulas • Formulas are allocation bases • Vary by type of pool • Liquidated for reporting
Allocating Personnel Services • Based on documented & approved payrolls • Supported by time distribution system • Method of allocation & support for allocation varies • Major part of allocated costs
Unacceptable Allocation Bases • Fails to meet standards • Distorts final results • No direct relationship to costs • Developed from plans, budgets or estimates • Allocation must result in EQUITABLE distribution of costs
Cost Allocation Plans • Written documentation of • Direct and allocated costs • Allocation methods used • Supported by formal accounting records • Signed by authorized agency official
Types of CAP’s • Indirect Cost Plan • Addressed in Circulars • Federal Agency approval (more on this soon..) • Cost Allocation Plan of the Organization • Shared direct costs • Awarding agency approval • Example— • Cost charged to 2 cost categories
CAP Elements • Background & mission statement • Organizational chart • Financial statements & budgets • Description of pooled or joint costs • Methods used to allocated costs • Certification
Keep in Mind… • Simple • Replicable • Organizational Structure • Structure & capabilities • Prudent changes
What are direct costs? • Those costs that can be readily identified with a particular cost objective. Examples: (program specific) • Salaries • Space • Supplies • Communications
What are indirect costs? • Those costs which are not readily identifiable with a particular cost objective. Examples: • Salaries • Space • Supplies • Communications
What is a Cost Allocation Plan (CAP)? • A document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution. Federally-approved Cost Allocation Plan
What is an Indirect Cost Rate? (ICR) The ratio, expressed as a percentage, of an indirect cost pool and some direct cost base. PBR (Pabst Blue Ribbon) Pool/Base=Rate
Indirect Cost Rate • Example: Indirect Cost Pool = $ 10,000 Distribution Base = $100,000 (Salaries & Benefits) Indirect Cost Rate = 10%
Who needs an approved indirect cost rate? $Single Funding Source Indirect cost rate not needed $$$Multiple Funding Sources Indirect cost rate needed
GRANTEES SUBJECT TO: OMB CIRCULAR A-87 • At least one source of direct Federal funding • More than one source of revenue (Federal and Non-Federal) - Cost Allocation Plan (CAP), OR - Indirect Cost Rate (ICR) SUBJECT TO COGNIZANT AGENCY REVIEW AND APPROVAL
GRANTEES SUBJECT TO : OMB CIRCULAR A-122 • At least one source of direct Federal funding • More than one source of revenue (Federal and Non-Federal) APPROVED INDIRECT COST RATE
NO APPROVED ICR?? • Must seek approval within 90 days of grant approval • Where? • Cognizant Agency (determined based on Fed. Agency providing largest amount of Fed. Funds) • If Earmark grant is only Federal award, DOL is cognizant
QUESTIONS ??? • Department of Labor • Office of Cost Determination • Telephone: 202-693-4102 • “A Guide for Indirect Cost Rate Determination”
WHY do you need a rate? • Management Information • Compliance with Federal regulations;e.g., OMB Circulars A-87, A-21 & A-122 • Documentation for auditors
Indirect Cost RateAllocation Bases Select the base which results in allocation of indirect costs according to “benefits received”, the golden rule of Federal cost principles.
EXAMPLE: • Grantee approved indirect cost rate of 20% • Grantee (org.-wide) direct salaries & wages are $300,000 • Total Indirect Costs to be spread to all fund sources are $60,000 • Earmark grant is $100,000 • Total direct salary & wages are $50,000 • Indirect costs charged to Earmark-$10,000
EXAMPLE: • Earmark grant is $100,000 • Admin. Limit is 10% ($10,000) • Indirect costs to be charged to grant are $10,000: 20% (ICR) X $50,000 (total direct salaries & wages) DOES THIS MEAN I MAY EXCEED MY ADMINISTRATIVE COST LIMIT??
NO • Review costs of your organization that comprise indirect cost pool (component of indirect cost rate calculation) • Break out all of those costs between program and administration • Using the WIA definition of Administrative Costs
Pool of Indirect Costs • Accounting System A • Procurement System A • Director P&A • Receptionist P&A • Facilities P&A • Assume this calculates to 80% admin. and 20% program
Then, • Apply the 80% - 20% ratio to the total indirect costs of $10,000 for Earmark grant, as calculated in example. • Administration costs are $8,000 • Program costs are $2,000
Billing Rate • Rate stated in the award to allow recovery of indirect costs until an indirect cost proposal is completed and submitted. • Normally only valid for 90 days.
Ceiling Rate • Set by the Contract/Grant Officer • The maximum rate at which indirect costs may be recovered under a particular award
Provisional Rate • A rate based on projected information, historical information, or a combination of the two for the organization’s fiscal year • This rate allows for recovery of indirect costs during the contract/grant period until the rate can be finalized
Final Rate • The experienced indirect cost rate based on actual data for the organization’s fiscal year • All provisional indirect cost rates must eventually be “finalized”
Fixed Rate • A permanent rate that is not subject to change • Any differences between estimated and actual costs are carried forward as adjustments to rate computations in future periods • Seldom issued to nonprofit organizations
Predetermined Rate • A rate negotiated for a certain length of time, usually several years • Not subject to change