gpd indirect cost rate training omb circular a-110 (2 cfr part 215) 2 cfr part 230 appendix a –...

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GPD Indirect Cost Rate TrainingOMB Circular A-110 (2 CFR Part 215)

2 CFR Part 230Appendix A – General Principles

GPD Indirect Cost Rate Agreement

Chief, Operational Oversight DivisionJoseph E. Baldwin

Project Review: July 2015

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Topics

• Review of OMB A-110• Cost Allocation• What is the difference between Direct and

Indirect Costs? • What is an Indirect Cost Rate Agreement and

do I need one? • How do I calculate Indirect Cost Rates? • 2 CFR Part 200 (Super Circular)

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OMB Circular A-110

What is “OMB Circular A-110”?• Provides uniform administrative requirements

for grants and agreements with non-profit organizations

• Codified in the Code of Federal Regulations at 2 CFR Part 215

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OMB Circular A-110(Continued)

OMB Circular A-110 requires a Financial Management System that provides: • Accurate, current and complete disclosure of

the financial results of EACH federally-sponsored project or program.

• Records that identify adequately the source and application of funds for federally-sponsored activities.

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OMB Circular A-110(Continued)

• Accounting records including cost accounting records that are supported by source documentation

• Written procedures for determining the reasonableness, allocability and allowability of costs in accordance with the provisions of the applicable Federal cost principles (OMB Circular A-122)

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Cost Allocation

• Cost Allocation is the process of identifying, aggregating, and assigning costs to cost objects.

• A cost object is any activity or item for which you want to separately measure costs.

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Cost Allocation Plan

A Cost Allocation Plan is the organization’s written policy that discloses its accounting practices, policies, and procedures for allocating direct and indirect costs.

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Cost Allocation (Continued)

• Costs for each particular cost objective must be segregated

• A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:

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(1) Is incurred specifically for the award.

(2) Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received, or

(3) Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown.

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Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award.

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Cost Allocation Plan (Continued)

• A Cost Allocation Plan will help the Grantee to ensure that it is recovering all *allowable costs incurred by the organization and the plan is often the only way to determine total costs of operating programs.

*Allowable costs are discussed in 2 CFR 230 Appendix B Selected Items of Cost and 2 CFR 200 Subpart E Cost Principles, General Provisions for Selected Items of Cost.

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Direct Costs

• Costs identified specifically with awards are direct costs of the awards and are to be assigned directly to the award

• Costs identified specifically with other final cost objectives of the organization are direct costs of those cost objectives and are not to be assigned to other awards directly or indirectly

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Indirect Costs

• After direct costs have been determined and assigned directly to awards or other work as appropriate, indirect costs are those remaining to be allocated to benefiting cost objectives

• Indirect Costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective

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Indirect Costs (Continued)

• A cost may not be allocated to an award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to an award as a direct cost

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Total Costs = Direct + Indirect

• Total costs The sum of the allowable Direct and allocable Indirect

costs less any applicable credits. • Direct Costs

Can be identified specifically with a particular final cost objective (i.e., a particular award, service or direct activity)

• Indirect CostsIncurred for common or joint objectives and cannot be readily identified with a particular final cost objective

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Indirect Cost Rate Proposal

• Documents the organization is required to submit in order to negotiate indirect cost rates with their cognizant agency. The proposal is the basis for establishing an indirect cost rate agreement.

• The Federal agency with the largest dollar value of awards with an organization will be designated as the cognizant agency for the negotiation and approval of the indirect cost rates.

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Indirect Cost Rate

An Indirect Cost Rate is the ratio between the total indirect cost and some direct cost base. The indirect cost allocation method(s) used by each Grantee depend on its own structure, program functions, and accounting system.

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Indirect Cost Rate

An Indirect Cost Rate (ICR)is a percentage calculated as follows:

ICR = Total Indirect CostsDirect Cost Base

The Direct Cost Base is used to distribute indirect costs to individual Federal awards. An indirect cost rate must be applied to a direct cost base in order to determine the amount of indirect cost.

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ICR Example

Grantee John Doe administers four (4) grants • Grantee John Doe’s Indirect Costs = $100,000• Grantee John Doe’s Direct Cost Base =

$1,000,000 Indirect Cost Rate (%) = Total Indirect Costs Direct Cost Base

• Indirect Rate = 10% $100,000 $1,000,000

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Is an Indirect Cost Rate Necessary?

• If a Grantee would like to be reimbursed for certain types of indirect costs under Federal awards than a Federally approved ICR is required.

• The Super Circular, effective December 26, 2014, includes a 10% de minimus* rate for organizations that have not had an indirect cost rate.

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Is an Indirect Cost Rate Necessary?(Continued)

• If a Grantee determines there is not a cost benefit in obtaining a Federally approved ICR, then it should not seek to negotiate one.

• A Grantee is not required to obtain an approved ICR; it is voluntary.

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Methods of ICR Calculation

There are three basic methods for calculating indirect cost rates: 1. Simplified2. Multiple Rate3. Direct

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Simplified Method

The Simplified Method may be used whenever the major functions of an organization benefit from its indirect costs to approximately the same degree.

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Simplified Method (Continued)

This method is accomplished by: 1.classifying the total cost for the base period (usually the organization’s fiscal year) as either direct or indirect and2.dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base.

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This method also requires that: 1. capital expenditures and unallowable

costs are excluded from both the direct and the indirect costs.

2. however, unallowable costs must be included in the direct cost base if they represent activities, such as fundraising.

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The result of the above process is an indirect cost rate which is applicable to and used to distribute indirect costs to individual Federal awards

Specifically the formula is as follows: Total Allowable Indirect Costs / Allocation Base = ICR%

$150,000 / 400,000 = 37.50%

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Simplified Method CalculationFederal Projects Non-Federal Programs

Fundraising

Less: General & Admin Total

Total Costs Exclusions & Indirect Direct US HUD US DOL US VA DOE HHS State Contracts Homeless Chilldren

Example of Costs All Funds Unallowables Costs Costs

Salaries and wages 2,152,742 - 314,740 1,838,002 925,871 128,715 172,686 27,133 69,009 493,289 21,299 - Payroll taxes 402,115 - 54,414 347,701 168,110 31,505 36,638 4,590 11,462 94,715 681 - Fringe Benefits 88,035 234 2,953 84,848 43 - - - 64 82,868 1,788 85 Legal fees 89,048 - 88,988 60 - - - - - - 60 - Accounting Fees 46,467 15,203 578 30,686 3,932 625 21,038 - - 1,489 - 3,602 Other Professional Services 56,150 1,387 19,473 35,290 2,150 6,146 9,308 750 1,368 11,880 363 3,325 Program supplies 23,987 22,490 - 1,497 - - - - 1,446 - 51 Janitorial Supplies 56,922 777 15,586 40,559 5,578 6,792 6,410 - - 20,855 - 924 Travel and transportation 132,758 353 18,455 113,950 16,369 6,387 3,694 615 2,483 82,769 1,375 258 Occupancy costs 232,053 - 232,053 - 12,959 144,580 29,478 4,595 38,700 1,741 - Stationary and offi ce supplies 437,887 - - 437,887 - - 437,887 - Equipment rental 24,568 33 6,114 18,421 819 3,296 6,749 7,473 84 - Building and offi ce rent 185,008 - 21,170 163,838 10,114 31,512 44,272 74,920 3,020 - Interest expense 5,316 5,316 - - - - - - - Telephone expense 25,390 22 3,636 21,732 1,702 4,132 3,701 12,166 31 - Conference and staff training 5,967 - 3,590 2,377 1,245 350 71 661 50 - Subscriptions and publications 5,765 5,700 65 - - - - - - Postage and shipping 12,125 1,404 2,267 8,454 1,595 865 779 60 3,526 - 1,629 Outside printing 11,680 5,540 400 5,740 1,109 1,584 627 452 134 1,834 Membership dues 10,080 2,834 - 7,246 - 250 6,996 - - Miscellaneous Exp 28,517 1,417 8,530 18,570 17,575 434 192 - 200 169 Depreciation and amortization 5,159 - 612 4,547 459 1,257 2,831 - - Total Costs 4,037,739 62,710 561,571 3,413,458 1,156,671 236,809 450,553 62,566 89,233 1,374,923 30,826 11,877

Indirect Rate 561,571 16.45%

3,413,458

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• For an organization that receives more than $10 million in Federal funding of direct costs in a fiscal year, a breakout of the indirect costs into two components; Facilities and Administration, is required. The rate shall be stated as a percentage which the amount of Facilities and Administration is, of the applicable distribution base used for each component. In addition, specific bases may be required for allocating these categories of cost.

Simplified Allocation Method

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Multiple Allocation Method

• More appropriate where an NPO’s indirect costs benefit its major functions in varying degrees

• indirect costs shall be accumulated into separate cost groupings

• grouping shall constitute a pool of expenses that are of like character in terms of functions they benefit and in terms of the allocation base which best measures the relative benefits provided to each function

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Multiple Allocation Method(Continued)

Facilities is defined as depreciation and use allowances on buildings, equipment and capital improvements; interest on debt associated with certain buildings, and operations and maintenance expenses.

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Multiple Allocation Method (Continued)

Administration is defined as general administration and general expenses such as the director's office, accounting, personnel, library expenses and all other types of expenditures not listed specifically under one of the subcategories of "Facilities", (including cross allocations from other pools, where applicable).

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Multiple Allocation Method(Continued)

Allocation Basis• When a cost grouping benefits a single

function, the costs should be allocated directly to the benefiting function

• Cost groupings of a general nature should be allocated using a base which produces results that are equitable to both the Federal Government and the organization

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Multiple Allocation Method (Continued)

Allocation Basis• Unless it can be demonstrated that a different

base would result in a more equitable allocation of costs (or a more readily available base would not increase the costs charged to awards), costs should be allocated in accordance with the methodologies described in OMB Circular A-122 (subparagraph D.3.c. of Appendix A to 2 CFR Part 230)

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Direct Method

• The Direct Allocation Method is used by organizations that treat all costs as direct costs except general administration and general expenses (G&A). These organizations generally separate their costs into three (3) basic categories: 1. general administration and general expenses, 2. fund raising, and 3. other direct functions (including projects performed under Federal awards).

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Direct Method (Continued)

• This method is acceptable provided each joint cost is prorated using a base which accurately measures the benefits provided to each final cost objective or other activity

• All direct allocation methods must be disclosed in a Cost Policy Statement.

• Indirect Cost consist exclusively of general administration and general expenses Compute indirect cost rate using Simplified Allocation Method

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Selecting Rate Methodology

The following should be considered in selecting a Rate Methodology:

• Amount of Federal Funding• Size of the Organization (major functions)• Service Variances• Types of Programs• Cognizant Federal Agency

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Types of Rates

OMB Circular A-122 describes the different types of indirect costs that can be negotiated. The GPD office typically issues provisional and final rates, described below:

• Provisional rate or billing rate means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on awards pending the establishment of a final rate for the period.

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Types of Rates (Continued)

• Final rate means an indirect cost rate applicable to a specified past period which is based on the actual costs of the period.– A final rate is not subject to adjustment.

Note that a final indirect cost rate is established after an organization's actual costs are known, typically a fiscal year. Once established, a final indirect cost rate is used to adjust the indirect costs claimed on grants and contracts.

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2 CFR Part 200 (Super Circular)

Administrative Costs –OMB added a provision that administrative costs, like salaries of administrative and clerical staff, now can be charged as direct cost in certain circumstances

1. The administrative or clerical service is integral to the project or activity

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2 CFR Part 200 (Super Circular) (Continued)

Administrative Costs –2. The administrative or clerical costs are budgeted or have the prior written approval of the Federal awarding agency

3. The costs are not also recorded as indirect costs

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2 CFR Part 200 (Super Circular) de minimus

Indirect Cost Rates – 10 Percent de minimus:

• The new grants guidance includes a new 10 percent de minimus rate on modified total direct costs (MTDC) for indirect costs for those that have never received a negotiated indirect cost rate in the past

• No documentation needs to be maintained to support the use of this rate

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2 CFR Part 200 (Super Circular)de minimus (Continued)

Indirect Cost Rates – 10 Percent de minimus:

• Rate may be used indefinitely, but must be applied across the board to all grants for which indirect cost rates are charged

• If you already have a negotiated rate and that negotiated rate is lower (or higher), you cannot choose to use the new 10 percent de minimus threshold

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2 CFR Part 200 (Super Circular)

• Federal agencies are now required to accept the negotiated indirect cost rate from another Federal agency, unless an exception is required by statute or regulation

• Rate may be extended on a one-time basis, for a period of up to 4 years– This is not automatic, approval must be

obtained

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Preparing an Indirect Cost Rate Proposal

Preliminary Steps

1. Organization Review • If one does not already exist, prepare a formal

organizational chart(s), or a rough draft version, and provide any information or material explaining the various services and/or functions for each unit.

• Determine which units are indirect (administrative) functions of the organization.

• Determine the services that are allowable and allocable to Federal grants and contracts per the applicable cost principles.

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Preparing an Indirect Cost Rate Proposal (Continued)

2. Review Federal and Non-Federal Funding • Prepare a list of all funding sources for all

service and functions identified above.• illustrate the list of funded programs on a

copy of the organization chart.

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3. Review the Accounting Structure • Obtain a chart of accounts, or some other list

of accounts for your organization, in which the actual dollars expended can be related to various programs and/or organization structure.

• Reconcile the accounting structure to the organization chart.

• If necessary, determine changes to implement an indirect cost rate system of billing.

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4. Determine the indirect cost methodology • Based on the steps completed above determine

if the current indirect cost allocation methodology complies with the requirements set forth under OMB Circular A-122, or develop and implement a methodology that does comply.

5. Review/Develop/Update the Cost Policy Statement • Review the CPS to ensure it is current, accurate,

and complete.

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The following types of Exhibits are common examples of what would be included as part of an ICRP:

1. Personnel Costs Exhibit A document that summarizes the total compensation costs for each employee or job position. This can be combined with the Statement of employee Benefits.

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2. Allocation of Personnel Costs Exhibit • A document that summarizes how all

personnel costs, for each employee or job position, are charged to major functions and/or each Federal and Non-Federal cost objective. The percentage of time per position may be entered in addition to the dollar amount. All personnel costs must be allocated for each position.

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3. Allocation of Employee Benefits • A document that calculates an Employee

(Fringe) Benefit rate and identifies the cost elements assigned to the pool and base. This document is only required if the organization allocates Employee Benefits via the indirect rate method.

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4. Statement of Total Costs • This document should contain all line items

of costs included in the entities’ chart of accounts, Statement of Functional Expenses, and/or the CPS, with applicable columns for direct costs (by cost center), indirect costs, (overhead, G&A, etc.) and unallowable costs (if applicable).

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5. Allocation of Indirect Costs Exhibit• This document should contain all line items

of costs included in the indirect cost “pool(s)”,the applicable allocation base(s), and the resulting indirect cost rate(s).

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6. Total Costs by Federal Award Exhibit• This document lists each Federal grant and

contract and includes information such as the Federal agency, period of performance, $ amount of the award, and allocation of costs.

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7. Prepare other supporting documents and information• A Certificate of Indirect Costs that is signed

by the Executive Director, or other designated official with signature authority.

• Other supporting documentation as required

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Submit to the GPD Program Office• Prepare a transmittal cover letter and/or e-mail to request an ICRP, designate contact personnel, reference the checklist, and provide additional relevant information.• Complete the ICRP Checklist (See Appendix E) to ensure all required information and documents are submitted.• Assemble transmittal cover letter/e-mail, checklist, ICRP, and all other documents identified on the checklist.

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Send to the GPD using of the following delivery methods:

1. Email to: [email protected]– Identify name of organization and “ICR

Proposal” in the subject line2. Mail to: Department of Veterans Affairs

GPD Field Office 10770 N 46th Street, Suite C-100 Tampa, FL 33617

mailto:[email protected]

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Questions?