Seminar on Financial Management

Seminar on Financial Management

COST ALLOCATION PLANS & INDIRECT COST RATE OVERVIEW

Cost Allocation Plans (CAPs) Indirect, Direct Cost and Administrative Cost Type of Rate and Direct Base Indirect Cost Rate Calculations Cognizant Agency and Submission Requirements Common IDC Findings

WHAT ARE COST ALLOCATION PLANS AND INDIRECT COSTS RATES? Cost Allocation Plans Cost allocation plan is the documentation identifying, accumulating, and allocating or developing billing rates

based on the allowable costs of services provided by a governmental unit on a centralized basis to its department and agencies. (2 CFR Part 200.9) enefiting activities. State-Wide Cost Allocation Plans (SWCAP) Mechanism for the state to identify, summarize, and allocate statewide indirect costs Allows state to charge cost of central services to

federal awards Should submit annual SWCAP to U.S. Department of Health and Human Services Direct & Indirect Cost Definition Direct Costs costs that can be identified specifically with a particular final cost objective, such as Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. (2 CFR 200.413a).

Indirect Costs cost incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. (2 CFR 200.56). Administrative Cost Definition Administrative Costs costs of general services (such as salaries, fringe benefits, accounting, office supplies, contracting, etc.) Administrative costs can be direct or

indirect. Difference between Indirect and Direct Costs Indirect Administrative Salary, Related Occupancy Expenses, Supplies & Communication Cost Policy Statement Direct Program

Salaries, Space Costs for Program Activities, Travel and Equipment INDIRECT COSTS RATE AND BASE Types of Indirect Cost (IDC) Rates

Final Rate Fixed Carry-Forward Provisional De Minimis Types of Indirect Cost (IDC) Rates (cont) De Minimis Rate indirect cost rate of 10% of

Modified Total Direct Cost (MTDC) for entities without negotiated for a rate. Never received a Federally-negotiated indirect cost rate for any federal awards. Less than $35 million in direct federal funding for the fiscal year requested. Types of Indirect Cost Base Base Used By DOJ/OJP

Total Direct Salaries and fringe benefits (Total Direct Labor) Total Direct Salaries excluding fringe benefits Modified Total Direct Cost (MTDC) all salaries and wages, fringe benefits, materials and supplies, services, travel and subawards (subgrants and subcontracts) and capital expenditures up to the first $25,000 of each. INDIRECT COSTS

RATE CALCULATIONS Basic Formula Total Costs = Direct Costs + Indirect Costs Total Chargeable Costs = Direct Costs + Direct Cost Base x Indirect Cost Rate Indirect Costs Rate % = All Indirect Cost / All Direct Cost x 100 Indirect Costs Rate Calculation

An indirect cost rate is simply a device for determining fairly and conveniently, within the boundaries of sound administrative principles, what proportion of indirect cost each program should bear. An indirect cost rate is the ratio, expressed as a percentage, of an indirect cost pool and some direct cost base. Pool / Base = Rate Indirect Cost Rate Indirect Costs $ 75,000 Direct Costs

Salaries & Wages $ 150,000 Other Direct Costs $ 100,000 Total Direct Costs Indirect Costs:

$75,000 Salaries & Wages: $150,000 Indirect Costs: $75,000 Total Direct Costs: $250,000 $ 250,000 50% Total Direct Labor (TDL)

= 30% Total Direct Cost (TDC) = Fixed Carried-Forward Rate Rate per negotiation (FY) 2009: 16.96%

b)Actual Direct Expenditure 4,341,731,758 Actual Indirect Expenditure 710,630,728 SWCAP 289,615,842 Total Pool

-01,000,246,570 c) Carry-Forward calculations Recovered Rate x Actual Direct Costs 16.96% x $4,341,731,758 2011: 29.12%

a) Direct cost base 4,341,731,758 Indirect Cost Pool: Department Indirect Costs Carry-Forward Rate per negotiation (FY)

736,357,706 Should have recovered (Actual indirect costs for FY09) 1,000,246,570 Under (+) / Over (-) Recovery 263,888,864

Department Indirect costs 710,630,728 SWCAP 289,615,842 Carry forward

263,888,864 Total Pool 1,264,135,434 HOW TO USE INDIRECT COSTS RATE

OJP Approved Budget Total amount of federal award ($200,000 / 1.0 + 0.10) Approved indirect cost rate $181,818

10% Total Chargeable Indirect Costs ($200,000 / (1.0 + 0.10)) $18,182

Total amount of Federal award $200,000 For Actual Expenditures Actual direct costs

$185,440 Approved indirect cost rate Actual indirect costs incurred ($185,440 x 10%)

$18,544 Total chargeable indirect costs $18,182 10%

How to charge your federal project Calculate the actual indirect costs based on actual expenditures (at least quarterly) The agency will make a journal entry to charge the indirect cost amount to each federal project as an

expenditure COGNIZANT AGENCY AND SUBMISSION REQUIRMENTS WHAT IS A COGNIZANT AGENCY?

The federal agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost rate proposals developed under 2 CFR Part 200.19. The cognizant agency negotiates on behalf of federal agencies and for non-profits, for-profits, and educational organizations.

To obtain an indirect cost rate, a grantee must submit an indirect cost proposal to its cognizant agency and negotiate an indirect cost agreement. Cognizant Agency Cognizant agency is the agency that provides the largest amount of direct funds to a grantee over a certain period of time. What are the Submission Requirements For Cost Allocation and Indirect Costs Rate Plans?

Cost Allocation Plans and Indirect Cost Rates must be: Developed and submitted within six months after the close of the entitys fiscal year; Submitted as required by the cognizant agency; Inclusive of all units desiring to claim indirect costs; and Maintained on file if submission is not required.

Submitted Documentation should include: Indirect Cost Certification Organization chart Cost Policy Statement

Audited Financial Reports (original sent to Federal Audit Clearinghouse) Personnel Cost Worksheet (Non & For-Profit) or Signed Statewide Cost Allocation Plan (local Government) Statement of Employee Benefit (Non & For Profit) or Fixed plus Carry Forward Calculation (local Government) Supporting Documentation (cont) Indirect Cost Rate Proposal(s) reconciled with the financial

reports or budget A list of grants showing source, amounts, and relevant dates Itemized calculation supported by financial statement in cost pool and direct cost bases Supporting documents for all adjustments All Miscellaneous & Other expenses items in indirect cost MUST be itemized Grantee Responsibilities

Grantees are responsible for ensuring that indirect costs are: Allowable, Reasonable, and Necessary; Treated consistently; In compliance with Generally Accepted Accounting Principles; Allocable to the federal program;

Proportional to benefit received; and Adequately documented. Examples of Generally Unallowable Indirect Costs Include:

Contributions Entertainment costs Fund raising Lobbying Professional service costs Public information service costs

Bad Debts Legal Costs COMMON INDIRECT COST FINDINGS Common Indirect Cost Related Findings

Not having a current, approved Cost Allocation Plans or Indirect Cost Rates. Using expired indirect cost rate. Inconsistency in charging costs as direct or indirect between federal awards. Costs that do not benefit the award are inappropriately allocated via the Indirect Cost Rate.

What are some of the Concerns OJP have about Grantee Submissions of Indirect Cost Rate Proposals? Incomplete documentation. Indirect costs proposals do not provide sufficient detail to explain the functions and the benefits associated with the costs being allocated. Indirect cost proposal that is not reconcilable to a budget or a financial statement and contains no explanation of the difference.

QUESTIONS AND ANSWERS CAN THE AUDIT COSTS UNDER 2 CFR PART 200 SUBPART F BE RECOVERED? Yes, Subpart F allows audit costs to be recovered as either direct or indirect costs in accordance with applicable cost principles.

However, there is no special appropriation for audit costs. To recover audit costs, the organization must build them into the specific grant/contract documents (if direct) or into the overhead proposal (if indirect). HOW MANY DAYS DO WE HAVE TO SUBMIT A FINAL INDIRECT COST RATE PROPOSAL (BASED ON INCURRED COSTS)?

All organizations must submit their final indirect cost rate proposals within 180 days (6 months) of the end of your organizations fiscal year. What should a grantee do when an award does not provide for indirect cost reimbursement or provides for indirect costs at a rate lower than on the negotiation agreement?

The decision to accept an award that does not pay indirect costs or pays indirect cost using a rate lower than what has been negotiated is a grantee decision. RESOURCES Indirect Cost Submission Guidancehttps://ojp.gov/funding/Apply/Resources/ IndirectCosts.pdf

Indirect Cost Proposal Submissionshttps://ojp.gov/funding/Apply/Resources/Indi rectCosts.pdf DOJ Financial Guidehttp://ojp.gov/financialguide/DOJ/pdfs/2015_ DOJ_FinancialGuide.pdf Knowledge Assessment 1. Which one of the following is NOT the purpose of financial monitoring review? A. Ensure grantees accounting systems and record

keeping are in compliance with Federal regulations B. Safeguard against fraud, waste, and abuse C. Penalize grantees for failing to follow federal guidelines D. Provide technical assistance E. Make recommendations for improvement Knowledge Assessment 2. What are the two types of financial monitoring reviews?

A. Desk reviews and On-site reviews B. On-site reviews and Off-site reviews C. Audit plan and Desk review D. Audit plan and monitoring reviews Knowledge Assessment 3. If weakness were noted in your organizations internal controls during a desk or on-site financial monitoring review, your organization will be required to develop a corrective action plan.

True False Knowledge Assessment 4. All of the following, except one, are considered questioned cost. A. Unauthorized costs B. Unsupported costs C. Unreasonable costs D. Allowable costs

Knowledge Assessment 5. How many days, from the end of its fiscal year, does a grant recipient have to submit a current indirect cost rate proposal? A. 360 days B. 2 months C. 180 days D. None of the above

Knowledge Assessment 6. Time and attendance/activity reports are to be based on actual hours worked on the federal award. True False Knowledge Assessment 7. Fringe Benefits include all of the following, except? A. Federal Insurance Contributions (FICA) B. Health Insurance

C. Retirement D. Membership at fitness club E. Workers compensation Knowledge Assessment 8. All contribution costs used to satisfy a matching or cost-sharing requirement must be documented by the recipient at the same level of detail as Federal funds. True False

Knowledge Assessment 9. When conducting financial monitoring risk assessment, the final score is the result of? A. Risk score multiplied by risk weight B. Risk score multiplied by importance score C. Importance score multiplied relative value D. Importance score multiplied by risk weight Knowledge Assessment

10. Grant recipients should time their advanced drawdown requests to ensure that Federal cash on hand is the minimum needed for disbursement to be made immediately or within 10 days. True False Knowledge Assessment 11. Which one of the following is NOT an indirect cost rate type?

A. Final B. Variable C. Provisional D. Fixed/Carry-Forward Knowledge Assessment 12. All grant recipients are required to establish and maintain accounting systems and financial records that accurately account for grant funds. True

False Knowledge Assessment 13. Property records for a non-expendable equipment should contain: A. Description of the item B. Serial number C. Cost (source of funding) D. Acquisition date E. Location of item

F. All of the above Knowledge Assessment 14. Segregation of duties is an internal control mechanism intended to safeguard assets and prevent fraud, waste, and abuse. True False Knowledge Assessment

15. Subrecipients are to be monitored by the passthrough entity for compliance with federal requirements. True False Knowledge Assessment 16. Once the cognizant agency approves an indirect cost rate proposal, it cannot be audited. True False

Knowledge Assessment 17. What is the term used to describe a deliberate reduction of state and local funds because of the existence of Federal funds? A. Reallocation B. Supplanting C. Supplemental D. Recoupment

Knowledge Assessment 18. Adequacy of written policies and procedures is one of the areas of focus during an on-site review. True False Knowledge Assessment 19. An adequate accounting system: A. Meets requirements for periodic reporting B. Provides financial data for planning, control,

measurement, and evaluation of direct and indirect costs purposes C. Presents and classifies costs, as required for budgetary and evaluation purposes D. All of the above Knowledge Assessment 20. Indirect cost rate provides a basis for: A. Charging the Legislature B. Billing the federal government for those costs that

indirectly benefit the federal project C. Recouping all non-federal entity costs regardless of impact on the federal grant program D. Indirectly charging the federal for property costs Start Time 8:00 AM Leave your stuff

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