Transcript www.dhs.state.il.us

State of Illinois
Department of Human Services
Secretary Michelle R.B. Saddler
C O S T P R I N C I P L E S A N D A D M I N I S T R AT I V E
R E Q U I R E M E N T S O F F E D E R A L A N D S TAT E G R A N T S
Carol A Kraus, CFO
Depar tment of Human Services
August 6, 2013
Learning Objectives
•
•
•
•
Management Improvement Initiative Committee Background
Goals of MIIC
Financial and Streamlining
Federal and State Uniform Administrative Requirements
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–
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Authoritative Sources
OMB Circular A-110 (2 CFR Part 215)
Cost Allocation Overview
OMB Circular A-122 (2 CFR Part 230)
Basic Guidelines for Costs
Direct and Indirect Costs
Indirect Cost Rate Proposal
Cost Allocation Plan Process
Reporting of Time and Effort of Staff
• Questions and Answers
2
Management Initiative and Improvement
Committee Background
• P.A. 96-1141 required the Department of Human Services,
Department of Healthcare and Family Services, Department of
Children and Family Services and the Department of Public
Health to provide recommendations to the legislature to
remove redundancies of administrative burden on community
providers
• P.A. 97-0558 created the MIIC to implement the 35
recommendations in 7 different areas.
• Fiscal and Streamlining Subcommittee was formed to carry
out the legislative directive.
3
Goals of MIIC
To reduce the redundancy of the administrative
burden on Provider community
– Uniform Reporting Requirements;
– Uniform Auditing Requirements;
– Reduce the number of on-site reviews;
– Reduce the number of requests for the same
information and documentation;
4
Goals of MIIC
• Formed the Financial and Streamlining
Subcommittee:
– Subcommittee was composed of small, medium and large
sized providers;
– Representatives from 5 Human Service Agencies;
– Representatives from Advocacy Groups.
This group was charged with developing uniform
requirements while complying with state and federal
requirements.
5
November 2012 Report – Financial and Streamlining Progress report
Summary of the steps taken for adoption of the new annual
reporting requirements. In our deliberations the following steps
were taken:
• It was determined that we should follow the federal
requirements for annual reporting document;
• The federal general and administrative requirements were
reviewed and discussed by team members;
• Everyone on the committee was asked to submit examples of
their current reporting templates;
• It was determined that the Consolidated Financial Report
(CRF) was used by more programs than any other collectively;
6
November 2012 Report – Financial and Streamlining Progress report
• A crosswalk between the CRF and the federal requirements
was prepared for review;
• A review of the items federal requirements under the cost
principles for indirect costs was reviewed to ensure that the
indirect cost rate approval and the CFR in combination met
federal requirements;
• The State Agencies and provider representatives reviewed
and discussed any necessary changes
• A list of the required changes was provided and discussed
• A final vote was taken of the adoption of the CFR with the
required changes.
7
Financial and Streamlining -Audits
• Requiring Financial Statements Audits to be
conducted when funding received over
$150,000 in state and federal pass-through
funding;
– Audits must be conducted in accordance with
Government Auditing Standards;
– An OMB Circular A-133 must be conducted when
federal pass-through and federal direct funding
meet federal threshold ($500,000)
8
Fiscal and Streamlining – Fiscal and
Administrative On-Site Reviews
Goal to reduce the number of on-site reviews:
• Uniform Risk Factors triggering an on-site review.
• Low Risk – to reduce the fiscal and administrative On-site review to once every 3-5 years;
• Uniform On-Site Review procedures;
• Require On-Site Reviewers to use the CRV;
9
Management Initiative and Improvement
Committee Background
• P.A. 96-1141 required the Department of Human Services,
Department of Healthcare and Family Services, Department of
Children and Family Services and the Department of Public
Health to provide recommendations to the legislature to
remove redundancies of administrative burden on community
providers
• P.A. 97-0558 created the MIIC to implement the 35
recommendations in 7 different areas.
• Fiscal and Streamlining Subcommittee was formed to carry
out the legislative directive.
10
Fiscal and Streamlining – Future Goals
• Coordination of 5 Human Service Agencies
– Audit Report Review and Corrective Action
– On-Site Review and Corrective Action
– Indirect Cost Rate Approval
– Use of CRV
– Uniform Pre-Qualification Requirements
– HB 2 Impact – applying uniformity for all grant
making state agencies statewide
11
Provider Portal functionally allows State agencies to satisfy due diligence requirements
based on data or documents, without redundant requests for the same.
W W W. P R O V I D E R . I L L I N O I S . G O V
Welcome to Provider.Illinois.gov. This
Provider Portal strives to reduce the burden on
the Human Service Provider Community. This
Portal streamlines the administrative
transactions for human services, allowing
providers to focus on service delivery.
Registered
Providers Login
Here:
Illinoisl.gov ID:__________________________
Password: _____________________________
Become
a
Provider
Providers can satisfy a majority of the administrative
requirements for five State Agencies, DHS, DPH, DOA,
DCFS, and HFS with one submission.
The links below will take you to the referenced sections
of this portal.
Central
Document
Repository
Contract/
Agreement
Repository
12
Financial
and Other
Reporting
Provider
Resources
The Act specifically directs the Management Improvement Initiative Committee
(“The Committee”) to implement recommendations.
Issues unresolved
by the MIIC will be
presented and
resolved by the
GOLT
Governor’s Office Leadership Team (GOLT)
Management Improvement Initiative Committee (MIIC)
Deemed Status /
Accreditation Team
Financial Audit
Reporting Team
CRV Technology Team
Medicaid Team
Streamlining Team
Contract Team
Recommendations
made to MIIC are
adopted by full
vote of the MIIC
Six Subject Matter
Specific Teams ask
the MIIC to adopt
the Team’s
Recomendation
The Problem: Redundant and inconsistent business processes
impose significant administrative burden on
community service providers, hindering the
delivery of core human services.
Business processes vary at each of the five State agencies,
and many times, they vary within multiple departments at
the five State agencies for :
• Accreditation – Deemed Status
• Contract Process and Contract Documents
• Reporting and Monitoring Procedures
The Solution: The Management Improvement Initiative
The implementation of P.A. 96-1141, and P.A. 97-0558
represent a collaborative effort between the
Administration, the General Assembly and the network
of Community Service Providers to streamline the
complex and redundant business processes behind
accreditation/licensure, contracting, auditing,
monitoring and reporting.
The success of this Initiative is critical to the
maintenance of key human service safety nets
and the survival of human service providers in
Illinois.
The inconsistency and redundancy in business process at the five State agencies
causes significant administrative burden and cost to our providers, tantamount to
a rate reduction and ultimately impacts service delivery.
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Note the Redundancy & Inconsistent in Business Process at the five State Agencies.
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Accreditation
Contract and Process
Data/Documents in the Normal Course
Our
Accreditation
Licensure
Goal:
Fully
Operationalize
Deemed Status
A new, simplified, consistent and efficient business
process across five State Agencies for accreditation,
budget submission, contracting, monitoring and
reporting.
Contract
Execution
Consistent
Boilerplate
Agreements for
all five State
Agencies
Budget
Submission
Streamlined,
user-friendly
centralized
budget
reporting
Data
Financial
/ Other required
for
Reporting compliance
• ONE or a minimum set of consistent value-driven business processes
• Full implementation of Accreditation - Deemed Status
• Standard contract boilerplates and process
• Standardized non-redundant provider monitoring
• Standardized budget reporting required for compliance
Federal and State Uniform
Administrative Requirements
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Federal Authoritative Sources – The “Rulebooks”
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Catalog of Federal Domestic Assistance;
OMB Circulars;
Code of Federal Regulations;
Federal Register;
OMB Memoranda and Bulletins;
Approved State Plans;
Community Service Agreements;;
Grant Award Letters.
YOU START HERE!
20
OMB Circulars
Provide the general rules and regulations for
federal award management
• Administrative Requirements
• Cost Principles
• Internal Controls
• Audit Requirements
• Exceptions to the OMB Circulars are codified
in the Code of Federal Regulations, grant
agreement and grant award letter
21
What OMB Circulars Do I Follow?
States, local governments, and Indian Tribes follow:
• A-87 for cost principles, Relocated to 2 CFR, Part 225 (362k)
• A-102 for administrative requirements, and
• A-133 for audit requirements
Educational Institutions (even if part of a State or local government) follow:
• A-21 for cost principles, Relocated to 2 CFR, Part 220 (384k)
• A-110 for administrative requirements, Relocated to 2 CFR, Part 215 (280k), and
• A-133 for audit requirements
Non-Profit Organizations follow:
• A-122 for cost principles, Relocated to 2 CFR, Part 230 (362k)
• A-110 for administrative requirements, Relocated to 2 CFR, Part 215 (280k), and
• A-133 for audit requirements
22
PART 215—UNIFORM ADMINISTRATIVE RIZEQUIREMENTS FOR
GRANTS AND AGREEMENTS WITH INSTITUTIONS OF HIGHER
EDUCATION, HOSPITALS, AND OTHER NON-PROFIT
ORGANATIONS (OMB CIRCULAR A–110)
– Provides uniform administrative requirements for
grants and agreements
– Codified in the Code of Federal Regulations at 2
CFR Part 215
– The provisions of the Circular apply to
subrecipients performing work under awards if
such subrecipients are non-profit organizations (2
CFR §215.5)
23
Definitions 2 CFR 215.2
• Award means financial assistance that provides support or
stimulation to accomplish a public purpose. Awards include
grants and other agreements in the form of money or
property in lieu of money, by the Federal Government to an
eligible recipient. The term does not include: technical
assistance, which provides services instead of money; other
assistance in the form of loans, loan guarantees, interest
subsidies, or insurance; direct payments of any kind to
individuals; and, contracts which are required to be entered
into and administered under procurement laws and
regulations.
24
Definitions 2 CFR 215.2
• Recipient means an organization receiving financial assistance
directly from Federal awarding agencies to carry out a project
or program. The term includes public and private institutions
of higher education, public and private hospitals, and other
quasi-public and private non-profit organizations such as, but
not limited to, community action agencies, research institutes,
educational associations, and health centers. The term may
include commercial organizations, foreign or international
organizations (such as agencies of the United Nations) which
are recipients, sub recipients, or contractors or subcontractors
of recipients or subrecipients at the discretion of the Federal
awarding agency.
25
Definitions 2 CFR 215.2
Subaward means an award of financial assistance in the form of
money, or property in lieu of money, made under an award by a
recipient to an eligible subrecipient or by a sub-recipient to a
lower tier subrecipient. The term includes financial assistance
when provided by any legal agreement, even if the agreement is
called a contract, but does not include procurement of goods
and services
Subrecipient means the legal entity to which a subaward is made
and which is accountable to the recipient for the use of the
funds provided.
Pass-through entity means a non-Federal entity that provides a
Federal subaward to a subrecipient to carry out part of a Federal
program.
26
Pass-through Agency Responsibilities
This section sets forth a pass-through entity’s responsibilities
with respect to making Federal subawards and ensuring the
subrecipients’ compliance with the terms and conditions of
those, All pass-through entities shall:
(1) Ensure that every subaward includes:
– All clauses required by Federal statute, regulations, guidance, E.O.s
and their implementing regulations;
– Each administrative, national policy, and program-specific requirement
that the Federal awarding agency requires the pass-through entity to
flow down to subawards and subrecipients;
– Any additional Federal requirements that the pass-through entity
imposes on the subrecipient in order for the pass-through entity to
meet its own responsibility to the Federal awarding agency ;
27
Pass-through Agency Responsibilities
• An approved Federally recognized indirect cost rate negotiated between the
subrecipient and the Federal government or, if no such rate exists, either a
rate negotiated between the pass-through and subrecipient entities (in
•
•
compliance with Federal guidelines in this guidance), or a de minimis indirect cost
rate equal to 10% of total modified direct costs
A requirement that the subrecipient permit the pass-through entity and auditors
to have access to the subrecipient’s records and financial statements as necessary
for the pass-through entity to meet the requirements of this section, section
___.502 Standards for Financial and Program Management and Subchapter GAudit Requirements of this Guidance; and
Appropriate terms and conditions concerning closeout of the subaward.
28
Pass-through Agency Responsibilities
(2) Consider imposing specific subaward conditions (not previously included
in the Federal award announcement) upon a subrecipient that has materially
failed to comply with the general and program-specific terms and conditions
of a subaward.
(3) Inform the subrecipient of the CFFA title and number, Federal award name
and number, Federal award year, whether the Federal award is research and
development (R&D),
• The pass-through entity shall provide this information to each subrecipient
at the time of Federal award and with each annual continuation of the
subaward. If a disbursement contains funds from multiple Federal awards
or non-Federal funds, the pass-through entity shall identify the dollar
amount made available under each Federal award.
29
Pass-through Agency Responsibilities
(4) Ensure that subrecipients are aware of requirements imposed upon them
by Federal laws, regulations, the provisions of subawards, and any
supplemental requirements imposed by the pass-through entity.
(5) Monitor the activities of subrecipients as necessary to ensure that Federal
subawards are used for authorized purposes, in compliance with laws,
regulations, and the provisions of subawards; and that subaward
performance goals are achieved, in accordance with performance and
financial monitoring requirements. Pass-through entity monitoring of
subrecipients shall include:
(A) Analyzing financial and programmatic reports submitted by subrecipients
(including analyses to identify patterns and trends of program activity) and performing
such other procedures as necessary to ensure proper accountability and compliance
with program requirements and achievement of performance goals of the award.
30
Pass-through Agency Responsibilities
(B) Following-up and ensuring that subrecipients take
timely and appropriate action on all deficiencies
detected through audits, on-site reviews, and other
means.
(C) Issuing a management decision for audit findings
affecting the pass-through entity’s programs as
required. For cross-cutting findings, pass-through
entities may rely on management decisions issued by
the cognizant or oversight agency for audit in lieu of
issuing a separate management decision.
31
Pass-through Agency Responsibilities
Depending upon the pass-through entity’s assessment of risk
posed by the subrecipient, the following monitoring tools may
be useful for pass-through entities to ensure proper
accountability and compliance with program requirements and
achievement of performance goals:
(D) Performing on-site reviews of subrecipients’ program
operations;
(E) Providing subrecipients with training and technical assistance
on program-related matters; and
(F) Arranging for agreed-upon-procedures engagements.
32
Pass-through Agency Responsibilities
(6) Evaluation of risk posed by subrecipients for
purposes of monitoring may include such factors as:
• (A) The results of previous audits;
• (B) Whether the entity is a new subrecipient;
• (C) Whether the entity has new personnel or new or
substantially changed systems; and
• (D) The extent of Federal monitoring if the
subrecipient entity also receives direct awards.
33
Pass-through Agency Responsibilities
• (7) Ensure that every subrecipient is audited as required
under section __.701 Audit Requirements if it has expended
Federal funds during the respective fiscal year that equaled or
exceeded the threshold for audit set forth in that section.
• (8) As applicable, establish audit requirements for for-profit
subrecipients, which are not covered by the Single Audit Act,
as amended (31 U.S.C. §§ 7501-7507),
• (9) Consider whether the results of subrecipient audits and
on-site reviews necessitate adjustments to the pass-through
entity’s own records.
• (10) Consider taking enforcement action against
noncompliant subrecipients,
34
Pass-through Agency Responsibilities
States shall follow state law and procedures when awarding and
administering subawards. Federal agencies shall also require states to follow
do the following:
• (1) Ensure that every subaward includes a provision for compliance with
Record Retention and Access Requirements
• (2) Conform any advances of Federal subaward funds to subrecipients to
substantially the same standards of timing and amount that apply to cash
advances by Federal awarding agencies.
• (f) All pass-through entities may provide subawards based on fixed
amounts up to the simplified acquisition threshold set in the Federal
Acquisition Regulation at 48 CFR 13 and authorized by 41 U.S.C. § 1908
($150,000 at the time of publication).
35
Subrecipeint Agency Responsibilities
• Organizations receiving HHS grant funds, whether
such funds are received directly from the Federal
Government, indirectly under a contract, subaward,
are responsible for and must adhere to all applicable
Federal statutes, regulations, and policies.
Organizations also are expected to be in compliance
with applicable State and local laws and ordinances.
Source: US Department of Health and Human Services Grant
Policy Statement January 1, 2007
36
Subrecipeint Agency Responsibilities
• Recipients are required to meet the standards and
requirements for financial management systems set forth or
referenced in 45 CFR 74.21 or 92.20, as applicable. The
adequacy of the financial management system is integral to
the ability of the recipient to account for the expenditure of
grant funds. These standards are intended to ensure that
Federal funds are handled in a responsible manner that
includes adequate internal controls, cash management
consistent with Department of the Treasury requirements
37
Subrecipeint Agency Responsibilities
• Provide accurate, current, and complete financial information about
Federal awards and, for subawards, reasonable procedures for ensuring
that subrecipients provide financial reports in sufficient time to allow
preparation required reports.
• Maintain records that adequately identify the sources of funds for
federally assisted activities and the purposes for which the award was
used, including authorizations, obligations, unobligated balances, assets,
liabilities, outlays or expenditures, and any program income. Accounting
records must be supported by source documentation such as canceled
checks, paid bills, payrolls, and time and attendance records.
38
Subrecipeint Agency Responsibilities
• Maintain effective control over and accountability for
all cash, real and personal property, and other assets
under the award; adequately safeguard those assets;
and ensure that they are used only for authorized
purposes.
• Compare actual expenditures or outlays with the
approved budget for the award.
39
Subrecipeint Agency Responsibilities
• Minimize the time elapsing between any advance payment under this
award and the disbursement of the funds for direct program costs and the
proportionate share of any allowable indirect or facilities and
administrative costs, and ensure that the timing and amount of any
payments to subrecipients conform to this standard.
• Subrecipients must notify DHS Program Contact when financial
management problems are discovered. Deficiencies in a recipient’s
financial management system, whether reported by the recipient or
identified by the DHS Administrative On Site Review or Audit, may result in
the imposition of special award conditions, use of the reimbursement
payment method, or other increased monitoring by the awarding office.
• Determine the allowability of costs in accordance with the applicable
Federal cost principles, program regulations, and other requirements cited
in the CSA Agreement. This includes the ability to readily identify
unobligated balances, accelerated or delayed expenditures, and cost
transfers.
40
OMB Circular A-110 Summary of Fiscal Requirements
• Financial management systems that provide
– Effective control over and accountability for all funds,
property and other assets
– Comparison of outlays with budgetary amounts for each
award
– Cash management written procedures
– 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)
– Accounting records including cost accounting records that
are supported by source documentation
41
Accounting Systems
• Cost Allocation is predicated on the
premise that organizations maintain an
adequate accounting system and
accounting records to document costs and
support claims (2 CFR §215.21(b)(7))
42
MAINTAIN COMPLETE AND ACCURATE FINANCIAL RECORDS
• Identify all costs related to the grant
agreement
• Keep track of all funds received and paid out
• Identify and separate allowable and nonallowable project costs
• If applicable, demonstrate how each funding
source is maintained and charged separately
• Account for all hours worked and be able to
identify to which project the hours are allocated
Why is Cost Allocation Important?
What are the Federal
requirements governing the
funding received?
What is a Cost
Allocation Plan?
How do I
calculate indirect
cost rates?
What are allowable
or unallowed costs?
What is the difference
between Direct and
Indirect Costs?
How does this impact
my organization?
44
Cost Allocation Overview
• What is “Cost Allocation”?
– Cost Allocation is a Process to Determine the
“Total Cost” of a “Cost Objective”
– Achieved By Distributing or Apportioning Costs to
a Benefiting “Cost Objective”…
– Using Statistical Data or Metrics that Measure the
Usage of a Service or the Relative Benefit Received
45
Commingling of Funds
• The accounting systems of all recipients and subrecipients must ensure
that Federal funds for a particular award are not commingled with
funds from other Federal awards or other sources. Each award must be
accounted for separately. Recipients and subrecipients are prohibited
from commingling funds on either a program-by-program or project-byproject basis.
• Federal funds specifically budgeted and/or received for one project
may not be used to support another. Where a recipient's or
subrecipient's accounting system cannot comply with this requirement,
the recipient or subrecipient shall establish a system to provide
adequate fund accountability for each project it has been awarded.
Part II, Chapter 3, Financial Guide, U.S. Department of Justice, Office of Justice
Programs (OJP)
46
Cost Allocation Overview
• What is a “Cost Objective”?
– A “Cost Objective” is a particular award,
contract, grant, project, service, or other
activity of an organization for which cost data
are desired and for which provision is made to
accumulate and measure the costs
47
Cost Allocation Overview
• What is the “Total Cost” of a Cost Objective?
– “Total Cost” is composed of the sum of the
allowable direct costs and allocable indirect costs,
less any applicable credits.
48
Total Costs = Direct + Indirect
• Direct Costs
Can be identified
specifically with a
particular final cost
objective (i.e., a
particular award,
service or direct
activity)
• Indirect Costs
Incurred for common or
joint objectives and
cannot be readily
identified with a
particular final cost
objective
49
Allocating Indirect Costs
• Allocation Bases: The methodology or
statistical measure by which Indirect Costs
are distributed to other benefiting services
and/or cost objectives
– Examples May Include:
•
•
•
•
Number of Active Employees;
Number of Transactions Processed;
Square Footage Occupied;
Salaries and Wages of Units Supervised;
50
Cost Allocation Overview
 Simple
Example:
 Centrally
 “Cost
Located Copier
to Operate” includes:
Lease Payments
 Repairs & Maintenance
 Toner
 Paper
 Supplies, etc.

 “Direct
Costs”
Cost Allocation Overview
 Copier Example (continued):
 What
about electricity used, the space it
occupies, the office manager’s time paying
related bills, ordering paper & supplies,
arranging deliveries and coordinating
servicing, etc.?
 “Indirect
Costs”
Cost Allocation Overview
 Copier
 Three
Example (continued):
Divisions Utilize
 Division
A – 12 Staff
 Division
B – 6 Staff
 Division
C – 22 Staff
Cost Allocation Overview
 Copier Example (continued):

How Do We Apportion or Allocate These
“Costs” to the Three Divisions?
 Equal
Distribution (i.e., 1/3rd Each)
 “Good”
 Number of Staff Using the Copier
 A – 30%, B – 15%, C – 55%
 “Better”
 User Codes
 Measures Actual Usage of the Copier
 “Best”
Basic Cost Allocation Guidelines
United States Office of Management and Budget
(OMB) Circular A-122 – Purpose:
Establish principles for determining costs of
grants, contracts and other agreements
with non-profit organizations. (§230.5 of 2 CFR
Part 230)
55
OMB Circular A-122 Overview
Basic Principle
The principles are designed to provide that
the Federal Government bear its fair share of
costs except where restricted or prohibited by
law. (emphasis added) (§230.15 of 2 CFR Part
230)
56
OMB Circular A-122 Overview
Basic Guidelines for Costs
• To Be Claimed Under Federal Awards, Costs
Must Be:
– “Allowable”
– “Reasonable”
– “Allocable”
57
Allowable Costs
To Be Allowable, Costs Must Meet the Following General Criteria:




Be “reasonable” for the performance
of the award
Be “allocable” to the award under
OMB A-122 cost principles
Conform to any limitations or
exclusions imposed by OMB A-122 cost
principles or in the award as to the
types or amount of cost items
Be consistent with policies and
procedures that apply uniformly to
both federally-financed and other
activities of the organization
58




Be accorded consistent
treatment
Be determined in accordance
with generally accepted
accounting principles (GAAP)
Not be included as a cost or used
to meet cost sharing or matching
requirements of any other
federally-financed program
Be adequately documented
Reasonable Costs
A Cost is Reasonable if it Meets the Following General Criteria:
•
•
•
•
•
Pass prudent person test – it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time of the decision to
incur the costs
Recognized as ordinary and necessary for the operation of the organization or the
performance of the award
Constitutes sound business practice, including arms length bargaining, and
conforms to the restraints and requirements of Federal and State laws and
regulations, and terms and conditions of the award
Prudence exercised in the circumstances considering responsibilities to the
organization, its members, employees, clients, public, and Federal Government
Does not significantly deviate from the organization’s established practices
59
Allocable Costs
To be Allocable, Costs Must Meet the Following General Criteria:
•
A cost is allocable in accordance with the relative benefits received
•
Treated consistently with other costs incurred for the same purpose in like
circumstances and
– Incurred specifically for the award (direct relationship), or
– Benefits both the award and other work and can be reasonably distributed in
proportion to the benefits received, or
– Is necessary to the overall operation of the organization and a direct relationship to any
particular cost objective cannot be shown
•
Costs allocable to a particular award or cost objective may not be “shifted” to
other Federal awards to overcome funding deficiencies, or to avoid restrictions by
law or by terms of the award
60
Direct Costs
• Direct Costs are those costs that can be identified
specifically with a particular final cost objective (i.e., a
particular award, project, service, or other direct activity of
an organization)
• 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
61
Direct Costs
Administrative Costs can be Direct if they can be
directly tied to a cost objective including:
•
•
•
•
•
•
•
•
Office supplies
Rent
Utilities
Postage
Administrative support such as clerical;
Duplication cost;
Property Insurance;
Also see indirect General and Facility Costs that can be directly tied to a
cost objective, that meet the “reasonable and necessary” of carrying out a
program.
62
Indirect Costs
• Indirect Costs are those that have been incurred for common or
joint objectives and cannot be readily identified with a particular
final cost objective
• 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
• 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
63
Indirect Costs
Typical examples of indirect costs for many non-profit
organizations may include
• Depreciation or use allowances on buildings and equipment
• Costs of operating and maintaining facilities
• General administration and general expenses, such as the salaries
and expenses of executive officers, personnel administration, and
accounting
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Indirect Costs
Indirect Costs shall be classified within two broad
categories: “Facilities” and “Administration”
• “Facilities” includes
– depreciation and use allowances on buildings,
equipment and capital improvements
– interest on debt associated with certain buildings,
equipment and capital improvements, and
– operations and maintenance expenses incurred for the
administration, operation, maintenance, preservation,
and protection of the organization’s physical plant
65
Indirect Costs
• Operations and maintenance expenses include:






Janitorial and utility services
Repairs and ordinary or
normal alterations of
buildings, furniture and
equipment
Care of grounds
Maintenance and operation of
buildings and other facilities
Security





Disaster preparedness
Environmental safety
Property, liability and other
insurance relating to property
Space and capital leasing
Facility planning and
management
Central receiving
– Cross allocations from other pools, as applicable
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Indirect Costs
• “Administration” includes
– General administration and general expenses that have been
incurred for the overall general executive and administrative offices
of the organization and other expenses of a general nature which do
not relate solely to any major function of the organization
– Examples of this category include:







Director’s office
Office of finance
Business services
Budget and planning
Personnel
Safety and risk management
General counsel



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Management information systems
Library costs and
All other types of expenditures not
listed specifically under one of the
subcategories of “Facilities”
(including cross allocations from
other pools, as applicable)
Indirect Costs
• Special care should be exercised in developing the
“Administration” cost pool to ensure that costs
incurred for the same purposes in like
circumstances are treated consistently as either
direct or indirect costs
• Organizations receiving more than $10 million in
Federal funding of direct costs in a fiscal year must
breakout indirect costs between “Facilities” and
“Administration”
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What is a Cost Allocation Plan?
• A Cost Allocation Plan is a set of documents that relate to a
process where Indirect Costs are allocated using a set of
allocation methods to benefiting Cost Objectives
• The Purposes of a Cost Allocation Plan are as follows:
– They are often the only way to determine the total cost of
operating programs
– They allow an organization to ensure that it is recovering all
allowable costs incurred by the organization
– They can provide valuable management data to an organization
regarding funding levels and time spent on activities (when time
and effort reporting is also employed)
69
Indirect Cost Rate Proposal
• Indirect Cost Rate Proposal (ICRP): the
documentation prepared by an organization to
substantiate its claim for the reimbursement
of indirect costs. The proposal is the basis for
establishing an indirect cost rate agreement
70
Indirect Cost Rate Proposal
• Required for Subawards over $250,000 in
state and federal pass-through awards;
• Due 30 days after Financial or Single Audit due
date – 210 days after fiscal year end;
• Must trace to Audited Financial Statements;
• We will accept a indirect cost rate or cost
allocation plan that was approved by the
Federal government, must submit the
submission and approval documentation.
71
Indirect Cost Rate
• An Indirect Cost Rate is a Percentage calculated as
follows:
Indirect Cost Rate (%) = Total Indirect Costs ($)
Direct 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
72
Indirect Cost Rate Methodologies
There are Two (2) Basic Methods for
Calculating Indirect Cost Rates:
• Simplified Allocation Method
• Multiple Allocation Base Method
73
Indirect Cost Rate Methodologies

The Simplified Method may be used where each of
an organization’s major functions benefit from its
Indirect Costs to approximately the same degree

Divide the Total Allowable Indirect Costs by an Equitable
Direct Cost Base (e.g. Total Direct Costs, excluding capital
outlay and other distorting items, Direct Salaries & Wages,
or Modified Total Direct Costs (MTDC))
Indirect Cost Rate (%) = Total Indirect Costs
Direct Cost Base
74
Indirect Cost Rate Methodologies
• The Multiple Base Method is more appropriate where each of
an organization’s major functions benefit from its Indirect
Costs in varying degrees
– Classify Indirect Costs into functional cost groupings (“Cost
Pools”) which benefit functions in significantly different
proportions
– Select appropriate basis for distribution of each classified pool
of Indirect Costs based on relative benefits provided
– Distribute each classified pool to benefiting functions
– Calculate an Indirect Cost Rate for each function by relating the
Total Indirect Costs allocated to that function to that function’s
Direct Cost Base
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Types of Indirect Cost Rates
OMB Circular A-122 Defines Four (4) Types of Indirect Cost Rates:
 Provisional Rate is a temporary rate, agreed to in advance, based on
anticipated future costs. It is subject to retroactive adjustment at a future
date after costs are known (pending a Final Rate).

Final Rate is established after costs are known. It adjusts the Provisional
Rate but is administratively burdensome.
 Underpayments are subject to availability of funds
 Overpayments must be credited or returned
 Not subject to adjustment

Fixed Rate is agreed to in advance but is not retroactively adjusted.
 Difference between estimated and actual costs is “carried forward” as
an adjustment to the rate computation of a subsequent period

Predetermined Rate is agreed to in advance but is generally not subject to
adjustment.
 Intended to be permanent
Direct Allocation Method
Treat all costs as “Direct Costs” except General Administration and General
Expenses
• Three basic categories:
– General administration and general expenses
– Fundraising
– Other Direct Functions
• Prorate joint costs individually as “Direct Costs” to each category and to
each award or other activity using an appropriate base for the cost being
prorated
– Relative benefits received
– Reasonable criteria
– Supported by current data
• Indirect Costs 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)
– Maximizing Indirect Cost Recoveries
– Service Variances
– Availability of Allocation Statistics
– Types of Programs
– Federal Agency
Cost Allocation Plan/Indirect Cost Rate Proposal Process
• Information Requirements:
–
–
–
–
–
–
–
–
Organization Chart
Chart of Accounts
Expenditure Detail
Payroll Data
Direct Charges
Interviews with Staffs
Statistical Data/Metrics
Grants Inventory (Schedule of Expenditure of Federal
Awards)
79
Cost Allocation Plan/Indirect Cost Rate Proposal Process
Eight (8) Broad Steps to Preparing an Indirect Cost
Rate Proposal:
1.
Review OMB Circular A-122
2.
Organization Review
3.
Program Identification
4.
Prepare a Cost Policy Statement
5.
Review and Reconcile Financial Statements
6.
Prepare Indirect Cost Rate Proposal Detail
7.
Prepare an Indirect Cost Rate Calculation Worksheet
and Determine Type of Rate(s)
8.
Obtain Cognizant or State Agency Approval
Salaries and Wages Documentation
• Payroll - Charges to awards for salaries and wages,
whether treated as direct costs or indirect costs,
will be based on documented payrolls approved by
a responsible official(s) of the organization
(subparagraph 8.m.(1) of Appendix B to 2 CFR Part 230)
• Personnel Activity Reports (PARs) – The
distribution of salaries and wages to awards must
be supported by personnel activity reports
(subparagraph 8.m.(1) of Appendix B to 2 CFR Part 230)
81
Personnel Activity Reports (PARs)
• PARs reflecting the distribution of activity of each employee
must be maintained for all staff members (professional and
nonprofessionals) whose compensation is charged, in whole
or in part, directly to awards.
• PARs must also be maintained for other employees whose
work involves two or more functions or activities in order to
support the allocation of indirect costs.
– e.g., an employee engaged part-time in indirect cost activities and part-time in
a direct function
82
Personnel Activity Reports (PARs)
PARs maintained by non-profit organizations must:
•
Reflect an after-the-fact determination of the actual activity of each employee
– Budget estimates do not qualify as support for charges to awards
•
Account for the total activity for which employees are compensated and which is
required in fulfillment of their obligations to the organization
•
Be signed by the individual employee that the distribution of activity represents a
reasonable estimate of the actual work performed by the employee during the
periods covered by the report
– May be signed by a responsible supervisory official having first hand knowledge of the
activities performed by the employee
•
Be prepared at least monthly and must coincide with one or more pay periods
83
63
TIME SHEET REQUIREMENTS
Provides a daily account of work performed
• Provides brief descriptions of the daily grant activities performed
(this can be recorded on an activity sheet instead of a timesheet)
• Activities must be recorded separately for each grant
• All hours in the day, hours worked and non-working hours, such as
holidays and vacation, and unpaid time need to be tracked
•Must be prepared at least monthly and coincide with one or more
pay periods
• Should be signed and dated by the employee and/or his/her
supervisor
Timekeeping Requirements
• A power point presentation is included in the
reference information;
• The presentation includes common mistakes
when documenting time and attendance;
• The reference material also includes sample
timesheets and activity reports and an excel
template.
References
•
•
•
•
•
•
OMB Circular A-122, “Cost Principles for Non-Profit Organization”
OMB Circular A-110, “Uniform Administrative Requirements for Grants and
Agreements with Institutions of Higher Education, Hospitals, and Other Non-profit
Organizations”
OMB Circular A-133 “Audits of States, Local Governments, and Non-Profit
Organization.”
ASMB C-5, “A Guide for Nonprofits”
45 CFR Part 74, “Uniform Administrative Requirements for Awards and Subawards
to Institutions of Higher Education, Hospitals, Other Nonprofit Organizations, and
Commercial Organizations; And Certain Grants and Agreements with States, Local
Governments and Indian Tribal Governments” – U.S. HHS Implementing
Regulations for OMB A-110.
Internet Sites:
– OMB Circulars - www.whitehouse.gov/omb/grants/index.html
– HHS Cost Policy Issuances- http://rates.pcs.gov/fms/dca/np.html
– CFR Sections - www.access.gpo.gov/nara/cfr/index.html
86
Questions and Answers
- Questions
- Discussion
- Answers
87
State of Illinois
Department of Human Services
Secretary Michelle R.B. Saddler
C O S T P R I N C I P L E S A N D A D M I N I S T R AT I V E
R E Q U I R E M E N T S O F F E D E R A L A N D S TAT E G R A N T S
Carol A Kraus, CFO
D e |p Elimination
a r t m e noft Redundancy
of Hum
n S e rBurden
v i c eons Human Service Providers
Increased Efficiency
| aReducing
August 6, 2013