Transcript INDIRECT COSTS IN THE CHILD NUTRITION PROGRAMS

INDIRECT COSTS IN THE
SCHOOL NUTRITION
PROGRAMS (SNP)
School Nutrition Association
USDA/State Agency Conference
Nashville, Tennessee
November 27, 2007
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
TOPICS TO COVER
• Objectives of Federal
Cost Principles
• Cost Principles in
Context of SNP
• Cost Principles
Vocabulary (Key Terms)
• Indirect Cost
Methodology
• Indirect Costs in A-133
Audits
INDIRECT COSTS IN THE SCHOOL NUTRITION
PROGRAMS
OBJECTIVES OF THE FEDERAL
COST PRINCIPLES
• OBJECTIVE 1:
Cost
Allocation
• OBJECTIVE 2:
Cost
Recovery
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES OBJECTIVE 1:
COST ALLOCATION
• Costs charged to cost objectives
(programs, etc.) that benefit from them.
• Shared costs charged to cost
objectives commensurate with benefit
received.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES OBJECTIVE 2:
COST RECOVERY
• If a cost is allocable
to our program,
where (from whom)
can we get the
resources to pay it?
• Shifting deficit to
another program NOT
an option.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES IN THE SNP
CONTEXT
• TWO DIMENSIONS:
– EXTERNAL:
Program Operator Incurs
Program Costs; Seeks Recovery From
Awarding (State) Agency.
– INTERNAL:
Internal Service Provider
(General Fund) Seeks Recovery From
Program Operator for Costs That Benefit
Program.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES IN THE SNP CONTEXT
EXTERNAL DIMENSION (GENERAL
MODEL): CLAIMING
REIMBURSEMENT FOR PROGRAM
COST
Program
Operator
Prepares
Claim for
Reimbursement
Program
Operator
Credits State
Reimbursement
To Program
Program
Operator
Submits Claim
to State Agency
$$$$$$
STATE
CHECK
CLAIM:
Direct Costs
Indirect Costs
State
Reimbursement
Check Issued
State Agency
Analyzes Claim;
Approves COSTS
For Reimbursement
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES IN THE SNP CONTEXT
EXTERNAL DIMENSION (SNP
MODEL): SFA CLAIMS
REIMBURSEMENT FOR MEALS
SERVED
SFA Prepares
Claim for
Reimbursement
SFA Credits
State
Reimbursement
To Nonprofit
Food Service
SFA
Submits Claim
to State Agency
CLAIM:
Paid, Free, &
Reduced-Price
Meals
$$$$$$
STATE
CHECK
State
Reimbursement
Check Issued
State Agency
Analyzes Claim;
Approves MEALS
For Reimbursement
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES IN THE SNP CONTEXT
INTERNAL DIMENSION: GENERAL FUND
RECOVERS COSTS FROM SCHOOL FOOD
SERVICE
General Fund
Incurs Costs
Benefiting
Food Service
G/F
Pays Costs
Payments to
Employees,
Contractors,
Insurers, etc.
Billings
General Fund
Bills
Food Service
Food Service
Pays Bills
Checks, Funds
Transfers,
Credits, etc.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES IN THE SNP
CONTEXT: SUMMARY
• EXTERNAL
DIMENSION:
– SFA claims meals, not costs.
– Indirect cost methodology
does not affect claiming
NSLP/SBP reimbursement.
• INTERNAL DIMENSION:
– Food Service is SFA’s portal
for collecting NSLP/SBP
reimbursement.
– G/F operates indirect cost
activities; may recover costs
by billing Food Service.
– Appropriateness of G/F
billings may be an issue.
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INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
Q.
What’s a “Cost?”
A.
Resource(s) given up to obtain
a benefit.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• A “COST OBJECTIVE” is a Program, Function,
Activity, or Other Category for which:
– Cost information is needed for decision-making; and
– Cost data are collected.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• ALLOWABLE & UNALLOWABLE COSTS
– ALLOWABLE COST can be reimbursed from Federal
funds.
– To be ALLOWABLE, must conform to criteria in A-87,
Attachments A and B.
– Costs that don’t conform are UNALLOWABLE, hence
cannot be reimbursed from Federal funds.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
CRITERIA FOR ALLOWABLE COSTS
There must be a
BENEFIT TO
THE GRANTSUPPORTED
ACTIVITY!
– A-87, Attachment
A lists criteria for
making this
determination.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
CRITERIA FOR BENEFIT TO GRANT
• REASONABLE and NECESSARY for
program purposes!
– Necessary to carry out the grant.
– Reasonable if a prudent person would incur
the cost in like circumstances.
• Example:
– May be NECESSARY to provide attendees a
meal in order to carry out a conference.
– Not REASONABLE to make that meal a
multi-course gourmet repast!
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
CRITERIA FOR BENEFIT TO GRANT
• NOT Allocable or Charged to ANOTHER
GRANT
• PRIOR APPROVAL if required
• TREATED CONSISTENTLY with nongrant transactions
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
CRITERIA FOR BENEFIT TO GRANT
• NET of APPLICABLE CREDITS
• DOCUMENTED
• CONFORM TO PROGRAM-SPECIFIC RULES
Satisfy all these criteria and your
costs will “fly!”
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
• RULES FOR
SPECIFIC ITEMS
OF COST
– Found in A-87,
Attachment B.
– Must be read in
conjunction with
Attachment A
Criteria.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
RULES FOR SPECIFIC COST ITEMS
• SOME ALLOWABLE
COST ITEMS:
– Salaries & Benefits
– Travel
– Training & Staff
Development
– Supplies
– Meetings &
Conferences
– Printing & Publication
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
VOCABULARY – ALLOWABLE COSTS
RULES FOR SPECIFIC COST ITEMS
• UNALLOWABLE
COSTS –
AVOID!
– Alcoholic Beverages
– Contributions to
Contingency Funds
– Entertainment
– General Government
(Generally)
– Lobbying
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• CAPITAL
EXPENDITURE
– Expenditure to
acquire or
enhance a capital
asset.
– Equipment is
principal example
in SNP.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• DIRECT COST
– Incurred specifically
for a cost objective.
– SNP examples
include:
• Wages & Salaries of
staff working in NonProfit School Food
Service.
• Supplies for use in
operating Non-Profit
School Food Service.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT COSTS
– Administrative Overhead
costs.
– Benefit multiple cost
objectives.
– Assigned to cost objectives
by allocation.
– Examples may include
human services, payroll,
purchasing, accounting,
facilities mgt., etc.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
Q:
Which cost items
are inherently
indirect?
A:
Very few.
Classification as
direct or indirect
normally depends on
treatment in
program operator’s
accounting
system.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
Q: How does a
program operator
charge indirect
cost to benefiting
cost objectives?
A: By applying an
Indirect Cost
Rate!
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT
COST POOL
– Sum of allowable
indirect costs
allocated to cost
objectives by
applying the indirect
cost rate.
– Only allowable
indirect costs
admitted!
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• DIRECT COST
BASE
– Sum of DIRECT COSTS
that benefit from
incurring the costs in the
INDIRECT COST POOL
– Used to Compute
INDIRECT COST RATE
– Direct Cost Bases Most
Often Used:
• Direct Wages & Salaries
• Modified Total Direct
Costs (MTDC)
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• Q: What’s “MTDC?”
• A: Total DIRECT COST
minus distorting items,
such as:
– CAPITAL EXPENDITURES
– Food costs
– Payments to subgrantees &
contractors beyond the first
$25,000
– etc.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT
COST RATE
What is it?
It’s a shorthand
methodology for
allocating allowable
indirect costs to
cost objectives.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT
COST RATE
– How is it derived?
– Divide INDIRECT
COST POOL by
DIRECT COST BASE
– Base includes both
ALLOWABLE and
UNALLOWABLE
DIRECT COSTS
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT COST RATE
– How is it used?
– Multiply rate by actual ALLOWABLE
DIRECT COSTS in DIRECT COST BASE.
– Product is INDIRECT COST allocable to
COST OBJECTIVE.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT COST
RATE PROPOSAL
(ICRP)
– What is it?
– A schedule documenting
formulation of
INDIRECT COST
RATE.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• INDIRECT COST RATE
PROPOSAL (ICRP)
– How is it approved?
– Submitted to COGNIZANT FEDERAL
AGENCY if OMB has assigned one.
– Submitted to SEA if prepared by LEA.
– Retained on file for audit in other cases.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• FEDERAL
COGNIZANT AGENCY
– Speaks to program operator on
behalf of all awarding agencies
regarding cross-cutting matters
such as cost allocation &
recovery.
– SEA performs this function for
LEAs regarding cost allocation.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
• UNRESTRICTED
RATES
– Devised to enable full
cost recovery.
• RESTRICTED
RATES
– Designed to implement
“Supplement-notSupplant” legislation.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
COST PRINCIPLES VOCABULARY
SUMMARY
• Cost
• Cost Objective
• Allowable &
Unallowable Costs
• Capital Expenditure
• Direct Cost
• Indirect Cost
• Indirect Cost Pool
• Direct Cost Base
• Indirect Cost Rate
• Indirect Cost Rate
Proposal (ICRP)
• Cognizant Federal
Agency
• Restricted &
Unrestricted Rates
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• 2 DIMENSIONS:
– Deriving the
Rate
– Applying the
Rate
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• Begin With SFA’s Financial
Reports.
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
•
•
STEP 1: Identify Expenditures From Financial Reports.
•
•
NEW SCHOOL DISTRICT
EXPENDITURES BY OBJECT CLASS
•
OBJECT CODE
ACCOUNT TITLE
•
•
•
•
•
•
•
•
•
•
•
•
•
•
100
210
220
340
410
420
520
570
580
610
630
730
Wages & Salaries
Benefits – Insurance
Benefits – Retirement
Prof./Tech. Services
Water & Sewer
Cleaning
Insurance
Food Svc. Mgt.
Travel
General Supplies
Food Purchases
Equipment Purchases
Total
EXPENDITURES
$1,500,000
25,000
50,000
100,000
100,000
75,000
250,000
200,000
50,000
100,000
200,000
350,000
---------------$3,000,000
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
•
•
STEP 2: Analyze Expenditures From Financial Reports; Identify
Them as Direct or Indirect Costs.
•
•
NEW SCHOOL DISTRICT
INDIRECT COST RATE PROPOSAL
•
EXPENDITURES
TOTAL COST
DIRECT
INDIRECT
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Wages & Salaries
Benefits – Insurance
Benefits – Retirement
Prof./Tech. Services
Water & Sewer
Cleaning
Insurance
Food Svc. Mgt.
Travel
General Supplies
Food Purchases
Equipment Purchases
$1,500,000
25,000
50,000
100,000
100,000
75,000
250,000
200,000
50,000
100,000
200,000
350,000
---------------$3,000,000
$1,200,000
20,000
42,000
90,000
90,000
65,000
235,000
200,000
20,000
90,000
200,000
300,000
---------------$2,552,000
$300,000
5,000
8,000
10,000
10,000
10,000
15,000
-030,000
10,000
-050,000
-------------$448,000
Total
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
•
Step 3: Eliminate Unallowable and Excluded Items From Total
Indirect Costs to Obtain Indirect Cost Pool
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
NEW SCHOOL DISTRICT
INDIRECT COST RATE PROPOSAL
EXPENDITURES
Wages & Salaries
Benefits – Insur.
Benefits – Retire.
Prof./Tech. Svcs.
Water & Sewer
Cleaning
Insurance
Food Svc. Mgt.
Travel
General Supplies
Food Purchases
Equip. Purchases
INDIRECT COST POOL
1/
2/
3/
INDIRECT
COST
$300,000
5,000
8,000
10,000
10,000
10,000
15,000
-030,000
10,000
-050,000
-------------$448,000
UNALLOWABLE
-0-0-0(5,000) 1/
-0-0-0-0(15,000) 2/
-0-0-0-----------($20,000)
EXCLUDED
-0-0-0-0-0-0-0-0-0-0-050,000 3/
------------($50,000)
FINAL
$300,000
5,000
8,000
5,000
10,000
10,000
15,000
-015,000
10,000
-0-0-------------$378,000
$5,000 for unallowable public relations cost.
$15,000 for Superintendent’s travel cost that did not benefit Federal programs.
Equipment purchase is a capital expenditure – a distorting item.
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
Step 4: Eliminate Distorting Items From Direct Costs to Obtain Modified Total
Direct Cost (MTDC) Base.
NEW SCHOOL DISTRICT
INDIRECT COST RATE PROPOSAL
EXPENDITURES
Wages & Salaries
Benefits – Insurance
Benefits – Retirement
Prof./Tech. Services
Water & Sewer
Cleaning
Insurance
Food Service Mgt.
Travel
General Supplies
Food Purchases
Equipment Purchases
DIRECT COST
$1,200,000
20,000
42,000
90,000
90,000
65,000
235,000
200,000
20,000
90,000
200,000
300,000
MODIFIED TOTAL DIRECT (MTDC) COST BASE
1/
2/
EXCLUDED
-0-0-0-0-0-0-0(175,000) 1/
-0-0(200,000) 2/
(300,000) 2/
FINAL
$1,200,000
20,000
42,000
90,000
90,000
65,000
235,000
25,000
20,000
90,000
-0-0---------------$1,877,000
Only first $25,000 of a contract’s cost is included; balance is distorting item.
Food and equipment purchases are distorting items excluded from base.
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
Step 5: Compute the Unrestricted Rate:
___Indirect Cost Pool____
Direct Cost Base (MTDC)
= 0.2024
or
=
$378,000
$1,877,000
20.24 % of MTDC
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• Unrestricted Rate
can be used to claim
reimbursement for
indirect costs.
– Apply rate to
program’s actual
MTDC each period.
– Do SFAs do that in the
SNP?
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• COMPUTING THE
RESTRICTED RATE:
– U.S. Educ. Dept.
prescribes a formula.
– Generally consists of
THROWING OUT
additional costs from
the indirect cost pool.
– Remainder conforms
to “Supplement-notSupplant” legislation.
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• Rates not used in
the SNP; SFA
claims meals, not
costs!
• Rates relevant
from standpoint
of General Fund
billing the food
service for
“indirect costs.”
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• General Funds have
designated the
following as
“indirect cost” for
billing purposes:
– Food service’s entire
profit
– Percentage of Federal
reimbursement
– Percentage of food
service revenue
– Custodians’ wages
– Whatever they need
to make up the G/F’s
deficit.
INDIRECT COSTS IN THE SNP
INDIRECT COST METHODOLOGY
• SFA Food Service
Directors need not
be experts in
indirect cost
calculation, BUT…
• They do need to be
expert in whether
and how the G/F
charges food service
for indirect costs.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
INDIRECT COSTS IN A-133 AUDITS
• AUDIT OBJECTIVES:
to Provide Reasonable
Assurance That:
– Indirect costs charged to
Federal programs were
allowable; and
– Auditee had properly
applied methodology in
ICRP.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
INDIRECT COSTS IN A-133 AUDITS
• AUDIT PROCEDURES:
– Test Internal Controls.
– Read Auditee’s Indirect Cost
Rate Agreement.
– Select Sample of Claims for
Reimbursement & Determine
That Auditee Properly
Claimed Indirect Cost per its
Agreement.
– Determine Whether
Documentation Supports
Indirect Costs Claimed if
Approved ICRP is Lacking.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
INDIRECT COSTS IN A-133 AUDITS
• AUDITORS NOT
REQUIRED TO
TEST AUDITEE’S
ICRP.
– But encouraged to
make interim tests if
audit completed before
ICRP.
INDIRECT COSTS IN THE SCHOOL NUTRITION PROGRAMS
SUMMARY & RECAP
• Objectives of Federal Cost
Principles
• Cost Principles in Context of
SNP
• Cost Principles Vocabulary
(Key Terms)
• Indirect Cost Methodology
• Indirect Costs in A-133 Audits
INDIRECT COSTS IN THE SCHOOL
NUTRITION PROGRAMS
QUESTIONS &
ANSWERS