Transcript Government Auditing Standards: Selected Topics

Federal Transit
Administration
Direct and Indirect Cost
Essentials
Hierarchy of Laws & Regulations
Federal
1. U.S. Constitution
2. Legislation/US Code
3. Presidential Executive Orders
4. Federal Agency Regulations:
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Code of Federal Regulations (CFR)
OMB Circulars
Agency Circulars
5. Stewardship Agreements, Grant
Agreements
State
Local
Governing Regulations for
Indirect Costs
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Common Rule – 49 CFR Part 18
49 CFR Part 19
OMB Circular A-122
2 CFR 225 (Formerly OMB A-87)
FTA Circular 6100.1D
FAR Part 31
Common Rule – 49 CFR Part 18
Uniform Administrative Requirements
for Grants and Cooperative
Agreements to State and Local
Governments
49 CFR Part 19
Uniform Administrative Requirements
For Grants And Agreements With
Institutions Of Higher Education,
Hospitals, And Other Non-Profit
Organizations
OMB Circular A-122
Cost Principles for Non-Profit
Organizations
2 CFR 225
Cost Principles for State, Local
and Indian Tribal Governments
FTA Circular 6100.1D
Chapter V
Financial Management Requirements
FAR Part 31
Contract Cost Principles and
Procedures
In accordance with 2 CFR 225
Costs must be:
1. Allowable
2. Allocable
3. Reasonable
Reasonable Costs
A cost is reasonable if, in its nature
and amount, it does not exceed that
which would be incurred by a
prudent person under the
circumstances prevailing at the time
the decision was made to incur the
cost.
Allocable Costs
A cost is allocable to a particular cost
objective if the goods or services
involved are chargeable or
assignable to such cost objective in
accordance with relative benefits
received.
Allowable Costs
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Necessary and Reasonable
Authorized or not prohibited
Conform to any limitation or exclusion
Be consistent with policies and regulations
Be treated consistently through GAAP
Not be included as a cost of any other
federally financed program
• Be net of all applicable credits
Allowability of Costs
Examples
• Advisory councils. Costs incurred by advisory
councils or committees are allowable as a direct
cost where authorized by the Federal awarding
agency or as an indirect cost where allocable to
Federal awards.
• Alcoholic beverages. Costs of alcoholic
beverages are unallowable.
Definitions from 2 CFR 225 Appendix B
Financial Management System
Appropriate internal controls
• Consistent handling of costs
• Appropriate documentation: Cancelled
checks, paid bills, payrolls, time and
attendance records, etc.
• Efficient and Economical Operations
• Cost control: Expenditure levels,
appropriate assignment of cost
• Safeguard assets
• Accuracy in reporting
Direct Costs
Direct Costs are those that can be identified
specifically with a final cost objective
Indirect (Allocated) Costs
Indirect costs are those: (a) incurred for a
common or joint purpose benefitting more
than one cost objective, and (b) not readily
assignable to the cost objectives
specifically benefitted, without effort
disproportionate to the results achieved.
Indirect Cost Allocation Plan
• Written Plan Description
• Signed Certification
• Schedule of costs
Example – Schedule of Costs
Labor
Direct Costs
Indirect Costs
Unallowable
Costs
$
$
$
200,000
Fringes
Total Labor Cost
Rent
Office Supplies
Utilities
Telephone
Travel
Total Non-Labor
Total Costs
200,000
40,000
5,000
Total Costs
$
245,000
120,000
2,500
122,500
160,000
7,500
367,500
500
3,000
25,000
6,000
5,000
2,500
5,000
2,000
25,000
12,500
5,000
3,000
10,000
9,500
43,500
2,500
55,500
209,500
203,500
10,000
423,000
6,000
500
OH Rate = Total Indirect Cost / Direct Labor Cost = $203,500 / $200,000 = 101.75%
Need for an ICAP
In accordance with 2 CFR 225 – you can
only be reimbursed for indirect costs if you
have an approved ICAP.
An ICAP is not needed for an entity that only
bills direct costs – but remember –
allocated costs are indirect costs.
Features/Aspects of an ICAP
• Basis is clearly identified (usually direct
labor)
• Same basis used to calculate the rate is
also used to bill indirect cost
• Same basis is applied consistently to all
indirect costs
• The calculations are organization-wide;
should tie to Single Audit expenditure
figures.
Types of Cost Allocation Plans
Fixed Rate with carry forward
• Calculated rate based on prior-period incurred
costs
• Adjusted after-the-fact via a carry forward of the
variance
Predetermined Rate
Provisional Rate
Final Rate
Contact Information
Mary Ann Roder 602-712-4848
[email protected]
Scott Olson 602-712-8537
[email protected]
George Delgado 602-712-8239
[email protected]