State of Illinois

1
Cost Principles and Administrative Requirements
of Federal and State GrantsCarol A Kraus,
CFODepartment of Human ServicesAugust 6, 2013

• State of Illinois
• Department of Human Services
• Secretary Michelle R.B. Saddler

2
Learning Objectives

• Management Improvement Initiative Committee
  Background
• Goals of MIIC
• Financial and Streamlining
• Federal and State Uniform Administrative
  Requirements
• 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

3
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.

4
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

5
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.

6
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

7
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.

8
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)

9
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

10
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.

11
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

12
Provider Portal functionally allows State
agencies to satisfy due diligence requirements
based on data or documents, without redundant
requests for the same.
13
p.a. 97-0558
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
Governors Office Leadership Team (GOLT)
Management Improvement Initiative Committee (MIIC)
Recommendations made to MIIC are adopted by full
vote of the MIIC
Deemed Status / Accreditation Team
Financial Audit Reporting Team
CRV Technology Team
Six Subject Matter Specific Teams ask the MIIC to
adopt the Teams Recomendation
Streamlining Team
Medicaid Team
Contract Team
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Redundant and inconsistent business processes
impose significant administrative burden on
community service providers, hindering the
delivery of core human services.
The Problem

• 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

15
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 Solution The Management Improvement
Initiative
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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
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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
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Our Goal
A new, simplified, consistent and efficient
business process across five State Agencies for
accreditation, budget submission, contracting,
monitoring and reporting.

• 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

19
Federal and State Uniform Administrative
Requirements
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Federal Authoritative Sources The Rulebooks

• 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!
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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

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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

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PART 215UNIFORM ADMINISTRATIVE RIZEQUIREMENTS
FOR GRANTS AND AGREEMENTS WITH INSTITUTIONS OF
HIGHER EDUCATION, HOSPITALS, AND OTHER NON-PROFIT
ORGANATIONS (OMB CIRCULAR A110)

• 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)

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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.

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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.

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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.

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Pass-through Agency Responsibilities

• This section sets forth a pass-through entitys
  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
  

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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 subrecipients 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 G- Audit
  Requirements of this Guidance and
• Appropriate terms and conditions concerning
  closeout of the subaward.

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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 (RD),
• 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.

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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.

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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 entitys
  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.

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Pass-through Agency Responsibilities

• Depending upon the pass-through entitys
  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.

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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.

34
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 entitys own
  records.
• (10) Consider taking enforcement action against
  noncompliant subrecipients,

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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).

36
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

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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

38
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.
  

39
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.

40
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 recipients
  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.

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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

42
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))

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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
  non-allowable 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

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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?
45
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

46
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-by-project 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)

47
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

48
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.

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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

50
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

51
Cost Allocation Overview

• Simple Example
• Centrally Located Copier
• Cost to Operate includes
• Lease Payments
• Repairs Maintenance
• Toner
• Paper
• Supplies, etc.
• Direct Costs

52
Cost Allocation Overview

• Copier Example (continued)
• What about electricity used, the space it
  occupies, the office managers time paying
  related bills, ordering paper supplies,
  arranging deliveries and coordinating servicing,
  etc.?
• Indirect Costs

53
Cost Allocation Overview

• Copier Example (continued)
• Three Divisions Utilize
• Division A 12 Staff
• Division B 6 Staff
• Division C 22 Staff

54
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

55
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)

56
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)

57
OMB Circular A-122 Overview

• Basic Guidelines for Costs
• To Be Claimed Under Federal Awards, Costs Must
  Be
• Allowable
• Reasonable
• Allocable

58
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

• 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

59
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
  organizations established practices

60
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

61
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

62
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.

63
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

64
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
  organizations physical plant

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Indirect Costs

• Operations and maintenance expenses include
• Cross allocations from other pools, as applicable

• Disaster preparedness
• Environmental safety
• Property, liability and other insurance relating
  to property
• Space and capital leasing
• Facility planning and management
• Central receiving

• 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

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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

• 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)

• Directors office
• Office of finance
• Business services
• Budget and planning
• Personnel
• Safety and risk management
• General counsel

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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)

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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

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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.

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Indirect Cost Rate

• An Indirect Cost Rate is a Percentage calculated
  as follows
• 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

73
Indirect Cost Rate Methodologies

• There are Two (2) Basic Methods for Calculating
  Indirect Cost Rates
• Simplified Allocation Method
• Multiple Allocation Base Method

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Indirect Cost Rate Methodologies

• The Simplified Method may be used where each of
  an organizations 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))

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Indirect Cost Rate Methodologies

• The Multiple Base Method is more appropriate
  where each of an organizations 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 functions 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

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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

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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)

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Cost Allocation Plan/Indirect Cost Rate Proposal
Process

• Eight (8) Broad Steps to Preparing an Indirect
  Cost Rate Proposal
• Review OMB Circular A-122
• Organization Review
• Program Identification
• Prepare a Cost Policy Statement
• Review and Reconcile Financial Statements
• Prepare Indirect Cost Rate Proposal Detail
• Prepare an Indirect Cost Rate Calculation
  Worksheet and Determine Type of Rate(s)
• Obtain Cognizant or State Agency Approval

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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)

82
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

83
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

63
84
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

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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.

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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/inde
  x.html
• HHS Cost Policy Issuances- http//rates.pcs.gov/fm
  s/dca/np.html
• CFR Sections - www.access.gpo.gov/nara/cfr/index.h
  tml

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Questions and Answers
- Questions - Discussion - Answers
88
State of Illinois Department of Human
Services Secretary Michelle R.B. Saddler
Cost Principles and Administrative Requirements
of Federal and State GrantsCarol A Kraus,
CFODepartment of Human ServicesAugust 6, 2013
Increased Efficiency Elimination of
Redundancy Reducing Burden on Human Service
Providers