1. 1 Federal Cost Recoveries Georgia Fiscal Management Council October 3, 2016 2:30pm – 3:30pm

2. 2 Agenda Why Perform Cost Allocation? Types of Cost Allocation Plans Indirect Cost Recoveries Submission Requirements Questions & Answers

3. 3 Why Perform Cost Allocation?

4. 4 States are Partners for the administration of Federal grants and programs. Recover administrative (indirect) costs from federal funding. Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200) Federal cost principles are designed to provide that Federal awards bear their fair share of cost recognized under the principles except where restricted or prohibited by statute.

5. 5 Types of Cost Allocation Plans

6. 6 1.Central Services Cost Allocation Plan Appendix V to 2 CFR Part 200 2.Department Cost Allocation Plan/ Indirect Cost Rate Proposal (ICRP) Appendix VII to 2 CFR Part 200

7. 7 Central Services Cost Allocation Plan Most governmental units provide certain services, such as purchasing, accounting, information technology, facilities management, etc., to operating agencies on a centralized basis. Since federally-supported awards are performed within individual operating agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefitted activities on a reasonable and consistent basis. The central service cost allocation plan provides that process.

8. 8 Central Services Cost Allocation Plan At the state-level, the Central Services Cost Allocation Plan is referred to as a State-wide Cost Allocation Plan or “SWCAP.” The SWCAP is comprised of two (2) sections: Section I - central services that benefit operating agencies but are not billed to the agencies on a fee-for-service or similar basis. These costs are allocated to benefitted agencies on some reasonable basis. Section II - central services that are billed to benefitted agencies or programs on an individual fee-for-service or similar basis.

9. 9 Central Services Cost Allocation Plan Section I – allocated central services include: Office of Planning & Budget Department of Administrative Services Division of Administrative Hearings Department of Audits & Accounts State Accounting Office The cost of each central service department is allocated to each benefitted agency based on a reasonable allocation basis (i.e., accounting transactions, cases, hours, etc.).

10. 10 Central Services Cost Allocation Plan Section I – allocated central service costs are usually negotiated and approved for a future fiscal year on a "fixed with carry-forward" basis. Under this procedure, the fixed amounts for the future year are not subject to adjustment for that year. However, when the actual costs of the year involved become known, the differences between the fixed amounts previously approved and the actual costs will be carried forward and used as an adjustment to the fixed amounts established for a later year. This "carry- forward" procedure applies to all central services whose costs were fixed in the approved plan.

11. 11 Central Services Cost Allocation Plan Section I – Simple example of a "fixed with carry-forward" basis: Based on FY 2013 actual cost allocation plan, $100,000 is allocated to Department ABC. The $100,000 becomes the “fixed cost” for Department ABC for FY 2015 (“future fiscal year”). Based on the FY 2015 actual cost allocation plan, $110,000 is allocated to Department ABC. Therefore, Department ABC has a $10,000 under-recovery for FY 2015 ($100,000 estimated vs. $110,000 actual). The FY 2017 “fixed costs” for Department ABC will be $120,000 ($110,000 based on the FY 2015 actual cost allocation plan, plus the $10,000 under- recovery for FY 2015). The $10,000 under-recovery is the “carry-forward” amount.

12. 12 Central Services Cost Allocation Plan Section I = “Fixed Costs" The total allocated costs from each central service department, inclusive of any carry-forward adjustments for over/under-recoveries, is approved by the U.S. Department of Health and Human Services (HHS). Once approved by HHS, the allocated central services costs to each benefitted agency will be delineated on a “Fixed Cost Schedule.” Operating agencies may include these costs when preparing their own Department Cost Allocation Plans or Indirect Cost Rate Proposals (ICRPs).

13. 13 Central Services Cost Allocation Plan Section II – billed central services include: Building Authority Technology Authority Department of Audits & Accounts (Federal Audits) Department of Administrative Services (DOAS): Human Resources Administration State Purchasing Office Fleet Management Surplus Property Self-Insurance Funds Health Insurance Risk Management Retirement

14. 14 Central Services Cost Allocation Plan Section II – Each billed central service activity must separately account for all revenues generated by the service, expenses incurred to furnish the service, and profit/loss. Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenue generated by each billed service to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs.

15. 15 Central Services Cost Allocation Plan Section II – In addition to the full recovery of costs, charges by an internal service activity may provide for the establishment and maintenance of a reasonable level of working capital reserve. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable.

16. 16 Department Cost Allocation Plan/ICRP A Department Cost Allocation Plan or Indirect Cost Rate Proposal (ICRP) is prepared by an operating agency to quantify, accumulate and allocate indirect costs identified within the department. Indirect costs may include (a) the indirect costs originating in each department carrying out Federal awards and (b) the costs of central governmental services distributed through the central service cost allocation.

17. 17 Department Cost Allocation Plan/ICRP Indirect costs are normally charged to Federal awards by the use of an indirect cost rate. A separate indirect cost rate(s) is usually necessary for each department or agency claiming indirect costs under Federal awards. Simplified Method - where an agency's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (1) classifying the agency's total costs for the base period as either direct or indirect, and (2) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base (i.e., salaries, salaries and fringe benefits, or modified total direct costs).

18. 18 Department Cost Allocation Plan/ICRP Multiple Allocation Base Method - where an agency’s indirect costs benefit its major functions in varying degrees, such costs must be accumulated into separate cost groupings. Each grouping must then be allocated individually to benefitted functions by means of a base which best measures the relative benefits. Often accomplished through the preparation of a Department Cost Allocation Plan.

19. 19 Indirect Cost Recoveries

20. 20 Agencies may include both central service allocated costs and department administration indirect costs when computing an indirect cost rate: Indirect Cost Recoveries An indirect cost rate must be applied to a direct cost base in order to determine the amount of indirect cost allocable to the federal award

21. 21 Indirect Cost Recoveries Direct Cost Base: Accumulated costs used to recover indirect costs from individual federal awards. The direct cost base selected should result in each award bearing a fair share of the indirect costs in reasonable relation to the benefits derived from those costs. Types of Direct Cost Bases: Salaries & Wages Salaries & Wages and Fringe Benefits Modified Total Direct Costs Modified Total Direct Cost Base is generally calculated to include salaries, wages, fringe benefits, allowable operating expenditures and the first $25,000 of sub grants/sub awards (pass through funding).

22. 22 Submission Requirements

23. 23 Central Services Cost Allocation Plan Each state is required to submit its cost allocation plan to the U.S. Department of Health and Human Services (HHS) for each year in which it claims central services costs to federal awards.

24. 24 Indirect Cost Rate Proposal  All departments or agencies desiring to claim indirect costs under federal awards must prepare an indirect cost rate proposal and related documentation to support those costs.  A department or agency that receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs.  Other departments or agencies are not required to submit their proposal unless specifically requested to do so by the federal cognizant agency for indirect costs.

25. 25 Indirect Cost Rate Proposal  10% De Minimis Rate - Any agency that has never received a negotiated indirect cost rate and that receives less than $35 million in direct Federal funding may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC) which may be used indefinitely.  For indirect cost rates and departmental indirect cost allocation plans, the cognizant agency is generally the federal agency with the largest dollar value of direct federal awards.

26. 26 Questions & Answers

27. 27 Questions & Answers Troy Tangen troytangen@maximus.com Thank You for Your Participation!