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1 Help! My Federal Indirect Cost Rates Have Fallen and I Can’t Get Them Back Up! Federal Restricted Indirect Cost Rates for School Districts Pam Peppers.

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Presentation on theme: "1 Help! My Federal Indirect Cost Rates Have Fallen and I Can’t Get Them Back Up! Federal Restricted Indirect Cost Rates for School Districts Pam Peppers."— Presentation transcript:

1 1 Help! My Federal Indirect Cost Rates Have Fallen and I Can’t Get Them Back Up! Federal Restricted Indirect Cost Rates for School Districts Pam Peppers Supervisor of School District/ESD Financial Reporting (360)

2 2 Federal Indirect Cost Rates What is an indirect cost rate? What is an indirect cost rate? What does “fixed with carry-forward” mean? What does “fixed with carry-forward” mean? How do districts determine which rate to use? How do districts determine which rate to use? What is a distorting item? What is a distorting item? What is an indirect expenditure? What is an indirect expenditure? What is a space and occupancy plan? What is a space and occupancy plan? How is the indirect rate calculated? How is the indirect rate calculated? Why were there so many changes on the FY F-196? Why were there so many changes on the FY F-196?

3 3 What Is An Indirect Cost Rate? The indirect cost rate is the maximum percent of dollars the district can expend from state and federal grants for administrative costs. Certain grants may have a more restrictive administrative cap. Indirect cost rates (limits) ensure that state and federal moneys are expended for intended uses and for allowable costs, including expenditures directly traceable to the program (direct expenditures) plus a limited allowance for overhead or indirect expenditures. The indirect cost rate is the maximum percent of dollars the district can expend from state and federal grants for administrative costs. Certain grants may have a more restrictive administrative cap. Indirect cost rates (limits) ensure that state and federal moneys are expended for intended uses and for allowable costs, including expenditures directly traceable to the program (direct expenditures) plus a limited allowance for overhead or indirect expenditures. Two rates are calculated for each district and are unique to each district: Two rates are calculated for each district and are unique to each district:  A “fixed with carry-forward” indirect cost rate is calculated for each district for all of its restricted federal grants.  A “fixed with carry-forward” indirect cost rate is calculated for all of its unrestricted federal grants.

4 4 How Do Districts Determine Which Rate To Use? Typically, restricted rates must be used for all federal awards where “supplement but not supplant” is in the authorizing language. Almost all U.S. Department of Education federal programs fall into this category. The restricted rate is the lower of the two rates. Typically, restricted rates must be used for all federal awards where “supplement but not supplant” is in the authorizing language. Almost all U.S. Department of Education federal programs fall into this category. The restricted rate is the lower of the two rates. Unrestricted rates may be used for those federal grants that do not have a supplant provision. The unrestricted rate uses the same calculation as the restricted rate except expenditures for maintenance and grounds are included, resulting in a higher rate. Unrestricted rates may be used for those federal grants that do not have a supplant provision. The unrestricted rate uses the same calculation as the restricted rate except expenditures for maintenance and grounds are included, resulting in a higher rate. If there is a question as to which rate you should use, consult the district grant writer or contact OSPI if the grant flows through our agency. If there is a question as to which rate you should use, consult the district grant writer or contact OSPI if the grant flows through our agency.

5 5 What Does Fixed With Carry-Forward Mean? A fixed with carry-forward provision is a rate computed and fixed for a specified future school year based on an estimate of that school year’s level of operations. However, when the actual costs of that school year become known, the difference between the estimated costs and the actual costs is “carried forward” as an adjustment to a subsequent school year for which a rate is established. A fixed with carry-forward provision is a rate computed and fixed for a specified future school year based on an estimate of that school year’s level of operations. However, when the actual costs of that school year become known, the difference between the estimated costs and the actual costs is “carried forward” as an adjustment to a subsequent school year for which a rate is established. For example: For example: 1) The F-196 is used to calculate a rate of 5.4% for the school year (2-year lag). 2) If the actual rate calculated at the end of the school year is only 4.2%, then the adjusted rate of 4.2% will be used for the school year.

6 6 What Is A Distorting Item? Distorting items are activities that do not occur regularly each year, but “distort” the regular expenditure pool used in the indirect calculation. Districts will need to determine and document expenditures they consider significant and distorting. If an unexpected and significant expenditure is recognized during the year, and is not considered a Capitol Project Fund project, the expenditure could be considered distorting. Distorting items are activities that do not occur regularly each year, but “distort” the regular expenditure pool used in the indirect calculation. Districts will need to determine and document expenditures they consider significant and distorting. If an unexpected and significant expenditure is recognized during the year, and is not considered a Capitol Project Fund project, the expenditure could be considered distorting. Distorting items reduce the direct expenditure base (the denominator) which increases the indirect rate. Distorting items reduce the direct expenditure base (the denominator) which increases the indirect rate.

7 7 Distorting Items Flow-through grants, contingencies, election expenses, renovations and alterations, and fines and penalties charged in Program 97 are specific types of distorting items. Flow-through grants, contingencies, election expenses, renovations and alterations, and fines and penalties charged in Program 97 are specific types of distorting items.  Flow-through grants are awards received by a school district and “passed through” to another district. The students in the district receiving the award do not benefit by the flow- through award. If the grant amount is $100,000, and the district passes $25,000 to another district, the amount of “flow-through” is $25,000.  Although the federal language includes contingencies as a distorting item, they are generally not applicable to school districts.  Election expenses charged to Program 97 are considered distorting, if they are significant.

8 8 Distorting Items (cont.)  Renovations and alterations may be considered distorting if the expenditures are unusual, unexpected, and significant. For example, an unexpected total replacement of an HVAC system, including the ventilation system, computer, etc., is significant in cost and may be considered distorting. Replacing the HVAC filters each year is not distorting. Although the cost may be significant, the district prepares and budgets for filter replacement costs.  Fines and penalties assessed against the district by L&I, OSHA, WISHA, or IRS late fees for filing late payroll taxes may be considered distorting if significant.

9 9 What Is An Indirect Expenditure? Indirect costs (expenditures) represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the school district and the conduct of activities it performs. Typically, salaries and expenses for auditing, budgeting, payroll, personnel, purchasing, and employee relations are examples of costs that are considered to be indirect costs. Indirect costs (expenditures) represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the school district and the conduct of activities it performs. Typically, salaries and expenses for auditing, budgeting, payroll, personnel, purchasing, and employee relations are examples of costs that are considered to be indirect costs. In theory, costs like heat, light, accounting, and personnel might be charged directly to programs if little meters could record minutes in a cross-cutting manner. However, this is not practical; therefore, cost allocation plans or indirect cost rates are used to distribute those indirect expenditures. In theory, costs like heat, light, accounting, and personnel might be charged directly to programs if little meters could record minutes in a cross-cutting manner. However, this is not practical; therefore, cost allocation plans or indirect cost rates are used to distribute those indirect expenditures.

10 10 Indirect Expenditures Audit costs charged to Program 97, Activity 11, but not charged directly to another program, may be included in the indirect expenditure pool. Audit costs charged to Program 97, Activity 11, but not charged directly to another program, may be included in the indirect expenditure pool. Legal costs are generally not includible in the indirect expenditure pool. Legal costs are generally not includible in the indirect expenditure pool. Costs for the Superintendent or Assistant Superintendent charged completely to activity 12, but allocable to activity 13 or 14 and are considered indirect expenditures and are included in the calculation on the F-196. Costs for the Superintendent or Assistant Superintendent charged completely to activity 12, but allocable to activity 13 or 14 and are considered indirect expenditures and are included in the calculation on the F-196. Other costs included in the indirect expenditure pool are: Other costs included in the indirect expenditure pool are:  Public relations not charged directly to a specific program.  Termination leave for federally supported staff not charged to Program 97.  Space and occupancy costs.

11 11 What Is A Space And Occupancy Plan? Space and occupancy maintenance costs associated with organization-wide service functions, such as accounting, payroll, or personnel, may be included as general management costs if a space allocation or use study supports the allocation. Space and occupancy maintenance costs associated with organization-wide service functions, such as accounting, payroll, or personnel, may be included as general management costs if a space allocation or use study supports the allocation. As an example, if the district has done an analysis of the total square footage for the central administration building, and the business office occupies 25% of that total square footage, 25% of allowable expenditures may be included in the indirect pool. Therefore, 25% of the expenditures for the central administration building costs for supervision, grounds, operation of buildings, maintenance, utilities, security, and insurance may be included in the indirect pool (numerator). As an example, if the district has done an analysis of the total square footage for the central administration building, and the business office occupies 25% of that total square footage, 25% of allowable expenditures may be included in the indirect pool. Therefore, 25% of the expenditures for the central administration building costs for supervision, grounds, operation of buildings, maintenance, utilities, security, and insurance may be included in the indirect pool (numerator).

12 12 How Is The Indirect Rate Calculated? The simple answer is the numerator (indirect expenditures) divided by the denominator (direct expenditures) equals the district indirect rate. The simple answer is the numerator (indirect expenditures) divided by the denominator (direct expenditures) equals the district indirect rate. The calculation on the F-196 Schedule for Determining School District Federal Restricted Indirect Cost Rates Including Fixed With Carry-Forward Calculation determines the Indirect Expenditure Pool (column 6) and the Direct Expenditure Base (column 7) and uses those figures in the “Fixed with Carry- Forward” calculation to determine the indirect rate to be used in the subsequent 2-year period. The calculation on the F-196 Schedule for Determining School District Federal Restricted Indirect Cost Rates Including Fixed With Carry-Forward Calculation determines the Indirect Expenditure Pool (column 6) and the Direct Expenditure Base (column 7) and uses those figures in the “Fixed with Carry- Forward” calculation to determine the indirect rate to be used in the subsequent 2-year period.

13 13 Why Were There So Many Changes On The FY F-196? Every five years each state proposes an indirect rate plan to the Education Department, Office of the Chief Financial Officer. For Washington State the new federal indirect rate proposal begins in FY In order to comply with the proposal, OSPI was required to revise the FY indirect rate calculation because the indirect cost rate calculated on the FY F-196 will be used in FY Every five years each state proposes an indirect rate plan to the Education Department, Office of the Chief Financial Officer. For Washington State the new federal indirect rate proposal begins in FY In order to comply with the proposal, OSPI was required to revise the FY indirect rate calculation because the indirect cost rate calculated on the FY F-196 will be used in FY Change it again! D.O.E.

14 14 Questions and Discussion Changes in guidance Changes in guidance Distorting and Indirect Expenditure Input Items Distorting and Indirect Expenditure Input Items Better explanation of what is being required? Better explanation of what is being required? Q&A on the web---enhance guidance? Q&A on the web---enhance guidance? OSPI training sessions at WASBO, ESDs or Business Manager Meetings. OSPI training sessions at WASBO, ESDs or Business Manager Meetings. Other Questions or Discussion? Other Questions or Discussion?

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