1. DIRECT BENEFITS OF AN INDIRECT COST RATE
CCIA FALL CONFERENCE 2012
OCTOBER 4, 2012
Ask about the number of colleges with Federal Indirect cost rates.
Heather McGee
Senior Manager, Audit Services Division
Vicenti, Lloyd & Stutzman LLP
Telephone: (626) x292

2. INTRODUCTION Topics to be covered:
General information on the nature of indirect costs and indirect cost rates
Benefits of having a federally approved indirect cost rate
Process of applying for an approved indirect cost rate
Guidelines for preparing an indirect cost proposal

3. NATURE OF INDIRECT COSTS
Costs that are incurred for common or joint objectives
Cannot be readily identified with a particular project or activity
Examples
Costs of operating and maintaining facilities, equipment and grounds
Depreciation or use allocation
General and departmental administration
Library expenses
Definition of direct costs – a cost that can be identified specifically with a particular program or activity.

4. BENEFIT OF HAVING AN APPROVED INDIRECT COST RATE
Ability to recover a portion of District’s administrative costs for grants and mandated cost programs Leveraging tool when negotiating a grant Provides an indication of the District’s indirect contribution to any grant or special program Assists in the budget process for a grant
Overall you have a greater reimbursement with an approved rate.
Survey of uses of the indirect cost rate:
-Negotiation process of a new grant & establishing that rate (#1 reason)
-Mandated cost audits
-Matching requirements
-Benchmarking

5. MANDATED COST REIMBURSEMENT
State of California allows reimbursement for 16 different programs.
Most common claims for Community Colleges are:
Collective Bargaining
Enrollment Fee Collection & Waivers
Health Elimination Fee
Mandate Reimbursement Process I & II
District #1 had Collective Bargaining, Health Fee Elimination, Integrated Waste, Interest Income
District #2 had Health Fee Elimination
District #2 had Agency Fee, Collective Bargaining, Health Fee Elimination, Enrollment Fee & Mandated Reim Process
5) Absentee Ballots, 6) Agency Fees, 7) Cal Grant, 8) CalSTRS Service Credit, 9) Community College Construction, 10) Open Meetings, 11) Prevailing Wage Rate, 12) Reporting improper Gov’mt Activities, 13) Sex Offenders: Disclosures by Law Enforcement Officers, 14) Threats Against Peace Officers, 15) Tuition Fee Waivers, 16) Travel Expense Guidelines,

6. MANDATED COST REIMBURSEMENTS
Types of Reimbursements allowed by the State Controller’s Office:
Default rate 7%
Indirect cost rate for state FAM-29C mandates calculation
Federally approved rate Varies
FAM-29C is intended to be consistent with A-21. It’s objective is to determine an equitable rate to allocate administrative cost for who performed the mandated cost activities.
In , AB 1610, the education trailer biller, provided $22.3M for mandate claims from PY. These funds were distributed to the CCDs on an equal per FTES basis $17.78 based on Actual FTES reported at the P2 to the extent funding provided to a district exceeds a district’s outstanding mandate claims.
The Federally approved rate does vary. For my client’s the calculated rate has varied from 30% to 40%. The negotiated rate varies from 26% to 40%.
I’ve seen a trend with DH&HS lately, they really don’t want to dig in and audit the calculations submitted… using the claim that CCD’s are so small, the department covers 12 states, so they are busy, they are understaffed, etc.

7. REIMBURSEMENT OF INDIRECT COSTS FOR FEDERAL GRANTS
Training Grants Limit of 8% with or without approved rate Research and Development Grants Varies by grant but typically will allow reimbursement at the approved rate
Your best bet is to have the rate in the grant agreement. Having a preapproved rate will help.

8. TYPES OF INDIRECT COST RATES
Provisional Rate Final Rate Predetermined Rate Fixed Rate with Carry-forward Provision
Provisional Rate – Temporary rate established for a given period of time to permit funding and reporting of indirect costs until final rate is determined. Later adjustments for difference between provisional & permanent rate.
Final Rate – Permanent rate other institutions actual costs are know and amount of allowable indirect of allowable indirect cost applicable sponsored projects have been determine. No subject to adjustment.
Predetermined rate – Permanente rate established for a specific future periods (fiscal year) based on an estimate of costs fro that future period. Used when there is reasonable assurance based on experience and a reliable estimate of costs, that predetermined rate will approximate actual costs.
Fixed rate – Similar to predetermined rate except the difference between the estimated costs used to establish the fixed rate and actual costs of the fiscal year covered by the rate is “carried forward” as an adjustment to future years. Carry forward provision applied to the 2nd or 3rd year.
Predetermined & Fixed Rates are recommended because they permit a more timely closing of completed projects and eliminate the necessity of retroactive adjustments.

9. SELECTING THE TYPE OF RATE THAT IS RIGHT FOR YOUR DISTRICT
Factors to consider when choosing the type of rate
Is the rate adjustable?
Will a retroactive adjustment be necessary?
Is the District able to close projects in a timely manner?
Approving agency will determine what type rate you are given and how long it is good for.

10. PROPOSAL DOCUMENTS
Certificate of Supplemental American Recovery and Reinvestment Act (ARRA) Indirect Costs Indirect Cost Proposal (ICP) Checklist Indirect Cost Proposal
1st document is a statement certifying that the indirect cost proposal has been reviewed by a institutional representative and that the cost allocation & allowability have been made based on OMB-21.
2nd document contains 11 questions related to the indirect cost proposal

11. SUPPORTING DOCUMENTATION
Independently audited financial statements District’s financial statements (CCFS-311) Reconciliation of any differences between expenditures reported per audit and per CCFS-311 Fringe benefit information
This is the documentations that will be included in the documents submitted.
Your financial statements are presented in GASB 34/35 format which combines all funds in one column. The only way to tie the CCFS-311 into the financial statements is by net assets. Total Net Assets ties between the Statement of Net Assets in the financial statement and the reconciliation page.
Total Net Assets for both General Funds (Restricted & Unrestricted) tie to the reconciliation page in the financial statements and page 6 of the CCFS-311.
The indirect cost spreadsheets are prepared using the CCFS-311 Functional Expense for both General Funds (Restricted & Unrestricted) which begins on 27 and ends on page 31.
Fringe benefits - There’s a slide later than give more information.

12. WHERE TO SUBMIT PROPOSALS
Cognizant agency for reviewing and approving indirect cost rates:
Department of Health & Human Services
Department of Defense
DH&HS is the most common agency used for CCDs. Also, they are the only Agency willing to negotiate for other Departments.
Unless you have a significant Department of Defense contract, the Dept. of Defense will not negotiate. I only work with the Dept. of Defense for one client and when I talked to them they were trying to figure out how they could get out of negotiating it.
Keep in mind it’s a negotiated process, so take the call from the Negotiator ready to wheel and deal.

13. DUE DATES AND COVERAGE OF PROPOSALS
First-time application
Immediately after notification of award
No later than 3 months after effective date
Previously established rate
Within 6 months after the close of each fiscal year
Failure to submit timely proposals
Time extensions are available
You don’t want to fail to submit your proposal timely, but if you do… be sure to communicate with the department.

14. GUIDELINES FOR PREPARING INDIRECT COST PROPOSALS
OMB Circular A-21
Cost Principles for Educational Institutions
Methods of calculating indirect cost rates
Simplified Method: Federal funding* less than $10 million in Federal expenditures.
Long Form Method: Federal funding $10 million or greater in Federal expenditures.
*Determination excludes Student Financial Aid funding
OMB A-21 defines the appropriate cost principles for determining cost applicable to grants.
There are 54 selected items of costs that are either allowable or unallowable.

15. SIMPLIFIED METHOD
Segregate total salaries and wages from other current expenditures (both restricted and unrestricted general fund)
Analyze current expenditures
Allowable vs. nonallowable
Make necessary reclassifications and adjustments
Segregate institution’s allowable indirect costs from its direct costs
Establish a direct salary and wage base
Compute indirect cost rate
Challenge with segregating the salaries & wages is the CCFS-311 reports in Salaries & Benefits. It’s a lot easier to do if you have a query.
Allowable vs nonallowable… take your auditor hats off. Nonallowable doesn’t mean noncompliance or unallowable, it means it can’t be included in the indirect cost calculation.
Examples of unallowable are FWS expenses; equipment & capital expenditures; catalogs & schedules; commencement & convocation costs; dues & memberships; advertising & promotional items; interest expense; bad debt; HR legal expense, housing allowances, mileage allowances.
The RJEs & AJEs for this calculation is fun. In some cases you reclass expenses from one direct activity to another direct activity only to eliminate it in the next schedule.
As far as they classification, just follow the DH&HS example.

16. INDIRECT PROPOSAL FORMAT – SIMPLIFIED METHOD
Classification of expenditures Reclassifications Adjustments Calculation of rate

17. FRINGE BENEFITS Information submitted with indirect cost proposal
Listing of fringe benefits
Copy of fringe benefit policy
Description of method(s) used to budget and charge fringe benefits to sponsored agreements
Funding practices for a “defined benefit” pension plan
Institutions computation of a fringe benefit rate

18. TREATMENT OF FIXED ASSETS
Exclusion of capital outlay expenditures Depreciation or use allocation allowance
Capital outlay expenditures are considered an unallowable costs.
With GASB 34/35, all District’s are reporting fixed assets in the FS, but typically they are not reported in the Unrestricted or Restricted General Funds.
For the indirect cost purposes, a use allowable can be calculated:
For buildings - using Report 17 for square footage information, historical costs and applying use allowance of 2%.
For equipment – historical costs x 1%.

19. RESOURCE DOCUMENTS
OMB Circular A-21: Cost Principles for Education Institutions
Indirect Cost Determination, Guidance for State and Local Government Agencies, U.S. Department of Education
OMB Circular A-87, Selected Items of Cost
A Guide for Colleges and Universities, Cost Principles and Procedures for Establishing Indirect Cost and Other Rates for Grants and Contracts with the Department of Health and Human Services (Appendix E contains a sample calculation using the Simplified Method)
Mandated Cost Manual for Schools, State Controller’s Office
Things not to do:
Use unapproved indirect cost rate calculation for grants or mandate cost claims
Calculate the indirect cost rate and not submit it timely