Presentation on theme: "DIRECT BENEFITS OF AN INDIRECT COST RATE"— Presentation transcript:
1 DIRECT BENEFITS OF AN INDIRECT COST RATE CCIA FALL CONFERENCE 2012OCTOBER 4, 2012Ask about the number of colleges with Federal Indirect cost rates.Heather McGeeSenior Manager, Audit Services DivisionVicenti, Lloyd & Stutzman LLPTelephone: (626) x292
2 INTRODUCTION Topics to be covered: General information on the nature of indirect costs and indirect cost ratesBenefits of having a federally approved indirect cost rateProcess of applying for an approved indirect cost rateGuidelines for preparing an indirect cost proposal
3 NATURE OF INDIRECT COSTS Costs that are incurred for common or joint objectivesCannot be readily identified with a particular project or activityExamplesCosts of operating and maintaining facilities, equipment and groundsDepreciation or use allocationGeneral and departmental administrationLibrary expensesDefinition 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 grantOverall 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 BargainingEnrollment Fee Collection & WaiversHealth Elimination FeeMandate Reimbursement Process I & IIDistrict #1 had Collective Bargaining, Health Fee Elimination, Integrated Waste, Interest IncomeDistrict #2 had Health Fee EliminationDistrict #2 had Agency Fee, Collective Bargaining, Health Fee Elimination, Enrollment Fee & Mandated Reim Process5) 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 calculationFederally approved rate VariesFAM-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 rateYour 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 ProvisionProvisional 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 rateIs 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 DOCUMENTSCertificate of Supplemental American Recovery and Reinvestment Act (ARRA) Indirect Costs Indirect Cost Proposal (ICP) Checklist Indirect Cost Proposal1st 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 informationThis 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 ServicesDepartment of DefenseDH&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 applicationImmediately after notification of awardNo later than 3 months after effective datePreviously established rateWithin 6 months after the close of each fiscal yearFailure to submit timely proposalsTime extensions are availableYou 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-21Cost Principles for Educational InstitutionsMethods of calculating indirect cost ratesSimplified 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 fundingOMB 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 METHODSegregate total salaries and wages from other current expenditures (both restricted and unrestricted general fund)Analyze current expendituresAllowable vs. nonallowableMake necessary reclassifications and adjustmentsSegregate institution’s allowable indirect costs from its direct costsEstablish a direct salary and wage baseCompute indirect cost rateChallenge 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 benefitsCopy of fringe benefit policyDescription of method(s) used to budget and charge fringe benefits to sponsored agreementsFunding practices for a “defined benefit” pension planInstitutions computation of a fringe benefit rate
18 TREATMENT OF FIXED ASSETS Exclusion of capital outlay expenditures Depreciation or use allocation allowanceCapital 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 DOCUMENTSOMB Circular A-21: Cost Principles for Education InstitutionsIndirect Cost Determination, Guidance for State and Local Government Agencies, U.S. Department of EducationOMB Circular A-87, Selected Items of CostA 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 OfficeThings not to do:Use unapproved indirect cost rate calculation for grants or mandate cost claimsCalculate the indirect cost rate and not submit it timely