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Fiscal Overview Part I: Cost Allocation

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Presentation on theme: "Fiscal Overview Part I: Cost Allocation"— Presentation transcript:

1 Fiscal Overview Part I: Cost Allocation
Part II: Administrative Requirements Part III: Cost Principles Part IV: Audit Requirements Part V: Procurement Part VI: DCEO Reporting Requirements

2 Federal Regulations Educational Institutions States, Local Governments
& Indian Tribes Non-Profit Organizations Commercial COST PRINCIPLES OMB A-21 OMB A-87 OMB A-122 48 CFR 31 UNIFORM ADMINISTRATIVE REQUIREMENTS 29 CFR 95 29 CFR 97 AUDIT REQUIREMENTS OMB A- 133 OMB A-133 29 CFR 96

3 Part I: Cost Allocation & Time Distribution
Slide 1 – Cost Allocation Hello. I’m _______________ (tell the audience your job title and where you are from). My co-trainer for this session is _______________ (tell the audience about your co-trainer). We will be reviewing the cost allocation requirements that are applicable to ETA-funded grant programs and discussing appropriate methods for allocating costs and the requirements for CAPs. This presentation is drawn from Chapter II-8 of the TAG. Additional requirements related to cost allocation are found in the uniform administrative requirements that are codified at 29 CFR Parts 95 and 97 as well as the cost principles found in the OMB circulars and discussed in Module II-2. Appendix C contains Internet addresses that will allow you to download these materials for your use.

4 .Cost Allocation The process used to distribute costs to a final cost objective based on benefits received Costs Direct Shared Slide 2 – Definition Cost allocation is defined as the process used to distribute costs to a final cost objective based on the concept of benefits received. Some costs are directly charged to one cost objective, some costs are split between multiple cost objectives through direct charging, and some costs are distributed to final cost objectives by pools and the use of appropriate allocation bases. Allocability is a measure of the extent to which a cost benefits its cost objectives, such as a particular ETA grant program or cost category. Indirect

5 Federal Guidance OMB Circular A-87 OMB Circular A-122
48 CFR Part 31 45 CFR Part 74, Appendix E Guidance on direct and indirect costs Slide 3 – Federal Guidance Allocability is one of the basic cost principles used in determining whether a cost is allowable. Cost allocation guidance is contained in the OMB circulars and various regulations that also provide the guidance or requirements for allowable costs. These requirements are OMB Circular A-87. This circular applies to activity conducted by State, local, and Indian tribal governments. It also includes State schools (lower and higher education). OMB Circular A This circular applies to activity conducted by nonprofit organizations that are not covered by other applicable cost principles. OMB Circular A-21. This circular applies to activity conducted by institutions of higher education, i.e., post-secondary colleges and universities. It does not apply to proprietary schools. These institutions are covered by the principles contained in either A-122 or the FAR, depending on the type of organization. 48 CFR Part 31 contains the cost principles applicable to commercial recipients. These organizations are defined as “private-for-profit” and are acting as recipients or subrecipients of Federal funds. Title 48 is commonly referred to as the Federal Acquisition Regulations or FAR. 45 CFR Part 74, Appendix E, contains the cost principles for hospitals that are recipients or subrecipients of Federal funds. Hospitals may be for-profit or nonprofit organizations, but they are governed by these regulations rather than the circular or regulation applicable to their type of organization. The circulars and regulations contain guidance on the treatment of both direct and indirect costs and are also discussed in Module II-2 covering the Federal cost principles and allowable cost standards.

6 Treatment of Costs Direct charge whenever possible
Consistent treatment In accounting system Over time Measuring benefit Benefit determines allocation Slide 6 – Treatment of Costs Costs must receive consistent treatment in the books of account, and the treatment must be consistent over time. In addition, treatment must be consistent with what would be charged to the non-grant funds for the same product or services. For example, if a cost is treated as a direct cost to a final cost objective of a WIA grant in one quarter, then the same cost incurred for the same purpose may not be assigned to a cost pool and allocated to a final objective in a subsequent quarter. Measuring benefit is a critical requirement and the central task of the cost allocation process. In order for a cost to be allowable, a benefit must be received by the specific program being charged. Costs may be charged only to the extent that the program receives a benefit. Often, the extent of that benefit is not readily identified, and the program or a particular reporting category receives only a partial benefit. It is these costs that are subject to cost allocation.

7 Types of Costs Direct Shared Indirect Single cost objective
Multiple cost objectives, or Multiple fund sources Indirect Overhead Slide 4 – Types of Costs There are three separate categories of costs: direct costs, shared costs, and indirect costs. Direct costs are clearly assignable to a single final cost objective and do not require any further breakdown. For example, the costs of the case manager for an organization that is wholly funded by the Title IB youth program would be assignable to the program cost category. Shared costs are costs that cannot initially be charged to a single final cost objective but which are chargeable instead to multiple cost objectives within a single funding source, to multiple funding sources and a single cost objective, or to some combination of the two. These costs may be program or administrative costs and are within the department or organization incurring the costs. The third category of costs are the indirect costs. These costs are also known as overhead or G&A costs. They are most often administrative-type costs incurred in support of the programs but which cannot be readily identified as a specific program cost. They may originate either within the recipient organization or department or in another department that supports the overall operations of the organization. Indirect costs are charged back to the program through an indirect cost plan. Guidance for the development of organization-wide indirect CAPs is contained in the appropriate OMB cost principles circulars. We will be discussing CAPs later in this presentation. Cost allocation requirements apply to the shared and indirect costs, and it is those costs that we will focus on today.

8 What are Direct Costs? Those costs that can be readily identified with a particular cost objective. Examples (program specific): Salaries Space Supplies Communications

9 What are Indirect Costs?
Those costs that are not readily identifiable with a particular cost objective Examples: Salaries Space Supplies Telecommunications Management & overhead

10 Cost Objectives Intermediate Final Cost pools or cost centers
Funding source Cost category Slide 5 – Cost Objectives Costs are accumulated in the books of account through classification or assignment to a cost objective. A cost objective is defined as an activity for which separate cost measurement is performed. An intermediate cost objective is an accumulation of like costs that is initially assigned to dissimilar categories such as organizational units or job functions and then ultimately assigned through another allocation process to a final cost objective. The final cost objectives for our purposes here would include funding sources, reporting categories, cost categories, projects, etc. The only final cost objectives applicable to our discussion are the ETA-funded grants, cost categories, and reporting activities.

11 Allocation Bases Keep in mind
Fair basis & equitable to all fund sources Minimal distortion Actual costs only (Can’t Charge $80k for Program Director’s Salary if he is paid $50k) General acceptability Timely management control Materiality, cost, and practicality of use Controllable Direct relationship to costs Slide 9 – Allocation Bases In establishing an allocation base to be used to distribute pooled costs, a number of conditions are applied to the acceptability and use of the bases. These conditions are discussed in detail in the TAG and are derived from the applicable circulars and regulations. The criteria used to develop the allocation base should include the following: The allocation base should provide a fair basis for distributing costs. In other words, there must be a relative benefit received by each final cost objective. It should have minimal distortion. For example, it would be better if the costs of an intake pool are distributed on the basis of total applicants rather than on the basis of total job placements, as there is a direct relationship between applicants for services and intake costs. It must represent actual costs and effort. It may not be based solely on the basis of a budget or planned activity, as these do not represent actual effort. It should be generally acceptable and in accordance with GAAP. For example, it would not be appropriate to allocate this year’s costs using last year’s enrollment or participant data. It should be within the ability of the organization to control in a timely manner. For example, if staff salaries are used as an allocation base, then the ending of a grant or the startup of a new grant may impact the use of the base. The base must be adjusted for variations in funding received by the organization and subrecipient costs that are incurred. If additional funding is received during the year, appropriate costs under that funding must be included as a factor in allocating costs in order to have a fair distribution. For example, if a grantee receives a grant mid-way through the funding period, this grant must share in the distribution of costs from an administrative cost pool. Again, a G&A pool is not programmatic vs. administrative cost distinctions. The base should also be the most practical and least costly method of allocating costs. Information that is readily available in the grantee’s information management system should be utilized whenever possible, rather than collecting or using a separate data base solely for allocating costs.

12 What is a Cost Allocation Plan? (CAP)
A document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution. Federally approved Cost Allocation Plan

13 Cost Allocation Plans Must be: In writing
Include a process for reconciliation and adjustment Periodically validated and updated Slide 17 – Cost Allocation Plans A CAP is the written documentation prepared by an organization that describes and supports both the joint or indirect costs and the allocation methods used to distribute them. The allocation plan must be supported by the formal accounting records of the agency or organization and signed by an authorized representative of the organization. Costs should then be allocated in accordance with the descriptions contained in the CAP.

14 Benefits of a CAP Management tool Equitable sharing of costs
Establishes financial management standards Meets cost principles and standards Eliminates arbitrary methods of charging costs Standardizes financial practices Slide 21 – Benefits of a CAP If used properly, a CAP can be a valuable tool in the overall management of funds. In addition to documenting the allocation of costs, the plan may also be used as a method to develop budgets or prepare plans. Implementation of the plan ensures that costs are equitably distributed over all affected programs and activities. This will alleviate any audit issues that might arise. It also eliminates the sometimes arbitrary methods of direct charges and will result in full reimbursement from each program. A CAP establishes financial management standards and practices that may be applied uniformly throughout the organization. It also meets the required cost principles and Federal financial standards. And, finally, a CAP may be used to standardize the financial policies and practices of an organization.

15 Types of CAPs Indirect cost plan CAP of the organization
Addressed in OMB Cost Circulars Federal agency approval required Need Letter from federal cognizant agency Rate should not be applied against direct costs that require little administrative involvement (e.g., ITAs, large subcontract amounts). Refer to letter. Includes an indirect cost rate CAP of the organization Shared indirect costs Awarding agency approval Slide 18 – Types of CAPs There are two types of CAPs. First, there is the Indirect Cost Plan used to recapture general indirect costs of the organization. The specifications for the development of these plans are found in the OMB circulars, the regulations, and additional guidance from both the DOL Office of Cost Determination and DHHS. The second type of plan is the CAP of the organization. This type of plan provides the documentation for allocation of joint or shared costs and is also referenced in the indirect cost rate proposal approved for the overall Indirect Cost Plan. It is this type of plan that we will be discussing today.

16 Indirect Costs Allowable to the extent
Contained in a Cost Allocation Plan Identify as a separate cost pool & allocated to programs based on equitable benefit Approved by cognizant Federal Agency, if required Must be within Administrative Cost limitations Generally overhead costs of organization Can not include unallowable costs such as fundraising Slide 16 - Indirect Costs Indirect costs are also allowable grant costs. These costs are often referred to as G&A or overhead costs. Indirect costs reimbursable under a grant are only allowable to the extent that they have been identified in an Indirect Cost Allocation Plan or are billed in accordance with a negotiated indirect cost rate. For the most part, these plans must also be submitted to and approved by the organization’s cognizant Federal agency. Exemption from prior approval will be found in the applicable OMB cost Circular. Indirect costs will also be discussed in Module II-4 of this training which addresses cost allocation issues.

17 Time Distribution System that distributes staff salaries & benefits
Based on staff time spent on certain activities, projects, and grants Needed if staff work on multiple projects/fund sources Ensure sufficient activity/project codes to cover all funding sources

18 Time Distribution System must: Account for 100% of staff time
Allocate only time that is being paid Should be completed by staff at least on a monthly basis and approved by a supervisor Actual allocation of costs should be traceable to staff time activity report Time & Attendance Records (Personnel Activity Reports) Use also for allocating non-personnel costs

19 Common Compliance Findings
No written cost allocation plan or approved indirect cost rate in place Direct charging of all staff time to one program when individuals were working on multiple programs Costs related to an approved indirect cost rate exceeded the allowable administrative cost limitation for a program

20 Common Compliance Findings
Costs were allocated based on funding projections Allocation bases used by staff were not consistent with the bases and cost pools described in the agency’s cost allocation plan Costs were allocated every six months rather than on a monthly or quarterly basis

21 Part II: Uniform Administrative Requirements & Financial Management Standards

22 Applicable Federal Administrative Requirements
Non-Profits and Institutions of Higher Education must comply with the administrative requirements at 29 CFR Part 95.

23 All Financial Systems Must Adhere to 7 separate standards
1. Financial reporting System must permit preparation of Federal financial reports Must report accruals 2. Accounting records Adequately identify grant funds Awards, obligations, assets, liabilities, income, and expenditures (Fund Accounting) Supported by source documentation Must be maintained in accordance with GAAP

24 More Financial Standards
5. Allowable costs Only allowable costs charged 6. Source documentation Costs must trace to authorizing document Proof that costs are allowable & allocable 7. Cash management System to control cash assets

25 Internal Control System (ICS) What is it?
The process used by an agency to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to management’s policies.

26 Internal Control System (ICS) How to monitor the ICS?
Interview, review, and test: Segregation of duties Authorization, execution and payment Competent personnel Integrity, training, and supervision Access to assets is limited Records are periodically compared to existing assets Authorized transactions are recorded in a timely manner

27 Financial & Administrative Procedures
Formalize procedures in writing Distribute to all appropriate staff Include at a minimum the following policies: Payroll References to Applicable Federal Regulations Financial Reporting Purchasing/Procurement Cash Management Cost Allocation Plan or Policies Property Management Audit Travel Bonding Petty Cash Payment Approval/Cash Disbursements Cost Classification Bank Reconciliations Posting to Books of Account

28 Property Management Equipment records shall be maintained accurately and shall include the following information: (i) A description of the equipment. (ii) Manufacturer's serial number, model number, Federal stock number, national stock number, or other identification number. (iii) Source of the equipment, including the award number. (iv) Whether title vests in the recipient or the Federal Government. (v) Acquisition date (or date received, if the equipment was furnished by the Federal Government) and cost. (vi) Information from which one can calculate the percentage of Federal participation in the cost of the equipment (not applicable to equipment furnished by the Federal Government). (vii) Location and condition of the equipment and the date the information was reported. (viii) Unit acquisition cost. (ix) Ultimate disposition data, including date of disposal and sales price. A physical inventory of equipment shall be taken and the results reconciled with the equipment records at least once every two years.

29 Part III: Cost Principles

30 Federal Cost Principles
Purpose – provides that the Federal government bears its fair share of costs except where restricted or prohibited by law Reasonable & Necessary “Prudent Person Rule” Arm’s Length Transaction Allocable Clearly benefit program Both direct & indirect costs

31 Factors Affecting Allowability of Costs
Authorized or not prohibited Consistent with the Federal Rules & Circulars Consistent treatment Across time & program lines Not used as match Unless specifically authorized

32 Allowability Documented Consistent with GAAP
Traceable to source documentation Consistent with GAAP Accounting standards & treatment Conform to limitations/exclusions contained in the cost principles Net of applicable credits

33 Allowable Costs Examples
Payroll Salary & bonus limitations ETA funded programs per TEGL5-06 per Public Law Requires documentation supporting time distribution Travel Training Audit

34 Costs Allowable With Conditions Examples
Advertising/Public Relations Solely for public relations of organization – unallowed. RFP & promotion of program/grant – allowable Capital Assets Purchase of land or buildings – unallowed Equipment – allowable (w/ prior approval)

35 Unallowable Costs EXAMPLES
Entertainment Allowable for certain WIA Youth recreation activities Lobbying Losses, fines & penalties Alcoholic Beverages Contingency reserves Employment Generating/Economic Development Activities Donations and contributions Goodwill

36 Part IV: Audit Requirements

37 Audit Requirements Grant Agreement: Audited Financial Statements
OMB Circular A-133: A Single Audit is required when an Entity expends more than $500,000 or more in federal funds in a fiscal year.

38 Applicability Who is required to have a Single Audit?
States, local governments, and non-profit organizations that are direct grant recipients & sub recipients of Federal funds Commercial organizations that expend $500,000 or more and are a sub recipient under WIA Title I must adhere to OMB Circular A-133 Audit Requirements WIA Regulations at 20 CFR

39 Part V: Procurement & Contracting
29 CFR 97.36 29 CFR WIA Regulations

40 Procurement Requirements
Minimum requirements Written procurement/purchasing procedures Written code of conduct & conflict of interest policies Procedures to review procurements Cost price analysis (determination of needs, costs, estimates, etc.) Demonstrated ability to perform Close-out & protest process of contracts (records, settlement, etc.)

41 Partners? Identifying partner organizations in your grant proposal and agreement DOES NOT PRECLUDE you from abiding by Federal procurement procedures All services and goods within your grant agreement ARE SUBJECT to procurement Grantees need to use FULL & OPEN COMPETITION when contracting with partners EXCEPTION: In accordance with TEGL 14-08, procurement is not required for ARRA-funded contracts with institutions of higher education, such as community colleges, and other eligible training providers

42 Procurement Methods 1. Small purchase - INFORMAL
2. Sealed bids – FORMAL (technical specifications & price) 3. Competitive proposals – FORMAL (request for proposals) 4. Non-competitive proposals – sole source or limited competition

43 Small Purchase Informal method for easily purchased items
Example: office supplies, equipment, etc. Price is the factor (ONLY FACTOR) Easily quoted, standardized product, no performance, etc. Threshold limit – commonly seen from $500 to $5,000 – establish a limit suitable for your agency Minimum of three (3) quotes DOCUMENTED

44 Sealed Bids Publicly solicited bids
Awarded to lowest price bid (ONLY FACTOR) Technical specifications spelled out in solicitation At least two responsive bidders Procurement based SOLELY ON PRICE Publicly opened, evaluation, selection, award Rejected bidders have documented reasons Maintain procurement file on each solicitation IF YOU DO NOT HAVE A SMALL PURCHASE LIMIT – ALL PROCUREMENTS UNDER $100,000 MUST BE DONE BY SEALED BIDS!!!!!

45 Competitive Proposals
Performance & delivery are critical factors; Public request for services or goods being needed; Evaluation factors determine best proposal (weighting); Tell us how services will be delivered; Requires a Cost & Price Analysis and/or Lease vs. Purchase Analysis Fixed price or cost reimbursement contract

46 Non-Competitive Proposals
SOLE SOURCE No responses from RFPs issued (more than once) Public emergency or delay Reason must be fully documented & approved by Directors/Board Cost/Price analysis is required Profit is negotiated separately Last resort for procurement of goods & services Will be reviewed during monitoring by DOL USE CAUTION – may need the awarding agency or state approval

47 Part VI: DCEO Reporting Requirements

48 Welcome Package Reports Deliverable Schedule
Project Status Report – 30 days after the end of each calendar quarter Financial Status Report – 30 days after the end of each calendar quarter Final Financial Status Report – 45 days after grant end date Audits – 9 months after grantee’s fiscal year-end ARRA Section 1512 Report – 5 days after end of each calendar quarter

49 Status Reports Status Report Templates and Instructions can be found on DCEO website

50 Financial Status Report
Report Grant Expenditures (including Accruals), Match, Grant Funds Received, and Grant Income Supporting Documentation (i.e., Trial Balance) must be provided Must be signed by Authorized Signatory named in Grant Agreement

51 Send Report to DCEO email address or hard copy address listed below:
Department of Commerce and Economic Opportunity Financial Status Report Grantee: Send Report to DCEO address or hard copy address listed below: Grant Number: DCEO Program Name: Hard Copy: Report Period: From: To: Prepared By: Contact Number/ Date Prepared: Check box if this is the final report. Check box if GRS (Grantee Reporting System) has been updated with current information if applicable to grant. If checked, detailed information is not required in this report. Check box if there is no change in the reporting information for this reporting period. SECTION I: EXPENDITURE REPORTING Subpart A: GRANT AMOUNT 1 2 3 4 5 6 Cost Category Number Cost Category Description (Specific) Current Approved Budget Previously Reported Expenses Current Reporting Period Expenses Total Grant Expense to Date (2+3) Amount of Accruals included in Column 3 (If Applicable) List Documentation included with Report to Support Expense Amount (see guideline document) and/or explain any adjustments from prior reporting periods. $0.00 Total

52 How to Submit Reports The PSR, FSR, and FFSR are sent via to the grant’s Program Manager The A-133 Audit report is due via to the grant’s Program Auditor ARRA Section 1512 reporting – DCEO’s eGrant system

53 Automated Noncompliance Process
What is Noncompliance? Grant Provisions or Reporting Requirements not met Grant-required tasks/activities not conducted according to established requirements Audit Requirements not met/Other Delinquencies Possible Results – Suspension of Payments; Legal Referral Status (Grant Recovery)

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