3Part I: Cost Allocation & Time Distribution Slide 1 – Cost AllocationHello. 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 AllocationThe process used to distribute costs to a final cost objective based on benefits receivedCostsDirectSharedSlide 2 – DefinitionCost 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
5Federal Guidance OMB Circular A-87 OMB Circular A-122 48 CFR Part 3145 CFR Part 74, Appendix EGuidance on direct and indirect costsSlide 3 – Federal GuidanceAllocability 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 areOMB 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.
6Treatment of Costs Direct charge whenever possible Consistent treatmentIn accounting systemOver timeMeasuring benefitBenefit determines allocationSlide 6 – Treatment of CostsCosts 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.
7Types of Costs Direct Shared Indirect Single cost objective Multiple cost objectives, orMultiple fund sourcesIndirectOverheadSlide 4 – Types of CostsThere 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.
8What are Direct Costs?Those costs that can be readily identified with a particular cost objective. Examples (program specific):SalariesSpaceSuppliesCommunications
9What are Indirect Costs? Those costs that are not readily identifiable with a particular cost objective Examples:SalariesSpaceSuppliesTelecommunicationsManagement & overhead
10Cost Objectives Intermediate Final Cost pools or cost centers Funding sourceCost categorySlide 5 – Cost ObjectivesCosts 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.
11Allocation Bases Keep in mind Fair basis & equitable to all fund sourcesMinimal distortionActual costs only (Can’t Charge $80k for Program Director’s Salary if he is paid $50k)General acceptabilityTimely management controlMateriality, cost, and practicality of useControllableDirect relationship to costsSlide 9 – Allocation BasesIn 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.
12What 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 approvedCost Allocation Plan
13Cost Allocation Plans Must be: In writing Include a process for reconciliation and adjustmentPeriodically validated and updatedSlide 17 – Cost Allocation PlansA 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.
14Benefits of a CAP Management tool Equitable sharing of costs Establishes financial management standardsMeets cost principles and standardsEliminates arbitrary methods of charging costsStandardizes financial practicesSlide 21 – Benefits of a CAPIf 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.
15Types of CAPs Indirect cost plan CAP of the organization Addressed in OMB Cost CircularsFederal agency approval requiredNeed Letter from federal cognizant agencyRate 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 rateCAP of the organizationShared indirect costsAwarding agency approvalSlide 18 – Types of CAPsThere 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.
16Indirect Costs Allowable to the extent Contained in a Cost Allocation PlanIdentify as a separate cost pool & allocated to programs based on equitable benefitApproved by cognizant Federal Agency, if requiredMust be within Administrative Cost limitationsGenerally overhead costs of organizationCan not include unallowable costs such as fundraisingSlide 16 - Indirect CostsIndirect 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.
17Time Distribution System that distributes staff salaries & benefits Based on staff time spent on certain activities, projects, and grantsNeeded if staff work on multiple projects/fund sourcesEnsure sufficient activity/project codes to cover all funding sources
18Time Distribution System must: Account for 100% of staff time Allocate only time that is being paidShould be completed by staff at least on a monthly basis and approved by a supervisorActual allocation of costs should be traceable to staff time activity reportTime & Attendance Records (Personnel Activity Reports)Use also for allocating non-personnel costs
19Common Compliance Findings No written cost allocation plan or approved indirect cost rate in placeDirect charging of all staff time to one program when individuals were working on multiple programsCosts related to an approved indirect cost rate exceeded the allowable administrative cost limitation for a program
20Common Compliance Findings Costs were allocated based on funding projectionsAllocation bases used by staff were not consistent with the bases and cost pools described in the agency’s cost allocation planCosts were allocated every six months rather than on a monthly or quarterly basis
22Applicable Federal Administrative Requirements Non-Profits and Institutions of Higher Education must comply with the administrative requirements at 29 CFR Part 95.
23All Financial Systems Must Adhere to 7 separate standards 1. Financial reportingSystem must permit preparation of Federal financial reportsMust report accruals2. Accounting recordsAdequately identify grant fundsAwards, obligations, assets, liabilities, income, and expenditures (Fund Accounting)Supported by source documentationMust be maintained in accordance with GAAP
24More Financial Standards 5. Allowable costsOnly allowable costs charged6. Source documentationCosts must trace to authorizing documentProof that costs are allowable & allocable7. Cash managementSystem to control cash assets
25Internal 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.
26Internal Control System (ICS) How to monitor the ICS? Interview, review, and test:Segregation of dutiesAuthorization, execution and paymentCompetent personnelIntegrity, training, and supervisionAccess to assets is limitedRecords are periodically compared to existing assetsAuthorized transactions are recorded in a timely manner
27Financial & Administrative Procedures Formalize procedures in writingDistribute to all appropriate staffInclude at a minimum the following policies:PayrollReferences to Applicable Federal RegulationsFinancial ReportingPurchasing/ProcurementCash ManagementCost Allocation Plan or PoliciesProperty ManagementAuditTravelBondingPetty CashPayment Approval/Cash DisbursementsCost ClassificationBank ReconciliationsPosting to Books of Account
28Property ManagementEquipment 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.
30Federal Cost Principles Purpose – provides that the Federal government bears its fair share of costs except where restricted or prohibited by lawReasonable & Necessary“Prudent Person Rule”Arm’s Length TransactionAllocableClearly benefit programBoth direct & indirect costs
31Factors Affecting Allowability of Costs Authorized or not prohibitedConsistent with the Federal Rules & CircularsConsistent treatmentAcross time & program linesNot used as matchUnless specifically authorized
32Allowability Documented Consistent with GAAP Traceable to source documentationConsistent with GAAPAccounting standards & treatmentConform to limitations/exclusions contained in the cost principlesNet of applicable credits
33Allowable Costs Examples PayrollSalary & bonus limitationsETA funded programs per TEGL5-06 per Public LawRequires documentation supporting time distributionTravelTrainingAudit
34Costs Allowable With Conditions Examples Advertising/Public RelationsSolely for public relations of organization – unallowed.RFP & promotion of program/grant – allowableCapital AssetsPurchase of land or buildings – unallowedEquipment – allowable (w/ prior approval)
35Unallowable Costs EXAMPLES EntertainmentAllowable for certain WIA Youth recreation activitiesLobbyingLosses, fines & penaltiesAlcoholic BeveragesContingency reservesEmployment Generating/Economic Development ActivitiesDonations and contributionsGoodwill
37Audit 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.
38Applicability Who is required to have a Single Audit? States, local governments, and non-profit organizations that are direct grant recipients & sub recipients of Federal fundsCommercial organizations that expend $500,000 or more and are a sub recipient under WIA Title I must adhere to OMB Circular A-133 Audit RequirementsWIA Regulations at 20 CFR
40Procurement Requirements Minimum requirementsWritten procurement/purchasing proceduresWritten code of conduct & conflict of interest policiesProcedures to review procurementsCost price analysis (determination of needs, costs, estimates, etc.)Demonstrated ability to performClose-out & protest process of contracts (records, settlement, etc.)
41Partners?Identifying partner organizations in your grant proposal and agreement DOES NOT PRECLUDE you from abiding by Federal procurement proceduresAll services and goods within your grant agreement ARE SUBJECT to procurementGrantees need to use FULL & OPEN COMPETITION when contracting with partnersEXCEPTION: 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
42Procurement 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
43Small 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 agencyMinimum of three (3) quotes DOCUMENTED
44Sealed Bids Publicly solicited bids Awarded to lowest price bid (ONLY FACTOR)Technical specifications spelled out in solicitationAt least two responsive biddersProcurement based SOLELY ON PRICEPublicly opened, evaluation, selection, awardRejected bidders have documented reasonsMaintain procurement file on each solicitationIF YOU DO NOT HAVE A SMALL PURCHASE LIMIT – ALL PROCUREMENTS UNDER $100,000 MUST BE DONE BY SEALED BIDS!!!!!
45Competitive 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 AnalysisFixed price or cost reimbursement contract
46Non-Competitive Proposals SOLE SOURCENo responses from RFPs issued (more than once)Public emergency or delayReason must be fully documented & approved by Directors/BoardCost/Price analysis is requiredProfit is negotiated separatelyLast resort for procurement of goods & servicesWill be reviewed during monitoring by DOLUSE CAUTION – may need the awarding agency or state approval
48Welcome Package Reports Deliverable Schedule Project Status Report – 30 days after the end of each calendar quarterFinancial Status Report – 30 days after the end of each calendar quarterFinal Financial Status Report – 45 days after grant end dateAudits – 9 months after grantee’s fiscal year-endARRA Section 1512 Report – 5 days after end of each calendar quarter
49Status ReportsStatus Report Templates and Instructions can be found on DCEO website
50Financial Status Report Report Grant Expenditures (including Accruals), Match, Grant Funds Received, and Grant IncomeSupporting Documentation (i.e., Trial Balance) must be providedMust be signed by Authorized Signatory named in Grant Agreement
51Send Report to DCEO email address or hard copy address listed below: Department of Commerce and Economic OpportunityFinancial Status ReportGrantee: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 REPORTINGSubpart A: GRANT AMOUNT123456Cost Category NumberCost Category Description (Specific)Current Approved BudgetPreviously Reported ExpensesCurrent Reporting Period ExpensesTotal 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.$0.00Total
52How to Submit ReportsThe PSR, FSR, and FFSR are sent via to the grant’s Program ManagerThe A-133 Audit report is due via to the grant’s Program AuditorARRA Section 1512 reporting – DCEO’s eGrant system
53Automated Noncompliance Process What is Noncompliance?Grant Provisions or Reporting Requirements not metGrant-required tasks/activities not conducted according to established requirementsAudit Requirements not met/Other DelinquenciesPossible Results – Suspension of Payments; Legal Referral Status (Grant Recovery)