2015 Leadership Conference “All In: Achieving Results Together” Cost Principles 2 CFR Part 200 Subpart E Uniform Guidance Presented by: Lynne Fairfax, Jennifer Finch and Susan Murray Fiscal Workgroup, Office of Special Education Programs (OSEP) July 28, 2015

Objectives: Review requirements at 2 CFR Part 200 Subpart E – Cost Principles. Identify issues related to cost principles. Demonstrate effective use of the OMB uniform guidance to research cost principles. Evaluate and apply concepts to determine allowability in real world examples.

2 CFR Part 200 This guidance does not change or modify any existing statute or guidance otherwise based on any existing statute.

Fundamental Assumptions IDEA Grantees assume responsibility for: Administering IDEA grant funds efficiently and effectively. Managing IDEA funds according to agreements, objectives, and terms of the award. Using accounting practices that are consistent with Uniform Guidance cost principles. Providing adequate documentation for costs charged to the award.

Grant awards made PRIOR to 12/26/14 Grant awards made AFTER 12/26/14 Key Changes Grant awards made PRIOR to 12/26/14 Grant awards made AFTER 12/26/14 OMB Circulars A-21, A-87, A-122 2FCR Parts 200, 225 and 230 Uniform Guidance (32 CFR PART 200 Subpart E)

Key Changes Basic Standards for allowability remain the same. Costs must be: Necessary Reasonable Allocable Documented

Time and Effort Flexible and Accountable Historically, a key area of audit findings New flexibility: “system of internal control” for documenting personnel compensation: Requirements for personnel compensation are found at 2 CFR 200.430-431 Alternative accounting processes are allowable for sampling in- time distribution reporting Federal agencies may approve alternative accounting methods for blended funds

Cost Principles: Notable Changes The Uniform Guidance lists most prior approval requirements at 2 CFR 200.407. These did not change. New Requirement: Certifications required for fiscal reports, payment requests, and indirect cost proposals (2 CFR 200.415) Family-friendly Flexibility: limited dependent care costs at conferences (2 CFR 200.432) and travel (2 CFR 200.474) Does not override the Department guidance regarding conferences Clarification – Materials and supplies: direct charges Computer equipment <$5,000 specifically treated as supply (2 CFR 200.453)

General Considerations in Determining Allowability: Is the cost reasonable and necessary for the program? Do sound business practices support the expenditure? Is the expense in compliance with laws, regulations and grant terms? To what extent is the expense allocable to the grant? Is the price comparable to that of similar goods or services in the geographic area?

The OMB Uniform Guidance says: What is “reasonable”? The OMB Uniform Guidance says: “A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.”

Allocability In addition to considerations of reasonableness and necessity, the Uniform Guidance also examines the allocability of expenditures. “If a cost benefits two or more projects, activities, or programs in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit.” (2CFR § 200.405(d))

Allocability Pertains to the degree to which a given cost is an allowable expenditure for the grant award. Can range from: 0% if the program receives no benefit from the good/service to 100% if the program receives all the benefit from the good/service

Small Group Activity Discuss the concept of allocability in your group. Develop an example in which the concept of allocability was an important consideration. Be prepared to share your examples and resolutions.

Things to Consider Is the cost generally an allowable expense (not prohibited in the cost principles)? Is the cost necessary for the performance of the grant project? To what extent is the expense allocable to the grant? Is there additional guidance to consider? For equipment and supplies, does it exist elsewhere in the inventory? Is there a less expensive alternative (or justification for selecting the more expensive option)?

Provisions for (55) Specific Items of Cost Advertising and Public Relations Advisory Councils Audit Services Collections of Improper Payments Compensation for Personnel Services Compensation for Fringe Benefits Conferences Employee Health and Welfare Costs Entertainment Equipment and Other Capital Expenditures Maintenance and Repair Costs Materials and Supplies Costs including Costs of Computing Devices Rental Costs of Real Property and Equipment Training and Education Costs Travel Costs

Types of Costs Direct Costs are costs that can be identified specifically with a program or cost objective: Personnel working directly on a program objective Supplies purchased for a specific program/project Service contract supporting program/project goals

Types of Costs Indirect Costs are those costs are typically not readily assignable to a specific program or project: Facility operations/maintenance expenditures Costs for general administrative services Shared data and telecommunications expenses

Cognizant Agency (CA) The agency that provides the most Federal funding to a grantee is the Cognizant Agency. Grantees negotiate indirect cost rates with the CA. All Federal awarding agencies accept these negotiated rates. ED is usually the CA for State grantees. ED is usually NOT the CA for most colleges and discretionary grants

Indirect Cost Rates Types of Indirect Cost Rates Provisional Final Predetermined Fixed Use of Rates Unrestricted Restricted

Recap: Key Concepts Reasonable and Necessary Allocability Selected Items of Cost Direct v. Indirect

When does 2 CFR 200 become effective? New and continuation grants awarded on or after December 26, 2014 Audit and indirect cost changes take effect when the grantees’ next fiscal year, after December 24, 2014, starts Funds carried over into a new fiscal year starting on or after December 26, 2014 Funds carried over into a continuation grant on or after December 26, 2014

Resources Technical Assistance for Ed Grantees U.S. Department of Education Website: “Technical Assistance for ED Grantees – Uniform Guidance” Technical Assistance for Ed Grantees GRADS360 Grads 360 Fiscal Resources Email questions to: uniformgrantguidanceimplementation@ed.gov