2 CFR 200.414 – 200.419 + Appendices III - VII Indirect costs 2 CFR 200.414 – 200.419 + Appendices III - VII

Indirect/F&A Costs 2 CFR 200.56 Costs incurred for Common or Joint purposes Benefit more than one cost objective Cannot be readily identified with particular cost objective without undue effort After Direct costs have been identified and assigned directly to awards/activities, indirect costs are those remaining to be allocated A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost

IHEs & Major Nonprofits 2 CFR 200.414(a) Facilities Depreciation & allowable Interest on certain debts for: Buildings, Equipment & Capital Improvements Library expenses of IHEs Administration General Administration & General Expenses Director’s office, Accounting, Personnel & other expenses Library expenses of nonprofit organizations Major nonprofits receive more than $10 million in direct Federal funding

Nonprofit Organizations 2 CFR 200.414(b) For Entities which receive $10 million or less in direct Federal funding, Indirect Costs include: Depreciation on Buildings & Equipment Facilities Operation & Maintenance costs Salaries & Expenses of Executive Officers Personnel Administration Accounting

Governmental Organizations Appendix VII Paragraph A.4. The Types of Governmental costs which may be classified as indirect costs cannot be specified in all situations. Typical Examples may include: Certain state/local central service costs General Administration Accounting Personnel [HR] services Depreciation on Buildings & Equipment Facilities Operations & Maintenance costs

Federal Agency Acceptance of Negotiated ICRs 2 CFR 200.414(c) All Agencies must accept negotiated ICRs except when different rate required By Statute or regulation Approved by Awarding Agency head Limitation on Allowance of Costs 2 CFR 200.408 Statutory requirements may limit maximum amount Amount not recoverable may not be charged to award

Pass-through Entities 2 CFR 200.414(d) & 200.331(a)(4) Are to accept an Approved Federal ICR If no approved ICR exists, either: Negotiate an ICR with subrecipient, or Use a 10% de minimus ICR Note that statutory limitations still apply

ICR Development & Submission 2 CFR 200.414(e) Contained in Appendices Institutions of Higher Education [IHEs] Nonprofit Organizations State/Local Government & Indian Tribe-Wide Central Service Cost Allocation Plan Public Assistance Cost Allocation Plans State/Local Government & Indian Tribe Indirect Cost Proposals IX. Hospital Cost Principles

De Minimus Rate 2 CFR 200.414(f) Entities that never received negotiated ICR Except Government Departments or Agencies that receive more than $35 million in direct Federal awards May elect to charge de minimus rate of 10% MTDCs May be used indefinitely Must be used consistently for all Federal awards May choose to negotiate an ICR at any time Note: Costs must be charged consistently as indirect or direct, but may not be double charged or inconsistently charged as both direct & indirect

Modified Total Direct Costs 2 CFR 200.68 MTDC include: All direct Salaries, Wages, & Fringe Benefits Materials & Supplies Services Travel Subawards up to first $25,000 of each MTDC exclude: Equipment & Capital Expenditures Charges for Patient Care Rental costs Tuition remission, Scholarships & Fellowships Participant Support costs Portion of Subawards in excess of $25,000

Indirect Cost Rate Extension 2 CFR 200.414(g) All may APPLY for One-Time extension of current ICR [in effect at time of request] For a period of up to four [4] years Implies one could request 1, 2, 3 or 4 year extension Request subject to Agency Review & Approval If granted: May NOT request Rate Review until period ends Must Re-Apply for Negotiated Rate at end of period

Required Certifications 2 CFR 200.415 Annual & Final Fiscal Reports or Vouchers requesting payment Signed by official authorized to legally bind entity For indirect plans/proposals Certificate of Cost Allocation Plan or Certificate of Indirect Costs Signed by individual at level not lower than VP or CFO Nonprofit organizations Certification they are not Major Corporations Those receiving more than $10 million in direct Federal awards

Special Considerations for Governmental Entities 2 CFR 200.416 - 417 Central Service Cost Allocation Plan Mechanism for assigning shares to Operating Agencies Motor Pools, Computer Centers, Purchasing, Accounting, etc. Operating Agencies normally have own ICRs Indirect Costs should include: Indirect Costs originating in the individual agency A Share of Central Services Costs Costs of Services provided by one agency to another Direct costs of the service + pro-rated share of Indirect Allowance of 10% of Direct Salaries & Wages of providing service Excludes overtime, shift premiums & fringe benefits

Special Considerations for Institutions of Higher Education 2 CFR 200 Costs incurred or paid by a state or local government on behalf of its IHEs for fringe benefit programs are allowable IHE costs if: They meet cost principles requirements Are properly supported by approved cost allocation plans Are not otherwise borne directly or indirectly by the Federal government IHEs that receive aggregate Federal awards totaling $50 million or more Must comply with CASB’s cost accounting standards Must disclose cost accounting practices File a Disclosure Statement [DS-2]

Cognizant Agency for Indirect Costs Federal agency responsible for reviewing & approving Indirect Cost Rate For Institutions of Higher Education HHS – Department of Health & Human Services DOD – Dept of Defense’s Office of Naval Research For Nonprofit organizations Federal Agency with largest dollar value of awards For Governmental organizations See next slide

Cognizant Agency for Governmental Entities Federal agency responsible for reviewing & approving Indirect Cost Rate HHS – Public Assistance & state-wide CAPs DOI – Indian Tribal & Territorial governments and state & local park and recreational districts DOL – State & local labor departments DOEd – School Districts and state & local education agencies DOAg – State& local agriculture departments DOT – State & local airport and port authorities & transit districts DOC – State & local economic development districts HUD – State & local housing & development districts EPA – State & local water and sewer districts

Indirect Cost Base The accumulated direct costs used to distribute indirect costs to individual Federal awards. Either Total Direct Salaries & Wages Or Total Direct Costs exclusive of any extraordinary or distorting expenditures [MTDC] The Direct Cost Base selected should result in each Federal award bearing a fair share of Indirect Costs in Reasonable Relation to the Benefits Received from the costs

Base Period Period in which indirect costs are incurred and accumulated for allocation to activities performed in that period Should normally coincide with entity’s Fiscal Year Must be selected so as to avoid inequities in the allocation of costs

Indirect Cost Pool The Accumulated costs that jointly benefit two or more programs or other cost objectives

INDIRECT COST RATE Device for determining the proportion of indirect costs each program should bear The ratio is expressed as a percentage of an indirect cost pool and some direct cost base. Indirect Cost Pool = Indirect Rate % Direct Cost Base

P B = R INDIRECT COST RATE PBR: “Pabst Blue Ribbon” Some might say it’s… PBR: “Pabst Blue Ribbon” P B = R Pool/Base = Rate

How is an indirect cost rate calculated?

Methods of Calculating an Indirect Cost Rate Simplified Method Multiple Allocation Method Special Rates

Simplified Method Used whenever the major functions of an organization benefit from its indirect costs to approximately the same degree. Allocation accomplished by: First classifying total costs for the base period as either direct or indirect The indirect costs, net of applicable credits, are divided by some equitable distribution base to arrive at a rate Expressed as a percentage of allowable indirect to base selected The rate is multiplied by each programs’ share of the base to equitably distribute the indirect costs amongst benefiting programs

Simplified Method Both Direct & Indirect costs must exclude: Capital Expenditures & Unallowable costs Unallowable costs must be included in Direct costs if they represent activities to which Indirect costs are properly allocable Distribution base may be either: Total Direct Costs excluding capital expenditures and other distorting items [MTDC], such as: Pass through funds, subawards in excess of $25,000, participant support costs, etc. Total Direct Salaries and Wages, or Another base which results in an equitable distribution

Multiple Allocation Base Method Used when unit’s indirect costs benefit its major functions in varying degrees Costs are accumulated into separate groupings which are allocated individually to benefitted functions Each grouping should constitute a pool of expenses Of like character in terms of functions benefitted and In terms of the allocation base which best measures relative benefits provided to each function When allocation can be made by assignment of a cost grouping directly to function benefitted, it MUST When expenses are more general in nature, allocation should be made through a selected base

What Multiple Allocation Base to Use? Any Cost Element associated with unit’s activities is a potential base provided: It can readily be expressed in terms of Dollars or Other Quantitative Measures Total direct costs, direct salaries & wages, staff hours applied, square feet used, hours of usage, number of documents processed, population served, etc It is common to the benefitted functions during the base period Allocation bases might be: Accounting Department - # of transactions Purchasing Department - # of purchase orders Personnel Department - # of FTEs

Special Indirect Cost Rates Used when a particular Federal award is carried out in an environment which appears to generate a significantly different level of indirect costs [e.g. off-site rate] Separate Indirect Cost Pool should be developed & Resulting Indirect Cost Rate should be used if Rate differs significantly from basic rate developed & Federal award to which rate would apply is material in amount Restricted Rate may have to be developed when Federal Law restricts reimbursement of certain indirect costs

I N D R E C T O S Direct Cost Base $500,000 Rate 30% Direct Cost Base Salaries $90,000 Fringe 30,000 Rent 10,000 Consultants 6,000 Travel 5,000 Supplies 3,000 Communications 2,000 Miscellaneous 4,000 Total Pool $150,000 Labor Base $300,000 Rate 50% Direct Labor Base Direct Cost Base $500,000 Rate 30% Direct Cost Base

Examples of Indirect Cost Rates Indirect Costs: $150,000 Direct Costs: Salaries, Wages & Benefits $300,000 Other Direct Costs 200,000 Total Direct Costs $500,000 $150,000 $300,000 = 50.0% Direct Labor Base $500,000 = 30.0% Direct Costs Base

Recovery of Costs Direct Labor Base Contr./Grant "A" $150,000 Times rate 50.0% Indirect costs recov. $ 75,000 Contr./Grant "B" $150,000 Total recovered $150,000 Total Direct Cost Base Contr./Grant "A“ $275,000 Times rate 30.0% Indirect costs recov. $ 82,500 Contr./Grant "B" $225,000 Indirect costs recov. $ 67,500 Total recovered $150,000

Submission of Proposals Institutions of Higher Education Regular Method Must use standard format found on OMB website Simplified Method for Small IHEs Not more than $10 million per Fiscal Year Nonprofit organizations Must submit to cognizant agency Government organizations All Depts/Agencies desiring to claim indirect costs must prepare a proposal and related supporting documentation Must be retained for Audit Not required to submit unless requested Depts/Agencies receiving more than $35 million in direct Federal funding Must submit proposal to cognizant agency

When are Proposals Submitted? Developed & submitted [when required] within six months of end of fiscal year unless exception approved by cognizant agency Initial Proposal for entity w/o prior ICR Develop & Submit immediately upon being advised that it is to receive a direct Federal award No later than 3 months after effective date of award

Documentation of Proposals Rates Proposed + subsidiary worksheets Copy of Financial Data upon which based Financial statements, annual financial report, executive budgets, accounting reports, etc. Approximate amount of direct base costs incurred under Federal awards Broken out between Salaries & Wages and Other Organization Chart [or revisions to prior] Certificate of Indirect Costs

Negotiation & Approval Rates will be reviewed, negotiated & approved on a timely basis Rate will be accepted & used by all Federal agencies unless prohibited or limited by law Use of Predetermined Rates is encouraged Results of each negotiation must be formalized Refunds must be made if proposals include Costs later found to be unallowable As specified by law or regulation Under Considerations for Selected Items of Cost By terms & conditions of Federal awards Costs found to be clearly not allocable to Federal awards

Adjustments for Unallowable Costs in ICRs and/or F&A rates 2 CFR 200 Adjustments for Unallowable Costs in ICRs and/or F&A rates 2 CFR 200.411 2 CFR 2900.17 Rates that included Unallowable Costs Must be adjusted or a Refund must be made Regardless of type of Rate: Predetermined, Final, Fixed or Provisional Does not constitute Reopening of Rate Negotiation May result in Reissuance of Negotiated Rate Agreement For Future Period Costs removed from pool & Rates are adjusted For Past Period Unallowable amounts, including interest, to be refunded For Current Period Either Rate Adjustment or Refund option available

Questions? ? Ed Donahue 571-436-8196 eddonahuejr@hotmail.com