September 30, 2015 State of Maine Department of Education Local Education Agency Indirect Cost Rate Proposal September 30, 2015 Presented by: Nelson Clugston, Vice PresidentSheri Smith, Principal Consultant

Presentation Topics Defining Indirect Costs Indirect Cost Rates Types of Costs LEA ICRP Workbook and Instructions Data Needed Let’s Get Started Implementation References

Defining Indirect Costs Costs that are “incurred for a common or joint purpose benefiting more than one cost objective, and not directly assignable to cost objectives benefited without effort disproportionate to results achieved.”

Indirect Cost Rates Unrestricted Rate – Applies to grants not subject to the supplement- not-supplant legislative restriction Restricted Rate – Applies to grants that are made under federal programs with supplement-not-supplant requirements. Most USDE grants have this clause. o Some costs that are considered to be indirect when calculating the unrestricted rate are “adjusted” to direct costs when calculating the restricted rate o The template being provided will calculate both rates based on the data that you provide when filling in each tab of the workbook. o A listing of restricted rate grants by CFDA number is available as a reference on MDE’s website

Predetermined Rate is applicable to a specified current or future period based on an estimate of the costs to be incurred during the period. It is not subject to adjustment Provisional Rates is a temporary rate applicable to a specified period pending the establishment of a final rate for the period Fixed with Carry-Forward Rates is a rate that is adjusted by the difference between the estimated costs and the actual costs of the period covered by the rate. The variance is carried forward as an adjustment to the rate computation of a subsequent period. Types of Rates

Carryforward Calculation FY15 Rate based on FY13 Costs FY13 Actual Indirect Costs$100,000 FY13 Actual Direct Costs$5,000,000 FY15 Indirect Cost Rate: $100,000/$5,000,000 = 2.00% FY15 Carryforward Calculation FY15 Actual Indirect Costs$110,000 FY15 Actual Direct Costs$4,500,000 FY15 Indirect Costs Recovered: $4,500,000 * Rate of 2.00% = $90,000 Less Actual Indirect Costs of $110,000 = Under Recovery of $20,000 FY17 Rate based on FY15 Costs FY15 Actual Indirect Costs$110,000 FY15 Under Recovery$ 20,000 Total FY17 Indirect Costs$130,000 Divided by FY15 Actual Direct$4,500,000 FY17 Indirect Cost Rate = 2.89%

Life Cycle of Indirect Cost Plans July, 2016 Begin Using New Rates July – November, 2015 Prepare FY 2017 ICRP based on FY 2015 Costs November 30, 2015 Submit FY 2017 ICRP to MDE for review and approval December, 2015 – May, 2016 MDE Reviews and Approves ICRPs June, 2016 MDE issues FY 2017 ICRP Rate Agreements to LEAs

Types of Costs Direct Indirect Exclude/Disallow

Allowable Costs Necessary & reasonable for proper & efficient performance of Federal programs Be allocable to Federal awards under provisions of this Circular Be authorized & not prohibited by State or local laws or regulations Conform to limitations imposed by any other Federal FFP regulations Be consistent with policies that are uniform for both federally assisted & other activities Be accorded consistent costing treatment Follow GAAP, unless otherwise prescribed Not included as match for another Federal program Be net of all applicable credits To be allowable, costs must meet the following general criteria:

Direct Costs Direct costs are those that can be identified specifically with a particular cost objective. Examples of direct costs are  Compensation of employees who work in the program  Supplies and materials used for the program  Equipment purchased and used for the program  Travel expenses incurred specifically to carry out the program Function Code Series that would incur direct costs include:  1000 Instruction  2100 Support Services-Student  2200 Support Services-Instruction  2400 Support Services-School Administration  2700 Student Transportation  3100 Child Nutrition Operations  3200 Enterprise Operations  3300 Community Services Operations

Indirect Costs Indirect costs are those that are incurred for a common or joint purpose benefiting more than one cost object. In addition, indirect costs cannot be readily identified as benefiting a particular cost objective. Examples of indirect costs include the salaries and expenses for the following:  Data Processing  Accounting  Personnel  Purchasing

Indirect Cost, cont’d. Within the MDE LEA Chart of Accounts, the following function number series have been identified as potentially having indirect costs:  2310 Board of Education  2317 Board of Education-Audit Services  2318 Board of Education-Legal Services  2321 Office of the Superintendent  2323 State and Federal Relations  2510 Fiscal Services  2520 Purchasing, Warehousing and Distributing  2560 Public Information Services  2570 Personnel Services  2580 Administrative Technology Services  2600 Utilities  2610 Building Care & Operations  2620 Building Maintenance  2630 Grounds  2640 Equipment  2650 Vehicles (other than Student Transportation  2660 Security  2670 Safety

Bad Debts Capital Outlay Contributions Entertainment Legislative & most Judicial Costs Contributions to Reserve Funds Research & Development Costs Fines & Penalties Alcoholic Beverages Lobbying Idle Facilities Unallowable Costs - Examples

Data Needed Expenditure Report that includes total costs, regardless of funding source Audited Financial Statements Table of Organization Square Footage by Indirect and Direct Service Areas Listing of Direct Service SubContracts and SubAwards that exceed $25,000 Wages, Benefits and other Costs related to Central Service Departments that will be adjusted for the restricted rate Paid Leave Balance Pay-Out at Termination by Employee, Fund and Department

Steps  Determine Total Expenditures  Identify Unallowable and Excluded Costs  Determine Direct Costs  Determine Indirect Costs  Reconcile Proposal to Financial Statements  Select the Distribution Base  Compute the Indirect Cost Rates

LEA ICRP Workbook Layout The first six tabs are documents that are required to be submitted as shown in the Cost Allocation Guide for State and Local Governments published by USDE. They include:  Schedule of Expenditures-Unrestricted Rate  Schedule of Expenditures-Restricted Rate  Calculation of Indirect Cost Rate-Restricted Rate  Fixed Rate with Carry-Forward Adjustment-Unrestricted Rate  Fixed Rate with Carry-Forward Adjustment-Restricted Rate  Restricted Rate Subsidiary Schedule-Restricted Rate  Certificate of Indirect Costs

LEA ICRP Workbook Layout, continued Schedules A through E and Attachments 1 and 2 are supporting documents that provide necessary details for preparation of the required documents at the front of the workbook. They include:  Schedule A-Schedule of Subcontracts  Schedule B-Unallowed and Excluded Costs  Schedule C-Square Footage by Building  Schedule D-Paid Leave by Department  Schedule E-Restricted Rate Adjustments  Attachment 1-Federal Funds by Function Number  Attachment 2-State & Local Funds by Function Number

LEA ICRP Workbook Instructions MDE has also provided a detailed instruction booklet to assist in preparation of the ICRP workbook. The workbook includes:  Introduction  Indirect Cost Rate Information  Approval Process  Classification of Costs  Rate Types  ICR Calculation Methodology (step by step instructions)  LEA Application of Indirect Cost Rates

Let’s Get Started! Things You Will Need Detailed expenditure report for all funds by fund and function* Audited Financial Statements *If you can roll up expenditures to the 2- digit function level, it will save you time: (2100, 2200, 2300, etc.) Things You Will Use LEA ICRP Workbook Template LEA ICRP Instruction Booklet

MDE LEA Template and Instructions The Maine Department of Education has contracted with MAXIMUS Consulting Services, Inc. to prepare, a template and instructions to be used by the State’s LEAs that will calculate both restricted and unrestricted indirect cost rates that meet the standards set by the U. S. Department of Education. The template and instructions can be located at:

Schedule of Expenditures – Unrestricted Rate Fund Descriptions:General Fund Instruction and Support: 1000Instruction 2100Support Services-Student 2200Support Services-Instruction 2300Support Services-General Administration 2400Support Services-School Administration 2500Central Services 2600Operation and Maintenance of Plant 2700Student Transportation 3100Child Nutrition Operations 3200Enterprise Operations 3300Community Services Operations Unpaid Leave at Termination Facilities Acquisition and Construction: 4100Land Acquisition 4200Land Improvement 4300Architecture & Engineering 4400Educational Specifications Development 4500Building Acquisition and Construction 4600Site Improvement 4700Building Improvements 4900Other Facilities Acquisition & Construction Debt Service: 5000Debt Service Total Sub-recipient Expenditures - Don’t be intimidated by the first worksheet! We’ll begin with the first column only.

 Using your expenditure report, enter the total cost of Function 1000 Instruction paid by the General Fund in the first yellow cell.  In the next cell, enter the total General Fund cost of Function 21XX Support Services-Student  Function 21XX includes the total of all costs for general fund function numbers that begin with “21..”  If you are unable to roll your financial data up to this level, simply add each “21” function cost within the cell.  Continue in this manner for each function number listed until all General Fund expenditures have been accurately entered.  Check to be sure the Total in Cell C33 equals the Total General Fund Expenditures from your audited financial report. Total Sub-recipient Expenditures (Cell C33) = Total Audited General Fund Expenditures

Att 2 State & Local Recap FY14 Expenditures State & Local Funds by Function # Fund # Total

Att 2 State & Local Recap This schedule will calculate the state and local fund expenditures by function number. It will also enter the amounts on the first tab “Schedule of Expenditures-Unrestricted Rate” in Column D “State Grants, Local Funds”. Enter the first state or local fund number from the expenditure report in Column A. Enter the expenditures under the appropriate function number, adding duplicate function numbers together as necessary.

Att 1 Fed Funds Recap Go to the second-last tab in the workbook, “Att 1 Fed Funds Recap”. Repeat the steps from Att 2 State & Local Recap using the LEA’s federal funds rather than state and local funds. Once these number have tied to the audited federal expenditures, the amounts will carry forward to Column E on the Schedule of Expenditures-Unrestricted Rate. Congratulations ! Remember to save your work!

Next, enter costs you may have in the appropriate function number box for the LEA’s Capital Project Funds, Enterprise Funds, Internal Service Funds, Trust and Agency Funds on the Schedule of Expenditures-Unrestricted Rate (Tab 1). Be sure each column balances to the audited expenditures. Note: You may enter the amounts that you are tying to (from the audit) on Row 35. Row 36 will calculate any variance to assist you in balancing.

Name of SubrecipientUnit # Schedule of Expenditures Unrestricted Rate Year Ended June 30, 2014 Fund Numbers:1000, 1500, Other Fund Descriptions:General Fund State Grants Local Funds Federal Funds Capital Projects Perm Impr Funds Enterprise Funds Internal Svc Funds Trust Funds Agency Funds Total Expenditures Unallowable Costs Excluded Costs Indirect Costs Direct Costs Instruction and Support: 1000Instruction Support Services-Student Support Services-Instruction Support Services-General Administration Support Services-School Administration Central Services Operation and Maintenance of Plant Student Transportation Child Nutrition Operations Enterprise Operations Community Services Operations Unpaid Leave at Termination Facilities Acquisition and Construction: 4100Land Acquisition Land Improvement Architecture & Engineering Educational Specifications Development Building Acquisition and Construction Site Improvement Building Improvements Other Facilities Acquisition & Construction Debt Service: 5000Debt Service Total Sub-recipient Expenditures Tab 1 should look like this – except there should be numbers in the cells in columns with yellow cells, and your LEA name in the corner. All other cells will fill in when you complete other worksheets in the workbook. Congratulations ! You are done with Tab 1

Excluded and Disallowed Costs Schedule B- UnallowExclude Sch of Exp Unrestr, Cols 2 and 3 Go to Schedule B toward the end of the workbook where we will begin to enter excluded and disallowed costs. The costs on Schedule B will flow forward to the Schedule of Expenditures, Columns 2 and 3 for Unallowed and Excluded costs.

00 School DistrictUnit # Unallowed and Excluded Costs FY14Object Numbers SeriesFund Code Series 342X Architect, Engineer, Projects Legal** Advertising** Food & Related Supplies Construction Supplies Buildings Equipment Judgments Debt Service Other Uses of Funds Capital Projects *Internal Service Fund Costs SubContract Payments >$25,000 Other Excluded Costs Total Excluded Costs Bad Debts Fines PenaltiesContingencies Entertainment & Contributions to other Organizations Total Unallowable Costs Instruction and Support: 1000Instruction Support Services-Student Support Services-Instruction Support Services-General Administration Support Services-School Administration Central Services Operation and Maintenance of Plant Student Transportation Child Nutrition Operations Enterprise Operations Community Services Operations - - Unpaid Leave at Termination - - Facilities Acquisition and Construction: 4100Land Acquisition Land Improvement Architecture & Engineering Educational Specifications Development Building Acquisition and Construction Site Improvement Building Improvements Other Facilities Acquisition & Construction - - Debt Service: 5000Debt Service - - Total Disallowances and Exclusions *All Costs for Internal Service Funds #7000 **See Instructions for excluded cost in these areas Schedule B-Unallowed and Excluded Costs

Specific Guidelines-Excluded Costs Object Number Series 342X Architect, Engineer, Projects 3450 Legal 5400 Advertising 6300 Food 6800 Construction Supplies 7200 Buildings 7300 Equipment 8200 Judgments 8300 Debt Service 9000 Other Uses of Funds Fund Code Series 3000 Capital Projects 7000 Internal Service

Specific Guidelines-Unallowable Costs Bad Debts Fines Penalties Contingencies Entertainment Contributions to other organizations Unallowable Costs can not be charged to federal funds. They will be added back to the base to calculate the rate. They include:

SubContracts & SubAwards All data entered on Schedule B so far has been pulled from the expenditure report EXCEPT SubContract Payments > $25,000 The data for this column will be generated from the Sch A SubContracts tab

Subcontracts & Subawards Subrecipient entity receives funds from a prime recipient to carry out a portion of a program via Contract Grant Other Agreement Include on Schedule A if: Expenditure > $25,000 Expenditure is a program/direct cost Entity works independently and is responsible for decision making

Key to determining whether to include a contract on Schedule A The concept for excluding all of the cost except the first $25,000 of these subcontracts/subawards is that the contract is not receiving the same level of administrative/indirect cost support as the program would if it was being operated in-house. For example, a program being operated independently at an external location will not benefit from the Accounting, HR, Facilities and IT services to the extent that it would if the LEA housed and staffed the program.

After a thorough review of SubContracts, enter the following information on Schedule A Schedule of Subcontracts for each Department  Function number that incurred the expense*  Object Code that incurred the expense*  Vendor Name*  Original SubContract amount  Period of Performance  Current fiscal year expenditure* *Required Data Schedule A Preparation

Excluded SubContracts Schedule A-SubContracts Total the amounts in Column I- Contract payments in excess of $25,000 for each function number Enter the amount by function number on Schedule B Schedule B-Excluded Costs Enter the total exclusion amount by function number from Schedule A-SubContracts in the appropriate cell in Column O- SubContract Payments>$25,000 Sch B Total in Row 31 for Column O = Sch A Total in Row 41 for Column I This step is a lot of work, but it decreases the base, which increases the rate, which means more $$ for your LEA!

00 Name of SubrecipientUnit # Square Footage by Building Fiscal Period July 1, 2013 through June 30, 2014 Departments Building DescriptionAddressSuperintendent State & Federal RelationsFiscal Purchasing Warehousing Distributing Public InformationPersonnel Administrative TechnologyAll Other Total Usable Square Feet Building 1 0 Building 2 0 Building 3 0 Building 4 0 Building 5 0 Building 6 0 Building 7 0 All Other 0 Total All Buildings Superintendent0 State & Federal Relations0 Fiscal0 Purchasing,Warehousin,Distrib0 Public Information0 Personnel0 Administrative Technology0 (A)Subtotal0 (B)Total All Buildings0 (A) / (B)Ratio for Indirect Cost Staff#DIV/0! Schedule C-Square Footage by Building

Calculate % of total square footage occupied by “indirect” departments ABC SchoolStreet, City, MESquare Footage* *List the square footage occupied by each of the indirect departments listed in columns D through J in “ABC School” Enter the occupied square footage for direct departments (all other space) in Column K Repeat for the next six schools/buildings If the LEA has more than 7 buildings, enter the totals for all other buildings in the row for “All Other”

00 Name of SubrecipientUnit # Schedule of Paid Leave by Department Fiscal Period July 1, 2013 through June 30, 2014 Unused Leave Payments UnrestrictedRestricted Unrestricted Restricted* Dept #Department NameEmployee Name Indirect (X) Direct (X) Indirect (X) Direct (X) Indirect Employees ($) Direct Employees ($) Indirect Employees ($) Direct Employees ($) Amount Paid to Separating Employees Restricted Rate Adjustment $ - Total $ - *NOTE: Payments to separating employees for termination benefits and/or unused leave are treated as indirect costs when computing both the Restricted and Unrestricted Rates EXCEPT: Those employees who are indirect for the Unrestricted Rate, but direct for the Restricted Rate are considered to be Direct costs when calculating the rates. Schedule D-Paid Leave by Department

All leave payments made to terminating employees is required to be an indirect cost This schedule identifies each original leave payment as direct or indirect The only staff members who are different for the restricted rate than for the unrestricted rate are those adjusted on Schedule E The worksheet will calculate any adjustment and carry it to the appropriate schedules

Schedule of Restricted Rate Adjustments July 1, 2013 thru June 30, 2014 Adjustments for Restricted Rate Unrestricted Indirect Department onFunctionObject Indirect Direct Total Excluded Indirect Total Table of OrganizationCodes Employee NamePositions Salary Benefits Salary Benefits Other Costs Direct Costs Costs Other Costs* Costs Executive Staffs Board Services All Other Costs Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Board Services NamePosition Total $ Board of Education-Audit Svcs All Other Costs Board of Education-Legal Svcs All Other Costs - - Total $ Office of the Superintendent NamePosition Office of the Superintendent NamePosition Office of the Superintendent All Other Costs - - Total $ State and Federal Relations NamePosition State and Federal Relations All Other Costs - Total $ Fiscal Services NamePosition Fiscal Services NamePosition Fiscal Services All Other Costs Total $ Purchase,Warehouse,Distrib NamePosition Purchase,Warehouse,Distrib All Other Costs - Total $ - Schedule E Restricted Rate Adjustments

Schedule E-Restricted Rate Adjustments When calculating a restricted indirect cost rate, “General Management Costs” does not include expenditures for: 1)The governing body (members of the board of education) of the grantee (Function 2310); 2)Compensation of the chief executive officer (superintendent of a school district) of the grantee (Function 2321) and heads of component offices; 3)Compensation of the chief fiscal officer* (treasurer of a school district) of the grantee (Function 2510); and 4)The operation of the immediate offices of these officers

Column A-Schedule E Department on Table of Organization Schedule E Identifies indirect costs for the unrestricted rate. Identifies adjustments for the restricted rate. Column A – Enter where each employee can be located on the LEA’s Organizational Chart For example, each board member is most likely located in the same place on the T/O. However, there may be employees in Fiscal Services that are located in different places on the T/O. Each employee needs to be located on the T/O. ______________ Board Services ______________ Office of the Superintendent ______________2323 – State and Federal Relations

Unrestricted Indirect FunctionObject Indirect Codes Employee NamePositions Salary Benefits Fiscal Services NamePosition Fiscal Services NamePosition Fiscal Services All Other Costs Total $$ Schedule E Unrestricted Salaries & Benefits

Function 2510 – Fiscal Services FY15 Expenditures 1000 Salaries $125, Benefits$ 19, Supplies$ 4, Travel$ Equipment$ 7, Total Expenditures$155,500 Expenditure Report Example

Adjustments for Restricted Rate Unrestricted Indirect Indirect Direct Total Salary Benefits Salary Benefits Other Costs Direct Costs $ $ $ - $ Schedule E-Adjust Salaries & Benefits for Restricted Rate

Unrestricted Indirect Direct Total Excluded Indirect Total Other Costs Direct Costs Costs Other Costs* Costs $ - Schedule E-Other Costs

Adjustments for Restricted Rate Unrestricted Indirect Department onFunctionObject Indirect Direct Total Exclud ed Indirect Total Table of OrganizationCodes Emplo yee NamePositions Salary Benefits Salary Benefit s Other Costs Direct Costs Costs Other Costs* Costs Fiscal Services Fiscal Services Jane Doe Treasurer 80,000 12,000 80,000 12,000 92,000 Accounting Department Fiscal Services John Buck Accountant 45,000 7, , Fiscal Services All Other Costs 2,880 7,000 4,500 11,500 Total 125,000 19,000 80,000 12,000 2,880 94,880 7,000 4, ,500 Schedule E-Fiscal Services Example Completed

Schedule E – Other Notes Insert additional rows as needed Be sure to copy formula cells when adding rows All Facilities indirect costs are the total cost times the rate calculated on Schedule C Indirect Costs from the Restr Adj flow forward to the Schedules of Expenditures for the Unrestricted and Restricted Rates as appropriate

Certification Once the LEA has completed the ICRP, the Certification must be signed by a staff member who has the authority to bind the LEA, normally at the Treasurer’s position or above. The certification assures that  the costs are allowable and that unallowable costs have been adjusted  Costs that have been treated as indirect costs have not been also claimed as direct costs  Similar types of costs have been accounted for consistently  MDE will be notified of any accounting changes that would affect the rate

Implementation ABC Grant Example Expenditures FY15 Wages$200,000 Benefits 40,000 Supplies 5,000 SubContracts (1) 100,000 Equipment 10,000 Total Costs$355,000 1 st $25k SubC- 75,000 Capital Equip- 10,000 Allowable Costs$270,000 FY15 Rate x 10% Indirect Costs$ 27,000

 Indirect Cost Rate is applied to allowable grant costs only  Rate can be used only for the fiscal year for which it is approved  Rate can be used only after it has been approved  Rates are based on prior year expenditures (even/odd years) FY15 costs calculate FY17 rate FY16 costs calculate FY18 rate, etc.  Allowable costs can be Direct, Indirect, Excluded or Disallowed  No cost can be both Direct and Indirect

Training Questions & Answers Is Workers’ Compensation Cost a direct or indirect cost? The cost of Workers’ Compensation follows the employee. Therefore, the cost of Workers’ Compensation for a direct-service employee is a direct cost, and the cost of Workers’ Compensation for an indirect- service employee is an indirect cost. Are Subcontracts the same as Subcontractors? Subcontracts are for the work of subcontractors. Be sure that subcontracts that are listed in this workbook are for the work performed for direct services only. Do not include contracts for indirect departments, such as outsourcing the payroll function in the fiscal office. Is the LEA required to prepare the ICRP if all federal costs are direct costs? Preparation of the Indirect Cost Rate Proposal is NOT REQUIRED of any LEA. If the LEA wants to recover its indirect costs from federal grants, then the LEA can choose to prepare an ICRP and submit it to MDOE for issuance of an approved rate. However, preparation of the ICRP is an OPTION being offered to the LEAs by the MDOE. Whether you can recover indirect costs from a federal grant or contract depends on the grant/contract itself. Some grants will allow recovery of indirect costs, some have a cap on the percent or dollar amount you can recover, and others do not allow for the recovery of indirect costs.