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Developing Indirect Cost Rates for Non‐Profits: Practical Approaches

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Paul Calabrese, S enior Manager, Rubino & McGeehin, Bethesda, Md. , g , , ,

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Developing Indirect Cost Rates for N P fit P ti l A h Non‐Profits: Practical Approaches Seminar

June 6, 2012 Paul Calabrese, Rubino & McGeehin pcalab@rubino.com p @

Today’s Program

Overview S lide 7 – S lide 10 Cost Accounting Definitions Indirect Rate Negotiation And Administration S lide 11 – S lide 16 S lide 17 – S lide 26 Basic Indirect Rate Mechanics Analysis Of Indirect Expenses S lide 27 – S lide 33 S lide 34 – S lide 42 Allocate Occupancy Direct Multiple Cost Pools Developing An Indirect Rate S lide 43 – S lide 47 S lide 48 – S lide 55 S lide 56 S lide 63 Developing An Indirect Rate Cost Accounting Matrix Indirect Rate Agency Models S lide 56 – S lide 63 S lide 64 – S lide 67 S lide 68 – S lide 71 Indirect Rate Agency Models DHHS Indirect Template S lide 68 S lide 71 S lide 72 And Exhibit

Developing Indirect Rates: Overview

• Usefulness of indirect rates
• Essential indirect rate mechanics

C t f li j t t t

• Components of a compliance proj ect cost system
• Administration and negotiation of indirect rates under A-122
• Update on new rules regarding the negotiation of indirect rates
• Update on new rules regarding the negotiation of indirect rates
• S

pecial indirect rates and cost allocations

• S

teps to develop an indirect cost rate S teps to develop an indirect cost rate

• Preparation of an indirect cost rate using the DHHS

model

7

8

B i I di t R t P i i l Basic Indirect Rate Principles

 Goal

Goal

 To provide an open architecture to design and

To provide an open architecture to design and develop indirect cost rates within the develop indirect cost rates within the framework of OMB Circular A framework of OMB Circular A-

• 122

122

 Documentation to ensure:

Documentation to ensure:

  Uniform measurement

Uniform measurement

  Uniform measurement

Uniform measurement

  Consistency

Consistency– –year to year comparison year to year comparison C t ti i d C t ti i d l l

9

  Cost accounting period

Cost accounting period -

• accrual

accrual

  Concept of ALLOCABILITY

Concept of ALLOCABILITY

I mportance Of Federal Rates

 Service and Not For Profit (NFP)

Service and Not For Profit (NFP)

  Non

Non-

• Profit org’s

Profit org’s – OMB Circular A OMB Circular A-

• 122

122 g

  Dept. of Labor & DHHS models

• Dept. of Labor & DHHS models

Outside forces on NFPs Outside forces on NFPs

 Outside forces on NFPs

Outside forces on NFPs

  IRS 990 SFE, FASB 117 SFE

IRS 990 SFE, FASB 117 SFE

10

Cost Accounting Definitions Cost Accounting Definitions

Di t E Di t E Direct Expenses Direct Expenses

 Direct Cost

Direct Cost are costs specifically

are costs specifically identified or traceable to a final cost identified or traceable to a final cost

• bjective (program service group,
• bjective (program service group,

activity, cost center, department, grant). activity, cost center, department, grant).

 Examples: direct labor, direct material,

Examples: direct labor, direct material, supplies, consultants, sub supplies, consultants, sub-

• awards, and

awards, and pp , , pp , , , travel. travel.

12

Reasons For I ndirect Rates

 Develop cost estimates for grant

Develop cost estimates for grant proposals used in the SF 424a proposals used in the SF 424a

 Manage within cost measurement and

Manage within cost measurement and performance requirements performance requirements

 Full

Full Cost Cost Recovery Recovery

 Difficult to achieve

Difficult to achieve

 Certain grants restrict administrative cost

Certain grants restrict administrative cost

 Certain NEA vehicles exclude indirect

Certain NEA vehicles exclude indirect

13

 State and local units of gov’t limit rates

State and local units of gov’t limit rates

Conditions Clauses

 Limitation on Indirect Costs

Award specific rate (predetermined)

 Award – specific rate (predetermined)  Limitation on indirect cost recovery, i.e.

f if awardee did not provide an indirect rate percentage in 6j of the SF 424-a, h d b d f l d the awardee is barred from claiming and recovering indirect cost for this grant

14

I ndirect Rates

I di t t ith I di t t ith

 Indirect rates synonymous with:

Indirect rates synonymous with:

 Burdens

Burdens

 Loading

Loading

 “Overhead”

“Overhead”

 Types

Types

 Fringe

Fringe

 Fringe

Fringe

 G&A (Indirect, Management &

G&A (Indirect, Management & General from IRS Form 990) General from IRS Form 990)

15

General from IRS Form 990) General from IRS Form 990)

I ndirect Cost Definitions

 I ndirect Cost

I ndirect Cost are costs not directly identified

are costs not directly identified with a single final cost objective (grant), but with a single final cost objective (grant), but rather relates to two or more final cost rather relates to two or more final cost rather relates to two or more final cost rather relates to two or more final cost

• bjectives, or a service center, like occupancy
• bjectives, or a service center, like occupancy

department. department.

 Indirect costs cannot be economically traced

Indirect costs cannot be economically traced to each grant so they must be placed in a cost to each grant so they must be placed in a cost pool to be allocated on a causal pool to be allocated on a causal beneficial beneficial pool to be allocated on a causal pool to be allocated on a causal-beneficial beneficial basis to the final cost objective or grant. basis to the final cost objective or grant.

16

I ndirect Rate Negotiation I ndirect Rate Negotiation I ndirect Rate Negotiation I ndirect Rate Negotiation And Administration And Administration

Proposed Changes To Cost Principles

• Changes to the Cost Principles
• Consolidating all cost principles into a single

document with limited variations by entity

• Use of “flat” rates discounted below negotiated

rates

• Option of accepting a flat or negotiated rate
• Flat rates maintained up to 4 years with minimal

documentation d f ll d

18

• Negotiated rates require full documentation
• DHHS DCA develop discount factors

No I ndirect Rate System Fits All

 OMB Circular A-122, Attachment A, § C.  Due to diverse characteristics and  Due to diverse characteristics and

accounting practices of nonprofits, it is not possible to specify the types of cost not possible to specify the types of cost which may be classified as indirect in all situations situations.

19

Advance Understandings

 OMB Circular A-122, Attachment A, § A.6  Under any award the allocation of certain  Under any award, the allocation of certain

expenses may be difficult to determine Purpose is to avoid subsequent

 Purpose is to avoid subsequent

disallowance or dispute S k itt t ith i t

 Seek a written agreement with cognizant

awarding agency in advance of incurrence f t

• f cost

20

I ndirect Cost Allocations I ndirect Cost Allocations

 OMB Circular A-122, Attachment A, § D.1.e

 Period

Period for allocating and accumulating for allocating and accumulating

 Period

Period for allocating and accumulating for allocating and accumulating incurred indirect cost to incurred indirect cost to grants grants

i d l h ’ fi l i d l h ’ fi l

 Base period equals the org’s fiscal

Base period equals the org’s fiscal year year

 Grants cross over two fiscal years

Grants cross over two fiscal years

 Two different indirect rates

Two different indirect rates

21

I ndirect Rate Administration

 Negotiation and Approval of Indirect Rates

Negotiation and Approval of Indirect Rates per OMB Circular per OMB Circular A A-

• 122, Attachment A,

122, Attachment A, § § E E

 Agency with largest dollar value = cognizant

Agency with largest dollar value = cognizant agency agency

 Indirect rate proposal submitted 90 days after

Indirect rate proposal submitted 90 days after new award to an organization new award to an organization

 May not happen if you have

May not happen if you have program restrictions, program restrictions,

 HRSA Part B, CFDA 93.914 limits adm. to 10%

HRSA Part B, CFDA 93.914 limits adm. to 10%

 Issues when agency is not proactive in the

Issues when agency is not proactive in the negotiation and settlement of indirect rates negotiation and settlement of indirect rates

22

I ndirect Rate Administration (Cont.)

 Negotiation and Approval of Indirect Rates

Negotiation and Approval of Indirect Rates

 Existing org’s submit new rate proposals within

Existing org’s submit new rate proposals within 6 months after the end of their fiscal year 6 months after the end of their fiscal year

 Predetermined rate is based on estimate of

Predetermined rate is based on estimate of costs to be incurred for the current or future costs to be incurred for the current or future fiscal year The predetermined rate is not fiscal year The predetermined rate is not fiscal year. The predetermined rate is not fiscal year. The predetermined rate is not subject to adjustment. subject to adjustment.

23

I ndirect Rate Administration (Cont.)

Fi d ( ili ) t Fi d ( ili ) t i il t i il t

 Fixed (ceiling) rates

Fixed (ceiling) rates are similar to pre are similar to pre-

• determined rates except:

determined rates except:

 The difference between the estimated and

The difference between the estimated and actual costs of the period are carried forward actual costs of the period are carried forward as an adjustment to the subsequent period’s as an adjustment to the subsequent period’s as an adjustment to the subsequent period s as an adjustment to the subsequent period s indirect rate computation indirect rate computation

Final rate Final rate

 Final rate

Final rate

 Based on actual cost for period

Based on actual cost for period O ti t d t bj t t O ti t d t bj t t dj t t dj t t

 Once negotiated, not subject to

Once negotiated, not subject to adjustment adjustment

24

I ndirect Rate Administration (Cont.)

 “Provisional” Rate

Provisional” Rate

 Temporary

Temporary indirect cost indirect cost rate pending final rate rate pending final rate p y p y p g p g

 Used for funding, interim billing or cost

Used for funding, interim billing or cost reporting reporting

 If future rate in FY 2012 is substantially higher

If future rate in FY 2012 is substantially higher than historical rate in FY 2011, consider than historical rate in FY 2011, consider preparing a separate budgeted rate for FY 2012 preparing a separate budgeted rate for FY 2012 to negotiate the provisional rate in addition to to negotiate the provisional rate in addition to the FY 2011 historical indirect rate proposal the FY 2011 historical indirect rate proposal the FY 2011 historical indirect rate proposal the FY 2011 historical indirect rate proposal

25

I ndirect Rate Administration (Cont.)

 The

The results of any negotiation is distributed results of any negotiation is distributed to other participating agencies to other participating agencies

 Many clients complain they cannot find the

Many clients complain they cannot find the

• ffice for negotiating indirect rate
• ffice for negotiating indirect rate
• ce o

egot at g d ect ate

• ce o

egot at g d ect ate

 Look at conditions clauses attached to grant

Look at conditions clauses attached to grant

26

Basic I ndirect Rate Basic I ndirect Rate Mechanics Mechanics

Fringe As A Service Center

 For example,

For example, fringe cost fringe cost includes includes pension medical insurance and payroll pension medical insurance and payroll pension, medical insurance and payroll pension, medical insurance and payroll taxes for direct personnel, working on taxes for direct personnel, working on multiple programs, that cannot be multiple programs, that cannot be p p g , p p g , economically assigned to each of those economically assigned to each of those grants. grants.

28

Fringe Cost Pool And Base

 Each of the fringe expenses reside in a cost

Each of the fringe expenses reside in a cost pool to be allocated on a causal pool to be allocated on a causal-

• beneficial

beneficial basis to the final cost objective or grant basis to the final cost objective or grant basis to the final cost objective or grant. basis to the final cost objective or grant.

 Fringe expenses is the numerator and total

Fringe expenses is the numerator and total labor dollars is the denominator to develop a labor dollars is the denominator to develop a % i f ti % i f ti % via a fraction. % via a fraction.

 Total labor has a functional relationship with

Total labor has a functional relationship with fringe expense where total labor is the fringe expense where total labor is the fringe expense where total labor is the fringe expense where total labor is the independent variable and fringe is the independent variable and fringe is the dependent variable. dependent variable.

29

Fringe Rate Computation

F i P l & B E l F i P l & B E l



Fringe Pool & Base Example: Fringe Pool & Base Example:

Fringe Indirect Cost Pool: Fringe Indirect Cost Pool: $1 500 Pension $1 500 Pension $1,500 Pension $1,500 Pension 1,500 Medical Insurance 1,500 Medical Insurance 500 500 Payroll Tax Payroll Tax y $3,500 Total Fringe $3,500 Total Fringe

*

$ 2,000 Direct Labor (D/L) Grant A $ 2,000 Direct Labor (D/L) Grant A 8,000 8,000 D/L Grant B D/L Grant B $10,000 Total Grant D/L* (Allocation Base) $10,000 Total Grant D/L* (Allocation Base)

*

30

$3,500/$10,000 = 35% Fringe Indirect Burden Rate $3,500/$10,000 = 35% Fringe Indirect Burden Rate * Missing indirect labor applied to G&A. * Missing indirect labor applied to G&A.

Fringe Applied To Grants

Fringe Application Example: Fringe Application Example:

Grant A: Grant A: $ 2,000 D/L $ 2,000 D/L 700 Fringe ($2,000 D/L x 35% fringe rate) 700 Fringe ($2,000 D/L x 35% fringe rate) 1 400 1 400 Other Direct Costs (ODCs) Other Direct Costs (ODCs) 1,400 1,400 Other Direct Costs (ODCs) Other Direct Costs (ODCs) $ 4,100 Total cost for Grant A $ 4,100 Total cost for Grant A-

• final cost objective

final cost objective Grant B: Grant B: $ 8,000 D/L $ 8,000 D/L 2,800 Fringe ($8,000 D/L x 35% fringe rate) 2,800 Fringe ($8,000 D/L x 35% fringe rate) 9 600 9 600 ODC ODC

31

9,600 9,600 ODC ODC $20,400 Total cost for Grant B $20,400 Total cost for Grant B-

• final cost objective

final cost objective

I ndirect Cost Example

General fund = administrative costs General fund = administrative costs

 General fund = administrative costs

General fund = administrative costs

 Executive director’s office

Executive director’s office

 Finance, HR, IT, Purchasing, Facility Mgmt.

Finance, HR, IT, Purchasing, Facility Mgmt. a ce, , , u c as g, ac ty g t a ce, , , u c as g, ac ty g t

 Office Space, Utilities, Audits, Insurance

Office Space, Utilities, Audits, Insurance

 Value = $150,000 (A)

Value = $150,000 (A)

 Programs, Value = $1,000,000 (B)

Programs, Value = $1,000,000 (B)

 $900,000 in non

$900,000 in non-

• federal: programs, fundraising,

federal: programs, fundraising, membership promotion P/R membership promotion P/R membership, promotion, P/R membership, promotion, P/R

 $100,000 federal grant

$100,000 federal grant

 Fractional relationship between general fund

Fractional relationship between general fund

32

g (M&G) and Programs = 15% (M&G) and Programs = 15%

Example Of Total Cost

T t l C t f G t T t l C t f G t

 Total Cost of Grant

Total Cost of Grant

 $100,000 direct costs

$100,000 direct costs $ 15 000 li d i di (15% $100 000) $ 15 000 li d i di (15% $100 000)

 $ 15,000 applied indirect (15% x $100,000)

$ 15,000 applied indirect (15% x $100,000)

 $115,000 = total value of grant

$115,000 = total value of grant

T t l C t T t l C t D fi iti D fi iti

 Total Cost

Total Cost Definition Definition

 The sum of

The sum of direct and indirect costs direct and indirect costs allocable allocable to an award less credits refunds rebates; and to an award less credits refunds rebates; and to an award less credits, refunds, rebates; and to an award less credits, refunds, rebates; and excluding unallowable costs excluding unallowable costs. .

 OMB Circular A

OMB Circular A-122, Attachment A, A.1 122, Attachment A, A.1

33

 OMB Circular A

OMB Circular A 122, Attachment A, A.1 122, Attachment A, A.1

Analysis Of Analysis Of I ndirect Expenses I ndirect Expenses

I ndirect Rate Multiplier

 Indirect Rate Loading Factor:

Indirect Rate Loading Factor:

 Fringe (1.35) x G&A (1.25) = 1.6875

Fringe (1.35) x G&A (1.25) = 1.6875

 For every D/L $1.00 spent, there will be an

For every D/L $1.00 spent, there will be an additional cost of 69 additional cost of 69¢ ¢ in burden cost. in burden cost.

35

Percent Of Base Analysis

Fringe Pool Example: Fringe Pool Example:

FY 2010 FY 2010 FY 2011 FY 2011 Account Account $1 500 15% $1 500 20% Pension $1 500 15% $1 500 20% Pension $1,500 15% $1,500 20% Pension $1,500 15% $1,500 20% Pension 1,500 15% 2,500 33% Medical 1,500 15% 2,500 33% Medical 500 500 5% 5% 500 500 7% 7% Payroll Payroll 500 500 5% 5% 500 500 7% 7% Payroll Payroll $3,500 35% $4,500 60% $3,500 35% $4,500 60% Fringe Pool

Fringe Pool

36

$10,000 $7,500 Total Labor Base $10,000 $7,500 Total Labor Base

I solate G&A (Numerator) I solate G&A (Numerator)

 Indirect cost classified into two broad

Indirect cost classified into two broad activities: A activities: A-

• 122, Attachment A,

122, Attachment A, § C.3 C.3 , , , , §

 Facilities: buildings, equipment and capital

Facilities: buildings, equipment and capital investments, maintenance and operation investments, maintenance and operation , p , p expenses expenses

 Administration: general administration,

Administration: general administration, director’s office, accounting, HR, library director’s office, accounting, HR, library expenses and other types of expenditures not expenses and other types of expenditures not ti d d “f ilit ” ti d d “f ilit ”

37

mentioned under “facility” mentioned under “facility”

I solate Admin. From Facility I solate Admin. From Facility

 If an organization has more than $10

If an organization has more than $10 Million in federal funding of direct Million in federal funding of direct Million in federal funding of direct Million in federal funding of direct costs in a fiscal year, a breakout of costs in a fiscal year, a breakout of indirect cost into two components: indirect cost into two components: indirect cost into two components: indirect cost into two components: facility and administration, having facility and administration, having indi ect cost ates indi ect cost ates indirect cost rates. indirect cost rates.

 OMB Circular A-122, Attachment A,

38

, , § C.3.e

I s There An I deal I ndirect Rate?

15% T t l G&A i l d

 15% Total G&A includes:

 10% Administrative Functions  5% Occupancy

 Private Foundation Grant permits:  Private Foundation Grant permits:

 9% Total G&A Limitation  Occupancy is a direct line item cost

 What is the best allocation base?  What is the best allocation base?  What is the best rate, low or high?

39

G&A Bases (Denominator)

 General & Administrative MTDC Base

General & Administrative MTDC Base

All t M difi d T t l Di t C t (MTDC) All t M difi d T t l Di t C t (MTDC)

 Allocate on Modified Total Direct Cost (MTDC)

Allocate on Modified Total Direct Cost (MTDC)

 Direct labor, applied fringe, non

Direct labor, applied fringe, non-

• labor direct

labor direct l f b h l d l f b h l d

 Exclusions from MTDC base shown on next slide

Exclusions from MTDC base shown on next slide

 G&A Salaries and Fringe Base

G&A Salaries and Fringe Base

 Direct labor and applied fringe only

Direct labor and applied fringe only

 G&A Salary Base

G&A Salary Base

40

y

 Only direct labor

Only direct labor

Distribution Basis For MTDC Distribution Basis For MTDC Distribution Basis For MTDC Distribution Basis For MTDC

A-122, Attachment A, § D.3.f

S l i d (di t l b ) S l i d (di t l b )

 Salaries and wages (direct labor)

Salaries and wages (direct labor)

 Fringe benefits on direct labor

Fringe benefits on direct labor M t i l d li i & t l M t i l d li i & t l

 Materials and supplies, services & travel

Materials and supplies, services & travel Sub Sub-

• grants and subcontracts up to the

grants and subcontracts up to the first

first $25 000 $25 000 of each sub

• f each sub grant or subcontract

grant or subcontract

$25,000 $25,000 of each sub

• f each sub-grant or subcontract,

grant or subcontract, regardless of period covered by sub regardless of period covered by sub-

• grant

grant

 Amounts excluded from MTDC:

Amounts excluded from MTDC:

 Amounts excluded from MTDC:

Amounts excluded from MTDC:

 Sub

Sub-

• grants/subcontracts > $25,000

grants/subcontracts > $25,000 Equipment capital expenditures Equipment capital expenditures

41

 Equipment, capital expenditures

Equipment, capital expenditures

 Participant support cost, generally excluded

Participant support cost, generally excluded

Di t C t U d A 122/ SFE Direct Cost Under A-122/ SFE

 OMB Circular A-122, Attachment A, § B.3  Cost of Certain Activities

Cost of Certain Activities – Direct Functions Direct Functions

 Fundraising

Fundraising

 Membership

Membership

 Promotion, lobbying, & public relations

Promotion, lobbying, & public relations

 Treated as direct costs for purposes of

Treated as direct costs for purposes of p p p p determining indirect cost rates determining indirect cost rates

 And allocated their share of the org’s

And allocated their share of the org’s

42

g indirect costs indirect costs – agency interpretation agency interpretation

Allocate Occupancy Direct Allocate Occupancy Direct Allocate Occupancy Direct Allocate Occupancy Direct

Charge Rent Direct Charge Rent Direct And I ndirect



Rent example of allocability: Rent example of allocability:

Rent charged directly for a separate office Rent charged directly for a separate office

1. 1.

Rent charged directly for a separate office Rent charged directly for a separate office devoted to one grant devoted to one grant

2

Rent (G&A) applied via square footage Rent (G&A) applied via square footage

2. 2.

Rent (G&A) applied via square footage Rent (G&A) applied via square footage (SF) to various departments/programs (SF) to various departments/programs based on SF or some other basis based on SF or some other basis (next slide)

(next slide)

based on SF or some other basis based on SF or some other basis (next slide)

(next slide)

3. 3.

Allocating rent for executive director or Allocating rent for executive director or director of finance, no direct relationship to director of finance, no direct relationship to

44

, p , p grant or direct activities grant or direct activities

Charge Rent Direct And I ndirect (Cont.)



Rent example of allocability: Rent example of allocability:

2. 2.

Rent (G&A) applied to various departments/programs Rent (G&A) applied to various departments/programs ( ) pp p /p g ( ) pp p /p g based on SF or payroll dollars based on SF or payroll dollars

a.

• a. If site devoted to grant is 1,000/10,000 SF

If site devoted to grant is 1,000/10,000 SF f f l l ($ f f l l ($ for 10% of total rental cost ($5,000 = for 10% of total rental cost ($5,000 = $500) $500) If $5 000 i t t l t i ll t d i D/L If $5 000 i t t l t i ll t d i D/L

b.

• b. If $5,000 in total rent is allocated via D/L

If $5,000 in total rent is allocated via D/L dollars over $20,000/$80,000 = 25% for dollars over $20,000/$80,000 = 25% for this program/grant (total rent = $1 250) this program/grant (total rent = $1 250)

45

this program/grant (total rent = $1,250), this program/grant (total rent = $1,250),

i.e. i.e. Direct Allocation Method

Direct Allocation Method

Direct Allocation Method

J i t t d i ti t l t

 Joint costs – depreciation, rental cost,

repair & maintenance, telephone, and the lik ( tilit t i t ) like (utility, property insurance, etc)

 Prorate on a base that accurately

measures benefits provided to each direct award and indirect departments

 Direct and indirect FTE positions  Hours worked direct and indirect

46

 Hours worked direct and indirect  Direct and indirect labor dollars

Direct Allocation Method (Cont.)

S f t f di t d G&A i

 Square footage for direct and G&A areas is

difficult to measure and keep up to date

 In order to use the Direct Allocation

Method, make sure the grant proposal has a line item for joint costs or occupancy

 Set up a separate department to track and

p p p allocate joint costs to direct and indirect cost objectives

47

j

 OMB Circular A-122, Attachment A, § D.4.

Multiple Cost Pools Multiple Cost Pools Multiple Cost Pools Multiple Cost Pools

Multiple Allocation Method

 Indirect costs benefit major functions in

varying degrees varying degrees

 Indirect costs accumulated into

separate cost groupings separate cost groupings

 Constitute a pool of expenses that are

• f like character as they relate to base
• f like character as they relate to base

 Allocated to functions by means of a

b h h b l base which best measures relative benefits

49

College Radio Station: Functional Areas

50

College Radio: Applied Burdens

51

S i C t T h i l P d ti Service Center: Technical Production

52

College Radio: Allocated Tech. Prod.

53

Step Allocation/ Order Step Allocation/ Order

A-122, Attachment A, § C.1 & D.3.d(1)

 First, direct costs are assigned to awards  Fringe allocated to all cost centers

g including G&A

 Occupancy allocated to all cost centers  Occupancy allocated to all cost centers

including G&A

 Overhead allocated to 10000 – Music  Overhead allocated to 10000 – Music

programs, and 50000 – Studio Structure Special allocation of engineering to 10000

 Special allocation of engineering to 10000  G&A allocated to 10000 through 60000

54

When I s Overhead Necessary?

 Grouping administrative costs for cost

centers under a department or centers under a department or functional area

D t t l ti VP

 Departmental executive or VP  Receptionist or other admin personnel  Functional work benefits local cost centers  Governmental group w/ multiple grants

55

g p / p g

 Burden is necessary to recover adm. $

Developing An Developing An I ndirect Rate I ndirect Rate

Utilize Existing Utilize Existing Documents Documents

Requested I tem List Requested I tem List

 Last FY & current YTD Trial Balance

Last FY & current YTD Trial Balance C t Ch t f A t C t Ch t f A t

 Current Chart of Accounts

Current Chart of Accounts

 Last FY audit/financials

Last FY audit/financials

 Statement of Functional Expenses

Statement of Functional Expenses

 Annual Budget

Annual Budget g

 Grant documents

Grant documents – – cost limitations cost limitations

 Previous negotiated rates w/ an agency

Previous negotiated rates w/ an agency

58

 Previous negotiated rates w/ an agency

Previous negotiated rates w/ an agency

Trial Balances (T/ B) Trial Balances (T/ B)

L t d t YTD T/B L t d t YTD T/B

 Last year and current YTD T/B

Last year and current YTD T/B

 Need historical data for 12 month

Need historical data for 12 month period period

 Need YTD if at least 6 months

Need YTD if at least 6 months

 More relevant at 9 month intervals

More relevant at 9 month intervals

 Actual cost data can be combined with

Actual cost data can be combined with ctua cost data ca be co b ed t ctua cost data ca be co b ed t budget to provide full year forecast budget to provide full year forecast

 Prior account structure may not be too

Prior account structure may not be too

59

 Prior account structure may not be too

Prior account structure may not be too useful for rate development useful for rate development

Ch t Of A t (COA) Chart Of Accounts (COA)

 Goal of new COA

Goal of new COA

 S-

• I

I-

• M

M-

• P

P-

• L

L-

• I

I-

• F

F-

• Y

Y

 Reduce work for accounting staff

Reduce work for accounting staff

 Develop a

Develop a matrix matrix of G/L and Departments

• f G/L and Departments

 Standardize for consistency

Standardize for consistency -

• ease of use

ease of use

 Basis for new cost accounting system

Basis for new cost accounting system g y g y

 Integrate with annual budget

Integrate with annual budget – – updates updates

 Fit report data on ONE page

Fit report data on ONE page

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t epo t data o O page t epo t data o O page

i i l di Financial Audit

 Schedule of Functional Expenses

Schedule of Functional Expenses

 Detailed expenses from Statement of

Detailed expenses from Statement of Activities Activities

 Greater detail than IRS Form 990

Greater detail than IRS Form 990

 Rows represent expense accounts

Rows represent expense accounts

 Columns represent departments

Columns represent departments

 Programs summarized under functions

Programs summarized under functions

 Support Services including fundraising

Support Services including fundraising

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and Management and General and Management and General

Annual Budget Annual Budget

 Format

Format

  Should be similar to schedule of

Should be similar to schedule of functional expenses for integration functional expenses for integration

 Budget used for this year’s projected

Budget used for this year’s projected indirect cost rate indirect cost rate

 Budget may be modified to include

Budget may be modified to include impact of management and general on impact of management and general on each program’s “bottom line” each program’s “bottom line”

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Prior Rate Agreements Prior Rate Agreements

 Prior agency indirect cost rate

Prior agency indirect cost rate agreements provide the basis for: agreements provide the basis for:

 How the rate is computed, i.e.

How the rate is computed, i.e. allocation base allocation base

 Cognizant agency and contacts

Cognizant agency and contacts

 Any special limitations

Any special limitations y p y p

 Applicable historical fiscal year(s)

Applicable historical fiscal year(s)

 New provisional rate

New provisional rate

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 New provisional rate

New provisional rate

 How long ago

How long ago – – may be out of date may be out of date

Cost Accounting Cost Accounting Matrix Matrix

Cost Accounting Matrix Cost Accounting Matrix

F k f t ti F k f t ti



Framework for cost accounting Framework for cost accounting system & indirect rate computations system & indirect rate computations F ilit t d t j b t t F ilit t d t j b t t



Facilitate an adequate job cost system Facilitate an adequate job cost system

 

Separate cost/funds between Separate cost/funds between t i t i grants, or programs services grants, or programs services

 

Distinguish between direct and Distinguish between direct and i di t t i di t t indirect cost indirect cost

 

Identify and segregate unallowable Identify and segregate unallowable t di t i di t t di t i di t

65

cost, direct or indirect cost, direct or indirect

Cost Accounting Matrix (Cont.) Cost Accounting Matrix (Cont.)



G/L Expenses G/L Expenses Salaries Salaries



Salaries Salaries



Fringe line Fringe line S b S b d



Sub Sub-awards: awards: 2 accts < $25k + > $25K

2 accts < $25k + > $25K



Supplies Supplies



Communication Communication



Occupancy line Occupancy line p y p y



Equipment maintenance & repair Equipment maintenance & repair



Travel Travel

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

Travel Travel



Depreciation/amortization Depreciation/amortization

Sample Natural Accounts

R & E St t



Revenue & Expense Structure



4000 – Revenue (Income)



5000 – Direct cost (COGS)



6000 – Fringe benefits (Expense)



6000 Fringe benefits (Expense)



7000 – Overhead (Reserved) 8000 G&A (E )



8000 – G&A (Expense)



9000 – Unallowable expenses (Expense)

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 Facilitates indirect rate development

I ndirect Rate I ndirect Rate I ndirect Rate I ndirect Rate Agency Models Agency Models Agency Models Agency Models

T l t F I CRP Templates For I CRP

 U.S. Department of Labor

U.S. Department of Labor

 Indirect Cost Rate Determination Guide

Indirect Cost Rate Determination Guide

 http://www.dol.gov/oasam/programs/b

http://www.dol.gov/oasam/programs/b

• c/costdeterminationguide/main.htm# t
• c/costdeterminationguide/main.htm# t
• c/costdeterminationguide/main.htm# t
• c/costdeterminationguide/main.htm# t
• c
• c

 DHHS ICRP Template

DHHS ICRP Template

 DHHS ICRP Template

DHHS ICRP Template

 http://rates.psc.gov/fms/dca/np_exall2.

http://rates.psc.gov/fms/dca/np_exall2. html html

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html html

Special I ndirect Cost Rates Special I ndirect Cost Rates Special I ndirect Cost Rates Special I ndirect Cost Rates

A-122, Attachment A, § D.5

 A single rate for all functions may not take

into account factors that may impact a y p particular segment of work

 Factors might include:  Factors might include:

 Site location: geographic or gov’t site

L l f d i i t ti t i d

 Level of administrative support required  Level of facility or other resources used

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Special I ndirect Cost Rates Special I ndirect Cost Rates Special I ndirect Cost Rates Special I ndirect Cost Rates

A-122, Attachment A, § D.5 (Cont.)

 Bifurcated G&A:

 Same G&A rate % for segments  Same G&A rate % for segments  Some segments have different facility

t d t diff t hi l ti cost due to different geographic locations

 Some segments have no facility cost

since the effort is performed at a government site

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DHHS I ndirect DHHS I ndirect Template Template