Ins and Outs of Super Circular II: Cost Principles & Audit Requirements

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1 Ins and Outs of Super Circular II: Cost Principles & Audit Requirements CAPLAW Strategic Issues Facing CAAs Webinar Series April 23, 2014 CAPLAW Subpart E Cost Principles 2 1

2 Policy Guide Awardees responsible for: Administering award efficiently and effectively using sound management practices Recognition of each entities unique combination of staff, facilities and experience Complying with funding source requirements Maintaining internal accounting policies and practices consistent with cost principles Supporting costs charged with adequate documentation Not earning or keeping any profit unless expressly authorized by award terms & conditions 3 Cost Principles: Basic Considerations 4 2

3 Allocable Costs Still may not shift costs to overcome funding deficiencies or avoid restrictions; however, costs that are allowable under two or more federal awards may be shifted if permitted by existing federal statutes, regulations or award terms and conditions Allocable Costs Direct cost allocation principles: If a cost benefits two or more projects or activities: in determinable proportions, cost should be allocated based on proportional benefit in non-determinable proportions, costs may be allocated or transferred on any reasonable documented basis Equipment or other capital assets costs are assignable to the authorizing federal award regardless of the use when no longer needed for original purposes 6 3

4 Prior Written Approval Now grouping of all prior approval requirements in one regulation Absence of prior approval will not affect reasonableness or allocability determination unless prior approval was specifically required Adjustment of Previously NICR Containing Unallowable Costs Generally, unallowable costs included in NICR must be adjusted and/or a refund made: Not a reopening of the rate negotiation Future unallowable costs removed, rates adjusted Past cash refund (including interest) issued If provisional or fixed rates, adjustments will be made when rates finalized Current adjustment made or refund issued 8 4

5 Direct Costs Salaries of administrative and clerical staff will be treated as indirect (F&A) costs Direct charging allowed if: Costs integral to a project or activity; Individuals involved specifically identified with the project or activity; Costs explicitly included in budget or prior written approval received; and Costs not recovered as indirect Indirect (F&A) Costs Negotiated rates must be accepted by all Federal awarding agencies Different rates permitted only when required by Federal law or approved by Federal agency Must notify OMB of approved deviations Federal agency must make publicly available deviation policies, procedures and general decision-making criteria Notice of funding opportunities must include indirect cost rate reimbursement, matching or cost share policies 10 5

6 Indirect (F&A) Costs If never received NICR may elect to charge a de minimis 10% rate and use indefinitely Methodology must be used consistently for all federal awards until choose to negotiate which may do at any time If have NICR, may apply for one time extension for up to four years Extension subject to review and approval May not request rate review until end of extension period Must re-apply to negotiate rate 11 Pass-through Entity A non-federal entity that provides a subawardto a subrecipientto carry out part of a federal program, Pass-through entities must provide subrecipientswith certain specified information, including (among other things): An approved federally NICR between the subrecipientand the federal gov't, or if no such rate exists, either a rate negotiated between the pass-through entity and the subrecipientor a de minimis indirect cost rate, (a)(4) 12 6

7 Required Certifications Expenditure certification required to assure payments are proper and in accordance with: Award terms and conditions Approved project budgets Annual and final fiscal reports or vouchers requesting payment under the agreement Must be signed by an official authorized to legally bind entity Sample certification language included in regulation Required Certifications Cost allocation plan or indirect cost rate proposal certification must be: Maintained on file On forms in the appendices Signed by an individual no lower than VP or CFO If not elect 10% rate, submit a certified rate or plan proposal, Federal gov t may disallow all indirect costs or unilaterally establish a plan or rate 14 7

8 Cost Principles: Selected Items of Cost Advertising and Public Relations Includes program outreach as an allowable advertising cost 16 8

9 Audit Services Unallowable audit services costs include audits: Not conducted in accordance with Single Audit requirements and That fall below the Single Audit threshold Costs of financial statement audits, when not currently have a federal award, may be included in indirect cost proposal or cost allocation plan s indirect cost pool Audit Services Pass-through entities may charge for cost of agreedupon-procedures to monitor subrecipients exempted from Single Audit Act as long as: Conducted in accordance with GAGAS, Paid for and arranged by pass-through entity, and Limited in scope to one or more of the following: Activities allowed or unallowed, Allowable costs/cost principles, Eligibility, and Reporting 18 9

10 Collections of Improper Payments Costs incurred to recover improper payments are allowable as either direct or indirect costs, as appropriate Amounts collected may be used in accordance with cash management standards set forth in discussing payments addresses minimizing the time elapsing between the transfer of funds Compensation Personal Services Additional allowability requirement for compensation: appointment (hire) must be made in accordance with the entity s rules and policies and any applicable federal laws Removal of language requiring prior approval from awarding agency for overtime, extra-shift and multishift premiums payments 20 10

11 Compensation Personal Services Outside employment for professional services analysis: Must follow written outside employment policies for professional services If none exist or fail to adequately define permissible extent of work, federal gov t may require work on federal awards allocated between non-federal activities and non organizational professional activities If arrangement deemed excessive or inconsistent with award COI terms and conditions, awarding agency will negotiate arrangements on a case-by-case basis Compensation Personal Services Charges must be based on records accurately reflecting work performed If meet following standards, no additional documentation required: Supported by system of internal control Incorporated in official records Reasonably reflect the total compensated activity Encompass all activities federal and non federal Comply with established accounting practices and policies Support distribution of employee s salary among specific activities or cost objective 22 11

12 Compensation Personal Services If use budget estimates (estimates determined before services are performed) must: Have system that produces reasonable approximation of actual activity Enter significant changes into records in a timely manner Follow processes to review after-the-fact interim charges to estimate and ensure final amount charged is accurate, allowable and properly allocated Compensation Personal Services For blended funding: May account for combined use based on performance metrics if all involved federal awarding agencies approve Must submit request for waiver of standards based on documentation that: Describes method of charging costs, Relates charging of costs to a specific activity applicable to all funding sources and Is based on quantifiable measures of the activity in relation to time charged 24 12

13 Compensation Personal Services If not meet documentation standards, may be required to submit PARs Compensation Fringe Benefits Cost of fringe benefits for leave (annual, FMLA, sick, holidays, court, military, administrative, etc.) allowable if: Provided for under established written leave polices, Equitably allocated to all related activities including federal awards, and Accounting basis (cash or accrual) selected for costing each type is consistently followed 26 13

14 Conferences Cost of identifying, but not providing, locally available dependent-care resources are allowable Conference hosts/sponsors must exercise discretion and judgment in ensuring that conference costs are appropriate, necessary and managed in a manner that minimizes costs to the award Contingency Provisions Contingency reserves still unallowable Some contingency amounts allowed to be explicitly included in budget estimates to extent they are necessary to improve the precision of those estimates Estimates must be based on broadly accepted cost estimating methodologies and accepted by funding source 28 14

15 Contributions and Donations Depreciation on donated assets is permitted as long as the donated property is not counted towards cost sharing or matching Depreciation No more use allowance When replacing use allowance with depreciation method, depreciation must be computed as if asset has been depreciated over its entire life Charges must be supported by adequate property records and physical inventories (taken at least every 2 yrs) to ensure assets useable, used and needed Must maintain records showing that adequate depreciation taken 30 15

16 Employee Health and Welfare Costs Employee morale cost removed Entertainment Costs Entertainment costs (includes amusement, diversion and social activities) are allowable if: Have a programmatic purpose and Are authorized either in the approved budget or with prior written approval from federal agency 32 16

17 Equipment and Other Capital Expenditures Removed language stating that equipment and other capital expenditures are unallowable as indirect costs If instructed by federal awarding agency to dispose of or transfer equipment, then cost of such disposal or transfer is allowable Fines, Penalties, Damages and Other Settlements Other settlement costs and damages arising out of certain situations are unallowable except when incurred as a result of compliance with Federal award provisions or with prior written approval from the awarding agency Certain situations include: costs resulting from violations of, alleged violations of or failure to comply with all laws 34 17

18 Fundraising and Investment Management Costs Fundraising costs for meeting federal program objectives are allowable with prior written approval Investment counsel and staff costs (currently unallowable) are allowable when associated with investments covering pension, self insurance or other funds which include federal participation Insurance & Indemnification Reserves covering the risk of loss or damage to Federal property, to the extent that entity is liable for such loss or damage, are unallowable unless specifically required or approved Reserves for self insurance programs (worker s comp, unemployment insurance, severance pay) still allowable but more criteria to meet Insurance refunds must be credited against insurance costs in the year the refund is received 36 18

19 Interest Includes general statement that financing costs (including interest) to acquire, construct, or replace capital assets are allowable, subject to the conditions in this section Interest Following conditions must be considered when determining allowability of interest: Entity uses capital assets for federal award Facilities/equip. costs limited to FMV via unrelated party Financing obtained via an arm s length transaction Interest costs result from least expensive financing alternative Interest costs expensed/capitalized in accordance with GAAP Earnings generated by investment of borrowed funds used to offset current interest costs Conditions for debt arrangements over $1 million to purchase or construct facilities are followed Interest from fully depreciated asset is unallowable 38 19

20 Losses on Other Awards or Contracts Any excess costs over authorized funding levels transferred from any award or contract to another award or contract is unallowable All losses are not allowable indirect costs and are required to be included in the appropriate indirect cost rate base for allocation to indirect costs Memberships, Subscriptions & Professional Activity Costs Costs of membership in organizations whose primary purpose is lobbying are unallowable 40 20

21 Proposal Costs Proposal costs include: Preparing bids, proposals, or applications on potential Federal/non-Federal awards or projects, including development of support data Successful and unsuccessful bids Current costs treated as indirect (F&A) and allocated to all entity activities No past proposal costs will be allocable to current accounting period Rearrangement and Reconversion Costs Must charge costs incurred for ordinary and normal rearrangement and alteration of facilities as indirect May now charge costs for special arrangements and alterations specifically for an award as direct Must still obtain prior approval from federal awarding agency but now have option of obtaining from passthrough entity 42 21

22 Termination Costs Removed indirect costs related to salaries and wages from the list of allowable settlement expenses Training & Education Costs Now just says that the cost of training and education provided for employee development is allowable 44 22

23 Travel Costs Per diem rates still a default if no acceptable travel policy in place Method(s) used for charging costs must be in accordance with written travel reimbursement policy To charge travel costs directly to a Federal award documentation must justify that: Participation is necessary to the Federal award; and Costs are reasonable and consistent with established travel policy Travel Costs May use federal funds to cover temporary dependent care costs that directly result from travel to conferences as long as the costs are: A direct result of the individual s travel for the award, Consistent with documented travel policy, and Only temporary during the travel period Travel costs for dependents are unallowable Except for travel for 6 months or more with prior approval from federal awarding agency 46 23

24 Subpart F Audit Requirements 47 Audit Requirements Threshold for Single Audit requirement raised to $750, See table in with threshold values to determine where federal programs fall in terms of risk and required audit level. Determination of Type A programs will no be based on higher value of $750,000. To qualify for low-risk status, grantee must use GAAP unless another basis is required by state law

25 Audit Requirements All audits will be available for public inspection on the internet, on the website of the Federal Audit Clearinghouse, The threshold for questioning costs has been raised to $25, If additional audits required then fed. awarding agency or state gov. must first review the Federal Audit Clearinghouse for existing audits and rely on the information there to the extent possible Audit Requirements Audit due dates that fall on Saturday, Sunday, or Federal holiday, are due the following business day In addition to the sanctions provided for under A- 133 for noncompliance with audit requirements the federal agency or state may now also initiate suspension or debarment proceedings , When selecting an auditor, the grantee must also review peer review reports

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