What Happens to Indirect Rates under the Uniform Guidance Bag Lunch Webinar November 19, 2015
Presenter: Paul H. Calabrese Rubino & Company, CPAs & Consultants Senior Manager Tel: 301-214-4137 pcalabrese@rubino.com www.linkedin.com/pub/paul-calabrese/20/293/645/ https://twitter.com/paulcompliance Copy of this presentation: http://www.rubino.com/resources 2
Sources 2 CFR 200 Uniform Administrative, Cost Principles & Audit Requirements for Federal Awards Includes COFAR FAQ dated 9/9/2015 Indirect Cost Rate Proposal formats for DOL, DOJ and NSF
Overview Impact of Uniform Guidance on Indirect Rates What is new with Indirect Rates Negotiation & Administration of Rates Types of Allocation Bases Simple, Multiple, Direct & Special Rates Overview of the Indirect Cost Rate Proposal formats for DOL, DOJ & NSF
Impact of the Uniform Guidance
Uniform Guidance: Structure at a Glance Subpart A: Definitions Subpart B: General Conditions Subpart C: Pre-Award Conditions Subpart D: Post-Award Requirements Subpart E: Cost Principles Subpart F: Audit Requirements Appendix IV: (4) Allocation Methods for Nonprofit Entities 6
Uniform Guidance 2 CFR 200 When is it effective? COFAR FAQ: (8/29/14) Negotiated F&A Indirect Rates (NICRAs) and Cost Allocation Plans (CAP) for all recipients FAQ.110-1 Existing NICRAs remain in power until they are due to be renegotiated based on old OMB Circulars. For new rules to apply, the NICRA or CAP Fiscal Year has to begin as the first full FY on 12/26/14 or later. Example: Under old rules, use allowances were allowable as a part of depreciation cost principle and are still in effect post 12/26/14 until the F&A NICRA is due to be re-negotiated 7
Uniform Guidance 2 CFR 200 When is it effective? COFAR FAQ: (8/29/14) Effective Date for Indirect Cost Rate Proposals (ICRP) using new rules FAQ.110-2 Applicable for the first full FYs beginning after 12/26/14 8
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (8/29/14) FAQ.331-5 There is no requirement to have an indirect rate. Claiming reimbursement for indirect costs is never mandatory. However, once you submit annual ICRPs for a NICRA, they re required 6 mos after yearend. COFAR recognizes There are some entities that are able to charge 100% of their cost direct and so need for an indirect rate. A non-federal entities may conclude that the amount of indirect cost they might recover may be too immaterial to justify the effort to obtain a negotiated indirect rate. 9
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.19-1 Cognizant Agency for Indirect Cost Even though a cognizant agency does not allow the NFE to recover indirect cost Such cognizant agency is still responsible to negotiate indirect cost 10
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.19-1 Cognizant Agency for Indirect Cost Example: Under a RWHAP grant, NFE charges the 10% administrative cost direct to the award, thus cannot recover any indirect on grant, but HHS still has to negotiate NFE s indirect rates for other grants (adm $ can be charged direct or indirect) Grant administration and monitoring (labor) of their subrecipients under RWHAP Part B is subject to the 10% administrative cap per PCN 15-01 & R/W fiscal monitoring stds Indirect labor charged direct to award is removed from the indirect cost pool and may avoid double-charging 11
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.68-1 Number of sub-awards under a MTDC allocation base If the period of performance of an award requires the renegotiation of a sub-award 2 or more times Each new sub-award up to $25,000 can be included multiple times in the MTDC base The allowance of $25,000 in the MTDC base is for the life of the award, or each performance period 12
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.414-7 The requirement to have a current Federally negotiated, final indirect rate for Extension To be current, NFE must comply with the following: Extensions can only happen after 12/26/14 If NFE has 12/31 year-end Must have final rates through 12/31/14 & completed Single audit completed by 9/30/15 Submit final indirect rates for 12/31/15 + audit by 9/30/16 Then, NFE could request an extension of their FY 15 final indirect rate for FY s 2016 up to FY 2019, applicable to grants Rate extensions do not apply to cost reimbursable contracts
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.414-8 Voluntary under-charging, or waiving the recovery of 100% of applied indirect costs If a NFE (prime or sub) voluntarily (without coercion) decides to charge less than the established negotiated rate or waive the NICRA entirely, is a permissible practice Sometimes the NFE requires more funds for direct program efforts and thus reduces the amount of applied indirect or no indirect rate though they have a negotiated indirect rate 14
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.414-9 NFE s Applying for De Minimis Rates having a break in Federal relationship If a NFE has a previously negotiated indirect rate but all Federal awards under that NICRA have expired as well as the NICRA Can the NFE apply for a 10% de minimis rate? NO. The 10% de minimis rate is only for those who have never had a negotiated indirect rate. The Government expects org s that have had experience developing & negotiating rates in the past, will have the adequate resources to prepare new indirect rates 15
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.414-10 10% De Minimis Rate (DMR) & Period of Applicability The DMR may or may not apply to the entire Period of Performance (PoP) The NFE may start with a DMR and later during the PoP elect to obtain a negotiated rate DMR and negotiated indirect rates align with a NFE s fiscal year, not with a grant s PoP Grants don t start and end with a NFE s fiscal year, thus 2 fiscal years are involved, and 2 different indirect rates are involved in 1 grant yr 16
Uniform Guidance 2 CFR 200 COFAR FAQ Update: (9/9/15) FAQ.414-11 10% De Minimis Rate (DMR) & Single Function NFE The DMR cannot be used for a single function NFE who charges 100% of their cost direct The DMR is intended to be used to pay for overhead or indirect costs that are not directly assignable to a Federal award As prescribed in 200.403(d) a cost for the same purpose charged as a direct cost to a Federal award cannot be also be charged for the same purpose as an allocated indirect cost 17
What s New with Indirects
Subpart E Cost Principles Uniform Guidance : New Optional Rate 10% de minimis rate: per 200.414(f) Never received a negotiated indirect rate Charge on a modified total direct cost base May use indefinitely until negotiate an indirect rate Direct and indirect costs charged consistently but not as both causing double-charging Use consistently on all Federal awards 19
Subpart E Cost PrinciplesFAQ.414-1 Uniform Guidance: State, Local&Tribal Units State, Local, Tribal Governmental units can have a 10% de minimis rate per prior slide The amount of Federal awards for that unit of government has to be less than $35 Million per fiscal year They must document decision on file to select the 10% de minimis rate Never have received a NICRA indirect rate Per Appendix VII, D(1)(b) 20
Subpart E Cost Principles Uniform Guidance: New NICRA Extension NFE has existing negotiated indirect rate: One-time extension of current indirect rate For a period of up to 4 years If granted, cannot request a rate review until extension period ends At end of 4 year period, must re-apply to negotiate a new rate 21
Subpart E Cost Principles Uniform Guidance: FAQ.414-2 The extension period can be 1, 2, 3, or 4 years The extension period is once for each negotiation cycle Once the extension period is over, org negotiates a new rate and then that NICRA can be extended again for up to 4 years Can only be done for predetermined and final rates not for provisional or fixed 22
Subpart E Cost Principles Uniform Guidance: (11/26/14) FAQ.414-2 & 3 Is there special documentation requirements for an extension? No, the extension process is designed to reduced administrative burden What about the time of the request for an extension. No later than 60 days prior to due date for proposal of indirect costs, or if after, on a case-by-case basis the agency can accept requests 23
Subpart E Cost Principles Uniform Guidance: New Options Direct cost allocation principle 200.405(d) 1. If cost benefits two or more direct programs 2. In proportions that can be determined without undue effort or cost (summer workshops) 3. Costs must be allocated to projects If 1 and 2 cannot determine proportions based on interrelation of work involved, then allocated on benefited projects on a reasonable documented basis Purchase of equipment or capital assets for a specific award are assignable to that award only regardless of use on other projects or no longer needed as acquired 24
Subpart E Cost Principles Uniform Guidance: New Options Direct charging of admin staff wages may be appropriate when all items are met: 200.413(c) Administrative services are necessary to a project Individuals involved can be specifically identified to a project, such as time reports Administrative wages are included in the budget or prior written approval from agency Such costs are not recovered as indirect cost 25
Subpart E Cost Principles Uniform Guidance: New Requirements Unallowable activities and donated services receive allocation of indirect costs 200.405(b) Costs allocable to a Federal award may not be charged to cover fund deficiencies to avoid restrictions in the regulations 200.405(c) Limitation on allowable costs 200.408 If maximum amount allowable under a limitation is less than total amount determined, the delta is not recoverable and cannot be charged to another award 26
Subpart E Cost Principles Uniform Guidance: New Requirements Payments made for costs determined to be unallowable must be refunded including interest to Federal government 200.410 Unallowable by Federal awarding agency Cognizant agency for indirect cost Pass-through entity Either direct or indirect unallowable cost 27
Subpart E Cost Principles Uniform Guidance: New Requirements Adjustments of previously negotiated indirect cost rates containing unallowable costs 200.411 Negotiated indirect cost rates later found to have costs: 1. Unallowable specified by Federal statutes, regulations or terms and conditions of a Federal award 2. Unallowable as not allocable to Federal award(s) Must be adjusted for a refund Adjustments are used to correct established negotiated rates Will not re-open for rate negotiation Applied to all types of rates: fixed, final, predeter, prov. 28
Subpart E Cost Principles Uniform Guidance: New Requirements Adjustments of previously negotiated indirect cost rates containing unallowable costs 200.411 For projected rates of a future year, the costs are removed from cost pools and rates appropriated adjusted downward For historical rates of a past period, the unallowable costs will be computed by fiscal year and a cash refund including interest For current year rates, either a rate adjustment or refund per cognizant agency 29
Subpart E Cost Principles Uniform Guidance: New Requirements Adjustments of previously negotiated indirect cost rates containing unallowable costs 200.411 For multiple years, the proportional amount of unallowable costs in the base year will be extrapolated to the out-year rates 30
Subpart E Cost Principles Uniform Guidance: New Certifications Assure proper expenditures 200.415(a) Certifying project budgets, annual and final fiscal reports or vouchers requesting payments By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and objectives set forth in the terms and conditions of the Federal award. I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may be subject to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise. 31
Subpart E Cost Principles Uniform Guidance: New Certifications Certification of indirect rates 200.415(b) An Indirect Cost Rate Proposal (ICRP) must have a Certificate of Indirect Costs signed at a level not lower than VP or CFO Cost are not unallowable and not in-allocable If an ICRP does not include a certification The agency can unilaterally disallow all indirect costs The agency can unilaterally establish their own rate based on historical cost or other such data, to ensure that unallowable costs won t be reimbursed. 32
Indirect Rate Negotiation and Administration
No indirect rate system fits all 2 CFR 200.414(b) Due to diverse characteristics and accounting practices of nonprofits, it is not possible to specify the types of cost which may be classified as indirect in all situations. 34
Advance Understandings Prior Written Approval 200.407 Under any award, the allocation and reasonableness of certain expenses may be difficult to determine Purpose is to avoid subsequent disallowance or dispute Seek a written agreement with cognizant awarding agency in advance of incurrence of cost Examples provided such as pre-award costs 35
Indirect Cost Allocations Appendix IV B.1.e to 2 CFR 200 Period for allocating and accumulating incurred indirect cost to grants Base period equals the org s fiscal year Grants cross over two fiscal years Two different indirect rates 36
Indirect Rate Administration Appendix IV C to 2 CFR 200 Negotiation and Approval of Indirect Rates Agency with largest dollar value = cognizant agency Appendix IV C.2 Indirect rate proposal submitted 90 days after new award to an organization App. IV C.2.b May not happen if you have program restrictions, HRSA Part B, CFDA 93.914 limits adm. to 10% Issues when agency is not proactive in the negotiation and settlement of indirect rates 37
Indirect Rate Administration Negotiation and Approval of Indirect Rates Existing org s submit new rate proposals within 6 months after the end of their fiscal year Appendix IV C.2.c Note: Cognizant agency has the option of deciding how often a NICRA is required. Predetermined rate is based on estimate of costs to be incurred for the current or future fiscal year. The predetermined rate is not subject to adjustment. Appendix IV C.2.d 38
Indirect Rate Administration Fixed (ceiling) rates are similar to predetermined rates except: App. IV C.2.e The difference between the estimated and actual costs of the period are carried forward as an adjustment to the subsequent period s indirect rate computation Final rate Appendix IV C.1.d & C.2.f Based on actual cost for period Once negotiated, not subject to adjustment 39
Indirect Rate Administration Provisional Rate Appendix IV C.1.e & C.2.f Temporary indirect cost rate pending final rate Used for funding, interim billing or cost reporting The results of any negotiation is distributed to other participating agencies Appendix IV C.2.g Negotiating rates must be accepted by ALL Federal awarding agencies 200.414 (c)(1) Many clients complain they cannot find the office for negotiating indirect rate Look at conditions clauses attached to grant 40
(4) Allocation Methodologies
Simplified Allocation Method App. IV B.2 Single purpose entity, small or large nonprofit with small amount of awards Separate allowable indirect less credits from direct cost Divide indirect by direct cost base (w/unallowable $) Facility cost is combined with administrative pool Facility cost supports direct and indirect personnel 42
Construction of an F&A Rate Indirect cost classified into two broad activities: Appendix IV B.3.b Facilities: buildings, equipment and capital investments, maintenance and operation expenses and interest Administration: general administration, director s office, accounting, HR, library expenses and other types of expenditures not mentioned under facility 43
Isolate Admin. From Facility If an organization has more than $10 Million in federal funding of direct costs in a fiscal year, a breakout of indirect cost into two components: facility and administration, having indirect cost rates. 200.414 (a) last sentence of, Appendix IV B.2.e 44
G&A Bases (denominator) General & Administrative MTDC Base App. IV B.2.c Allocate on Modified Total Direct Cost (MTDC) Direct labor, applied fringe, non-labor direct Exclusions from MTDC base shown on next slide G&A Salaries and Fringe Base Direct labor and applied fringe only Appendix IV B.2.c G&A Salary Base (per HHS indirect template) Only direct labor Results of special cost studies must not be used to determine and allocate indirect cost to Federal awards per Appendix IV B.3.c (last sentence of paragraph) 45
Distribution Basis for MTDC Appendix IV B.2.c Salaries and wages (direct labor) Fringe benefits on direct labor Materials and supplies, services & travel Sub-grants and subcontracts up to the first $25,000 of each sub-grant or subcontract, regardless of period covered by sub-grant Amounts excluded from MTDC: Sub-grants/subcontracts > $25,000 Equipment, capital expenditures (rent removed) Participant support cost must be excluded 46
Direct Cost 200.413(e) Cost of Certain Activities Direct Cost Functions Remain in MTDC base though unallowable, must be treated as direct costs to determine ind. rates Fundraising Membership Promotion, lobbying, & public relations Bid & Proposal allowable B&P is not fund raising per 45 CFR 75.460 Proposal Costs new cost principle 200.460 47
Allocate occupancy direct
Charge Rent Direct & Indirect Rent example of allocability: 1. Rent charged directly for a separate office devoted to one grant 2. Rent (G&A) applied via square footage (SF) to various departments/programs based on SF or some other basis (next slide) 3. Allocating rent for executive director or director of finance, no direct relationship to grant or direct activities 49
Charge Rent Direct & Indirect Rent example of allocability: 2. Rent (G&A) applied to various departments/programs based on SF or payroll dollars a. If a proportion of an office space is devoted to grant is 1,000/10,000 SF for 10% of total rental cost ($5,000/month = $500) b. If $5,000 in total rent is allocated via D/L dollars over $20,000/$80,000 = 25% for this program/grant (total rent = $1,250), i.e. Direct Allocation Method 50
Direct Allocation Method Joint costs depreciation, rental cost, repair & maintenance, telephone, and the like (utility, property insurance, etc.) Prorate on a base that accurately measures benefits provided to each direct award and indirect departments Appendix IV B.3.c(1)(c) & (d) Direct and indirect FTE positions Hours worked direct and indirect Direct and indirect labor dollars 51
Direct Allocation Method 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 budget has a line item for joint costs or occupancy Set up a separate department to track and allocate joint costs to direct and indirect cost objectives Appendix IV B.4 Direct Allocation Method 52
Multiple Cost Pools Step Allocations & Overhead
Multiple Allocation Method Appendix IV B.3.a and 3.b Indirect costs benefit major functions in varying degrees Indirect costs accumulated into separate cost groupings Constitute a pool of expenses that are of like character as they relate to base Allocated to functions by means of a base which best measures relative benefits 54
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Step Allocation / Order Appendix IV B.3.d Order of Distribution Costs assigned to direct programs + adm dept s Fringe allocated to all dept s including G&A Occupancy allocated to all dept s including G&A Program Administration (PA) can be allocated PA is not G&A PA cannot be recovered under OMB Special allocation of studio 50010 G&A allocated to 10000 through 60000 56
Special Rates & Double-Charging
Special Indirect Cost Rates Appendix IV B.5 A single rate for all functions may not take into account factors that may impact a particular segment of work Factors might include: Site location: geographic or gov t site Level of administrative support required Level of facility or other resources used 58
Special Indirect Cost Rates Appendix IV B.5 Bifurcated G&A to avoid double-charging Same administrative rate % for segments Some segments have different facility cost due to different geographic locations Some segments have no facility cost since the effort is performed at a government site 59
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Any Questions 61
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