Illinois Coalition Against Domestic Violence Understanding the Uniform Guidance and Indirect Cost Rate March 16, 2016 1
Understanding the Uniform Guidance and Indirect Cost Rate Presented by: Teri L. Taylor, CPA Senior Manager Sikich LLP 2
Objectives Obtain an understanding of the: Criteria for a Single Audit and how a Single Audit differs from a traditional financial statement audit Difference between direct and indirect costs and how these can (or cannot) be charged to Federal programs Modified total direct costs Differences between the 10% de minimis rate and a negotiated rate Process of applying for a negotiated rate 3
4 Single Audit Requirements
Single Audit Requirements 2 CFR 200, Uniform administrative requirements, cost principles, and audit requirements for Federal awards (Uniform Guidance) Audit requirements effective for audits of periods beginning after December 26, 2014 (fiscal year ends 12/31/15 and 6/30/16) Non-Federal entity expending $750,000 during the entity s fiscal year must have a single or program specific audit Program specific audit allowed when funds expended under only one Federal program and the award terms do not require a financial statement audit Expenditures include Federal loan and loan guarantee programs and Federal non-cash assistance (free rent, food commodities, donated property) 5
6 Single Audit Requirements Audit performed in accordance with Generally Accepted Government Auditing Standards (GAGAS) Report on internal control and compliance with provisions of laws, regulations, contracts and grant agreements Communicate deficiencies in internal control, fraud, noncompliance with provisions of laws, regulations, contracts and grant agreements Financial Statements Presented fairly in all material respects in accordance with generally accepted accounting principles Internal control Perform procedures to obtain understanding of internal control over Federal programs Compliance Determine compliance with Federal statutes, regulations, and the terms and conditions of Federal award that may have a direct and material effect of each of the major programs
Single Audit Requirements Records must: Allow for preparation of required reports and allow the tracing of expenditures to a level to establish that all funds have been used according to Federal statutes, regulations and terms and conditions Identify all Federal awards received and expended Provide accurate information on the financial results of the Federal award(s) Provide comparison of expenditures to budget 7 Include written procedures for determining allowablity of costs
Single Audit Requirements Establish and maintain effective internal control to: Comply with Federal statutes, regulations, and the terms and conditions of the Federal award Evaluate and monitor noncompliance Take action when noncompliance is identified Safeguard protected information and other sensitive information 8
Auditor Selection Independence Fact and appearance Nonaudit services Competence Possess professional competence to address audit objectives and perform work in accordance with GAGAS Continuing professional education Quality Control and Assurance System of quality control Peer review 9
Audit Costs A reasonably proportionate share of the costs of audits required by, and performed in accordance with the Single Audit Act are allowable Costs of auditing an entity not required to have a Single Audit (below $750,000 of Federal expenditures) are not allowable 10
How To Be Audit Ready Policies and procedures Documentation to support: Salaries and wages Expenses Matching Testing to be performed 11
12 Direct vs. Indirect Costs
Direct vs. Indirect Costs Direct Costs (2 CFR 200.413) Those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose must be treated consistently as either direct or indirect (F&A) costs. Indirect (Facilities & Administrative (F&A)) Costs (2 CFR 200.56) Those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect (F&A) costs. Indirect (F&A) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. 13
Direct vs. Indirect Costs Indirect costs are those remaining to be allocated after direct costs have been determined and charged Direct costs may be treated as an indirect costs if it is a minor item and the accounting treatment is consistently applied Treatment must be consistently applied in like circumstances Costs of activities performed as a service to members, clients, or general public that are necessary to the mission must be allocated an equitable share of indirect costs 14
Allocable Costs Can be distributed to Federal award(s) and non-federal activities in proportion to the benefits received Necessary to the overall operation and assignable to the Federal award All activities benefiting from the indirect costs receive an allocation Includes unallowable activities Cannot be charged to overcome deficiencies or to avoid restrictions Does not preclude from shifting of allowable costs between programs Direct allocation If the proportion of benefit provided to two or more activities can be determined without undue effort, the cost is allocated based on the proportion of benefit received If proportional benefit cannot be easily determined costs may be allocated based on a reasonable documented basis 15
Charging Costs to Federal Programs Subpart E of Uniform Guidance Cost Principles https://www.gpo.gov/fdsys/granule/cfr-2014-title2-vol1/cfr-2014-title2-vol1- part200 Allowability of selected items of cost Unallowable vs. Allowable Costs Allocation of Costs 16
Subpart E Cost Principles 200.420 Considerations for selected items of cost. 200.421 Advertising and public relations. 200.422 Advisory councils. 200.423 Alcoholic beverages. 200.424 Alumni/ae activities. 200.425 Audit services. 200.426 Bad debts. 200.427 Bonding costs. 200.428 Collections of improper payments. 200.429 Commencement and convocation costs. 200.430 Compensation personal services. 200.431 Compensation fringe benefits. 200.432 Conferences. 200.433 Contingency provisions. 200.434 Contributions and donations. 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. 200.436 Depreciation. 200.437 Employee health and welfare costs. 200.438 Entertainment costs. 200.439 Equipment and other capital expenditures. 200.440 Exchange rates. 200.441 Fines, penalties, damages and other settlements. 200.442 Fund raising and investment management costs. 200.443 Gains and losses on disposition of depreciable assets. 200.444 General costs of government. 200.445 Goods or services for personal use. 200.446 Idle facilities and idle capacity. 200.447 Insurance and indemnification. 200.448 Intellectual property. 200.449 Interest. 200.450 Lobbying. 200.451 Losses on other awards or contracts. 200.452 Maintenance and repair costs. 200.453 Materials and supplies costs, including costs of computing devices. 200.454 Memberships, subscriptions, and professional activity costs. 200.455 Organization costs. 200.456 Participant support costs. 200.457 Plant and security costs. 200.458 Pre-award costs. 200.459 Professional service costs. 200.460 Proposal costs. 200.461 Publication and printing costs. 200.462 Rearrangement and reconversion costs. 200.463 Recruiting costs. 200.464 Relocation costs of employees. 200.465 Rental costs of real property and equipment. 200.466 Scholarships and student aid costs. 200.467 Selling and marketing costs. 200.468 Specialized service facilities. 200.469 Student activity costs. 200.470 Taxes (including Value Added Tax). 200.471 Termination costs. 200.472 Training and education costs. 200.473 Transportation costs. 200.474 Travel costs. 200.475 Trustees. 17
18 Modified Total Direct Costs
Modified Total Direct Cost (MTDC) MTDC means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs. 2 CFR 200.68 19
20 De Minimis Rate vs. Negotiated Rate
De Minimis Rate Available to any non-federal entity that has NEVER received a negotiated indirect cost rate 10% of modified total direct costs Once elected used for all Federal awards until decision to negotiate an indirect cost rate 21
Indirect Cost Rate (ICR) Rate approved by the Federal agency by which indirect costs are charged to the agreements Distribution Bases Modified Total Direct Cost Total administrative costs / modified total direct cost = ICR Direct Salaries and Wages Includes only the costs of direct salaries and wages Total administrative costs / total direct salaries and wages = ICR 22 Direct Salaries and Wages plus Fringe Benefits Includes the costs of direct salary and wages and the direct fringe benefits Total administrative costs / total direct salaries, wages and fringes = ICR
De Minimis Rate vs. Negotiated Rate Throughout the year the de minimis rate or negotiated rate applied to indirect costs De minimis MTDC Direct salaries and wages Direct salaries and wages and fringes 23
24 Obtaining a Negotiated Rate
Obtaining an Indirect Cost Rate (ICR) Cognizant agency for indirect costs Unless different arrangements are agreed to by Federal agencies, the Federal agency with the largest dollar value of Federal awards is designated as the cognizant agency for negotiation and approval of the indirect cost rates Once assigned not changed unless there is a significant shift in dollar value of Federal awards for at least 3 years Nonprofit organization without a previously established ICR must submit after being advised a Federal award will be made and no later than three months after the effective date of the Federal award Nonprofit organization with a previously established rate must submit a new ICR proposal within six months after the close of the fiscal year 25
Obtaining an Indirect Cost Rate (ICR) Indirect Cost Rate Proposal Documentation to substantiate request for establishment of an ICR Information as specified by cognizant agency U.S. Department of Justice Indirect Cost Information http://ojp.gov/financialguide/doj/postawardrequirements/chapter 3.11a.htm 26
Obtaining an Indirect Cost Rate (ICR) Information to be Included Copy of most recent financial and compliance audit List of grants active during the proposal period and current grants and applications, noting if the grant provides for indirect costs Schedule of indirect salaries including job title, amount and brief description of duties Schedule of fringe benefits and payroll taxes, explaining the method by which benefits are charged (Only required for fringe benefit rate proposals) Schedule of direct costs Copy of last federally negotiated agreement and name of Federal agency which provided the rate Is all financial activity included in the financial statements? If not, explain. 27
Obtaining an Indirect Cost Rate (ICR) Information to be Included, Continued Is the entity affiliated with another entity? If so, is it a nonprofit or commercial? Are there related party transactions? Are all revenue amounts gross? If not, identify gross revenue and expenses. Are payments made to retired employees? If so, identify. Do programs or projects take place onsite or offsite? Schedule of subcontracts over $25,000 Does the entity anticipate a significant change in the level of program activity for the next fiscal year? Would it impact the rate? CPA certification that costs are in accordance with cost principles Are fundraising and investment management/custodial fees included in the proposal? If not, provide the total for each. 28
Obtaining an Indirect Cost Rate (ICR) Information to be Included, Continued Depreciation provide a schedule including date of purchase, original cost, method of depreciation, source of funding to purchase asset Does the entity have one location or many locations? Certificate of Indirect Costs must be signed by an individual at a level no lower than executive director or chief financial officer 29
Obtaining an Indirect Cost Rate Certificate of Indirect Costs 30 This is to certify that to the best of my knowledge and belief: (1) I have reviewed the indirect (F&A) cost proposal submitted herewith; (2) All costs included in this proposal [identify date] to establish provisional or final indirect cost rate(s) for [identify period covered by rate] are allowable in accordance with the requirements of the Federal agreement(s) to which they apply and with the cost principles applicable to those agreements. (3) This proposal does not include any costs which are unallowable under applicable cost principles such as (without limitation): public relations costs, contributions and donations, entertainment costs, fines and penalties, lobbying costs, and defense of fraud proceedings; and (4) All costs included in this proposal are properly allocable to Federal agreements on the basis of a beneficial or causal relationship between the expenses incurred and the Federal awards to which they are allocated in accordance with applicable requirements. I declare that the foregoing is true and correct. Nonprofit Organization: Signature: Name of Official: Title: Date:
Questions? Teri L. Taylor 3201 W. White Oaks Dr., Suite 102 Springfield Illinois, 62704 217.793.3363 ttaylor@sikich.com 31
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