Brophy, Nichole, Golf Editor has reference to this Academic Journal, PHwiki organized this Journal BE A FI$CAL $.T.A.R. Allowable Costs INDIRECT COST RATE & COST ALLOCATION PLANS Presenter: David Steele, Chief SMPID Fiscal Unit OVERVIEW Cost Allocation Plans (CAPS) in addition to Indirect Cost Rates (ICDRs) Methods as long as Allocating Indirect Costs Developing IDCRs in addition to CAPs RSA Findings Resources

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Cost Allocation Plans in addition to Indirect Cost Rates are: The means by which costs are identified in a logical in addition to systematic manner as long as reimbursement under federal grants; in addition to They are documents that identify, accumulate, in addition to distribute allowable direct in addition to indirect costs to benefiting activities. WHAT ARE COST ALLOCATION PLANS AND INDIRECT COST RATES Direct Costs Costs that can be identified specifically with a final cost objective. Indirect Costs Costs that are incurred as long as a common purpose benefiting more than one cost objective; in addition to Not readily assignable to the cost objectives specifically benefitted. WHAT ARE DIRECT AND INDIRECT COSTS WHY ARE COST ALLOCATION PLANS AND INDIRECT COST RATES NECESSARY Compliance with OMB Circular A-87 (relocated to 2 CFR Part 225); Documentation as long as Auditors; Management In as long as mation; in addition to U.S. Department of Education Requirements (EDGAR).

“A grantee must have a current indirect cost rate agreement to charge indirect costs to a grant. To obtain an indirect cost rate, a grantee must submit an indirect cost proposal to its cognizant agency in addition to negotiate an indirect cost agreement.” (Emphasis added) 34 CFR 75.560(b) (EDGAR) WHAT IS AN INDIRECT COST RATE PROPOSAL (IDC RATE PROPOSAL) 2 CFR Part 225, Appendix E defines an indirect cost rate proposal as the documentation prepared by the governmental unit or subdivision thereof to substantiate its request as long as the establishment of an indirect cost rate. PART 225—COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS (OMB CIRCULAR A–87) The cognizant agency means the federal agency responsible as long as reviewing, negotiating, in addition to approving cost allocation plans or indirect cost rate proposals developed under 2 CFR Part 225 on behalf of all federal agencies. The cognizant agency is determined by the greater amount of federal funding awarded from an agency to each state based on the review of each states Federal Schedule of Expenditures (except as long as territories). WHAT IS A COGNIZANT AGENCY

DOED INDIRECT COST GROUP COORDINATION WHEN ANOTHER AGENCY IS COGNIZANT With regard to indirect cost rate proposals, the Department coordinates with other cognizant agencies when an IDC rate proposal involves an ED award that requires a restricted indirect cost rate. VR does not currently require a restricted indirect cost rate. In addition, ED’s Indirect Cost Group assists RSA in resolving indirect cost issues identified through program monitoring. RSA COORDINATION WHEN ANOTHER AGENCY IS COGNIZANT When DHHS or DOL are the cognizant agency as long as the VR program, the RSA Fiscal Unit Chief receives a copy of indirect cost proposals/revisions or cost allocation plan proposals/revisions. To the extent possible, RSA financial management specialists review the documents to determine if there are any concerns. If concerns are noted, RSA contacts the DHHS or DOL representative to obtain clarification from the submitting agency in addition to resolve any concerns. As defined in 2 CFR Part 225, a cost allocation plan includes: Central service cost allocation plan (a.k.a., state-wide-cost allocation plan (SWCAP)); Indirect cost rate proposal; Public assistance cost allocation plan (mostly HHS); Cost allocation plan (indirect cost allocations not using rates). COST ALLOCATION PLAN

WHAT IS A CENTRAL SERVICE COST ALLOCATION PLAN 2 CFR Part 225 Appendix C defines the central service cost allocation plan as the documentation identifying, accumulating, in addition to allocating or developing billing rates based on the allowable costs of services provided by a governmental unit on a centralized basis to its department in addition to agencies. ENGLISH PLEASE! The process used to allocate certain services on a centralized basis (e.g., motor pools, computer centers, purchasing, accounting, etc.) that may not be per as long as med within the scope of the individual entity receiving the award. The process must allocate these costs to the benefiting program in a reasonable in addition to consistent manner. This process is called the central services cost allocation plan, commonly known as the state-wide-cost allocation plan (SWCAP). WHAT DO I NEED TO KNOW ABOUT CENTRAL SERVICE COST ALLOCATION PLANS (SWCAPS) States that wish to charge the costs of central support services to federal awards must first prepare a SWCAP to allocate those costs to departments or units they benefit. States are required to submit a SWCAP to HHS as long as each year in which it claims central service costs under federal awards. Costs omitted from this plan will not be reimbursed. Approved SWCAPs can be found on the HHS, Division of Cost Allocation website at:

WHAT IS AN INDIRECT COST (IDC) RATE An indirect cost rate is a mechanism as long as determining in a reasonable manner the proportion of indirect costs each program should bear. It is the ratio, expressed as a percentage, of the indirect costs to the direct costs. The IDC rate allows one to calculate the appropriate allocation of indirect costs associated with any one project by applying the negotiated indirect cost rate to the respective base used to develop the rate. TYPES OF IDC RATES Three different types of indirect cost rates can be approved by the cognizant agency: Predetermined – established as long as current or multiple future period(s) based on current data in addition to are not subject to adjustment, except under very unusual circumstances. Fixed – established as long as a current period based on current data with a carry as long as ward adjustment to the rate computation as long as a subsequent period. Provisional – temporary rates used as long as funding in addition to billing indirect costs, pending the establishment of a final rate as long as a period. WHAT IS THE DIRECT COST “BASE” AND HOW IS IT DETERMINED Base means the accumulated direct costs (normally either total direct salaries in addition to wages or total direct costs exclusive of any extraordinary or distorting expenditures) used to distribute indirect costs to individual federal awards. The direct cost base selected should result in each award bearing a fair share of the indirect costs in reasonable relation to the benefits received from the costs.

WHAT IS THE DIRECT COST “BASE” AND HOW IS IT DETERMINED (CONT.) The distribution base may be total direct costs (excluding capital expenditures in addition to other distorting items, such as pass-through funds, major subcontracts, etc.), direct salaries in addition to wages, or another base which results in an equitable distribution. Both the direct costs in addition to the indirect costs shall exclude capital expenditures in addition to unallowable costs. WHAT IS MEANT BY OTHER DISTORTING ITEMS Agencies should exclude distorting items like payments as long as consumer services to CRPs, vendors in addition to consumers. Subcontract amounts in excess of the first $25,000. INDIRECT COST RATE An indirect cost rate is:

INDIRECT COST POOL An indirect cost pool is: WHAT ARE THE SUBMISSION REQUIREMENTS FOR COST ALLOCATION PLANS AND INDIRECT COST RATE PLANS Cost Allocation Plans in addition to Indirect Cost Rates must be: Developed in addition to submitted within six months after the close of the entity’s fiscal year; Submitted as required by the cognizant agency; Inclusive of all units desiring to claim indirect costs; in addition to Maintained on file if submission is not required. GRANTEE RESPONSIBILITIES Grantees are responsible as long as ensuring that costs are: Allowable; Reasonable; Treated consistently; In compliance with GAAP; Allocable to the federal program; Proportional to benefit received; in addition to Adequately documented.

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HEADS-UP: ABNORMAL/MASS SEVERANCE PAY Severance payments, but not accruals, associated with normal turnover are allowable. Such payments shall be allocated to all activities of the governmental unit as an indirect cost. Abnormal or mass severance pay will be considered on a case-by-case basis in addition to is allowable only if approved by the cognizant federal agency. MASS SEVERANCE: DEFINITION Mass severance or termination benefits would include all expenses associated with the event. This would include: lump sum payments that may be linked to years of service, increased pension benefits such as granting additional years or eliminating penalties as long as early retirement, payments of unused leave, in addition to the cost of any other incentive offered to employees as an incentive to leave government service, such as buy-outs. (ASMB C-10) MASS SEVERANCE: PRIOR APPROVAL The costs of these special termination benefits must be determined in addition to prior approval of such costs must be obtained from the federal cognizant office prior to claiming these costs directly or indirectly against federal programs. The requests as long as prior approval, at a minimum, must demonstrate the reasonableness in addition to allocability of such costs to federal programs.

MASS SEVERANCE: PRIOR APPROVAL REVIEW Ability to demonstrate costs are allowable to federal award; Buy-out should be government-wide; Plan should address estimated savings, total in addition to federal, in both dollars in addition to number of employees; Governmental unit should analyze the effect the downsizing will have on the operation, continuity, in addition to effectiveness of programs; Governmental unit in addition to the cognizant agency must establish an agreement providing as long as compensation to the Federal Government should the terms in addition to conditions of the buy-out/severance plan not be met. (ASMB C-10) HEADS-UP: TERMINATION LEAVE When a governmental unit uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken in addition to as long as which leave is paid. Payments as long as unused leave when an employee retires or terminates employment are allowable in the year of payment provided they are allocated as a general administrative expense to all activities of the governmental unit or component. (2 CFR Part 225, Appendix B) HEADS-UP: COST SHIFTING Costs cannot be shifted to different awards to avoid funding deficiencies or to circumvent restrictions.

To determine allowability, allocability in addition to reasonableness of the indirect costs charged by the two subcontractors, the prime grantee should consider the relevant program regulations, OMB circulars, in addition to supplemental guidance. ANSWER (CONT.) References Education Department General Administrative Regulations (EDGAR) – HHS –ASMB C-10 & Other Reference In as long as mation – OMB Circulars – ED’s Indirect Cost Group Website – QUESTIONS QUESTIONS

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