Developing Indirect Cost Rates for Non Profits: Practical Approaches - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute teleconference with interactive Q&A Developing Indirect Cost Rates for Non ‐ Profits: Practical Approaches WEDNES DAY, JUNE 6, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Paul Calabrese, S , enior Manager, Rubino & McGeehin , Bethesda, Md. g , , , For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .

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Developing Indirect Cost Rates for N Non ‐ Profits: Practical Approaches P fit P ti l A h 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 S lide 11 – S lide 16 Indirect Rate Negotiation And Administration S lide 17 – S lide 26 Basic Indirect Rate Mechanics S lide 27 – S lide 33 Analysis Of Indirect Expenses S lide 34 – S lide 42 Allocate Occupancy Direct S lide 43 – S lide 47 Multiple Cost Pools S lide 48 – S lide 55 Developing An Indirect Rate Developing An Indirect Rate S S lide 56 S lide 56 – S lide 63 lide 63 Cost Accounting Matrix S lide 64 – S lide 67 Indirect Rate Agency Models Indirect Rate Agency Models S S lide 68 – S lide 68 S lide 71 lide 71 DHHS Indirect Template S lide 72 And Exhibit

Developing Indirect Rates: Overview • Usefulness of indirect rates • Essential indirect rate mechanics • C Components of a compliance proj ect cost system t f li j t t t • 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 S teps to develop an indirect cost rate teps to develop an indirect cost rate • Preparation of an indirect cost rate using the DHHS model 7

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Basic Indirect Rate Principles B i I di t R t P i i l  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   Cost accounting period C C Cost accounting period - t t ti ti i d i d - accrual accrual l l   Concept of ALLOCABILITY Concept of ALLOCABILITY  9

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 g OMB Circular A- -122 122   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 Di Direct Expenses Direct Expenses t E t E  Direct Cost Direct Cost are costs specifically are costs specifically identified or traceable to a final cost identified or traceable to a final cost objective (program service group, objective (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- pp pp , , , , -awards, and awards, and , 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  State and local units of gov’t limit rates State and local units of gov’t limit rates 13

Conditions Clauses  Limitation on Indirect Costs  Award – specific rate (predetermined) Award specific rate (predetermined)  Limitation on indirect cost recovery, i.e. if awardee did not provide an indirect f rate percentage in 6j of the SF 424-a, the awardee is barred from claiming and h d b d f l d recovering indirect cost for this grant 14

I ndirect Rates  Indirect rates synonymous with: I di I di Indirect rates synonymous with: t t t t ith ith  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) General from IRS Form 990) General from IRS Form 990) 15

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 objectives, or a service center, like occupancy objectives, 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 pool to be allocated on a causal pool to be allocated on a causal-beneficial 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  Negotiated rates require full documentation d f ll d  DHHS DCA develop discount factors 18

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  Seek a written agreement with cognizant S k itt t ith i t awarding agency in advance of incurrence of cost f t 20