Uniform Grant Guidance Roundtable Cost Principles April 20, 2016
Uniform Grant Guidance Roundtable Cost Principles April 20, 2016 1 Fundamental Principles (200.400) Application of these cost principles is based on the premise that the non-Federal entity: Is responsible for the efficient and effective administration of Federal awards. Has primary responsibility for administering Federal funds in a manner that is consistent with underlying agreements,
program objectives, and the terms and conditions of the Federal award. Is responsible for employing whatever form of sound organization and management techniques may be necessary in order to ensure proper and efficient administration of the Federal award. 2 Fundamental Principles (200.400) Accounting practices must be consistent with the cost principles and must provide for adequate documentation to support costs charged to the Federal award. The cognizant agency for indirect costs should
assure these cost accounting principles are applied on a consistent basis during their review and negotiation of indirect cost proposals. Profits are not allowed, unless specifically authorized by the Federal award. 3 Composition of Costs (200.402) The total cost of a Federal award is the sum of the allowable direct and indirect costs less any applicable credits. Total Award Cost = Direct costs + Indirect costs Credits Direct costs-Costs that can be identified specifically with a particular cost objective or can be directly assigned relatively easy with a high degree of accuracy.
Indirect costs-Costs incurred for a common or joint purpose benefiting more than one cost objective and not readily assignable to the cost objectives specifically benefited. 4 Factors Affecting Allowability(200.403) Costs must meet the following criteria in order to be allowable: Be necessary and reasonable for the performance of the award Conform to any limitations or exclusions set forth in the cost principles or the Federal award Be consistent with policies and procedures Be accorded consistent treatment Be determined in accordance with generally accepted
accounting principles (GAAP) Not be included as part of cost sharing or matching Be adequately documented 5 Reasonable Costs (200.404) A cost is reasonable if it does not exceed what would be incurred by a prudent person under normal circumstances at the time the decisions to incur the cost was made. For example: Is the cost ordinary and necessary? Was the cost entered into in accordance with sound business practices?
Is the cost comparable to market prices? Did the entity deviate from its established practices and policies? 6 Allocable Costs (200.405) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with the relative benefits received. For example: Is the cost incurred specifically for the Federal award? Does the cost benefit both the Federal award and other work of the entity, and can it be distributed proportionately?
Is the cost necessary to the operation of the entity? Do all activities which benefit from the entitys indirect cost receive an appropriate allocation of the indirect costs? 7 Applicable Credits (200.406) Applicable credits are receipts or reduction of expenditure type transactions that offset or reduce expense items and must be credited to the Federal award. For example: Purchase discounts Rebates or allowances Insurance refunds or rebates
Adjustments of overpayments 8 Prior Written Approval (200.407) The non-Federal entity may seek prior approval for costs which may be difficult to determine reasonableness or allocability, or for special or unusual costs. For example, prior approval is required for the following: Equipment purchases Entertainment expenses Selling/marketing costs Certain travel costs Pre-award costs Fundraising
9 Classification of Costs (200.412) There is no universal rule for classifying a cost as either direct or indirect. A cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award. In order to avoid double charging of Federal awards, it is essential that each item of cost incurred for the same purpose (in like circumstances) be treated consistently as either direct or indirect. 10
Direct Costs (200.413) Direct costs are those that can be identified specifically with a particular cost objective and can be directly assigned easily and with a high degree of accuracy. Identification with the Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing between direct and indirect costs. Typical costs charged directly to a Federal award are the compensation of employees who work on that award, their related fringe benefits, and the costs of materials and other items of expense incurred for the Federal award. 11
Direct Costs (200.413) Salaries of Administrative and Clerical staff should normally be treated as indirect costs unless the following are met: Administrative/clerical services are integral to a project or activity Individuals involved can be specifically identified with the project or activity Such costs are explicitly included in the budget or have prior written approval The costs are also not charged as indirect 12
Indirect (F&A) Costs (200.414) Facilities and Administration Classification For institutions of Higher Education (IHE) and major non-profit organizations, indirect costs must be classified into one of the two following categories: Facilities-Depreciation, interest on debt associated with buildings, improvements and equipment, operating maintenance and expenses, etc. Administration-General administration and general expenses, such as the directors office, accounting, etc. 13 Indirect (F&A) Costs (200.414)
Indirect Cost Rates Negotiated cost rates must be accepted by Federal awarding agencies unless required by Federal Statute or regulation or approved by a Federal awarding agency head or delegate based on documented justification. Non-Federal entities may apply for a one-time extension of current indirect cost rate of up to four years. A de minimus rate of 10% may be used if the non-Federal entity does not have an approved indirect cost rate. 14 Indirect (F&A) Costs (200.414)
Pass-Through Entities Pass-through entities are subject to the requirements of CFR 220.331 which states that subaward agreements include the approved Federally-recognized indirect cost rate. If no indirect cost rate exists, either a rate negotiated between the pass-through entity and the subrecipient, or the de minimus cost rate of 10% must be used. 15 Indirect (F&A) Costs (200.414) Per the COFAR FAQs: If the subrecipient has a negotiated rate with the
Federal government, that rate must be used. It is not permissible for pass-through entities to force or entice a proposed subrecipient without a negotiated rate to accept less than the de minimus rate. Pass-through entities MAY, but are not required to, negotiate a rate with a subrecipient who asks to do so. 16 Required Certifications (200.415) To ensure expenditures are in accordance with the terms and conditions of the Federal award and approved budget, the annual or fiscal reports or payment vouchers must be signed by an official who can legally bind
the organization. Each cost allocation plan or indirect cost rate proposal must comply with the following: A proposal to establish a cost allocation plan or an indirect cost rate must be certified by the Non-Federal entity using the Certificate of Cost Allocation Plan or Certificate of Indirect Costs as described in Appendices III through VII and Appendix IX of the Uniform Grant Guidance. The certificate must be signed by an individual at a level no lower than the Vice President or Chief Financial officer of the Non-federal 17 entity. Cost Allocation Plans and Indirect Cost Proposals (200.416)
The following applies to States, local governments, and Indian Tribes: Certain services such as motor pools, purchasing, IT, accounting etc. are provided to operating agencies on a centralized basis. The Central Service Cost Allocation Plan, allowing for separate indirect cost rates, provides a process where central services can be assigned to these agencies. 18 Interagency Service (200.417) The cost of services provided by one agency to
another within the government unit may include allowable direct costs of the service plus a prorated share of indirect costs. A standard indirect cost allowance of 10% of direct salary and wage cost (excluding overtime, shift premiums, and fringe benefits) may be used in lieu of determining the actual indirect costs of the service. These services do not include centralized services included in central service cost 19 allocation plans. Cost Accounting Standards and Disclosure Statement (200.419)
Applies to Institutions of Higher Education: If > $50 million in Federal funding is received within a fiscal year, a disclosure statement must be prepared and submitted describing the institutions cost accounting practices. Amendments for indirect costs must be submitted six months in advance. 20 Considerations for Selected Items of Cost (200.420) Selected items of cost provides principles to be applied in
establishing the allowability of certain items involved in determining cost. The cost principles apply to both direct and indirect costs. If there is a discrepancy between the provisions of a specific Federal award and the cost principles, the Federal award governs. Non-compliance with other requirements could result in unallowed costs, even if such costs are allowed per the cost principles. 21 Advertising and Public relations (200.421)
Advertising costs are unallowable with the exception of the following: Recruitment costs of personnel required for performance of a Federal award. Procurement of goods and services for the performance of the award. Disposal of scrap or surplus material acquired in performance of the award. Program outreach and other specific costs necessary to meet the requirements of the award. 22 Advertising and Public relations (200.421)
Public relations costs are unallowable with the exception of the following: Specifically required for the Federal award. Costs of communicating with the public and press pertaining to specific activities or accomplishments which result from performance of the Federal award. Communicating with the news media or public officers (limited to matters of public concern). 23 Audit Services (400.425) Allowable: A reasonably proportionate share of the costs of audits required
by and performed in accordance with the Single Audit Act. Cost of a financial statement audit for a non-Federal entity that does not currently have a Federal award, may be included as indirect costs. Cost of agreed upon procedures engagements to monitor subrecipients (with certain stipulations). Unllowable: Costs of auditing an entity that is exempt from having an audit under the Single Audit Act due to having less than $750,000 in Federal expenditures. 24 Compensation-Personal Services (200.430)
General Provisions More focus on internal controls, which allows for flexibility in how standards are met. Purpose is to reduce administrative burden of documenting time and effort. Federal agencies may approve methods for blended funds. 25 Compensation-Personal Services (200.430) Documentation Personnel activity reports are no longer required. However,
charges to Federal awards must be based on records that accurately reflect the work performed. These records must: Be supported by a system of internal control which provided reasonable assurance that the charges are accurate, allowable, and properly allocated. Reasonably reflect the total activity for which the employee is compensated, not exceeding 100% of compensated activities. Comply with established accounting policies and practices of the entity. Support the distribution of the employees salary or wages among specific activities or cost objectives. *If budget estimates are used, the26non-Federal entity must ensure adjustments are made on a regular basis to reflect the actual Compensation-Fringe Benefits
(200.431) The cost of fringe benefits are allowable if they are reasonable, are required by law, non-Federal entity-employee agreement, or an established policy of the non-Federal entity. Fringe Benefits Include: Sick leave, vacation, holidays, etc. Retirement costs/post-retirement costs Family-friendly leave (new) Allowable if: Provided under established written leave policies Costs are equitably allocated to all related activities The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed. 27
Conferences (200.432) A conference is defined as a meeting, retreat, seminar, symposium, workshop or event whose primary purpose is the dissemination of technical information. Costs must be necessary and reasonable for the performance of the award. Allowable costs include: Facility rental Speaker fees Cost of meals (if deemed necessary and reasonable) Local transportation Costs of identifying (but not providing) locally available dependent care resources 28
Employee Health and Welfare Costs (200.437) Costs incurred in accordance with the nonFederal entitys documented policies for the improvement of working conditions, employer-employee relations, employee health, and employee performance are allowable. Employee morale costs are generally disallowed. 29 Equipment and Other Capital Expenditures (200.439)
Allowable: Capital expenditures for special purpose equipment are allowable as direct costs provided that items with a unit cost of $5,000 or more have prior written approval of the awarding agency. Cost of equipment disposal if instructed by the Federal awarding agency. Unallowable: Capital expenditures for general purpose equipment, buildings and land (except with prior written approval of the awarding agency). Equipment and other capital 30 expenditures as indirect costs.
Publication and Printing Costs (200.461) Costs for electronic and print media, including distribution, promotion, and general handling are allowable. If costs are not identifiable with a particular cost objective, they should be allocated as indirect costs to all benefiting activities. The costs for publishing research results (which typically occur after the expiration of the award) may be charged before closeout if the costs are not incurred during the period of performance of the Federal award. 31
Travel Costs (200.474) Includes expenses for transportation, lodging, subsistence and related items incurred by employees on official business of the non-Federal entity. May be charged on an actual cost basis, per diem, or mileage basis, or a combination. Must be in accordance with the entitys written travel policies. Travel costs of government officials are allowable only with written prior approval. Temporary dependent care costs that result directly from travel to conferences and meet specified standards, are allowable. 32
Unallowable Costs The following costs are unallowable, unless specifically provided for in the award: Advisory Councils (200.422) Alcoholic beverages (200.423) Alumni activities (200.424) Bad debts (200.426) Contributions and donations (200.434) Lobbying (200.450) Losses on other awards or contracts (200.451) Country club/social dining club memberships (200.454) Student activities (200.469) 33
Unallowable Costs The following costs are generally unallowable, but may be allowable with prior approval of the Federal awarding agency: Entertainment costs (200.438) Fines, penalties, damages (200.441) Fundraising & Investment Management (200.442) General Government (200.444) (Travel costs of Officials) Goods/Services for personal use (200.445) (Housing allowances and personal living expenses) Organization costs (200.455) Selling and marketing (200.467)
34 Key Musts to Remember Costs must be reasonable and necessary for the performance of the award. Costs for the same purpose (in like circumstances) must be treated consistently as either direct or indirect. Allocable costs must be distributed proportionately among all activities which benefit. Federal agencies and pass-through entities must accept the
Federally approved indirect cost rate (unless another rate is required by statute). Time and distribution records must be supported by a system of internal controls which accurately reflects the work performed. Costs must be adequately documented. 35 Case Studies-Allowable or Unallowable? Case Study #1: Entity A runs out of funds from federal grant #1. However, the entity has some leftover funds from federal grant #2, which is from the same federal agency. Since they are both federal grants from
the same agency for a similar purpose, the entity decides to charge costs associated with federal grant #1 to federal grant #2 until they receive additional funds for federal grant #1. 36 Case Studies-Allowable or Unallowable? Case Study #2 Entity B decides to hold a staff meeting from 1:00 to 4:00 pm where a federal award will be discussed as well as other items not pertaining to the federal award. Since the meeting lasts most of the afternoon, they decide to purchase cookies and beverages and charge 100% of
the cost to the federal award. 37 Case Studies-Allowable or Unallowable? Case Study #3 Entity C wants to recruit a Grants Manager whose sole responsibility is to work with federal grants. The entity decides to run an advertisement in the paper and charges an equitable portion of the cost to each federal grant award in accordance with their cost allocation plan. 38
Case Studies-Allowable or Unallowable? Case Study #4 Entity D determines up front the percentage allocation of salaries for each staff member working on federal awards. These percentages stay the same throughout the entire award period. 39 Case Studies-Allowable or Unallowable? Case Study #5 Entity E decides to hold a conference that will last
the entire day. The conference involves providing a technical presentation on one particular federal grant. In order to squeeze everything into one day, they decide to provide lunch at the conference while continuing the presentation on the grant. They have researched the cost and went with the least expensive option. 100% of the costs were charged to the federal award. 40 Questions 41
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