3. The Cost Principles What are the Changes Under the Super Circular

Transcription

1 3. The Cost Principles What are the Changes Under the Super Circular National Geographic Society October 15, 2014 Address: 6903 Rockledge Drive, Suite 1200, Bethesda, MD Website: T: F: All slides copyright 2014, Rubino & Company, Chartered

2 Presenter: Paul H. Calabrese Rubino & Company, CPAs & Consultants Senior Manager Tel: Copy of this presentation: 2

3 Super Circular: 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 3

4 Categorized List of Cost Principles per 2 CFR Subpart E

5 Allowability Of Selected Costs Under 2 CFR Selected Costs May Be Allowable (A), Unallowable (UA), Allowable With Restrictions (AWR), or Unallowable With Exceptions (UWE) 1. Advertising and Public Relations Cost. (UWE) Advisory Councils. (A) Alcoholic Beverages. (UA) Alumni/ae Activities (UA) IHE 5. Audit Services. (A) Bad Debts. (UA) Bonding Costs. (A) Collections of Improper Payments. (A) New Principle 9. Commencement & Convocation Costs. (UA) IHE 10. Compensation - Personal Services. (AWR) Compensation Fringe Benefits. (AWR) Conferences. (AWR) Contingency Provisions. (AWR)

6 Allowability Of Selected Costs Under 2 CFR Selected Costs May Be Allowable (A), Unallowable (UA), Allowable With Restrictions (AWR), or Unallowable With Exceptions (UWE) 14. Contributions and Donations (UA) Defense and prosecution of criminal and civil proceedings, claims, appeals, and patent infringement. (UWE) Depreciation. (AWR) Employee health, and welfare costs. (A) Entertainment costs. (UWE) Equipment and other capital expenditures. (AWR) Exchange Rates (AWR) New Cost Principle 21. Fines and penalties. (UA) Fund raising and Investment Management Costs (UWE) Gains & Losses on Disposition of Depreciable Assets (AWR) General Costs of Government (UA) State & Local Gov t 25. Goods or Services for Personnel Use (UA) Idle Facilities and Idle Capacity (AWR) Insurance and Indemnification (AWR)

7 Allowability Of Selected Costs Under 2 CFR Selected Costs May Be Allowable (A), Unallowable (UA), Allowable With Restrictions (AWR), or Unallowable With Exceptions (UWE) 28. Intellectual Property (AWR) 29. Interest (UWE) 30. Lobbying (UWE) 31. Losses on Other Awards or Contracts (UA) 32. Maintenance and Repair Costs (A) 33. Materials, Supplies Including Computing Devices (A) 34. Memberships, Subscriptions, & Professional Activity Costs (AWR) 35. Organizational Costs (UA) 36. Participant Support Costs (AWR) 37. Plant and Security Costs (A) 38. Pre-Award Costs (AWR) 39. Professional Service Costs (AWR) 7

8 Allowability Of Selected Costs Under 2 CFR Selected Costs May Be Allowable (A), Unallowable (UA), Allowable With Restrictions (AWR), or Unallowable With Exceptions (UWE) 40. Proposal Cost (AWR) New Cost Principle 41. Publication and Printing Costs (AWR) 42. Rearrangement and Reconversion Costs (AWR) 43. Recruiting costs (AWR) 44. Relocation costs (AWR) 45. Rental Costs of Real Property and Equipment (AWR) 46. Scholarships and Student Aid Costs (AWR) IHE 47. Selling and Marketing Expenses (UWE) 48. Specialized Service Facilities (AWR) 49. Student Activity Costs (UA) IHE 50. Taxes Included VAT (UWE) 51. Termination Costs (AWR) 52. Training and Education Costs (A) 8

9 Allowability Of Selected Costs Under 2 CFR Selected Costs May Be Allowable (A), Unallowable (UA), Allowable With Restrictions (AWR), or Unallowable With Exceptions (UWE) 53. Transportation Costs (A) 54. Travel Costs (AWR) 55. Trustees (A) 9

10 OMB Circular A-122, Attachment B vs. Subpart E Cost Principles Selected Items of Cost

11 Advertising & Public Relations (UWE) What is advertising Cost of advertising and associated administrative costs such as: Magazines, newspapers, radio, TV, direct mail, exhibits, electronic and computer transmittals What is public relations Includes community relations and related activities dedicated to maintaining or enhancing the image or promoting favorable understanding with public at large. 11

12 Advertising & Public Relations (UWE) What is allowable advertising Advertise recruitment of personnel on award Procurement of goods & services for award Disposal of scrap or surplus materials in the performance of an award Program outreach or other specific purposes What is allowable P/R Costs required by award or communicating with public regarding accomplishments of award Limited to press releases, general liaison, communication w/public 12

13 Advertising & Public Relations (UWE) Unallowable advertising Costs of displays, exhibits, demonstrations Costs of meetings, hospitality suites Salaries of employees engaged in setting up and displaying exhibits, providing briefings Costs of promotional items and memorabilia Costs of advertising and P/R designed to solely promote the Non-Federal Entity (NFE) 13

14 Advisory Councils (A) Cost incurred by advisory councils or committees (board of directors) are unallowable as direct Allocable as indirect cost 14

15 Alcoholic Beverages (UA) Cost of alcoholic beverages must be segregated as an unallowable cost. 15

16 Alumni/ae Activities (UA) IHE Cost incurred by Institutes of Higher Education (IHE) to support alumni/ae activities are unallowable 16

17 Audit Services (AWR) Costs of audits required by Single Audit Act are allowable, but unallowable if: Single Audit was not conducted in accordance with Subpart F Single Audit was performed under threshold of $750,000 Costs of F/S audit that has no Federal awards can be allocated via indirect pool 17

18 Audit Services (AWR) Agreed-upon procedure engagements to monitor sub-recipients can be charged directly to Federal awards if: Conducted in accordance with GAGAS Paid and arranged through PTE Limited scope to one or more compliance areas: Activities allowed or disallowed Allowable costs / cost principles Eligibility Reporting 18

19 Bad Debts (UA) Write-offs to bad debts expense whether estimated or actual are unallowable Related debt collection and related legal costs are unallowable 19

20 Bonding Costs (A) Purpose gov t requires assurance against financial loss to itself or by reason of the act or default of NFE Allowable if premiums are reasonable and/or required by terms & conditions Allowable for org. in conduct of its operations per sound business practice Types: Bid, performance, payment, advance payment, infringement and fidelity bonds 20 to cover employees or officials

21 Collections of Improper Payments (A) New Cost Principle Costs incurred by NFE to recover improper payments is allowable as a direct or indirect expense Defined in Payments made in the wrong amount, should not have been paid, over-payment Payment to ineligible party Payment for ineligible goods or services Duplicate payment, did not take discount Lacking proper documentation that reviewer cannot discern if payment is proper 21

22 Commencement & Convocation Costs (UA) IHE For IHE s the cost of commencement and convocation costs are unallowable 22

23 Compensation for Personal Services (AWR) Compensation includes all remuneration paid currently (deleted retroactive pay) or accrued for services performed during the performance period of Federal award Reasonable for work performed (salary survey. Statutory) Conforms to a written policy Consistently applied to both Federal and non-federal activities Follows an appointment per the NFE s by-laws Supported by the Standards of Documentation of Personnel Expenses (time reporting i) 23

24 Compensation for Personal Services (AWR) Reasonableness of Compensation criteria Compensation for employees working on Federal awards is reasonable if consistent with that paid for similar work in other (non-federal) activities within the NFE If the type of work on Federal awards are not found with NFE, compensation is reasonable if it is comparable to similar work paid in the labor market in which the NFE competes for the same kinds of employees 24

25 Compensation for Personal Services (AWR) Professional activities outside the NFE under-taken by employees for extra outside pay (from IHE) If the NFE has no written policy or does not adequately define the permissible extent of extra outside work and pay Gov t may require staff working on Federal awards to be allocated between NFE activities and Non-Organizational Activities. B/c Gov t considers NOA excessive or inconsistent with the conflict-of-interest terms in award to be 25 negotiated on a case by case situation

26 Compensation for Personal Services (AWR) Unallowable compensation Costs made unallowable under other cost principles or sections are unallowable compensation under this cost principle Compensation subject to a statutory ceiling such as NIH & USAID on grants or OFPP Executive Compensation Cap on cost reimbursable contract Special consideration in determining the allowability of compensation due to a substantial change / increase in employees level of compensation concurrent with an increase in ratio of Federal awards 26

27 Compensation for Personal Services (AWR) Incentive Compensation Based on cost reduction, efficient performance, suggestion or safety awards Written formal plan between employer-employee or consistently followed to imply practice to ensure allowability 27

28 Compensation Fringe Benefits (AWR) Leave If NFE uses cash basis accounting, cost of leave is recognized in period that leave is taken or paid. Payments for unused leave when employee terminates or retires are allowable as indirect costs in the year of payment. Accrual basis can only be used for those types of leave for which a liability as defined by GAAP exists when the leave is earned. For accrual based leave, allowable leave is the lessor of the 28 amount accrued or funded.

29 Compensation Fringe Benefits (AWR) Cost of fringe benefits are allowable: Form of employer contributions for social security, employee life, health, unemployment, worker s compensation, pension plan costs and other similar benefits Allowable provided they are granted under established policies. Allocated to Federal awards and other activities in a manner consistent with the pattern of benefits attributable to the individuals or groups of employees as direct or indirect charges 29

30 Compensation Fringe Benefits (AWR) Cost of fringe benefits may be assigned to cost objectives either: By identifying specific benefits to specific individual employees or By allocating on an entity-wide basis using salaries of employees receiving the benefits Use separate allocations to selective groupings of employees (full-time, part-time) or NFE can demonstrate that the costs in relationship to salaries do not differ significantly for different groups of employees 30

31 Compensation Fringe Benefits (AWR) Cost of insuring the lives of officers or employees where the NFE is name as beneficiary is unallowable keyman insurance Actual payments for claims by employees or former employees for worker s compensation, unemployment compensation, severance pay, postretirement and similar benefits Allowable in the year of payment Follows a consistent costing policy Allocated as indirect costs 31

32 Compensation Fringe Benefits (AWR) Personal use of autos is unallowable as fringe or indirect (F&A) also transportation to and from work Pension plan costs are allowable based on established policies of the NFE provided that: Policies meet the test of reasonableness Cost allocation method is not discriminatory Accrual-based accounting and assign costs yearly per GAAP Costs assigned to a FY are funded within 6 months of yr-end Pension plan termination insurance premiums paid in accordance with ERISA are allowable, but not late payment 32 fees for premiums & penalties for funding deficiencies

33 Compensation Fringe Benefits (AWR) Post Retirement Health Benefits (PRHB) For pay-as-you-go method, allowable costs are limited to the actual payments in a particular year For an actuarial method recognized by GAAP, it is allowable if such accruals are funded within 6 months after year-end or are allowable after 6 month period in the year funded Severance pay Normal severance is reasonable payments are allowable Mass termination is abnormal and exceeds normal severance 33 Abnormal would be golden parachutes

34 Compensation Fringe Benefits (AWR) Severance pay A reserve for normal severance is allowable if payments are reasonable as compared to historical periods Must be allocated to all activities of the NFE Accruals for mass severance is unallowable, however, the gov t will participate in the mass severance but it requires prior written approval ( ) from cognizant agency for approving your indirect cost rates Abnormal severance / golden parachutes are unallowable in they are in excess of normal severance for termination of employee, change of management control over or ownership of the NFE s assets 34

35 Compensation Fringe Benefits (AWR) Severance pay to foreign nationals employed by the NFE outside the US 1. If the payments exceed the prevailing practice of the NFE are unallowable 2. If the payments are made due to ramping down or closing out the activities / paying employees to stay with NFE until end of the Federal award are unallowable The exception to 1 and 2 above is that the severance is necessary to the program s performance or approved by the awarding agency 35

36 Conferences (A) Meetings and conferences for the primary purpose of dissemination of technical information are allowable Cost of meals and refreshments, local transportation, rental of facilities, speakers fees, cost of identifying not providing dependent-care resources Defined as meeting, retreat, seminar, symposium, workshop or event 36

37 Contingency Provisions (UWE) Defined: Included in budget estimate (future cost) associated with possible events or conditions that based on experience will likely result in additional cost but are not determinable at the time of the budget, e.g. large construction project or IT systems Contingency cost as defined above are allowable if: Estimated using acceptable cost estimating techniques Specified in the budget narrative of Fed. Award Approved by the awarding agency For actual contingency cost to be incurred, they must comply with the cost principles 37

38 Contingency Provisions (UWE) Allowable contingency in Federal award budgets excludes: Major project scope changes (requires a mod) Unforeseen risks Extraordinary events Unallowable contingency reserves made for events that cannot be foretold with certainty as to when (time) or with assurance of their happening, e.g. pending litigation 38

39 Contributions & Donations (UA) Contributions or donations of cash, property, space and services from the NFE to other entities is unallowable Value of services and donated property Is not reimbursable as either direct or indirect cost Value of services may be used as cost share or match per When donations are treated as indirect cost, indirect cost rates will segregate the donated 39 amount to avoid reimbursement

40 Contributions & Donations (UA) For nonprofits: donated labor utilized in performance of direct activity will be included in the base for determining indirect rate receiving allocable portion of indirect cost when: Aggregate value of services is material Services are supported by a significant $ indirect costs The applied indirect cost becomes a total cost of the Federal award Applied indirect cost may be reimbursed or 40 become a part of the cost share or match

41 Defense & Prosecution of Criminal & Civil Proceedings, Claims/Appeals (UWE) Legal costs for proceeding or investigation initiated by a federal, state, local or foreign government for violation of law is unallowable if: Criminal proceeding results in a conviction For a civil or administrative hearing: Determination of contractor liability for an alleged fraud Imposition of penalty not relating to fraud Agency determination to suspend, debar, rescind a grant or terminate for default due to non-compliance with law or regulation 41

42 Defense & Prosecution of Criminal & Civil Proceedings, Claims/Appeals (UWE) If resolved by consent or compromise, when initiated by the U.S. government, and there is a provision to have such legal costs recovered, then those costs are allowable A proceeding with the state, local, or foreign government may be allowable if direct result of grant provision or to comply with written direction from the authorized official from the awarding agency 42

43 Defense & Prosecution of Criminal & Civil Proceedings, Claims/Appeals (UWE) Costs for the aforementioned proceedings are allowable if: Reasonable in relation to the effort of the litigation Payment is not limited by grant provision Not directly recovered from Government or 3rd party Limited to 80%, unless stipulated by agreement 43

44 Defense & Prosecution of Criminal & Civil Proceedings, Claims/Appeals (UWE) Other types of unallowable legal costs: Prosecution of claims against the Gov t, including appeals of final Federal agency decisions Defense of suits brought by its employees or ex-employees under the Major Fraud Act of 1988 Patent infringement litigation, unless provided for in Federal awards Directly associated costs, segregate unallowable costs in org s records 44

45 Depreciation (AWR) Depreciation for buildings, capital improvements or equipment using one method for each class of fixed assets Depreciation based on acquisition cost or FMV of donated asset Use allowance section deleted, only referenced Assume to use straight-line method, once selected cannot change Same method for depreciating for F&A as in F/S Depreciation is allocated indirect 45

46 Depreciation (AWR) You can depreciate building as a whole or divide it into multiple components depreciated over different useful lives grouped into 3 areas (more guidance): Building shell (construction and design cost) Building service systems (HVAC, elevators ) Fixed equipment (fume hoods, cold rooms..) No depreciation on assets that outlived their depreciable lives Adequate property records 46 Physical inventory every 2 years

47 Employee Health & Welfare (A) Allowable costs to improve work conditions, employer-employee relations, employee health and performance in accordance w/org s established practices Description deleted: House publications, health clinics, wellness-fitness centers, employee counseling, food and dormitory services Costs equitably apportioned to all activities If income generated will be offset to cost of operations Permitted losses of food operation if on break-even basis 47

48 Entertainment (UWE) All types of entertainment are unallowable Amusements, diversions, social activities Removed: tickets to shows or sporting events, meals, lodging, rentals, transportation or gratuities. Entertainment for programmatic purpose is allowable per grant budget (e.g. used as a reward for student achievement) 48

49 Equipment & Other Capital (AWR) (Capital) assets (definition ) equipment= non-expendable, tangible personal property Useful life 1 year Acquisition cost the lesser of following: Capitalization policy for org s financial statements $5,000 (definition of equipment ) Special purpose equipment (200.89) Research, medical, scientific > $5,000 are allowable direct per approved budget 49

50 Equipment & Other Capital (AWR) Acquisition Cost - Definition (referenced in Depreciation cost principle) Net invoice unit price of an equipment item, including modifications, attachments, accessories The inclusion/exclusion of ancillary charges is predicated on org s established policy Ancillary charges: taxes, duty, freight-in, and installation 50

51 Equipment & Other Capital (AWR) Capital expenditures, land, buildings or improvements thereto or general purpose equipment are unallowable as a direct cost unless prior approval by awarding agency Capital expenditures when approved as a direct cost will be charged in the period incurred 51

52 Exchange Rates (AWR) New Principle Cost increases due to fluctuations in exchange rates are allowable subject to availability of funding and prior approval Agency must ensure there is sufficient funds to cover currency fluctuations to avoid noncompliance with the Anti-Deficiency Act NFE must analyze local currency gains to determine need for additional funds before the expiration of Federal award NFE must provide adequate source documentation from recognized source 52

53 Fines, Penalties, Damages and Other Settlements (UA) The cost relating to violations or alleged violations or failure to comply with Federal, state, tribal, local or foreign laws and regulations is unallowable, unless permitted by compliance with a provision of a Federal award 53

54 Fundraising & Investment Management Cost (UWE) Unallowable: a) Costs of organized fundraising, not proposal cost b) Costs of investment counsel, staff and similar expenses solely to enhance income from investments c) Both (a) & (b) a part of allocation base as unallowable cost per (e) d) Costs related to physical custody and control of monies and securities are allowable 54

55 Gains & Losses on Disposition of Depreciable Property or Other Capital Assets (AWR) Gains/loss on depreciable property include in year when occur to the original cost groupings as a credit or charge Gain/loss = difference between amount realized on property and un-depreciated basis of property When assets acquired with Federal funds in part or wholly, are disposed of, the distribution of the proceeds in accordance with a property trust relationship 55

56 Goods/Services for Personal Use (UA) Cost of goods or services for personal use by the organization s employees are unallowable regardless of whether the cost is reported as taxable income to the employee Cost of housing (depreciation, maintenance, utilities, furnishings, rent) or housing allowances and personal living expenses are only allowable as direct costs regardless of whether reported as taxable income to employees (taken from Housing and Personal Living deleted) 56

57 Idle Facility/Capacity (AWR) Idle facilities includes: maintenance, repair, housing, rent, property taxes, insurance, interest, and depreciation. Encompasses the plant (leased or owned) and the land critical to operation. Idle facility means completely unused facilities that are excess to organization s current needs Idle capacity means unused capacity of partially used facilities normal cost of doing business causing fluctuating rates 57

58 Idle Facility/Capacity (AWR) Idle facility and idle capacity is unallowable except to the extent that: Meet variations in workload Necessary when acquired and now are idle due to: Changes in contract requirements, Production economies, Reorganization, and Contract terminations. Try to lease or dispose, but allowable up 58 to one year. Widespread idle capacity akin to idle facility.

59 Insurance & Indemnification (AWR) Allowable for: Required for the support of an award General conduct of org s operations Types and extent of coverage per sound business practice Rates and premiums are reasonable under circumstances Insurance is unallowable on lives of trustees, officers or employees if org is beneficiary or allowable if represents income to family of employee 59

60 Insurance & Indemnification (AWR) Reserves for self-insurance including workers compensation and unemployment compensation are allowable to extent it would be the same cost if a premium was purchased cover same loss plus additional restrictions Business interruption coverage is allowable except it must exclude coverage of management fees Insurance to protect itself against defects in workmanship or materials is unallowable 60

61 Intellectual Property (AWR) Allowable patents and copyrights must be required by contract/award Filing or prosecution of patent/copyright conveyed to U.S. government General counseling services on patents, copyrights & employee agreements on IP such as advice and understanding laws Unallowable if not related to award: Cost of disclosures & filing / prosecution of foreign patent infringement 61

62 Intellectual Property (AWR) Royalties on a patent or copyright or amortization of purchasing patent rights to perform directly on a grant are allowable. Ensure that patent agreement was developed at an arm s length transaction 62

63 Intellectual Property (AWR) Patent/copyright for gov t are allowable unless: Gov t has license or right to free use of patent/copyright Patent/copyright is adjudicated to be invalid Patent/copyright is considered unenforceable Patent/copyright has expired Patent/copyright formerly owned by org. shall not exceed the cost had the company retained title 63

64 Interest (UWE) Interest on borrowed capital or temporary use of endowment funds, or the use of entity s funds, however represented are unallowable interest expense. 64

65 Interest (UWE) Financing costs including interest to acquire, construct or replace capital assets are allowable that pertain to or support Federal awards - subject to several conditions / limitations, see principle. Capital assets include (as defined in ): Acquisition cost Construction cost Other costs per GAAP After FY s beginning on Jan. 1, 2016, includes intangible assets for patents and computer software, but software development projects, only interest attributable to portion of the project that is capitalized per GAAP 65

66 Lobbying (UWE) Cost of certain influencing activities to obtain grants, contracts, cooperative agreements or loans is unallowable. Total lobbying cost must be separately identified in the indirect rate proposal and included as a part of allocation base NFE must submit as a part of its annual indirect rate proposal, a certification of compliance with this cost principle. 66

67 Lobbying (UWE) Executive Lobby Costs Attempting to improperly influence an employee or official of the Executive Branch of the Federal Government to give consideration or act on a Federal award or regulatory matter or to obtain an award is unallowable. Consideration means on any other basis than on the merits. 67

68 Lobbying (UWE) Unallowable Influence outcome of any Federal, State, local elections or legislation Supporting a political party, campaign or PAC Influence the introduction of legislation or person having authority to veto or sign such laws Use publicity or propaganda to influence the public by fund raising, letter writing, rally, telephone campaign (promoting a cause) Legislation liaison at sessions or committee hearings 68

69 Lobbying (UWE) Exceptions to cost disallowance: Providing a technical or factual presentation on topic directly related to grant performance through hearing, testimony or letters to legislature Travel, lodging meals unallowable unless written request of Congressional committee Unless to lobby state legislature to mitigate award costs Activity authorized by statute, grant or award, consider lobbying a foreign gov t 69

70 Lobbying (UWE) Allowable excepted from lobbying activities per IRS code include: Nonpartisan analysis, study or research Examinations and discussions on broad social, economic and similar problems Information provided upon request of a legislator for technical advice or assistance as defined by the IRS code Time logs are required if employee engages in more than 25% of their lobbying effort in a calendar month 70

71 Losses on other awards or contracts (UA) Excess costs over income on any award is unallowable. Includes org s contributed portion by reason of cost sharing agreements or any under-recoveries through negotiation of lump sum for or ceilings on indirect costs All losses are not allowable indirect cost 71

72 Maintenance & Repair Costs (A) Cost incurred for utilities, insurance, security, necessary maintenance, janitorial services, repair and upkeep of buildings and equipment. Allowable, except: Cannot prolong the useful life of asset Cannot add permanent value to asset Plant, equipment, and rehabilitation costs subject to capitalization are depreciated in accordance with contractor s depreciation 72 policy.

73 Material & Supplies Costs including Computing Devices (A) Cost of materials, supplies, fabricated parts necessary to perform on an award are allowable Allowable if charged at actual prices net of credits for trade discounts, rebates Only items actually used for performance can be charged as direct cost Federally donated materials at no charge 73

74 Memberships, subscriptions & professional activity costs (AWR) Cost of org s membership in business, technical and professional org s is allowable. Cost subscriptions to business, technical and professional periodicals are allowable. 74

75 Memberships, subscriptions & professional activity costs (AWR) With prior approval from awarding agency, membership in civic or community org s is allowable. Cost of membership in country club or social or dining club or organizations whose primary purpose is lobbying are unallowable. 75

76 Organizational Costs (UA) Unallowable cost with establishment or re-organization of an organization Incorporation fees, Management consultants, Legal, Accountants, whether or not employees of org. 76

77 Participant Support Cost (AWR) Direct cost for stipends or subsistence allowances, travel allowances and registration fees for participants or trainees (not employees) in connections with conferences or training projects. (Defined in ) Allowable with prior approval of the awarding agency. Must be excluded from the MTDC base. 77

78 Plant & Security Cost (A) Necessary and reasonable expenses for routine and security to protect facilities, personnel and work products are allowable. Plant protection or security costs for equipment, uniforms, wages, barriers, contractual security services, and consultants are allowable. 78

79 Pre-Award Costs (AWR) Incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award Where the costs were necessary for efficient and timely performance of the scope of work. Only allowable to the extent that would be allowable if incurred after award. Must have prior written approval from agency else performance is at your own risk. 79

80 Professional Service Cost (AWR) Professional or consultant services performed by members of a particular profession or possess a special skill, not officers or employees of NFE Allowability is not dependent on no single factor: Nature and scope of service rendered as compared to service required The necessity of contracting when considering NFE s capability in that area 80

81 Professional Service Cost (AWR) Past pattern of costs especially before the NFE had Federal awards Impact of Federal awards on NFE, what special requirements or problems due to the awards Whether work can be performed more economically through direct employment vs. contracting Qualifications of individual or firm performing services and customary fees under non-federal activities 81

82 Professional Service Cost (AWR) Adequacy of the contractual agreement for the service Description of service Estimate of time required Rate of compensation Termination provisions 82

83 Proposal Cost (AWR) New Cost of preparing bids, proposals, or applications on potential Federal and non-federal awards or projects are allowable Including development of data necessary to the NFE s bid or proposal Proposal cost for the current accounting period of both successful and non-successful proposals Treated as indirect (F&A) cost allocated to all activities of the NFE Proposal cost is not fund raising 83

84 Publication & Printing Cost (AWR) Defined: electronic and print media including distribution, promotion, and general handling If not identifiable direct to a grant, charged as indirect expense Page charges for professional journal publications are allowable under certain conditions 84

85 Rearrangement-Reconversion Cost (AWR) Costs for ordinary and normal rearrangement and alteration of facilities are allowable as indirect. Special arrangement cost incurred specifically for a Federal award is allowable if preapproved by awarding agency. Cost involved with the restoration and rehabilitation of NFP facilities to the same condition immediately prior to start of award less cost related to wear and tear are allowable. 85

86 Recruitment Costs (AWR) Allowable help-wanted ads, operating costs of an employment office, travel for employees in the recruitment and travel for applicants, relocation costs of newly hired employees, employment agency costs not in excess of customary costs. Special salary allowances to attract professional personnel that are not reasonable or conform to the NFE s established practices are unallowable such as pirating employees using a hiring bonus. 86

87 Recruitment Costs (AWR) Employee relocation is unallowable if: Employee resigns under his/her control Within the first 12 months of the relocation Funded in part or whole by Federal award, e.g. through an indirect rate 87

88 Relocation Costs (AWR) Cost for relocating new hire or re-assigning existing personnel to a permanent change of duty assignment for a period > 12 mos. Allowable relocations costs include: The move is for the benefit of the employer Reimbursement to employee is in accordance to the employer s policy Reimbursement does not exceed actual expenses of the employee 88

89 Relocation Costs (AWR) There are some restrictions for allowable moving costs for current employees and less restrictions for new hires Unallowable relocation expenses: Fees and costs acquiring a new home A loss on the sale of the former home On-going mortgage principle and interest payments on home being sold 89

90 Rental Costs of Real Property & Equipment (AWR) Reasonable at the time of the lease after the following considerations: Rental costs of comparable property Market conditions in the area Type, life expectancy, condition and value of property leased Alternatives available Review of rental arrangements periodically to determine if circumstances have changed and other options are available for consideration 90

91 Rental Costs of Real Property & Equipment (AWR) Rental costs under sale and lease back or less than arm s length*, is based on the allowable cost had the property been owned by the NFE, or limited to the cost of ownership: Depreciation Maintenance Taxes Insurance and interest (not mentioned) *Cost principle further restricts less than arm s length if one party is able to control ownership 91

92 Rental Costs of Real Property & Equipment (AWR) Rental costs under leases treated as capital leases under GAAP: Interest cost related to a capital lease is allowable if they meet criteria under the Interest cost principle Unallowable costs include amounts paid for profit, management fees and taxes that the NFE would not have paid if they purchased it Rental of any property for purposes of using it as a home office workspace is unallowable 92

93 Selling and Marketing (UWE) Selling and marketing of products or services are unallowable Only allowable as direct if prior agency approval and necessary for performance Federal programs 93

94 Specialized Service Facilities (AWR) Highly complex or specialized facilities for computers, wind tunnels, reactors are allowable When material, charged direct based on usage or rates based on established methodology Allocated equitably to all users direct (government or other non-gov t programs, and indirect) Recommend advance agreements or establishment alternative cost arrangements If costs are not material, may be allocated as 94 an indirect cost

95 Taxes & VAT (UWE) Allowable Required to pay to local governments Paid and accrued per GAAP Unallowable Available exemption certificates provided by awarding agency Special assessments on land which represent capital improvements 95

96 Taxes & VAT (UWE) Unallowable Federal income taxes, UBIT Any refunds paid with respect to allowable tax payments & foreign VAT on the award, should be credited back to the award Foreign Value-Added Tax (VAT) for goods and services is allowable Separate section for State & Local Gov t 96

97 Termination Costs (AWR) Termination of award requires special treatment of costs which would have not resulted had the award not been terminated. Incurred costs from contract termination that would not otherwise be charged during contract performance. Costs continuing after termination which cannot be reasonably discontinued Unexpired leases or rentals Cannot be used for some other purpose Not the result of negligence 97

98 Termination Costs (AWR) Loss of useful value of special tooling and equipment Cannot be used for another purpose Government s interest is protected by transfer of title Rentals under unexpired leases Necessary for contract performance Claimed rentals does not exceed the reasonable use value for contract period and follow-on period as well 98

99 Termination Costs (AWR) Diligent efforts to terminate, assign, or reduce lease Lease alterations required for contract performance may be allowable Cost of items reasonably usable on other work must not be allowable In determining if such items are reasonably usable on other work, the agency should look at the NFE s plans and orders for current and scheduled activity. Any common items allocable to the terminated portion must be limited to items on-hand, in 99 transit or on order are in excess of other work

100 Termination Costs (AWR) Allowable settlement costs: Accounting, legal, clerical and similar costs in preparing and presenting, including supporting data of the settlement claim with the government as long as termination was not for cause Termination and settlement of sub-awards Reasonable storage, transportation, protection and disposition of property as it relates to the terminated contract 100

101 Training & Education Costs (A) The cost of training and education provided for employee development is allowable. 101

102 Transportation Costs (A) Allowable costs include: Freight, express, postage, related to goods purchased, in process or delivered. Directly identifiable transportation cost charged to award while non-identifiable should be indirect. Outbound freight if reimbursable under the terms and conditions of the Federal award should be treated as a direct cost. 102

103 Travel Costs (AWR) Travel includes transportation, lodging, subsistence in support of official business Costs charged actual basis, per diem or combination in lieu of actual, is allowable so long as consistent and normally allowed in policies and procedures with non-federal activities Grants may require adherence to GSA travel regulation re. per diems for lodging and meals Travel is necessary to the award approved budget In the absence of establishing, acceptable written policies for travel, use the rates and amounts Travel and Subsistence Expenses; Mileage 103 Allowances

104 Trustees (A) Travel and subsistence costs of trustees or directors are allowable at IHE s and nonprofit organizations. See also travel costs

105 Any Questions 105

106 The materials contained herein or discussed in the seminar or shown in the MS Powerpoint slides, are for illustrative and academic purposes only and should not be considered appropriate for your organization without careful adaptation by experts in the appropriate field of endeavor. DISCLAIMER 106