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FAQ #1:
Our school Division has recently been awarded a grant under the Magnet Assistance programs of PL100297 Elementary and Secondary Education Act of 1965. It is the first federal grant of this type we have received that does not first flow through our State Department of Education. The Department of Education for the Commonwealth of Virginia applied for an indirect cost rate for us and has notified us that the U.S. Department of Education approved their methodology and that our restricted rate is 3.1 percent. We currently use this rate for our other federal grants such as Title I. Please advise.
ANSWER:
The indirect cost rate represents the calculated benefit
of indirect costs to all associated revenues from both Federal and State
sources. It should be used for indirect cost claims under all Federal programs
that permit reimbursement. This is true whether or not the grant is received
from a State Education Agency, another State Agency or directly from a Federal
agency. The rate must be current, however, meaning it is approved and covers the
period coincident with grant activities.
With respect to the indirect application base, restricted
rates require using what we call a "Modified Total Direct Cost Base" (MTDC).
This means applying indirect cost claims to allowable expenditures which exclude
capital outlay costs and (emphasis ours) sub-awards and stipends.
The following formula should be used to determine the
amount that could be budgeted for indirect cost reimbursement.
Indirect Cost
Rate%
X (Total Award Less Capital outlay,
(1.0 + Indirect Cost Rate
%) sub-awards and
stipends)
You also may elect to waive all or a portion of indirect
cost claims.
An example of using the formula is to
assume your award amount is $258,000, Capital Outlay is $5,000, Sub-awards are
$4,000, Stipends are $3,000. Since your rate is 3.1%:
0.031
X ($258,000-$5,000-$4,000-$3,000)
1.031
This equals 0.030067895 times
$246,000.
The product of these two figures is
7396.702231, or $7,396.70 rounded.
This means that for a
grant of $258,000, the following
results:
| Grant Amount: | $ 258,000 |
| Exclusions: | |
| Capital Outlay: | $ 5,000 |
| Subawards: | $ 4,000 |
| Stipends: | $ 3,000 |
| Indirect Costs: | $ 7,396.70 |
| Base of Application: | $ 238,603.30 |
| Sum: | $ 258,000 |
FAQ #2:
An LEA offers an early retirement incentive plan to employees that are eligible to retire as of a certain date. The participants of the incentive plan will be provided with monthly income payments, in addition to the amounts received under the regular retirement plan. Can the district charge the expenses for the retirement incentive plan directly to Federal awards?
ANSWER:
The LEA must obtain prior approval from the cognizant Federal agency prior to charging the costs directly or indirectly to Federal programs. Retirement incentive payments are considered "abnormal severance pay" since the payments are not associated with normal turnover. OMB Circular A-87, Attachment B, Paragraph 8.g. states, "Abnormal or mass severance pay will be considered on a case by case basis and is allowable only if approved by the cognizant Federal agency".
FAQ #3:
In a Dept of Education grant where (1) cost-sharing is required and (2) we are limited to 8% of TDC for an indirect cost rate, are we allowed to cost-share 8% of the direct costs which we are contributing to the project
ANSWER:
It is not appropriate to use indirect cost
claims above the 8% amount as matching or cost sharing. You can only use
allowable costs for cost sharing. In this case, any indirect cost claims above
8% would be considered unallowable cost. The 8% is not taken against the award
but rather the allowable direct cost base.
FAQ #4:
I have a question about indirect costs, the FAQs for state and local governments indicate in one place (at least that I saw) that public school systems fall under the same guidelines as state and local government. Did I understand that correctly? If not, how do public school systems determine an indirect cost rate? Is so, where can I obtain a copy of OMB Circular A-87.
ANSWER:
Public Schools do fall under the same
guidelines as state and local governments. You can look it up on the Internet.
The address is:
http://www.whitehouse.gov/omb/circulars/index.html
Select "State and Local
Governments." Then select "OMB Circular
A-87."
FAQ #5:
I am interested in submitting a grant application for
CFDA # 84.324D, Focus 4. The maximum award is $180,000 per year for up to 36
months. I want to verify the inclusion of indirect costs in the budget. Must the
total of indirect and direct costs not exceed $180,000 per year? Thank you for
your assistance.
ANSWER:
The indirect cost claim must be absorbed within the maximum award amount. In practice, you attach indirect cost claims to the direct cost expense as it is incurred, and costs should be monitored to accommodate budget adjustments within the award amount. It is important to note that your indirect cost rate is applied against the direct cost expense, not the total amount of the grant award.
FAQ #6:
What makes up the pool for 8% rates so I can
determine whether rent or other costs may be used for matching?
ANSWER:
There is no written description on the pool make-up for the 8% rate, although we do tell you what the 8% can be applied to. The purpose of the 8% indirect cost rate is to limit indirect cost reimbursement. If you separately charged those same type costs as direct or used them for matching, you would be circumventing the limitation. So as a rule of thumb, whatever costs or activities constitute the numerator of your current indirect cost rate computation would be excluded from consideration for matching or cost sharing purposes.
FAQ #7:
We have a nonprofit grantee that we recently
reviewed. They have a discretionary grant from RSA that has a 20% match
requirement (CFDA Number 84.234M-Projects With Industry, or PWI).
The year in which we reviewed,
they estimated their budget at $90 Million. Their only Federal grant is the PWI
grant but they have multiple funding sources.
As their match, they are using a combination of direct and
indirect costs.
They do not
have an approved indirect cost rate from the Department of Education (or any
federal agency). It is my belief that they need one, but they insist that they
do not.
Am I correct that they
need an approved indirect cost rate to use indirect costs as their required
match? Any assistance from your office would be appreciated.
(Federal award is $173,373 and
match is $43,357)
ANSWER:
Yes, they need a rate. The rate is set regardless of cost reimbursement circumstances. It determines which costs and functions of the organization are indirect and which are direct. That way, the Federal Program Office will be able to monitor the allowable indirect matching costs and be sure there is no mixing of indirect costs with direct costs.
FAQ #8:
Is there is a form titled:
"Federally negotiated rate for
indirect costs" form?
relating
to federal grants? Can you tell me if there is such a form and, if there is,
where I can get a copy?
ANSWER:
I believe you are referring to what is called an "Indirect Cost Rate Agreement." This document stipulates the indirect cost rates an organization can use to claim indirect costs under Federal programs. The Agreement covers specific periods and must be re-negotiated cyclically. The Agreement is issued by your "cognizant" Federal agency, if you receive Federal funding directly. The cognizant Federal agency is the sponsor who provides the most funding. If you receive Federal funds only from a "pass-thru-entity" (e.g., a State Education Agency) then that agency is responsible for the indirect cost rate negotiation effort. Usually, the Agreement is signed by both the recipient organization and the cognizant agency that negotiated the indirect cost rate(s). Your business office should have the Agreement on file, if it exists.
FAQ #9:
Does a restricted indirect rate on a grant only apply to the Grantee, and not its subcontractors, which may be profit or non profit organizations?
ANSWER:
If the subaward is for the acquisition of services or procurement of goods purchased through competitive bidding, it establishes a "vendor" relationship where tangible deliverables are bought at a determined price. This type of relationship is not considered "assistance" and therefore restricted rates could be negotiated, but not imposed. The type of recipient either in a grant or contract relationship is irrelevant to this consideration. However, if the subaward provides financial assistance pursuant to a legal agreement (even if the agreement is called a "contract"), that financial assistance would be subject to the restricted indirect cost rate requirements.
FAQ #10:
A State Education Agency (SEA) client with an Individuals with Disabilities Education Act (IDEA) grant asked this question. Under IDEA, each State must ensure that a Free and Appropriate Public Education (FAPE) is made available no later than the child's third birthday.
Our State charges retirement, sick leave pay and other paid absences as a direct expense under salary and wages in their federal grant. Does the fact that the State does not want to include the Infant and Toddler Program under IDEA in their indirect cost agreement affect these benefits in any way?
ANSWER:
The answer is "no" as long as those benefits are only for direct people working on your grant and they charge leave only as it is earned and taken on a cash basis.
It gets tricky when the grant ends, for as you know, any unused leave may not be charged directly against the grant if the state uses the cash basis of accounting. The government's liability is limited only to leave TAKEN during the grant period, not to leave ACCRUED during the grant period. Termination leave costs may be allocated to the indirect cost pool however. Once the grant is over, the controlling guidance is at OMB Circular A-87, Attachment B, Paragraph 11, Compensation for Personnel Services, under sub-paragraph (d), Fringe Benefits.
FAQ #11:
I work in a public school district that is investigating the possibility of applying for a federally negotiated indirect cost rate. Can you please send me application materials and any other information you have? Our district receives less than $10,000,000 annually in federal grant funds, so I understand we would be eligible to apply using the short form.
ANSWER:
Since local school districts rarely receive direct Federal funding, the Federal Department of Education delegated Local Education Agency (LEA) indirect cost oversight to the individual State Education Agencies. Your school district should already have an indirect cost rate approved by your State Education Agency. Request the name and address of the contact person for your State from the Indirect Cost Group negotiator for your state listed at http://www.ed.gov/about/offices/list/ocfo/fipao/icgreps.html . If you need further information on this subject or are unable to obtain a response from your State Education Agency, feel free to send us follow-up questions.
FAQ #12
A State Agency (SA) client applying for a GEAR-UP grant asked this question. GEAR-UP is the acronym for Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR-UP), CFDA 84.334, Partnership grants.
I am working with several staff at my State Board of Regents in preparing a Gear Up State Grant proposal and we have a question about some language in the application package referring to indirect costs.
On page 67 of the "Instructions for Preparing Gear Up Budget", item (B) discusses indirect costs and says "However, this rate does not apply to costs that may be incurred by State agencies or LEAs [Local Education Agencies]." Is this saying that my State Board of Regents (state agency) and the two school districts with which we will be working (LEAs) cannot apply for and use 8% indirect cost funds? We do not understand the meaning of the sentence.
ANSWER:
No. I believe this represents a vague reference to 34 CFR 75.562( c )( 2 ) which excludes State and local agencies from the 8% limit on indirect costs. To quote therefrom:
( 2 ) The eight percent limit does not apply to agencies of State orlocal governments, including federally recognized Indiantribal governments.
FAQ 13:
A school principal at a Local Education Agency (LEA) asked this question with respect to a "Title I, Part A, Improving Basic Programs Operated by Local Education Agencies" grant, CFDA 84.010. State Education Agencies (SEAs) apply for Title I grants. Local Education Agencies are subgrantees to the SEAs.
He asked officials at his Local Education Agency about the amount taken off the top of their Title I allocation for indirect costs. His district is telling him that the amount it takes off the top for indirect costs is going up. Does the U.S. Department of Education negotiate indirect costs with States and States in turn negotiate indirect cost rates with districts? If yes, who in an individual State would know what the indirect cost rate is for a district within a State?
ANSWER:
Yes. The U.S. Department of Education (ED) delegates LEA indirect cost oversight authority to the individual State Education Agencies. This means that after the ED Indirect Cost Group approves their rate determination procedures and policies SEAs can set indirect rates for their own school districts. Request the name and address of the contact person for your State from the Indirect Cost Group negotiator for your state listed at http://www.ed.gov/about/offices/list/ocfo/fipao/icgreps.html. The way to determine what the indirect cost "take" should be is to divide your award amount by 100% of your indirect cost rate. For example, if your award amount is $100,000 and your indirect cost rate is 5% of modified total direct costs, then divide $100,000 by 1.05 which gives you $95,238.09. The difference between that amount and $100,000, or $4,761.91, is generally what the maximum take for indirect costs should be. Having said that, let me add that certain awards may have caps or limits on indirect costs and "administration." For instance, Title I has a special definition of "administration." There is a ceiling on costs meeting the special definition. Both the negotiated indirect cost rate and the program's special definition of the word "administration" should be coupled when determining compliance. In other words, the indirect cost rate and the specific individual program rules governing administration should be considered together to ensure allowability of costs.
FAQ 14:
This question concerns the 8% limit on training grants as described at 34 CFR 75.562 (c)(2). To quote therefrom: "Indirect cost reimbursement on a training grant is limited to the recipient's actual indirect costs, as determined by its negotiated indirect cost rate agreement, or eight percent of a modified total direct cost base, whichever amount is less. For the purposes of this section, a modified total direct cost base is defined as total direct costs less stipends, tuition and related fees, and capital expenditures of $5,000 or more. ( 1 ) The eight percent limit also applies to cost-type contracts under grants, if these contracts are for training as defined in this section."
The context of the question is that of a prime grantee for an award that is not considered training. A portion of the project work is being subcontracted out. The subcontractor will be required to perform some training functions. Is the recipient of the subcontract (the subcontractor under the prime grant) limited to a ceiling of 8% of a Modified Total Direct Cost (MTDC) base for their indirect cost rate reimbursement?
ANSWER:
The subcontractor may not be bound by the 8% MTDC limit, but may voluntarily adopt the restriction. The Department's definition of a training program grant is considered to be the program (under a specific CFDA number) where the prime recipient assumes fiduciary responsibility for grant administration. This responsibility is not meant to include parceling out separate and independent work scopes under CFDA programs for the purpose of applying the 8% limit, particularly when the program is not classified as training in the first place.
Second, even if the prime grant program and CFDA number at issue were for training, the 8% MTDC limit would apply only under unusual circumstances. An example would be where the prime recipient is subcontracting out major portions of work for the purpose of avoiding the 8% MTDC limitation. In this case, the recipient would be violating the Office of Management and Budget Circular provisions (for nonprofit grantees OMB Circular A-122 – Attachment A.4.b), which prohibit cost shifting to avoid funding limitations. Otherwise, we view a subcontract cost element as one unit of cost, and the prime recipient would limit the 8% reimbursement rate only to their own expenditures, using the MTDC base. This base, by the way, would include only the first $25,000 of any subcontract.
FAQ 15:
Frequently Asked Question (FAQ) Number 5 and FAQ Number 10 on your INTERNET site refer to an 8% rate which is applied to a TDC (total direct cost) base, without reduction for subcontracts or equipment. Is this 8% considered a "restricted rate?" Is the TDC basis for computing indirect costs discussed in EDGAR or in some other regulations? In discussing indirect rates, EDGAR refers to "modified direct cost" as the basis, as I remember. EDGAR provides a formula for computing a restricted rate. Is this formula not applicable when an 8% restricted rate is provided.
ANSWER:
The 8% "training" grant limit at 34 CFR 75.562(c) is often confused with the 8% alternative for restricted rates at 34 CFR 76.564(c). While they both accomplish similar results (reduced indirect cost reimbursement), they are mutually exclusive in implementation.
The 8% training grant limitation pertains to those discretionary grant programs that the Department of Education classifies as training. Training programs are not formula or discretionary grant programs with statutory requirements that prohibit the use of Federal funds to supplant non-Federal funds (otherwise known as "supplement not supplant"). Non-supplanting programs, instead, are called "restricted rate" programs because recipients must use a specific "restricted rate formula" to determine what indirect cost rate may be used for reimbursement of indirect costs. The formula essentially "restricts" what the recipient may allocate to the indirect cost pool. The formula reclassifies the accounts of these "supplanting" type costs to a modified total direct cost (MTDC) base for the purpose of calculating and tracking the expenditures of a restricted type indirect cost rate.
Subgrantees or direct recipients of non-supplanting grants who are not State and local governments may use an 8% rate applied to a MTDC base. Use of the 8% rate would be in lieu of using the formula at 34 CFR 76.564(a) to determine a restricted rate. That is where the similarity with the 8% indirect cost rate training grant limit ends.
With respect to the 8% indirect cost rate training grant limit, 34 CFR 75.562(c) defines the MTDC base as: "total direct costs less stipends, tuition and related fees, and capital expenditures of $5,000 or more." We recognize a grantee's capitalization policy may be less than the $5,000 threshold. The regulation is silent on the treatment of subawards for two reasons. First, "subgrants" are not allowed under training programs or any other discretionary grant program and "subcontracts" should also be rare.
The prime recipient is expected to account for subcontracts consistently regardless of the type of indirect cost reimbursement provided by the prime award. The accounting treatment a training grant prime recipient (prime uses training type indirect rate) gives to a subcontractor should mirror the accounting treatment the grantee uses for subcontractors when not operating under a training grant (prime uses "regular" type indirect rate). The cost accounting treatment for subcontracts should be consistent.
FAQ #16:
How do I determine if a grant is "training" for the purpose of limiting indirect cost recovery to 8% of Modified Total Direct Costs (MTDC)? Can a restricted rate be higher than 8% of MTDC? Who determines what the computed base is for a grant?
ANSWER:
Absent a specific "training grant" program list, or specific identification of a Department of Education (ED) program as "training" in the grant application package, a grant applicant or project officer should contact the program sponsor for a dispositive answer regarding the training grant designation.
A restricted rate for non state and local grant recipients can be higher than eight percent of a Modified Total Direct Cost base, if the rate is approved by the cognizant Federal agency and the calculation properly reclassifies "supplanting" type categories of costs from the pool to the base. All the costs that are barred from a restricted type rate by 34 CFR 76.565 should be so reclassified for the purpose of determining a restricted type rate. Before using the calculated restricted rate, the rate must be established as part on the organizations approved indirect cost rate agreement (listed in the indirect rate agreement with an agency of the Federal government).
With respect to who determines the computed base of application for a grant, the cognizant Federal agency should outline the appropriate distribution base for rate application purposes on the official rate agreement. However, both the restricted indirect cost rate computation and training grant 8 percent limit require the use of a modified total direct cost base pursuant to 34 CFR 76.564 (a) and 34 CFR 75.562 (c).
FAQ 17:
Can indirect funds from Federal grants be used by the host institution to pay for grant writing services? (Can the institution use their indirect cost monies to pay someone who has written the grant for them?)
ANSWER:
There are two ways to answer the question. One is if the cost (grant writing services) is being considered as an expense or charge to the indirect cost account that is used to calculate the organization's indirect cost rate. In other words, can the cost be "accounted" for and allocated as an indirect cost expense?
The other view is, if after applying the indirect cost rate and receiving reimbursement, can the host institution use that money to pay for the services of a grant writer? One interpretation of your question is that it concerns the indirect cost rate determination process, the other interpretation is that it involves the subsequent expenditure of the indirect cost reimbursement after the rate is applied to direct cost claims under Federal awards.
In the first scenario, it would not be appropriate to account for the cost of a grant writer as an indirect cost for indirect cost rate determination purposes. Indirect costs should support, or benefit proportionally, all revenues and activities both of a Federal and non-Federal nature. As I interpret your question, the services of a grant writer appear to benefit one or specific Federal grants, and are not allocable to all revenue sources or activities that comprise the denominator (or base) on which the indirect cost rate is calculated.
Conversely, the services of the grant writer could be charged directly to the benefiting grant (since it can be identified with that cost objective) if the cost meets the "reasonableness" criteria described in the appropriate OMB Circular cost principles.
In the second scenario, we take the view that indirect cost reimbursement loses its identity after it is received and deposited in the "General Fund." This means the host institution can use that money to pay the services of a grant writer or for any other costs as long as the activities and reimbursement are consistent with the organization's own policy. However, by doing so, the organization essentially is "eating" the indirect costs this reimbursement was meant to replace. These costs cannot be shifted to other Federal sources.
FAQ #18A:
A State Education Agency (SEA) client asked these questions about the "Master Listing" of restricted rate programs found in Appendix IV of the U.S. Department of Education publication: "Indirect Cost Determination Guidance for State and Local Government Agencies." Is the list current? Who publishes it? How complete is it? Is there an "unrestricted" listing?
ANSWER:
The 2013 "Master Listing" is the most recent listing available. This particular listing required the Department's (ED) legal and program staff to research the legislation and program statutes that sponsored the various CFDA programs, and then determine whether Federal funds were tied to supplanting prohibitions.
With respect to the completeness of the "Master Listing," the list covers only Department of Education grant programs with a statutory prohibition against the use of Federal funds to supplant non-Federal funds. Recipients of funds under these programs must use a "restricted indirect cost rate" determined by the restricted indirect cost formula described at 34 CFR 76.564.
There is no "unrestricted" list. For Department of Education programs, the assumption is that a CFDA program probably is "unrestricted", unless it is identified as restricted. But again, the listing is not meant to be all-inclusive nor provide guidance for grants awarded by other Federal agencies. With respect to Department of Education programs, many State agencies elect to use restricted rates for all ED programs as a way of increasing direct grant performance.
FAQ #18B:
Are all funds under Part B of the Individuals with Disabilities Education Act (IDEA), CFDA 84.027A (Grants to States—Part B) and CFDA 84.173 (Preschool Grants Program—619), subject to a restricted indirect cost rate ?
ANSWER:
CFDA 84.027A (Grants to States-Part B) funds that are subgranted to LEAs are covered by the non-supplanting requirement in IDEA section 613(a)(2)(A)(ii) and are therefore subject to restricted indirect cost rates. See also 34 CFR §300.705. CFDA 84.027A (Grants to States—Part B) funds that are reserved for administration and other State level activities under IDEA section 611(e)(1) and (2) may be used without regard to the prohibition on supplanting of funds in IDEA section 612(a)(17)(C). See IDEA section 611(e)(4) and 34 CFR §300.704(d)(2). This means that under CFDA 84.027A, only the expenditures at the local (Local Educational Agency) level are subject to restricted indirect cost rates.
All CFDA 84.173 (Preschool Grants Program—619) funds are subject to the non-supplanting requirement in IDEA section 613(a)(2)(A)(ii) (for subgranted funds) and IDEA section 612(a)(17)(C) (for State-level funds) and are therefore subject to restricted indirect cost rates.
FAQ #19:
Is there a Federal definition for stipends and tuition costs?
ANSWER:
Here are four references that I hope address your needs.
a. One comes from the old Department of Health, Education and Welfare Grants Administration Manual where both stipends and tuition are considered "fixed Federal financing."
B. Indirect costs reimbursement on the following grants will be limited or prohibited as indicated:
1. Indirect Costs will not be reimbursed on:
a. Fellowships and similar awards under which Federal financing is exclusively in the form of fixed amounts or the normal published tuition rate of an institution.
The term "training grant" does not extend to arrangements under which Federal financing is exclusively in the form of scholarships, fellowships, traineeships, or other fixed amounts such as a cost of education allowance or the normal published tuition rates and the fees of an institution. Such arrangements do not provide for the reimbursement of indirect costs.
b. The second from Office of Management and Budget (OMB) Circular A-21, Item G.2, which describes "the distribution basis" for indirect costs.
Equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct costs.
c. OMB Circular A-21, Item J.41 also provides the definition and treatment for "scholarships and student aid costs."
41. SCHOLARSHIPS AND STUDENT AID COSTS
a. Costs of scholarships, fellowships, and other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that
(1) there is s bona fide employer-employee relationship between the student and the institution for the work performed.
(2) the tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work, and
(3) it is the institution's practice to similarly compensate students in nonsponsored as well as sponsored activities.
b. Charges for tuition remission and other forms of compensation paid to students as, or in lieu of, salaries and wages shall be subject to the reporting requirements stipulated [elsewhere] and shall be treated as direct or "Facilities & Administration" cost in accordance with the actual work being performed. Tuition remission may be charged on an average rate basis.
d. OMB Circular A-122 is probably more definitive, even though the intended audience is non-profit organizations. Specifically, the cite at OMB Circular A-122, Attachment –B. Item 34, categorizes stipends and related type costs as "participant support costs." Attachment-A Item D.2(c) explains that the distribution base for indirect cost rate application excludes participant support costs.
34. Participant Support Costs. Participant support costs are direct costs for items such as stipends or subsistence allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with meetings, conferences, symposia, or training projects. These costs are allowable with the prior approval of the awarding agency.
( c ) The distribution base may be total direct costs (excluding capital expenditures and other distorting items, such as major subcontracts or subgrants), direct salaries and wages, or other base that results in an equitable distribution. The distribution base shall generally exclude participant support costs as defined in paragraph 34 of Attachment B.
FAQ #20:
I am assisting a faculty member with an Individuals with Disabilities Education Act (IDEA) grant application. The guidelines note that student costs are no longer subject to indirect costs. I had hoped to find information on the change on the U.S. Department of Education INTERNET site at www.ed.gov, but I'm not having any luck. Can you refer to an announcement or updated policy statement that specifically addresses the change?
ANSWER:
I think they are talking about "student participant support costs" described at Item 34 in Attachment B of Office of Management and Budget (OMB) Circular A-122, Cost Principles for Non-Profit Organizations. Attachment A of the same Circular at Item D.2.C says that you can't apply your indirect cost rate to student participant support costs. Similarly, in OMB Circular A-21, Cost Principles for Educational Institutions, Item G.2, which describes "the distribution basis" for indirect costs, specifically EXCLUDES tuition remission, scholarships and fellowships.
The reason why student costs are no longer subject to indirect costs is that "student participant support" type costs require little if any indirect support. The application of an indirect rate is intended to result in reimbursement only of indirect costs that are actually incurred.
FAQ #21:
This question was asked by personnel administering a new award for a Rehabilitation Research and Training Center (RRTC) under Catalog of Federal Domestic Assistance Number 84.133.
Under the RRTC grant, which has a restricted 15% indirect rate, the grantee has two subcontractors that do not have indirect cost rate agreements with an agency of the federal government. Should the two subcontractors charge the 15% rate being utilized by the prime grantee or should they charge everything directly? The two subcontractors also don't have a Fringe Benefit rate and the RRTC grantee is confused on that since the prime grantee does have a negotiated Fringe Benefit rate included with their indirect rate agreement with the Department of Health and Human Services. Can you give me some guidance?
ANSWER:
With respect to your question, in my opinion, NO, the two subcontractors cannot use the prime grantee's 15% rate, and NO they shouldn't direct charge everything unless they have a direct cost allocation plan approved by the cognizant Federal agency.
Nominally, the subcontractors should already have an indirect cost rate approved by the cognizant Federal agency that provides them with the most DIRECT Federal funding.
If they only receive Federal funds in flow-through fashion, or via subawards, the organization will not have a cognizant Federal agency. Why? The Government only has privity with the prime recipient, who has the fiduciary responsibility for the subcontractor's actions. In that scenario, the prime recipient is also responsible for indirect cost oversight. If this is a restricted rate (supplement not supplant program), subrecipients such as the two subcontractors must also use a restricted indirect cost rate. To make this more simple though, 34 CFR 76.564 (c) (2) would allow the subrecipient to use 8% of modified total direct costs for billing indirect costs in lieu of a negotiated restricted rate. In your case I would recommend that the two subcontractors be limited to an indirect cost rate of eight percent of a Modified Total Direct Cost (MTCD) base. Use of the eight percent rate would be the most expedient approach to your dilemma.
To determine allowability, allocability and reasonableness of the Fringe Benefits proposed and/or charged by the two subcontractors, the prime grantee should consider the Procurement Standards in Subpart C of OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations. Supplementary guidance includes OMB Circular A-122, especially under Attachment B, Item 7( f ), Fringe Benefits and Part 31 of the Federal Acquisition Regulation, especially at 31.205-6(m), Fringe Benefits, as appropriate.
FAQ #22:
This is a question from a grantee.
Our project submitted, as match, the difference between the indirect cost rate we typically charge (26%) and the very low rate (8%) that our Grants and Contracts office actually allowed for this project. This was approved for the coming year, but in retrospect Grants and Contracts wonders if this type of match is allowable.
ANSWER:
The first consideration is: "Did the Grants Office arbitrarily place an 8% cap on indirect claims or was the 8% amount established because the grant is considered a training program pursuant to 34 CFR 75.562?"
If the latter, 34 CFR 75.562 c. (3) goes on to say that indirect costs in excess of the 8% limit may not be used to satisfy matching or cost sharing requirements. Why? Because only allowable costs can be used for those purposes, and for training grants, indirect cost reimbursement above the 8% limit would represent unallowable costs. Another related classic question/answer is: "What is 8% meaning 8% of what?" In this regard, pursuant to 34 CFR 75.562 (c), the 8% rate is applied to a modified total direct cost (MTDC) base not the award amount.
In conclusion, if your grant is considered training and you are using indirect costs above 8% of MTDC for matching, you are doing so in error, and those costs will likely be questioned under audit.
FAQ #23:
Our nonprofit agency is part of a community collaboration that just received a $2.7 million Safe Schools/Healthy Communities grant. The local school board is the prime recipient. A question regarding indirect cost rates has surfaced.
As part of the grant, the school board will contract with four community nonprofit agencies to provide specialized violence and other prevention services in the public schools. Can the nonprofits be reimbursed or paid for their indirect costs if they have a federally approved indirect cost rate? The school board is saying that the grant does NOT permit ANY reimbursement to the nonprofit agencies for indirect costs, that only the school board, as the grant recipient, is entitled to indirect costs.
ANSWER:
Generally, unless the terms of the award bar or limit indirect cost reimbursement, they are part of the cost of doing business and included with overall subaward costs. However, even without specific award restrictions, indirect cost claims are negotiable and the subcontractor could agree to waive or reduce them. Another consideration is if the school board enacted a specific policy providing that only the prime recipient may collect indirect cost reimbursement. In this scenario, it is not the terms of the award that dictate the restriction, but rather a local government policy. The Federal government would not interfere with local school board policy in this instance. In any event, when bids are solicited, the work specifications should spell out that the subcontractor will not be able to claim indirect costs because of either the terms of the award or school board policy. Prospective subcontractors can then make a decision whether to submit or not submit bids.
FAQ #24:
Is a commercial, profit-making college or university subject to OMB Circular A-21, "Cost Principles for Educational Institutions," or is it subject to the cost principles for contracts with commercial organizations at Subpart 31.2 of the Federal Acquisition Regulations (FAR)? Is a commercial, profit-making proprietary school that is not a degree granting institution subject to OMB Circular A-21 or is it subject to the cost principles for contracts with commercial organizations at FAR Subpart 31.2? As a guess, does applicability of A-21 depend upon whether or not an institution does both instruction and research. If the educational institution does instruction, but not research, does this make A-21 inapplicable?
ANSWER:
If a commercial, profit-making college or university submits a U.S. Internal Revenue Service (IRS) form 1120 corporate tax return, it could be subject to the commercial cost principles at Subpart 31.2 of the Federal Acquisition Regulations, under Title 48 of the Code of Federal Regulations.
If a commercial, profit-making proprietary school that is not a degree granting institution submits a U.S. Internal Revenue Service (IRS) form 1120 corporate tax return, it could be subject to the cost principles at FAR Subpart 31.2, "Contracts with Commercial Organizations."
If the organization or institution submits a U.S. Internal Revenue Service (IRS) form 1120 corporate tax return, it could be subject to the commercial cost principles at FAR Subpart 31.2, under Title 48 of the Code of Federal Regulations. Whether or not the organization does research is not relevant. Whether or not the organization does instruction is not relevant. Consider the list of non-profit organizations subject to the commercial cost principles that is appended to OMB Circular A-122, "Cost Principles for Non-Profit Organizations." If the answer to the question "Does the organization run itself like a profit maker?" is "Yes," then the organization could be subject to the commercial cost principles.
FAQ #25:
What is the difference between the "simplified" and direct cost allocation methods for charging indirect costs? How do they affect the use of "rent" as matching?
ANSWER:
Here are 2 general illustrations that apply frequently
to both Nonprofit and small school grantees:
1) Simplified Method
2) Direct
Allocation Method
Under the
"simplified method" everyone is housed in
the same place and benefits from indirect support generally in the same manner.
So their accounting is limited between indirect cost and direct costs. In the
simplified method all rent would be accounted for as indirect.
Conversely, in the "direct allocation method" only general
administration and general expenses make up the indirect costs and all other are
associated with direct activities accordingly by benefit. Indirect rent only
represents space costs which support general and administration activity. Other
rent would be allocated to direct activities and charged out accordingly.
An easy way to distinguish between
the two is to ask the grantee whether they charge all rent as indirect. If the
answer is "yes" then they use the
simplified method and they should not be
able to say "unbilled rent" is available as matching under programs with an 8%
indirect cost limit. If the answer is "no," they might be able to say "unbilled
rent" is available as matching under programs with an 8% indirect cost limit.
