2007 FAMILY PLANNING Project Director’s Conference November 13, 2007 Overview of DSHS Contractor’s Cost Allocation Plan

1. 2007 FAMILY PLANNING Project Director’s Conference November 13, 2007 Overview of DSHS Contractor’s Cost Allocation Plan

2. Cost Allocation Plan Components • Allocation of costs among multiple funding sources • Method for charging salaries and wages • Direct cost allocation plans • Indirect cost allocation plan

3. Allocation of Costs Among Multiple Funding Sources

4. U. S. Department of Health &Human ServicesHHS Grants Policy Statementhttp://www.hhs.gov/grantsnet/docs/HHSGPS_107.doc Part II-45 ALLOCATION OF COSTS (When work is closely related)

5. ALLOCATION OF COSTS WHEN WORK IS CLOSELY RELATED When salaries or other activities are supported by two or more sources, issues arise as to how the direct costs should be allocated among the sources of support. In general, a cost that benefits two or more projects or activities in proportions that can be determined without undue effort or cost should be allocated to the projects on the basis of the proportional benefit. Source: HHS Grants Policy Statements

6. ALLOCATION OF COSTS WHEN WORK IS CLOSELY RELATED A cost that benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved may be allocated or transferred to the benefiting projects on any reasonable basis… Costs may be assigned entirely to one project, with written prior approval from the GMO, under the following conditions only:Source: HHS Grants Policy Statements

7. ALLOCATION OF COSTS WHEN WORK IS CLOSELY RELATED 1. The projects are scientifically and technically related.2. The projects are under the direction of the same PI/PD.3. The projects have been funded by the same OPDIV or OPDIV component.4. There is no change in the scope of the individual grants involved.5. The relating of costs will not be detrimental to the conduct of work approved under each individual award.6. The relatedness will not be used to circumvent the terms and conditions of an individual award. Source: HHS Grants Policy Statements

8. DSHS Contractor’s Financial Procedures Manual (CFPM)Section 7.01.05 Shared Costs Costs that are readily assignable to a specific cost objective that is funded by more than one funding source are referred to as shared costs. Costs allocable to that cost objective would be allowable under any of the funding sources contracts.

9. Section 7.01.05 Shared Costs(continued) When the cost of a DSHS funded activity is also supported by other funding sources or another DSHS program attachment, issues arise as to how the direct costs and indirect costs should be allocated among the sources of support. If the proportion that shared direct costs benefit each funding source can be determined, they should be allocated to each funding source on the basis of the proportional benefit. If cost benefit proportions cannot be determined, the shared direct costs and indirect costs should be allocated in proportion to the amount of funding specified in the contract of each funding source.

10. Section 7.01.05 Shared Costs(continued) In this case there is a distinction between cost allocation and funding allocation in that a cost objective within the organization is funded by two or more funding sources. Allocating costs based on funding is acceptable only after the cost has been directly charged or allocated to the cost objective using one of the allocation plans described under Section 7.01 - Types of Cost Allocations. If a contractor wishes to allocate costs (normally allocable to multiple funding sources) in disproportionate amounts to a DSHS program attachment, the contractor must obtain prior written approval from DSHS or the other funding source(s).

11. Method for Charging Salaries and Wages

12. Support of salaries and wages. These standards regarding time distribution are in addition to the standards for payroll documentation. (3) Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee.Source: OMB Circular A-87

13. (4) Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets the standards in subsection (5) unless a statistical sampling system (see subsection (6)) or other substitute system has been approved by the cognizant Federal agency. Source: OMB Circular A-87

14. 5) Personnel activity reports or equivalent documentation must meet the following standards: (a) They must reflect an after the fact distribution of the actual activity of each employee, (b) They must account for the total activity for which each employee is compensated, (c) They must be prepared at least monthly and must coincide with one or more pay periods, and (d) They must be signed by the employee. (e) Budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards but may be used for interim accounting purposes Source: OMB Circular A-87

15. (6) Substitute systems for allocating salaries and wages to Federal awards may be used in place of activity reports. These systems are subject to approval if required by the cognizant agency. Such systems may include, but are not limited to, random moment sampling, case counts, or other quantifiable measures of employee effort. Source: OMB Circular A-87

16. m. Support of salaries and wages. (1) Charges to awards for salaries and wages, whether treated as direct costs or indirect costs, will be based on documented payrolls approved by a responsible official(s) of the organization. The distribution of salaries and wages to awards must be supported by personnel activity reports, as prescribed in subparagraph (2), except when a substitute system has been approved in writing by the cognizant agency. (See subparagraph E.2 of Attachment A.)Source: OMB Circular A-122

17. (2) Reports reflecting the distribution of activity of each employee must be maintained for all staff members (professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to awards. In addition, in order to support the allocation of indirect costs, such reports must also be maintained for other employees whose work involves two or more functions or activities if a distribution of their compensation between such functions or activities is needed in the determination of the organization's indirect cost rate(s) (e.g., an employee engaged part-time in indirect cost activities and part-time in a direct function). Reports maintained by non-profit organizations to satisfy these requirements must meet the following standards:Source: OMB Circular A-122

18. (a) The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards.(b) Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization.(c) The reports must be signed by the individual employee, or by a responsible supervisory official having first hand knowledge of the activities performed by the employee, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports.(d) The reports must be prepared at least monthly and must coincide with one or more pay periods. Source: OMB Circular A-122

19. ASMB C-10 Implementation Guide for OMB Circular A-87http://www.knownet.hhs.gov/policy/policy/c10/asmb_c-10.htm 3-23 Can the results of an acceptable statistical sampling method or time and effort reporting covering one period of time be applied to a different period, e.g., a prior quarter? [Att. B, ¶ 11.h(5)(c)] Source: ASMB C-10 (A-87 Implementation Guide)

20. No. The results of a specific period represents the values experienced during that period only. Attachment B, paragraph 11.h(5)(c) requires that time and effort reporting coincide with one or more pay periods. Therefore, retroactive application of such results, whether they are statistically based or effort reporting, is unacceptable. However, prior period actuals may be used as estimates for applying costs in a future period, provided that the estimates are adjusted back to actual effort for that period when claimed for reimbursement.Source: ASMB C-10 (A-87 Implementation Guide)

21. 3-16 Attachment B, paragraph 11.h establishes acceptable standards for a personnel activity reporting (PAR) system. One standard requires an employee signature when working on multiple activities. If a government component maintains anADP on-line PAR system which is fully computerized and paperless, would a "digital signature" (occurring when an employee logs on to the PAR system witha logon ID and a secret password) constitute an acceptable alternative to an employee signature? [Att. B, ¶ 11.h]Source: ASMB C-10 (A-87 Implementation Guide)

22. As long as the governmental unit can demonstrate and document that only the employees' actions would result in the identification of the activities to be charged, and that it complies with the other criteria in Attachment B, paragraph 11.h(5), theprocedure would be acceptable.Source: ASMB C-10 (A-87 Implementation Guide)

23. Direct Cost Allocation Plans

24. Direct costs are those that can be identified specifically with a particular final cost objective, i.e., a particular award, project, service, or other direct activity of an organization. However, a cost may not be assigned to an award as a direct cost if any other cost incurred for the same purpose, in like circumstance, has been allocated to an award as an indirect cost. Costs identified specifically with awards are direct costs of the awards and are to be assigned directly thereto. Costs identified specifically with other final cost objectives of the organization are direct costs of those cost objectives and are not to be assigned to other awards directly or indirectly.Source: OMB Circular A-122

25. Section 6.01.01 Direct CostsDirect costs are those that can be identified specifically with a particular final cost objective of the organization. Direct costs charged to a DSHS program attachment are those costs attributable in carrying out the program attachment’s Statement of Work as specified in the contract and can be directly assigned relatively easily with a high degree of accuracy.Source: DSHS Contractor’s Financial Procedures Manual

26. 4. Direct allocation method.Some non-profit organizations treat all costs as direct costs except general administration and general expenses. These organizations generally separate their costs into three basic categories: (i) General administration and general expenses, (ii) fundraising, and (iii) other direct functions (including projects performed under Federal awards). Joint costs, such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are prorated individually as direct costs to each category and to each award or other activity using a base most appropriate to the particular cost being prorated.Source: OMB Circular A-122

27. Section 7.01.01 Direct Cost Allocation OMB Circular A-122 permits the use of a direct cost allocation method for non-profit organizations. DSHS will accept direct cost allocation plans submitted by governmental entities if the circumstances warrant the need for a direct cost allocation plan.Source: DSHS Contractor’s Financial Procedures Manual

28. A determining factor in deciding whether a cost can be allocated using a direct cost allocation plan is the allocation base and the type of cost. The base must accurately measure the degree of benefit derived by each cost objective and must remain constant. For example, facility related costs could be allocated with a high degree of accuracy to each cost objective in proportion to the square footage occupied by the cost objective. The square footage occupied by a cost objective should remain fairly constant over a period of time. The types of costs allocated under a direct cost allocation plan are typically referred to as joint costs. They can be allocated and charged directly to the general ledger (at the transaction level) through the accounts payable application at the time of payment. However, cost pools may be used for some categories of allocable direct costs for periodic allocation to benefited cost objectives. Source: DSHS Contractor’s Financial Procedures Manual

29. Direct costs that are allocated to a final cost objective (DSHS program attachment) using a direct cost allocation plan should be reported under the proper direct cost category on the Financial Status Report (FSR). Likewise, these costs should be classified and recorded in the appropriate general ledger account under the final cost objective. For example, building rental costs should be recorded in the general ledger under a general ledger account for “Rent” and reported on the FSR under the “Other” budget/expense category.Source: DSHS Contractor’s Financial Procedures Manual

30. Indirect Cost Allocation Plan

31. C. Indirect Costs1. Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. Direct cost of minor amounts may be treated as indirect costs under the conditions described in subparagraph B.2. After direct costs have been determined and assigned directly to awards or other work as appropriate, indirect costs are those remaining to be allocated to benefiting cost objectives. A cost may not be allocated to an award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to an award as a direct cost.Source: OMB Circular A-122

32. 2. Because of the diverse characteristics and accounting practices of non-profit organizations, it is not possible to specify the types of cost which may be classified as indirect cost in all situations. However, typical examples of indirect cost for many non-profit organizations may include depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.Source: OMB Circular A-122

33. 3. Indirect costs shall be classified within two broad categories: "Facilities" and "Administration." "Facilities" is defined as depreciation and use allowances on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses. "Administration" is defined as general administration and general expenses such as the director's office, accounting, personnel, library expenses and all other types of expenditures not listed specifically under one of the subcategories of "Facilities" (including cross allocations from other pools, where applicable). Source: OMB Circular A-122

34. No cost allocation plan or indirect cost rate shall be approved by the Federal Government, state single audit coordinating agency or other agency designated by the governor’s office, unless the plan or rate proposal has been certified. Source: State of Texas, Uniform Grants Management Standards

35. Indirect CostsLocal Governments • Indirect Cost Rate Agreement approved by a Federal cognizant agency or a state single audit coordinating agency • Indirect cost rate proposal • Indirect cost allocation plan • Central service costs

36. Indirect CostsNon-profit Organizations • Indirect Cost Rate Agreement approved by a Federal cognizant agency or a state single audit coordinating agency • Indirect cost allocation plan

37. DSHS Contract Oversight & Support Section Web Site http://www.dshs.state.tx.us/contracts/ Contractor’s Financial Procedures Manual E-mail Addresses Technical Assistance: COSta@dshs.state.tx.us Cost Allocation Plan: COScap@dshs.state.tx.us Property/Equipment: COSequip@dshs.state.tx.us

38. CONTRACT OVERSIGHT AND SUPPORTFinancial Technical Assistance GroupContractor Assignments by Alphabet(cities are assigned by city name, not “City of”)(512) 458-7111 or 1-888-963-7111 A,B,W Paul Harris x 2516 C,D Sal Malone x 2434 E,F,G,R,Y,Z Tom Hill x 2565 H,I,J,K,L,V Dorothy Spurgers x 2255 M,N,O,P Paula Daniels x 6202 Q,S,T,U Heidi Tetz x 6937 Robert Vitek x2326