Federal Transit Administration

Federal Transit Administration Direct and Indirect Cost Essentials

Hierarchy of Laws & Regulations Federal • U.S. Constitution • Legislation/US Code • Presidential Executive Orders • Federal Agency Regulations: • Code of Federal Regulations (CFR) • OMB Circulars • Agency Circulars 5. Stewardship Agreements, Grant Agreements State Local

Governing Regulations for Indirect Costs • Common Rule – 49 CFR Part 18 • 49 CFR Part 19 • OMB Circular A-122 • 2 CFR 225 (Formerly OMB A-87) • FTA Circular 6100.1D • FAR Part 31

Common Rule – 49 CFR Part 18 Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

49 CFR Part 19 Uniform Administrative Requirements For Grants And Agreements With Institutions Of Higher Education, Hospitals, And Other Non-Profit Organizations

OMB Circular A-122 Cost Principles for Non-Profit Organizations

2 CFR 225 Cost Principles for State, Local and Indian Tribal Governments

FTA Circular 6100.1DChapter V Financial Management Requirements

FAR Part 31 Contract Cost Principles and Procedures

In accordance with 2 CFR 225 Costs must be: • Allowable • Allocable • Reasonable

Reasonable Costs A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.

Allocable Costs A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received.

Allowable Costs • Necessary and Reasonable • Authorized or not prohibited • Conform to any limitation or exclusion • Be consistent with policies and regulations • Be treated consistently through GAAP • Not be included as a cost of any other federally financed program • Be net of all applicable credits

Allowability of Costs Examples • Advisory councils. Costs incurred by advisory councils or committees are allowable as a direct cost where authorized by the Federal awarding agency or as an indirect cost where allocable to Federal awards. • Alcoholic beverages. Costs of alcoholic beverages are unallowable. Definitions from 2 CFR 225 Appendix B

Financial Management System Appropriate internal controls • Consistent handling of costs • Appropriate documentation: Cancelled checks, paid bills, payrolls, time and attendance records, etc. • Efficient and Economical Operations • Cost control: Expenditure levels, appropriate assignment of cost • Safeguard assets • Accuracy in reporting

Direct Costs Direct Costs are those that can be identified specifically with a final cost objective

Indirect (Allocated) Costs Indirect costs are those: (a) incurred for a common or joint purpose benefitting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.

Indirect Cost Allocation Plan • Written Plan Description • Signed Certification • Schedule of costs

Example – Schedule of Costs

Need for an ICAP In accordance with 2 CFR 225 – you can only be reimbursed for indirect costs if you have an approved ICAP. An ICAP is not needed for an entity that only bills direct costs – but remember – allocated costs are indirect costs.

Features/Aspects of an ICAP • Basis is clearly identified (usually direct labor) • Same basis used to calculate the rate is also used to bill indirect cost • Same basis is applied consistently to all indirect costs • The calculations are organization-wide; should tie to Single Audit expenditure figures.

Types of Cost Allocation Plans Fixed Rate with carry forward • Calculated rate based on prior-period incurred costs • Adjusted after-the-fact via a carry forward of the variance Predetermined Rate Provisional Rate Final Rate

Contact Information Mary Ann Roder 602-712-4848 mroder@azdot.gov Scott Olson 602-712-8537 solson2@azdot.gov George Delgado 602-712-8239 gdelgado@azdot.gov

Federal Transit Administration