Indirect Cost Rate Proposal for State of Maine Department of Education

1. State of MaineDepartment of EducationLocal Education Agency Indirect Cost Rate ProposalSeptember 30, 2015 Presented by: Nelson Clugston, Vice President Sheri Smith, Principal Consultant nelsonclugston@maximus.comSheriLSmith@maximus.com

2. Presentation Topics • Defining Indirect Costs • Indirect Cost Rates • Types of Costs • LEA ICRP Workbook and Instructions • Data Needed • Let’s Get Started • Implementation • References

3. Defining Indirect Costs • Costs that are “incurred for a common or joint purpose benefiting more than one cost objective, and not directly assignable to cost objectives benefited without effort disproportionate to results achieved.”

4. Indirect Cost Rates % • Unrestricted Rate – Applies to grants not subject to the supplement-not-supplant legislative restriction • Restricted Rate – Applies to grants that are made under federal programs with supplement-not-supplant requirements. Most USDE grants have this clause. • Some costs that are considered to be indirect when calculating the unrestricted rate are “adjusted” to direct costs when calculating the restricted rate • The template being provided will calculate both rates based on the data that you provide when filling in each tab of the workbook. • A listing of restricted rate grants by CFDA number is available as a reference on MDE’s website

5. Types of Rates Predetermined Rate is applicable to a specified current or future period based on an estimate of the costs to be incurred during the period. It is not subject to adjustment Provisional Rates is a temporary rate applicable to a specified period pending the establishment of a final rate for the period Fixed with Carry-Forward Rates is a rate that is adjusted by the difference between the estimated costs and the actual costs of the period covered by the rate. The variance is carried forward as an adjustment to the rate computation of a subsequent period.

6. Carryforward Calculation FY15 Rate based on FY13 Costs FY15 Carryforward Calculation FY15 Actual Indirect Costs $110,000 FY15 Actual Direct Costs $4,500,000 FY15 Indirect Costs Recovered: $4,500,000 * Rate of 2.00% = $90,000 Less Actual Indirect Costs of $110,000 = Under Recovery of $20,000 FY17 Rate based on FY15 Costs FY15 Actual Indirect Costs $110,000 FY15 Under Recovery $ 20,000 Total FY17 Indirect Costs $130,000 Divided by FY15 Actual Direct $4,500,000 FY17 Indirect Cost Rate = 2.89% FY13 Actual Indirect Costs $100,000 FY13 Actual Direct Costs $5,000,000 FY15 Indirect Cost Rate: $100,000/$5,000,000 = 2.00%

7. Life Cycle of Indirect Cost Plans July – November, 2015 Prepare FY 2017 ICRP based on FY 2015 Costs November 30, 2015 Submit FY 2017 ICRP to MDE for review and approval July, 2016 Begin Using New Rates June, 2016 MDE issues FY 2017 ICRP Rate Agreements to LEAs December, 2015 – May, 2016 MDE Reviews and Approves ICRPs

8. Types of Costs • Direct • Indirect • Exclude/Disallow

9. Allowable Costs • Necessary & reasonable for proper & efficient performance of Federal programs • Be allocable to Federal awards under provisions of this Circular • Be authorized & not prohibited by State or local laws or regulations • Conform to limitations imposed by any other Federal FFP regulations • Be consistent with policies that are uniform for both federally assisted & other activities • Be accorded consistent costing treatment • Follow GAAP, unless otherwise prescribed • Not included as match for another Federal program • Be net of all applicable credits To be allowable, costs must meet the following general criteria:

10. Direct Costs • Direct costs are those that can be identified specifically with a particular cost objective. Examples of direct costs are • Compensation of employees who work in the program • Supplies and materials used for the program • Equipment purchased and used for the program • Travel expenses incurred specifically to carry out the program • Function Code Series that would incur direct costs include: • 1000 Instruction • 2100 Support Services-Student • 2200 Support Services-Instruction • 2400 Support Services-School Administration • 2700 Student Transportation • 3100 Child Nutrition Operations • 3200 Enterprise Operations • 3300 Community Services Operations

11. Indirect Costs • Indirect costs are those that are incurred for a common or joint purpose benefiting more than one cost object. In addition, indirect costs cannot be readily identified as benefiting a particular cost objective. Examples of indirect costs include the salaries and expenses for the following: • Data Processing • Accounting • Personnel • Purchasing

12. Indirect Cost, cont’d. Within the MDE LEA Chart of Accounts, the following function number series have been identified as potentially having indirect costs: • 2310 Board of Education • 2317 Board of Education-Audit Services • 2318 Board of Education-Legal Services • 2321 Office of the Superintendent • 2323 State and Federal Relations • 2510 Fiscal Services • 2520 Purchasing, Warehousing and Distributing • 2560 Public Information Services • 2570 Personnel Services • 2580 Administrative Technology Services • 2600 Utilities • 2610 Building Care & Operations • 2620 Building Maintenance • 2630 Grounds • 2640 Equipment • 2650 Vehicles (other than Student Transportation • 2660 Security • 2670 Safety

13. Unallowable Costs - Examples • Bad Debts • Capital Outlay • Contributions • Entertainment • Legislative & most Judicial Costs • Contributions to Reserve Funds • Research & Development Costs • Fines & Penalties • Alcoholic Beverages • Lobbying • Idle Facilities

14. Data Needed • Expenditure Report that includes total costs, regardless of funding source • Audited Financial Statements • Table of Organization • Square Footage by Indirect and Direct Service Areas • Listing of Direct Service SubContracts and SubAwards that exceed $25,000 • Wages, Benefits and other Costs related to Central Service Departments that will be adjusted for the restricted rate • Paid Leave Balance Pay-Out at Termination by Employee, Fund and Department

15. Steps • Determine Total Expenditures • Identify Unallowable and Excluded Costs • Determine Direct Costs • Determine Indirect Costs • Reconcile Proposal to Financial Statements • Select the Distribution Base • Compute the Indirect Cost Rates

16. LEA ICRP Workbook Layout The first six tabs are documents that are required to be submitted as shown in the Cost Allocation Guide for State and Local Governments published by USDE. They include: • Schedule of Expenditures-Unrestricted Rate • Schedule of Expenditures-Restricted Rate • Calculation of Indirect Cost Rate-Restricted Rate • Fixed Rate with Carry-Forward Adjustment-Unrestricted Rate • Fixed Rate with Carry-Forward Adjustment-Restricted Rate • Restricted Rate Subsidiary Schedule-Restricted Rate • Certificate of Indirect Costs

17. LEA ICRP Workbook Layout, continued Schedules A through E and Attachments 1 and 2 are supporting documents that provide necessary details for preparation of the required documents at the front of the workbook. They include: • Schedule A-Schedule of Subcontracts • Schedule B-Unallowed and Excluded Costs • Schedule C-Square Footage by Building • Schedule D-Paid Leave by Department • Schedule E-Restricted Rate Adjustments • Attachment 1-Federal Funds by Function Number • Attachment 2-State & Local Funds by Function Number

18. LEA ICRP Workbook Instructions MDE has also provided a detailed instruction booklet to assist in preparation of the ICRP workbook. The workbook includes: • Introduction • Indirect Cost Rate Information • Approval Process • Classification of Costs • Rate Types • ICR Calculation Methodology (step by step instructions) • LEA Application of Indirect Cost Rates

19. Let’s Get Started! Things You Will Need • Detailed expenditure report for all funds by fund and function* • Audited Financial Statements *If you can roll up expenditures to the 2-digit function level, it will save you time: (2100, 2200, 2300, etc.) Things You Will Use • LEA ICRP Workbook Template • LEA ICRP Instruction Booklet

20. MDE LEA Template and Instructions The Maine Department of Education has contracted with MAXIMUS Consulting Services, Inc. to prepare, a template and instructions to be used by the State’s LEAs that will calculate both restricted and unrestricted indirect cost rates that meet the standards set by the U. S. Department of Education. The template and instructions can be located at: http://www.maine.gov/education/audit/indirectcostrate.shtml

21. Schedule of Expenditures – Unrestricted Rate Don’t be intimidated by the first worksheet! We’ll begin with the first column only.

22. Using your expenditure report, enter the total cost of Function 1000 Instruction paid by the General Fund in the first yellow cell. • In the next cell, enter the total General Fund cost of Function 21XX Support Services-Student • Function 21XX includes the total of all costs for general fund function numbers that begin with “21..” • If you are unable to roll your financial data up to this level, simply add each “21” function cost within the cell. • Continue in this manner for each function number listed until all General Fund expenditures have been accurately entered. • Check to be sure the Total in Cell C33 equals the Total General Fund Expenditures from your audited financial report. Total Sub-recipient Expenditures (Cell C33) = Total Audited General Fund Expenditures

23. Att 2 State & Local Recap

24. Att 2 State & Local Recap This schedule will calculate the state and local fund expenditures by function number. It will also enter the amounts on the first tab “Schedule of Expenditures-Unrestricted Rate” in Column D “State Grants, Local Funds”. Enter the first state or local fund number from the expenditure report in Column A. Enter the expenditures under the appropriate function number, adding duplicate function numbers together as necessary.

25. Att 1 Fed Funds Recap Go to the second-last tab in the workbook, “Att 1 Fed Funds Recap”. Repeat the steps from Att 2 State & Local Recap using the LEA’s federal funds rather than state and local funds. Once these number have tied to the audited federal expenditures, the amounts will carry forward to Column E on the Schedule of Expenditures-Unrestricted Rate. Congratulations! Remember to save your work!

26. Next, enter costs you may have in the appropriate function number box for the LEA’s Capital Project Funds, Enterprise Funds, Internal Service Funds, Trust and Agency Funds on the Schedule of Expenditures-Unrestricted Rate (Tab 1). Be sure each column balances to the audited expenditures. Note: You may enter the amounts that you are tying to (from the audit) on Row 35. Row 36 will calculate any variance to assist you in balancing.

27. Tab 1 should look like this – except there should be numbers in the cells in columns with yellow cells, and your LEA name in the corner. All other cells will fill in when you complete other worksheets in the workbook. Congratulations! You are done with Tab 1

28. Excluded and Disallowed Costs Go to Schedule B toward the end of the workbook where we will begin to enter excluded and disallowed costs. The costs on Schedule B will flow forward to the Schedule of Expenditures, Columns 2 and 3 for Unallowed and Excluded costs.

29. Schedule B-Unallowed and Excluded Costs

30. Specific Guidelines-Excluded Costs Object Number Series • 342X Architect, Engineer, Projects • 3450 Legal • 5400 Advertising • 6300 Food • 6800 Construction Supplies • 7200 Buildings • 7300 Equipment • 8200 Judgments • 8300 Debt Service • 9000 Other Uses of Funds Fund Code Series 3000 Capital Projects 7000 Internal Service

31. Specific Guidelines-Unallowable Costs • Bad Debts • Fines • Penalties • Contingencies • Entertainment • Contributions to other organizations Unallowable Costs can not be charged to federal funds. They will be added back to the base to calculate the rate. They include:

32. SubContracts & SubAwards All data entered on Schedule B so far has been pulled from the expenditure report EXCEPT SubContract Payments > $25,000 The data for this column will be generated from the Sch A SubContracts tab

33. Subcontracts & Subawards Subrecipient entity receives funds from a prime recipient to carry out a portion of a program via • Contract • Grant • Other Agreement Include on Schedule A if: • Expenditure > $25,000 • Expenditure is a program/direct cost • Entity works independently and is responsible for decision making

34. Key to determining whether to include a contract on Schedule A The concept for excluding all of the cost except the first $25,000 of these subcontracts/subawards is that the contract is not receiving the same level of administrative/indirect cost support as the program would if it was being operated in-house. For example, a program being operated independently at an external location will not benefit from the Accounting, HR, Facilities and IT services to the extent that it would if the LEA housed and staffed the program.

35. Schedule A Preparation • After a thorough review of SubContracts, enter the following information on Schedule A Schedule of Subcontracts for each Department • Function number that incurred the expense* • Object Code that incurred the expense* • Vendor Name* • Original SubContract amount • Period of Performance • Current fiscal year expenditure* • *Required Data

36. Excluded SubContracts Schedule A-SubContracts Schedule B-Excluded Costs Enter the total exclusion amount by function number from Schedule A-SubContracts in the appropriate cell in Column O-SubContract Payments>$25,000 Sch B Total in Row 31 for Column O = Sch A Total in Row 41 for Column I • Total the amounts in Column I-Contract payments in excess of $25,000 for each function number • Enter the amount by function number on Schedule B This step is a lot of work, but it decreases the base, which increases the rate, which means more $$ for your LEA!

37. Schedule C-Square Footage by Building

38. Calculate % of total square footage occupied by “indirect” departments ABC SchoolStreet, City, MESquare Footage* *List the square footage occupied by each of the indirect departments listed in columns D through J in “ABC School” Enter the occupied square footage for direct departments (all other space) in Column K Repeat for the next six schools/buildings If the LEA has more than 7 buildings, enter the totals for all other buildings in the row for “All Other”

39. Schedule D-Paid Leave by Department

40. Schedule D-Paid Leave by Department • All leave payments made to terminating employees is required to be an indirect cost • This schedule identifies each original leave payment as direct or indirect • The only staff members who are different for the restricted rate than for the unrestricted rate are those adjusted on Schedule E • The worksheet will calculate any adjustment and carry it to the appropriate schedules

41. Schedule E Restricted Rate Adjustments

42. Schedule E-Restricted Rate Adjustments When calculating a restricted indirect cost rate, “General Management Costs” does not include expenditures for: The governing body (members of the board of education) of the grantee (Function 2310); Compensation of the chief executive officer (superintendent of a school district) of the grantee (Function 2321) and heads of component offices; Compensation of the chief fiscal officer* (treasurer of a school district) of the grantee (Function 2510); and The operation of the immediate offices of these officers

43. Column A-Schedule EDepartment on Table of Organization Schedule E Identifies indirect costs for the unrestricted rate. Identifies adjustments for the restricted rate. Column A – Enter where each employee can be located on the LEA’s Organizational Chart For example, each board member is most likely located in the same place on the T/O. However, there may be employees in Fiscal Services that are located in different places on the T/O. Each employee needs to be located on the T/O. ______________2310 - Board Services ______________2321 - Office of the Superintendent ______________2323 – State and Federal Relations

44. Schedule E Unrestricted Salaries & Benefits

45. Expenditure Report Example Function 2510 – Fiscal Services FY15 Expenditures 1000 Salaries $125,000 2000 Benefits $ 19,000 3000 Supplies $ 4,000 4000 Travel $ 500 7000 Equipment $ 7,000 2510-Total Expenditures $155,500

46. Schedule E-Adjust Salaries & Benefits for Restricted Rate

47. Schedule E-Other Costs

48. Schedule E-Fiscal Services Example Completed

49. Schedule E – Other Notes • Insert additional rows as needed • Be sure to copy formula cells when adding rows • All Facilities indirect costs are the total cost times the rate calculated on Schedule C • Indirect Costs from the Restr Adj flow forward to the Schedules of Expenditures for the Unrestricted and Restricted Rates as appropriate

50. Certification • Once the LEA has completed the ICRP, the Certification must be signed by a staff member who has the authority to bind the LEA, normally at the Treasurer’s position or above. • The certification assures that • the costs are allowable and that unallowable costs have been adjusted • Costs that have been treated as indirect costs have not been also claimed as direct costs • Similar types of costs have been accounted for consistently • MDE will be notified of any accounting changes that would affect the rate