2/11/2014OAS Indirect Cost Recovery (ICR) Policy and Procedures (Ver. 1)1 SECRETARIAT FOR...

04/10/23 OAS Indirect Cost Recovery (ICR) Policy and Procedures (Ver. 1) 1

SECRETARIAT FOR ADMINISTRATION AND FINANCESEPTEMBER 2007

Ver. 2

ICR 101

Indirect Cost Recovery (ICR) Policy and Procedures

04/10/23 OAS Indirect Cost Recovery (ICR) Policy and Procedures 2

IOverview


What is ICR?

■ Indirect cost recovery is about project management. It’s about full

costing of all project resources, allowing proper identification of hidden

or omitted costs.

■ It’s a mechanism to partially recover GS/OAS costs incurred in the

administration of grants (incremental costs of human resources, audits,

financial transactions, office space, procurement, etc).

■ Well established organizations must recognize the full cost of their

activities to enable informed decisions, and must partially recover these

costs.

■ ICR is not a new concept; it’s an industry standard in the public sector.


What is ICR? (continued . . .)

■ For example, PAHO has an average ICR rate or Program Support

Cost (PSC) of 13%. Other examples: United Nations and World

Bank.

But what do these three organizations have in common with

the OAS?

■ They are all international public organizations with common

mandates that are financed through both Regular (e.g. quotas)

and Specific Funds (e.g. voluntary contributions).


Why do these organizations need to recover indirect costs if they count with a Regular Fund?

■ Most Regular Fund budgets partially cover indirect costs (e.g.

basic operational costs and infrastructure).

■ However, these organizations have increasing mandates financed

through Specific Funds, with limited or no increase in their

Regular Fund budgets.

■ This means that incremental Specific Funds have a heavy impact

on static Regular Fund budgets.

■ Thus, a mechanism to partially recover the incremental costs on

basic operations and infrastructure is needed.


How does this translate to the OAS?

Regular Fund Program-Budget versus Specific Funds Contributions(in millions of USD)

-

20.0

40.0

60.0

80.0

100.0

120.0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Specific Funds(incremental indirect costs)

Regular Fund(includes basic indirect costs) Trend line for Specific Funds


How does this translate to the OAS? (continued . . .)

■ The OAS conducted an institutional study of indirect costs for fiscal

year 2005, independent of source of financing.

■ The study concluded that the institutional indirect cost to execute

$1 was approximately $0.50.

■ In other words, at the OAS, approximately $0.50 is spent in indirect

costs for every $1 executed in direct costs.

■ Thus, the ICR rate to recover indirect costs in full would have to be

approximately 50%; however, this is unrealistic to attain.


How does this translate to the OAS? (continued . . .)

■ The new OAS ICR policy aims to recover some of these costs by

establishing a mandatory minimum of 11% ICR rate.

■ By recovering at least 11% in indirect costs, the impact on basic

operations and infrastructure is reduced from current 50%.

■ Ideally, all of this recovery needs to be in cash rather than in-kind.

Prior approval for accepting in-kind indirect contributions (as ICR)

from SAF and DPCE is required.


How is the ICR allocated?

■ For 2007-08, ICR collected will de allocated as follows:

Technical Areas

(indirect costs)

ICR =Central

Administration(indirect costs)

Regular Fund Reimbursement

($2.5 million)

+ +

FAQ: What is the allocation percentage to each one?

Answer: There is no definite percentage. All areas have to prepare justified indirect cost requirements.

FAQ: Why pay back the Regular Fund?

Answer: To partially reimburse the Regular Fund for basic operational costs and infrastructure provided.


IIICR Policy Details


There are no major operational changes:

■ Primary Dependencies continue negotiating agreements with donors, including ICR.

■ Indirect costs incurred within the General Secretariat will continue to be covered.

The new policy is based on:

■ Article 80 of General Standards, Executive Order 07-01, and Administrative memo (to be issued shortly).

ICR Policy details


ICR Policy details (continued…)

■ Specific Fund contributions must include a provision for ICR.

▪ Agreements with Member states require 11% minimum ICR

▪ Agreements with all other donors require 12% minimum ICR

■ Exemptions may be found under Article 80 of the General Standards.

■ Interest income will be credited to the ICR Service Account, unless otherwise specified in the donor agreement.

■ Donor in-kind contributions (indirect cost only) may be accepted to defray indirect costs.

Committee on Administrative Matters (CAM)

■ Established through Administrative Memorandum “ICR Policy”.

■ Entrusted to oversee the ICR application as established in the ICR Policy.

■ Presided by SAF and integrated with representatives from DPCE, OIG and designated administrative personnel from Primary Dependencies.

■ CAM, through SAF, will submit all recommendations regarding coverage of indirect costs to the Chief of Staff for approval.



Accounting for ICR in OASES

■ All ICR collections are centrally recorded in a new service account: Fund 610.

■ An Unprogrammed AWARD/PROJECT is established to record ICR revenue from donors’ contributions.

■ An award is created for each primary dependency. A project is created for each secondary dependency. ICR is allocated to these awards/projects based on agreed-upon indirect costs.

■ Indirect costs are disassociated from individual ICR collections. The purpose is to assure that eligible indirect costs are covered.

Primary Dependency (PD): executive Secretariats of the OAS.

Secondary Dependency (SD): departments or offices under the Primary Dependencies.


ICR allocation process

ICR allocation will be based on:

■ Availability and projections of Specific Funds.

■ Indirect cost requirements within the General Secretariat (central administration and technical areas).

■ $2.5M Regular Fund Program-Budget 2007 requirement.


ICR allocation process

LEGEND

Budget template provided by SAF

Approval by...

SAF Secretariat for Administration and Finance

CAM Committee on Administrative Matters

PD Primary Dependency (eg. Multidimensional Security, Secretariat for

Political Affairs)

SD Secondary Dependency (eg. CICAD)

PD

SD prepares semi-annual requirement of indirect

costJul – Dec 07

PD reviews and approves requirements prepared by

each SP

CAM

CAM compiles and analyzes

PD’s requirements

CAM oversees application of ICR policy. Submits ICR utilization to

Chief of Staff

CAMSAF allocates ICR to dependencies

within ICR Service Account


Summarized ICR cycle

SummarizedICR Cycle

1

3

5

6

2

Project budget proposalProposal presented by Technical Area and reviewed by SAF to include 11% or 12% ICR

OASES Grant SetupSAF records ICR as project expenditure and records revenue to ICR Service Account (610) (unprogrammed)

I CR allocation to PDs(independent of I CR collections)SAF allocates ICR to PD's award/project within ICR Service Account (610)

4

I CR funds are expendedPDs and SDs enter requisitions to cover indirect cost requirements

Periodic reportsExceptions are disclosed, annual review of ICR cycle and lessons learned

I CR allocation to Regular FundSAF transfers ICR funds to Regular Fund ($2.5 million)

Advantages of the new ICR policy

After the transition period (end of 2008), the new ICR policy will allow GS/OAS to:

■ Move towards a refined costing system.

■ Better identify and measure costs.

■ Focus on individual activities.

■ Allow better classification of costs.

■ Transparency and accountability.

■ Move towards Results Based Activity



ANNEXESGlossary and FAQs

Glossary

■ Direct Costs: costs that can be attributed to a particular activity with a high degree of accuracy.

■ Indirect Costs: costs that are incurred for a common purpose which cannot be easily attributed to a particular activity.

■ Indirect Cost Recovery (ICR): recovery of costs that cannot be directly linked to specific projects, although incurred by the General Secretariat in the administration of contributions/grants and within the Central Administration.


Annex ADifference between direct and indirect costs

DE C IS ION C HAR T: IS IT A DIR E C T OR AN INDIR E C T C OS T?

Q1: Would the cost exis t if the project did

not?DIR E C T C OS TNO

Q2: C an the cost be linked and/or pro-

rated to a particular activity of the

project?

DIR E C T C OS TY E S

Y E S

NO (Due to the c omplexity of the work performed)

INDIR E C T C OS T


Annex A (continued . . .)Difference between direct and indirect costs

E XAMP L E OF A DIR E C T C OS T

A program specialis t manages 3 projects (X , Y and Z ) for an annual cost to the O AS of $100 thousand. His or her timecan be pro-rated in 3 equal parts to different activities within one or more projects .

Q1: Would the cost still exis t if one of the projects did not? Y E SQ2: C an the cost be linked and/or pro-rated to a paticular activity of a project? Y E S

Note: As a direct cost, his/her salary should be pro-rated to each of the project budgets .

E XAMP L E OF AN INDIR E C T C OS T

An adminis trative ass is tant supports an array of 15 projects for an annual cost to the O AS of $100 thousand. His or hertime cannot be eas ily pro-rated to the activities within the different projects .

Q1: Would the cost still exis t if at least 5 of the 15 projects did not? Y E SQ2: C an the cost be linked and/or pro-rated to a paticular activity of a project? NO

Note: As an indirect cost, his/her salary should be costed within IC R S ervice Account (F und 610).


Annex BInterest accreditation


DE C IS ION C HAR T: WHAT IS THE P OL IC Y ON INTE R E S T E AR NE D AND ITS US E ON IC R ?

Q1: Is the contribution contemplating the minimum

IC R rate?

Interes t earned is c redited to IC R S ervic e Ac c ount (F und 610) to partially

defray indirec t c os ts .NO

Q2: Does the donor agreement contain an explicit claus e requiring either return

of interes t to donor or project?

NO

Y E S

Y E S

Interes t earned is c redited to AWAR D/P R OJ E C T and returned to

donor, if s o required.

Interes t earned is c redited to IC R S ervic e Ac c ount (F und 610) to partially

defray indirec t c os ts .

Annex CIn-kind contributions


P R INC IP L E S

►►

►

►

►

E XAMP L E OF AN OAS IN-K IND C ONTR IB UTION

A program specialis t manages 3 different projects (X , Y and Z ) for an annual cost to the OAS R eg ular F und of$100 thousand. His or her time is pro-rated and budgeted to each project as O AS in-kind contributions.

P roject % of total time allocatedE s timated OAS in-kind

contribution

X 20 20,000$ Y 30 30,000 Z 50 50,000

100,000$

In-kind contributions may be associated to a direct or indirect cost of a particular project.

In-kind contributions form an integral part of the project costing process and should be included in budgets .In-kind contributions are non-cash contributions to S pecific F und P rojects which can be ass igned a monetary value.T he monetary value of each in-kind contribution should be equivalent to the cost the O AS would have incurred in the project had it not received the benefit.In-kind contributions to a project are contributed by the O AS and/or a donor.

Annex DICR calculation in project budgets


T otal cos t

OAS in-kind Member s tate P erm. Obs erver

(A = B + C + D) (B ) (C ) (D)

1 Direct C osts :

2 Direct C ost X 400,000$ 25,000$ 175,000$ 200,000$

3 Direct C ost Y 75,000 - 25,000 50,000

4 Direct C ost Z 40,000 - 30,000 10,000

5 S UB -T OT AL Direct C os ts 515,000 25,000 230,000 260,000

6 C os t C ontingency (3% of s ub-total direct costs by contribution) 14,700 - 6,900 7,800

7 T OT AL Direct C os ts 529,700 25,000 236,900 267,800

8 Indirect C os t R ecovery (11% or 12% of the contribution) 65,798 - 29,280 36,518

9 T OT AL P roject C os ts (total contribution) 595,498$ 25,000$ 266,180$ 304,318$

S ources of financing:

P R OJ E C T ONE 'S B UDG E T

7. T OT AL Direct C os ts ($236,900)= -----------------------------------------------

100% - IC R R 11% (or 1.00 - 0.11)

As an alternative, a cos t contingency line may be added within the agreement claus es to addres s the ris k of cos t es calations and cover potential s hortfalls of cos t es timates prepared at the planning s tage of the project. In-kind contributions s hould not include cos t contingency.

= 5. S UB -T OT AL Direct C os ts ($260,000) x 3%

= 9. T OT AL P roject C os ts minus7. T OT AL Direct C os ts

S TE P 1

S TE P 2

2/11/2014OAS Indirect Cost Recovery (ICR) Policy and Procedures (Ver. 1)1 SECRETARIAT FOR...

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