Federal Transit Administration

Direct and Indirect Cost

Essentials

Hierarchy of Laws & RegulationsFederal1. U.S. Constitution2. Legislation/US Code3. Presidential Executive Orders4. Federal Agency Regulations: • Code of Federal Regulations (CFR)• OMB Circulars• Agency Circulars5. 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:

1. Allowable

2. Allocable

3. 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 CostsDirect Costs Indirect Costs

Unallowable Costs Total Costs

Labor 200,000$ 40,000$ 5,000$ 245,000$

Fringes 120,000 2,500 122,500

Total Labor Cost 200,000 160,000 7,500 367,500

Rent 25,000 25,000 Office Supplies 6,000 6,000 500 12,500 Utilities 5,000 5,000 Telephone 500 2,500 3,000 Travel 3,000 5,000 2,000 10,000

Total Non-Labor 9,500 43,500 2,500 55,500

Total Costs 209,500 203,500 10,000 423,000

OH Rate = Total Indirect Cost / Direct Labor Cost = $203,500 / $200,000 = 101.75%

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 602-712-4848mroder@azdot.gov

Scott Olson 602-712-8537solson2@azdot.gov

George Delgado 602-712-8239gdelgado@azdot.gov