Washington, D.C. - August 2008USDOL/VETS

Competitive Grantees Training Conference

Presented by Victor M. LopezChief, Division of Cost

Determination/OAMS/BOC/OASAM202-693-4106 – lopez.victor@dol.gov

Allowable/Unallowable Costs

Per OMB Circular A-122

Web address for DOL’s Division of Cost Determination

http://www.dol.gov/oasam/programs/ boc/costdeterminationguide/main.htm

The site contains links to OMB Circulars, the FAR, and other information on documenting indirect cost proposals.

What we will cover: Structure of OMB Circular A-122 (2 CFR

230) - non-profit cost principles. Definition of Allowable Costs and

Unallowable Costs. Selected items of Cost; Attachment B. We

will cover 38 specific items of costs out of 52, and a short quiz.

Answers to your questions.

Note: Recommend reviewing the entire Attachment B for any follow-up questions, available at: http://www.whitehouse.gov/omb/circulars/a122/a122_2004.html

Attachment A: General Principles

Attachment B: Selected Items of Cost

Attachment C: Non Profits not subject to

this Circular.

Structure of A-122 (2 CFR Part 230)

To be Allowable, costs must*: Be reasonable and allocable Conform to any limitations or exclusions set forth in the

cost principles or the award Be consistent with policies and procedures afforded all

activities of the organization Be accorded consistent treatment Be determined in accordance with GAAP Not be against the law Not already be included in a cost sharing or matching

requirement Be net of applicable credits Be adequately documented. * Attachment A, OMB Circular A-122 – For Federal Cost

Reimbursement.

Unallowable Costs are those:Specifically identified in the

grant/contract as being unallowable.

Specifically identified in Circular A-122, as being unallowable.

Does not meet the criteria listed in Circular A-122 to be allowable.

Sample Unallowable CostsAlcoholic

Beverages Bad DebtsContingency

provisionsFines and

PenaltiesLobbying Costs

Fund Raising Costs

Entertainment Social

MembershipsFundraising

Costs Interest on

borrowed capital

Attachment B; IntroductionThese principles apply whether a

cost is treated as direct or indirect. Failure to mention a particular item of cost is not intended to imply that it is unallowable; rather, determination as to allowability in each case should be based on the treatment or principles provided for similar or related items of cost.

Advertising & Public Relations(1 of 3)

Allowable Advertising Recruitment of personnel required for

performance of Federal awardProcurement of goods & services for

the performance of the awardDisposal of scrap or surplus acquired

in the performance of award

Continued

Allowable Public RelationsCosts are specifically required by

awardCosts of communicating with the

press pertaining to accomplishments which resulted from the performance of an award

Cost of keeping the public informed on matters of public concern . . . such as notices of contract/grant awards . . . etc.

Advertising & Public Relations(2 of 3)

Continued

Specifically unallowable:

Costs of promotional items, memorabilia, gifts and souvenirs

Costs of advertising and public relations designed solely to promote the organization

Advertising & Public Relations (3 of 3)

Alcoholic Beverages

Costs of alcoholic beveragesare unallowable!

Audit Costs and Related Services

Audits required by, and performed in accordance with, the Single Audit Act, as implemented Circular A-133 are allowable.

Other audit costs are allowable if included in an indirect cost rate proposal, or if specifically approved by the awarding agency as a direct cost.

The cost of agreed-upon procedures engagements to monitor sub-recipients who are exempted from A-133 are allowable.

Bad Debts

Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collection costs, and related legal costs, are unallowable

Communication

Costs incurred for telephone services, local and long distance telephone calls, telegrams, postage, messenger, electronic or computer transmittal services and the like are allowable.

Compensation for Personal Services(1 of 3)

Includes all compensation paid currently or accrued by the organization during the period of the award. Compensation costs are allowable when:ReasonableConsistent/AllocableAdequately documented

Continued

Fringe benefitsGenerally allowable. They also

need to be reasonable.Includes expenses such as,

Annual Leave, Sick Leave, Holiday, Social Security, Workers Comp., Pension, UI, etc.

Employer contributions are allowable when paid in accord with established written policies.

Compensation for Personal Services (2 of 3)

Continued

Support of salaries and wagesPersonnel Activity Reports (PARs

or Time Distribution Reports)Must reflect after-the-fact

determination of activity (not budget estimates).

Must account for total activity for which employee is compensated.

Must be signed by the employee or responsible supervisor.

Must be prepared at least monthly and coincide with one or more pay periods.

Compensation for Personal Services(3 of 3)

Contributions to a contingency reserve, or any similar provision, made for events the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening are unallowable.

Exceptions might be self-insurance, pension funds and reserves for normal severance pay.

Contingency Provisions

Depreciation and Use Allowances(1 of 4)

Costs are allowable. A combination of the two methods

may not be used in connection with a single class of fixed assets (e.g., buildings, office equipment, computer equipment)

Computation of use allowance or depreciation shall be based on acquisition cost. Acquisition cost of a donated asset shall be the fair market value at the time of donation.

Continued

Computation of use allowance or depreciation will exclude: Cost of land Any portion donated by Federal

Government Any matching portion

Maximum use allowance Buildings and improvements = 2% of

acquisition cost Equipment = 6 2/3% of acquisition cost

Depreciation and Use Allowances(2 of 4)

Continued

Where depreciation method is followed:

Use straight-line , or Document clear evidence that the expected

consumption of the asset will be significantly greater or lesser in the early portions of its useful life and use another depreciation method

“Componentization” of buildings is permitted for purposes of depreciation or the entire building may be treated as a single asset.

Depreciation and Use Allowances(3 of 4)

Continued

Adequate property records must be maintained under either method

Physical inventories must be taken at least once every two years

Depreciation and Use Allowances(4 of 4)

PropertyLedger

Contributions or donations rendered, including cash, property, and

services, made by the organization, regardless of the recipient, are

unallowable

Donations and Contributions(1 of 2)

Continued

Donations and Contributions(2 of 2)

The value of donated services, goods, or space received is not reimbursable either as a direct or indirect cost.

However, the value of donated services, goods or space may be used to meet cost sharing or matching requirements.

Continued

Donated services received:

Employee Morale, Health & Welfare Costs

Examples - In-house publications, health clinics, recreational activities, etc.

Costs are allowable if: In accord with established practiceReasonableEquitably distributed to all activitiesOffset by income earned

Entertainment

Costs of entertainment, including amusement, diversion and social activities and costs relating to these activities such as tickets, meals, lodging, rentals, transportation and gratuities are unallowable.

Equipment & Other Capital Expenditures (1 of 2)

Equipment - an article of non expendable, tangible personal property having a useful life of more than one year and an acquisition cost equal to or greater than the lesser of: - The organization’s financial statement capitalization level or- $5,000

Capital Expenditures – expenses for the acquisition cost of capital assets or expenses for improvements that materially increase the value of the capital asset.

Continued

Equipment and Capital Expenditures are Unallowable as indirect costs.

Prior approval from the awarding agency must be obtained to direct charge.

Equipment & Other Capital Expenditures (2 of 2)

FederalMarshal

Fines and Penalties

Costs of failures to comply with Federal, state, or local laws are unallowable.

Allowable if incurred as a result of compliance with specific provisions of an award or instructions in writing from the awarding agency.

Fund Raising and Investment Management Costs

Fund raising and similar expenses incurred to solely to raise capital or obtain contributions are unallowable

Costs of investment counsel & staff and similar expenses are unallowable

Fund raising and investment activities shall be allocated an appropriate share of indirect costs

Goods or Services for Personal Use

Unallowable regardless of whether the cost is reported as taxable income.

FederalMarshalIRS

Housing and PersonalLiving Expenses

Unallowable as an indirect cost or fringe benefit regardless of whether it is reported by the employee as taxable income.

Allowable as direct if necessary and approved by the awarding agency.

Idle Facilities and Idle Capacity

Unallowable except to the extent that:They are necessary to meet

fluctuations in workload orWere necessary at one point and

because of unforeseen changes are no longer necessary (under this exception, costs of idle facilities are allowable for a reasonable period of time, ordinarily not to exceed one year)

Insurance and Indemnification(1 of 2)

Insurance required or approved pursuant to an award is allowable.

Insurance carried by the organization in general conduct of business is allowable subject to the following limitations: Reasonable coverages Cost of insurance on officers must represent

additional compensation and the organization may not be identified as the beneficiary

Other miscellaneous items

Continued

Indemnification includes securing the organization against liabilities to third parties and other loss or damage, not compensated by insurance.

The Federal government is obligated to indemnify the organization only to the extent expressly provided in the award.

Insurance and Indemnification(2 of 2)

Interest

Generally unallowable. See item #23 of the Circular for more details.

Labor Relations Costs

Costs of maintaining satisfactory relations with employees, including labor management committees, employee publications and other related activities are allowable.

Unallowable: Attempts to influence election

outcomes Contributing to political causes Attempts to influence Federal or

State legislation through virtually any communicative device

Legislative liaison activities when performed in support of unallowable lobbying

Lobbying (1 of 3)

Continued

Allowable:Providing a technical presentation

on a topic directly related to the performance of an award

Any activity specifically authorized by statute to be accomplished with funds under the award

Lobbying (2 of 3)

Continued

Indirect Cost Proposals (ICP) must separately identify lobbying costs and treat them as unallowable

Nonprofits must provide a “Lobbying Certification” with their annual ICP

Organizations shall maintain adequate records to demonstrate the determination of costs as allowable or unallowable in accord with Circular A-122.

Lobbying (3 of 3)

Maintenance and Repairs

Costs necessary to keep buildings and equipment in efficient operating condition are allowable.

Costs which add to the permanent value or appreciably prolong the life of the asset shall be treated as capital expenditures.

Materials and Supplies (1 of 2)

M/S costs necessary to carry out a Federal award are allowable

M/S must be charged at their actual prices, net of applicable credits

M/S costs may be allowable as direct or indirect

Continued

Only materials and supplies actually used for the performance of a Federal award may be charged as direct costs.

Where federally-donated or furnished materials are used in performing the Federal award, such materials will be used without charge.

Materials and Supplies (2 of 2)

Meetings and Conferences Costs of meetings and conferences, the

primary purpose of which is the dissemination of technical information, are allowable

Costs include meals, transportation, rental of facilities, speakers’ fees, and other items incidental to the meeting or conference

Caveat – Entertainment & Participant support costs

Memberships, Subscriptions and Professional Activity Costs (1 of 2)

Membership in business, technical and professional organizations are allowable

Subscriptions to business, technical and professional periodicals are allowable

Costs of memberships in civic or community organizations are allowable with prior approval by the cognizant Federal agency.

Continued

MembersOnly

Memberships in country, social, or dining clubs are unallowable.

Memberships, Subscriptions and Professional Activity Costs (2 of 2)

Organization Costs

All costs of organization or reorganization are unallowable except with prior approval of the awarding agency.

Participant Support Costs These costs include stipends or

subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with meetings, conferences, symposia, or training projects and are allowable as direct costs with the prior approval of the awarding agency.

ParticipantExpress

Pre-agreement Costs Pre-award costs are costs incurred prior

to the effective date of the award directly pursuant to the negotiation of the award.

Such costs are allowable only to the extent that they would have been allowable if incurred after the effective date of the award and only with the written approval of the awarding agency.

Professional Service Costs

Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-profit organization, are generally allowable if reasonable and not contingent on recovery of costs from the Federal government.

Publication and Printing

Generally allowable and include page charges in professional publications.

Allocate as indirect if not identifiable with a particular cost objective.

RecruitingGenerally, advertising

and associated costs incurred for recruitment of staff are allowable butThey must meet the

test of reasonableness and

They must conform with established practices of the organization

HelpWanted

Rental Costs

Rental costs are generally allowable if reasonable. See item # 43 of the Circular for more details.

Office SpaceFor Rent

Phone 634-5789

Taxes

Taxes are generally allowable except for: Taxes from which exemptions are

available Special assessments on land which

represent capital improvements and Federal income taxes

Applicable credits(offsets to taxes) must be taken where appropriate.

I. R. S.

Termination Costs applicable to Sponsored Agreements

Termination of awards generally give rise to costs which would not have arisen had the award not been terminated.

Reasonable and customary costs of terminating an award are generally allowable. Review additional details in the Circular # 48.

Closed --Funding

Terminated

Continued

Training Costs

Generally, training and education costs related to employee development, such as, workshops, textbooks, classes, etc. are allowable

Pi R

TransportationAllowable as direct if provided

for in the awardAllowable as indirect for

equitable distribution to all benefiting activities

Travel

Expenses for transportation, lodging, subsistence, and related items incurred by employees on official business are allowable.

Such costs may be charged on an actual basis, per diem or mileage basis or a combination, but must be consistent with those normally allowed by the organization.

Trustees

Travel and subsistence of trustees (or directors) are allowable, noting restrictions for travel costs (#51).

Quiz

Let’s see if you did!

Did you get it?

True or False

If a specific item of cost is not mentioned in Attachment B, the implication is that the cost is unallowable.

FalseAttachment B (Opening

paragraph)

Costs of advertising and public relations designed solely to promote the non-profit organization are unallowable.

True1.f.(4)

True or False

True or False “Mixed” drinks containing alcohol are

allowable. False 3. Alcoholic Beverages

True or False Audit costs charged included in the

indirect cost pool are not allowable. False 4.b.

True or FalseLegal costs associated with the

collection of bad debts, are allowable as indirect costs.

False5.

True or False Personal Activity Reports (PARs) must

reflect an after-the-fact determination of the actual activity of each employee. Budget estimates do not qualify as support for charges to awards.

True 8.m.(2)(a)

True or FalseThe value of donated services is

not reimbursable either as a direct or indirect cost.

True12.b.(1)

True or FalseCosts of employee information

publications (health, counseling, recreational, etc.) in accord with established practice or custom are allowable.

True13.a. Employee Morale

True or FalseCost of entertainment, including

amusement diversion and social activities are allowable as long as the governmental unit has a written "no smoking" policy.

False14.

True or FalseCosts of idle facilities are

allowable if they are necessary to meet fluctuations in workload.

True21.b.(1)

True or False Costs incurred for interest on

borrowed capital, temporary use of endowment funds, or the use of the non-profit organization’s own funds, however represented, are unallowable.

True 23.a.

True or FalseCosts incurred for necessary

maintenance, repair, or upkeep of buildings and equipment which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable.

True27.

True or False

Costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable.

True29.

True or FalseEmployee memberships in “golf

clubs” in certain regions of the country are allowable.

False30.d.

True or FalseParticipant support costs may

be charged as indirect if they are allocated equitably to all programs.

False33. (Awarding agency prior

approval is required.)

True or FalseAllowable publication and

printing costs not identifiable with a particular cost objective should be allocated as indirect costs to all benefiting activities of the non-profit organization.

True38.b.

True or FalseTraining costs for an accountant

to attend an art class are allowable even if the artistic abilities gained are not used in conjunction with the accountant’s employment.

False49.b.

True or FalseWhere identification with the

materials received cannot readily be made, transportation costs may not be charged as an indirect cost, even if the organization follows a consistent, equitable procedure in this respect.

False50.

True or FalseIf travel costs are paid to

relocate a newly recruited employee who is hired and decides to quit the job 6 months later due to winning a lottery, the organization will be required to refund or credit such recruitment/relocation costs to the Federal government.

True41.d.

Questions??

Time to say goodbye