In our last blog discussing indirect costs, we focused on the top FAQs that come up for grants administrators and public servants in general. One thing that we didn’t cover, however, is distinguishing between your cost allocation plans vs. your indirect cost proposals.
Let’s tackle them in this article. Use the breakdown below to help you get your finances in order for the new fiscal year as well as maximize grant funding by understanding the true cost of your organization’s services.
Cost Allocation Plan
What is It?
A cost allocation plan is an accounting report that calculates the agency-wide indirect costs to departments and funds that receive services from other departments. This means accounting for administrative functions like HR or Information Technology staff, or other pieces of equipment that help you accomplish your missions.
Acentral service cost allocation plans include all central service costs that can be claimed (either as billed or as an allocated cost) under federal awards.
Who needs to submit?
Each major local government entity receiving $100 million or more in direct federal funding is required to submit a cost allocation plan to its cognizant agency (i.e. Department of Health and Human Services, Department of Education, or Department of Interior, etc.) for indirect costs on an annual basis.
All other local governments claiming central service costs must develop a plan. However, you are not required to submit your plans for federal approval unless you are specifically requested to do so by your cognizant agency for indirect costs.
What should be included in the plan?
Your cost allocation plan must incorporate all of the following components:
- Organizational chart
- Copy of the Comprehensive Annual Financial Report (or a copy of the Executive Budget if budgeted costs are being proposed)
- Certification confirming your Finance Director or other like official has reviewed and approved your cost allocation plan (as required under 2 CFR 200 guidelines)
- For all allocated central services, you must include:
- A brief description of the service
- Identification of the unit rendering the service and the operating agencies receiving the service
- Items of expense included in the cost of service
- Method used to distributed the cost of service to benefitting agencies
- Summary schedule showing the allocation of each service to the benefitting agencies
Indirect Cost Proposal
What is it?
An indirect cost rate proposal is used to calculate a specific percentage rate that can be applied to a program or grant to determine the amount that can be recovered. Your indirect cost proposal is required to justify the establishment of an indirect cost rate. They are especially important to maximizing grant funds because indirect costs are normally charged to federal awards by the use of an indirect cost rate.
Who needs to submit?
All departments or agencies of your governmental unit that want to claim indirect costs under federal awards must prepare an indirect cost rate proposal as well as related documentation to support those costs. Additionally, any governmental department or agency unit that receives $35 million or more in direct federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs.
Other governmental departments or agencies must develop an indirect cost proposal, maintain it, and maintain any related documentation for audit. However, you are not required to submit your proposals unless specifically requested to do so by your cognizant agency for indirect costs.
Lastly, each Indian tribal government seeking reimbursement of indirect costs must submit your indirect cost proposal to the Department of Interior.
What should be included in the proposal?
Your indirect cost rate proposal must include all of the following components:
- Subsidiary worksheets and other relevant data
- Copy of financial data (financial statements, comprehensive annual financial report, executive budgets, accounting reports, etc.)
- Approximate amount of direct base costs incurred under federal awards. These should be broken out between salaries, wages, and other direct costs.
- Chart showing the organizational structure of your agency during the period for which the proposal applies. This should also include functional statements noting the duties and/or responsibilities of all units that comprise your agency.
- Certification confirming your Finance Director or other like member has reviewed and approved the indirect cost rate in the proposal (as required under 2 CFR 200 guidelines).
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