Making Sense of Your Dollars and Cents

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Making Sense of Your Dollars and Cents. Office of Acquisition and Logistics Management. Lorraine M. Trexler, Director Division of Financial Advisory Services. June 30, 2014. Making Sense of Your Dollars and Cents (continued). - PowerPoint PPT Presentation

Text of Making Sense of Your Dollars and Cents

Making Sense of Your Dollars & Cents

Making Sense of Your Dollars and CentsOffice of Acquisition and Logistics ManagementLorraine M. Trexler, DirectorDivision of Financial Advisory Services

June 30, 20141For-profit organizations must follow Federal regulations and requirements when expending and accounting for Federal fundsUnderstand the basic accounting and system requirementsPlan to meet requirements before expending funds!Accounting systemIndirect costsAudit requirements

Making Sense of Your Dollars and Cents (continued)2An adequate accounting system provides the Federal agency with confidence that adequate internal controls are in place to ensure accountability for all funds, property, and other assets.

FAR Subpart 9.1Responsible Prospective Contractors9.103 Policy.(a) Purchases shall be made from, and contracts shall beawarded to, responsible prospective contractors only9.104-1 General standards.To be determined responsible, a prospective contractor must(a) Have adequate financial resources to perform the contract, or the ability to obtain them(e) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them

Accounting System3Issues that you must address before receiving an award:

Project cost (job cost) accounting systemYour accounting system must be able to accumulate and segregate costs by project, i.e. the system must identify receipts and expenditures for each contract or grant

Segregation of direct and indirect costsChart of Accounts must demonstrate:- Direct and indirect costs are segregated; and - Unallowable costs have been separately identified

Adequate timekeeping system Timesheets must demonstrate: - Distribution of labor for ALL employees; and - Account for total hours (direct, indirect and paid absences)

Accounting System (continued)4The fundamental conceptBasic definitionsCost allocation systemsFederal agency cognizanceWhen to submit an indirect cost proposalSBIR/STTR 40% RuleNegotiation processFive tips for success

Indirect Costs5Indirect Cost Pool = $500,000: Rent, Utilities, Accounting, Admin. Salary, Office SuppliesDirect Cost Base = $1,000,000: PI Salary, Materials, Consultants and other Direct Costs What does this mean? For every $1.00 of direct cost you charge to your contract, we will reimburse you $0.50 to pay for indirect costs.

Indirect Costs: the Fundamental Concept6DIRECT COSTS easily identified with a specific project:

Direct salary & wages Material & supplies Consultants Subcontracts Equipment

Indirect Costs: Basic Definitions7FRINGE BENEFIT COSTS allowances and services provided to employees:

Paid absences (vacation, holiday & sick pay) Payroll taxes Pension plan Group insurance (health, life, disability)Indirect Costs: Basic Definitions (continued)8INDIRECT COSTS not easily identified with a specific project:

Executive & administrative labor Rent & utilities Depreciation General lab supplies Professional fees (e.g., CPA) Office supplies

Indirect Costs: Basic Definitions (cont.)910Cost Allocation SystemsONE TIER SYSTEMFringe benefits and indirect costs are combined into one pool. Result: a single rate.

Computation of Indirect Rate:Pool / BasePool = Fringe Benefits + Indirect CostsBase = An equitable base: Examples:Total Direct Costs orDirect Salaries and Wages

11Cost Allocation Systems (continued)TWO TIER SYSTEMFringe benefits and indirect costs are separated into two pools. Result: two rates.

Computation of Fringe Benefit Rate:Pool / BaseFringe Benefit CostsTotal Salaries & Wages

Computation of Indirect Cost Rate:Pool / BaseIndirect CostsAn equitable base

Generally,The agency that awards the preponderance of cost-reimbursement funding to a company will be cognizant for the negotiation of their indirect cost ratesRates are negotiated by the cognizant Federal agency on behalf of all othersRates are negotiated for the company as a whole, for their fiscal year, not for each contract or grantProvisional rates are based on estimated costsFinal rates are based on actual costsIndirect Costs: Federal Agency Cognizance12When to submit an indirect cost proposal

After you have been notified by the awarding office that you are the successful offeror or grant recipientWe do not accept unsolicited proposalsWe do not negotiate rates with subcontractors or sub-recipients of grants

Indirect Costs:13IDC rule on SBIR/STTR awards:Phase I = 40% of total direct costs (TDC)- the maximum rate without negotiationPhase II = 40% of total direct costs- the maximum rate without negotiation

For more information see the NIH Policy Change on Threshold for Negotiation of Facilities and Administrative (F&A)/Indirect Costs for Phase II SBIR/STTR Grants pageIndirect Costs: SBIR/STTR 40% Rule(NIH, CDC, FDA)14So, does this mean I can request a 40% IDC rate without justification?

Absolutely not. You can only request what you can support.

Even though IDC rates are not negotiated at 40% or less, the rates are subject to audit at any time.

Indirect Costs: SBIR/STTR 40% Rule15Contact the Division of Financial Advisory Services:

When? After notification that the (Phase II) grant or contract will be awarded

How? Via email to:dfas-idc@nih.gov

Indirect Costs: the Negotiation Process16Information Needed:

Representatives name, title and email address

Companys name, address and phone number

Grant / Contract number

Grant / Contract Specialists name and contact information

Indirect Costs: the Negotiation Process (2)17And then...

The Division of Financial Advisory Services will request an indirect cost proposal (and specified supporting documentation)

The organization submits a proposal (hard copy)

....the real fun begins!

Indirect Costs: the Negotiation Process (3)18What happens next?DFAS preliminary reviewReconciliationPool analysis, base analysisReasonable/allowable/allocable (per FAR Part 31.2- Contracts with Commercial Organizations)Draw conclusions, communicate Govt position, negotiate rates, obtain concurrenceDocument file, submit for supervisory reviewIssue rate agreement

Indirect Costs: the Negotiation Process (4)19#1 Hire an expert

A recent email from an SBIR Company to one of our Auditors:

Thanks Rod. No news flash there! I have been pulling out my hair over the negotiation submission. The fact of the matter is, I think it is best completed by our accountants. I have FINALLY convinced someone else to take responsibility of it. Perhaps if we can let them know what the issues are, the accountants can come to my rescue, fix the errors, and get it submitted per your expectation.

I apologize for the agony of this submission. I welcome the challenge and the opportunity to attempt something new, but it is now painfully clear that scientists are not financially minded!

Indirect Costs: Tips for Success20#2 Take a class (2 3 days)#3 Use our template on the DFAS Indirect Cost Submission page

Indirect Costs: Tips for Success (2)21#4Know the Federal Acquisition Regulation (especially Part 31.2, Contracts with Commercial Organizations)

Indirect Costs: Tips for Success (3)22#5 Dont wait until the last minute!!!

An excerpt from a recent letter to the Indirect Cost Branch Chief from an SBIR company:Somewhat to my surprise, I found that the process of carefully examining and classifying all of our expense transactions for the year, with strict adherence to NIH rules for expense allocation, has resulted in a better understanding of our own business expenses and improved the way in which we will track and react to our costs in the future.

What is this SBIR company really trying to say? We messed-up! We only asked for 12% at the time of award. Now we realize that our actual rate is 92%. HELP!!!

Indirect Costs: Tips for Success (4)23Audit? Who said anything about having an audit?

The Department of Health & Human Services did!

HHS specifies requirements for audits of for-profit organizations in Title 45 CFR Part 74.26(d)*Electronic Code of Federal Regulations

Audit Requirements24A for-profit organization is required to have an audit if:

it expended $500,000 or more under HHS awards in its Fiscal Year

AND

at least one of the awards is an HHS grantAudit Requirements (2)25Title 45 CFR Part 74.26 provides for-profit organizations with two options regarding the type of audit that will satisfy the audit requirement: - a financial related audit of the HHS awards in accordance with Generally Accepted Government Auditing Standards (GAGAS), OR - an audit that meets the requirements contained in OMB Circular No. A-133

Audit Requirements (3)26Audit period The audit period is the awardees fiscal year (i.e., not the grant budget period, the grant project period or the Governments fiscal year.)

Audit due date The earlier of:30 days after you receive the auditors reportOR9 months after the end of your fiscal yearAudit Requirements (4)27Audit reports should be submitted to:

Department of Health and Human ServicesOIG / Office of Audit ServicesNational External Audit Review Center1100 Walnut St, Suite 850Kansas City, MO 64106-2197

Audit Requirements (5)28Indirect cost inquiries mailbox

DFAS website

Lorraine Trexler, DirectorDivision of Financial Advisory Services301-496-4401Lorraine.Trexler@nih.gov

Points of Contact2929Questions 30