Purpose:
To describe how WESTAR will allocate overhead expenses consistent with OMB Circular A-122.
Definitions:
Overhead expense – Overhead expenses are general administrative costs that are incurred for common or joint objectives and cannot be readily identified with a specific project or grant. In this policy, “overhead” and “indirect” are used interchangeably.
General Notes:
OMB Circular A-122, Cost Principles for Non-Profit Organizations, outlines the principles to be used in determining costs chargeable to federal grants, including overhead costs. A-122 describes several methods for allocating indirect costs. In any given grant year, WESTAR may choose to allocate overhead expenses using a direct allocation method (that is, the approach described in this policy) or to establish an indirect rate in accordance with Policy #FA-00-05. Whichever cost allocation method is chosen, it will be submitted to the EPA Grant Officer for approval as a part of WESTAR’s grant application, which includes a detailed work plan, budget, and overhead cost allocation plan. Award of the grant will signify EPA’s approval of the budget and overhead cost allocation plan.
Process Steps/Descriptions:
The “Direct Allocation Method” for allocating overhead costs is described in OMB Circular A-122. This method may be used when the organization’s major functions benefit from its overhead costs to approximately the same degree. The method is acceptable provided that overhead costs are prorated using a base which accurately measures the benefits provided to each grant or contract. The following steps are to be used to prorate overhead expenses between grants and contracts.
1. Determine the total direct and indirect (overhead) expenses for the period[1] for each project, award, and/or contract.
2. Calculate the base used to prorate overhead expenses by totaling all the direct expenses chargeable to all awards/contracts, excluding ad hoc travel[2].
3. The prorated share of overhead expenses chargeable to each account is determined by calculating the fraction of total direct expenses for each direct account for the period, and multiplying this fraction times the total overhead expenses for the period.
Approval: Date: January 18, 2007
WESTAR President
FA-07-07
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[1] The period is established based on how frequently WESTAR bills or seeks reimbursement from non-grant sources – typically monthly.
[2] Ad hoc travel funds are included in WESTAR’s grant award when individual states choose to set aside funds from their Section 105 grant in support of staff travel and training. WESTAR administers this account on behalf of the individual states. The workload associated with administering this account does not significantly change when the amount in the account increases. Thus it would not be appropriate to include ad hoc project expenses in the overhead cost allocation calculation.