Subrecipients Indirect Cost Recovery - USG Funded Subagreements

POL-FIN-SIC-011 Version 1.0

Office of Finance - Subrecipients Indirect Cost Recovery - USG Funded Subagreements 06/01/16

Subrecipients Indirect Cost Recovery – USG Funded Subagreements

Policy/Procedure

Document #: POL-FIN-SIC-011 Version #: 01

Document Owner: Office of Finance Date Last Updated: 06/01/16

Author: Angela Grigorian Status: Released

General Description

Purpose:

This policy defines the criteria to be used by CRS to review and approve requests from subrecipients to apply indirect costs to USG funded subawards under Assistance instruments (Grants and Cooperative Agreements).

Scope:

This policy applies to subrecipients receiving US Government funded subawards under assistance instruments from CRS. The assistance instruments must have been issued on or after December 26, 2014 and are subject to 2 CFR 200 or have been amended to make 2 CFR 200 the applicable regulation. This policy does not apply to USG acquisition instruments (contracts).

Description:

1.0  Introduction

(a)  CRS is responsible for the efficient and effective administration of USG (and other donors) awards through application of sound management practices and accountability for received funds. Those funds are expended directly by CRS and through subawards to its subrecipients (partners) involved in the implementation of the program objectives. Subrecipient’s costs can be direct and indirect, or only direct. Subrecipients are not required to charge indirect costs, but can direct charge 100% of their allowable costs.

(b)  For purposes of this policy here is a summary of key concepts discussed throughout this document. The official USG definitions for the same concepts can be located in the Definitions section of this policy.

Direct costs — specifically identified with a particular cost objective (such as a particular award, project, etc.) or that can be directly assigned to such activities relatively easily with a high degree of accuracy.

Indirect costs — incurred for common or joint objectives benefiting more than one cost objective and not readily identified with a particular cost objective without effort disproportionate to the benefit received.

An indirect cost rate is used to fairly distribute a portion of an organization’s indirect costs to each award in a given accounting period.

(c)  The US Government’s Office of Management and Budget's (OMB) uniform guidance (2 CFR 200) defines the requirements governing the application of indirect costs for all USG award recipients and can be found in Subpart E - Cost Principles and Appendices III-VII of the guidance. It is also recommended to consult the OMB’s FAQs on the OMB Reform (“Frequently Asked Questions For The Office of Management and Budget’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR 200).

(d)  Consistent with 2 CFR 200, Subpart D’s section §200.331 Requirements for pass-through entities, CRS will accept indirect cost rates from its subrecipients through the following options:

1.  CRS will accept a subrecipient’s current Negotiated Indirect Cost Rate Agreement (NICRA) approved by their cognizant USG agency;

2.  Subrecipients that do not have a current NICRA may request to negotiate a rate with CRS as long as they can provide the extensive support documentation required in section 2.2 of this policy for review by the Office of Finance; or

3.  Subrecipients may elect a de minimis rate of 10% of modified total direct costs (MTDC)[1], if they have never received a USG NICRA in past and are able to satisfy the requirements mentioned in section 2.3 of this policy.

(e)  Each of these options are accompanied with a set of requirements that must be satisfied to ensure that CRS and its subrecipients are in compliance with the US Government Cost Principles (Subpart E of 2 CFR 200).

Subrecipients that are able to allocate and charge 100% of their allowable costs directly may continue to do so. Claiming reimbursement for indirect costs is never mandatory; a subrecipient may conclude that the amount it would recover thereby would be immaterial and not worth the effort needed to obtain it.

2.0  Requirements for subrecipients’ Indirect Cost Recovery options

2.1 Subrecipients with negotiated US Government indirect cost rates (NICRA)

(a)  Subrecipients that have a current negotiated indirect cost rate approved by the US Government and would like to include such rate into its budgets and subsequently recover the indirect costs by applying the rate to actual expenses must provide CRS with a copy of the signed Negotiated Indirect Cost Rate Agreement (NICRA) with its USG cognizant agency. Such subrecipients must also provide CRS with any subsequent updates that are applied during the period of the subawards. This is not a new process for CRS and its subrecipients.

2.1.1 Proposal/budget development:

(a)  The NICRA agreement must be acquired by the proposal development team to ensure that the indirect cost rate proposed in the budget is consistent with the subrecipient’s NICRA. This responsibility lies with the proposal budget development lead. CRS’ proposal coordinator must obtain and have on file (and upload into the Opportunity record in Gateway as a part of proposal development documentation) the following documents:

1.  Subrecipient’s proposed budget.

2.  Subrecipient’s current NICRA signed/approved by its cognizant USG agency.

2.1.2 Subrecipient Funding Agreements:

(a)  The subrecipient’s NICRA rate will be cited in the subrecipient’s funding agreement with CRS along with the subrecipient’s itemized exclusions as negotiated with their USG cognizant agency. The funding agreement must require that the subrecipient provide CRS with all updates to the NICRA as approved by its cognizant agency during the period of the award. It also must stipulate post-closeout requirements discussed in the Award Closure and Post-Closeout Adjustments section 2.1.4 below.

2.1.3 Actual Charges of Indirect Costs (Project Implementation Stage):

(a)  Pending establishment of a revised provisional or final indirect cost rate(s), allowable indirect costs shall be charged on the basis of the subrecipient’s provisional rate(s) as per their current NICRA approved by its cognizant USG agency. CRS will not be obligated to pay any additional amounts if the final indirect cost rate(s) exceed the negotiated provisional rates and if the total indirect charges will exceed the approved indirect budget. If the final indirect cost rate(s) are less that the provisional rates that have been applied, the subrecipient is required to reflect the reduction of indirect charges in the next financial report. It is the responsibility of the Country Program’s Finance Manager (with support from Regional Finance Officer and Overseas Financial Assurance and Donor Reporting Unit) to ensure that the application of indirect cost reflected in subrecipient’s financial reports is in accordance with their approved NICRA for the applicable period. Requirements for subrecipients’ financial reporting must comply with the section 6.0 (Subrecipient Reporting) of the Subrecipient Financial Management Policy (POL-FIN-SFM-023).

(b)  Country Programs (CPs) must obtain all subrecipients’ approved NICRA letters that cover entire subaward duration. CPs are required to retain all subrecipients’ NICRA letters on file in country and also share those with the Office of Finance (this could be achieved though uploads into Institutional record in Gateway).

2.1.4 Award Closure and Post-Closeout Adjustments:

(a)  As a part of award closure, the Overseas Financial Assurance and Donor Reporting Unit (OFADRU) must verify that subrecipient’s indirect costs are based on the final indirect cost rates approved by their cognizant agency or, if final rate is not available, based on the provisional indirect cost rate. There might be situations where the grant has expired and the final approved indirect cost rate is not yet available. Taking this into consideration, the OFADRU will proceed with the award closure and inform Country Program as part of grants closure process. The CP will be responsible in communicating with subrecipient for any unspent balance refunds and de-obligation of funds. CRS will not be obligated to reimburse any amounts subsequent to the award closure, but the subrecipient will be required to return any funds due as a result of later refunds, correction, or other transactions including final indirect cost rate adjustments, as per §200. 344 Post-closeout adjustments and continuing responsibilities. As a result of such refunds, the OFADRU will issue revised reporting to the USG, and return funds, if applicable.

2.2 Subrecipients that do not have a NICRA who request to negotiate an indirect rate with CRS

(a)  Only in exceptional cases approved by the Senior Director of Overseas Finance, will CRS negotiate an indirect cost rate with subrecipients that do not have a NICRA with US Government. The review process required for a negotiated rate will be extensive and time consuming and should only be entertained:

·  with subrecipients having a substantial level of engagement with CRS, i. e., significant funding size, longevity of relationships, etc.; and

·  when there is a level of certainty that the subrecipient has the cost accounting mechanisms in place and documentation that will be required. As such, this option is only available to subrecipients that receive an assessment rating equal to or greater than 90% and categorized as having strong internal controls that meet most standards. Refer to the Subrecipient Financial Management Policy (POL-FIN-SFM-023) for more information on subrecipient assessments.

(b)  CPs and Regions should anticipate up to fifteen business days, from the submission date to the Office of Finance, for HQ review and approval process.

2.2.1 Proposal/budget development

(a)  Subrecipients undergoing its first negotiation of an indirect cost rate might need more time for the negotiation process than available during donor proposal development process. CRS might conditionally accept subrecipient's proposed indirect cost rate at the proposal stage, if subrecipient’s initial submission of the indirect cost rate proposal indicates high likelihood of a successful negotiation outcome. In such cases the donor budget notes would mention subrecipient’s indirect cost rate as conditional, in negotiations and pending CRS approval. This conditional acceptance of the indirect cost rate for proposal purposes does not constitute an automatic approval of the rate. For winning donor proposals, the final budget in the subrecipient agreement and the actual charges would be based on the negotiated indirect cost rate approved by CRS.

2.2.2 Review and Negotiation of Subrecipient’s Indirect Cost Rate Proposal

(a)  For review and approval of subrecipients’ proposed for negotiation indirect cost rates, CPs must obtain from subrecipients and submit to the Office of Finance the following documentation:

1.  Subrecipient’s Organizational chart.

2.  Audited financial statements for the past three years, and audit firm’s opinion on the proposed indirect cost rate.

3.  Cost Classification Policy Statement, approved/signed by subrecipient’s CFO. This document could be titled differently but the content must demonstrate which items of costs subrecipient considers as indirect vs. direct. This document will be used by CRS reviewers to understand budgets and cost structure to ensure that costs are charged as direct or indirect and not as both. Subrecipient might find it useful to consult a sample of Cost Policy Statement, in the following available from US Government resources:

·  U.S. DOL’s “Guide for Indirect Cost Rate Determination” (http://www.dol.gov/oasam/boc/dcd/np-comm-guide.htm ), or

·  USAID’s “Indirect Cost Rate Guide for Non-Profit Organizations” (https://www.usaid.gov/work-usaid/resources-for-partners/indirect-cost-rate-guide-non-profit-organizations )

4.  An indirect cost rate proposal supporting calculations and providing at the minimum the following information:

4a. Statement of Total Costs, supporting the indirect and direct costs incurred by expense category, identified by USG and non-USG activities and separated per funding agreement that reconciles to the audited financial statements.

4b. Statement of Indirect Costs, including indirect cost pool(s), unallowable costs excluded, allocation base(s), and indirect cost rate(s) proposed.

4c. List of exclusions from Total Direct Costs to arrive to Modified Total Direct Costs.

5.  Certification that the indirect cost rate proposal was prepared in a manner consistent with the applicable cost principles set forth in 2 CFR Part 200, Subpart E. The certifications must be signed by an individual at the level no lower than Chief Financial Officer (CFO). (see Appendix 1 for Certification of Indirect Costs template)

(b)  The above mentioned list of requirements is also available in a form of Indirect Cost Proposal Checklist (Appendix 2) with an intention to be shared with the subrecipients requesting to negotiate an indirect cost rate with CRS. Subrecipients are required to complete this checklist (Appendix 2) and clarify any item(s) in the checklist not being submitted with the request. The Indirect Cost Proposal Checklist, signed by the subrecipient’s CFO, must be submitted to CRS along with the rest of the documentation supporting this checklist.

(c)  This Indirect Cost Proposal Checklist with its support documentation is used to:

þ  ascertain the completeness of the proposal and the nature of the organization and its financial system;

þ  review the types of costs included to determine allowability and proper charging; and

þ  assess the fairness of indirect cost rate and distribution base.

(d)  CP is required to review the documents received from its subrecipient to assure completeness of the indirect cost proposal package. If there are missing documents, CP will engage with the subrecipient to obtain or document the reasons behind the missing items (for example, last fiscal year’s financial statement is not yet available but expected within the next few days, etc.). Once the items in the checklist are obtained and missing/delayed items are documented, CP will submit the package and documented reasoning for delayed/missing items to the respective Regional Finance Officer (RFO), copying the Regional Director (RD). The RFO will double check the completeness of the package and engage with the Senior Director for Overseas Finance in the Office of Finance to initiate the review and approval of the subrecipient’s proposed indirect cost rate. CP should be prepared to request additional documentation, information or clarification from the subrecipient as determined and necessary during the Office of Finance’s review. RFOs should be prepared to assist HQ review and coordinate with CP as necessary.

(e)  The approval of the proposed indirect cost rate will depend on the reasonableness of the proposal, how well it is defined, adequacy of the support documentation provided to substantiate the rate calculation, and assurance that costs would be consistently charged as direct or indirect. Based on this review the Office of Finance will either approve the proposed rate, negotiate a different rate or disapprove accepting a negotiated indirect cost rate. If disapproved, CRS would offer the option to direct charging 100% of subrecipient’s costs or application of the de minimis rate of 10%, if the requirements for such rate are satisfied as per section 2.3 below.