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Thrive. Grow. Achieve.

OMB Circular A-122

Julie L. Jones Managed Accounting Services Partner April 11, 2013

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AGENDA

• Non-Profit Circular Overview – What are OMB Circulars? – Why are they important? – Which Circulars apply to non-profit organizations?

• OMB Circular A-122 – Key Definitions – Selected Items of Costs

• Questions

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WHAT ARE OMB CIRCULARS?

• Administrative policy documents issued by the Office of Management and Budget (OMB) to Federal agencies as instructions or information regarding a variety of topics including grant administration.

• OMB has worked cooperatively with the grantor agencies and the grantee community to develop government-wide policy to assure that grants are managed properly and that federal dollars are spent in accordance with applicable laws and regulations.

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WHY ARE THEY IMPORTANT?

• Entities receiving funds directly from the federal government are required to follow the rules and regulations outlined in the OMB Circulars.

• Entities that receive “pass-through” funds from Foundations and other state agencies are also required to follow OMB Circulars.

• Auditors test compliance with these circulars and report findings to the agencies.

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WHICH CIRCULARS APPLY TO NONPROFIT ORGANIZATIONS?

• Key Circulars for all Non-Profit Organizations: • OMB A-110 – Uniform Administrative Requirements

for Grants and Other Agreements with Institutions of Higher Education, Hospitals or Other Non-Profit Organizations

• OMB A-122 – Cost Principles for Non-Profit Organizations

• OMB –A-133 – Audits of States, Local Governments and Non-Profit Organizations

• Circulars can be found at:

http://www.whitehouse.gov/omb/circulars

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OMB CIRCULAR A-122 KEY DEFINITIONS

• Allowable • Reasonable • Allocable • Cost Types • Unallowable

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DEFINITION: ALLOWABLE

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 already be included in a cost sharing or

matching requirement • Be adequately documented

Source: Attachment A, Section A

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“ADEQUATELY DOCUMENTED”

Key essentials of “adequate documentation”:

• Contemporaneous– Done at or close to the time of the event

• Sufficient –Does not require additional explanation or support

• Documents Exceptions or Changes – Describes changes to original information, as necessary

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DEFINITION: REASONABLE

• A cost is reasonable if, in its nature or amount: − It does not exceed that which would be incurred by

a prudent person under the circumstances prevailing at the time the decision was made to incur the costs

− The question of the reasonableness of specific costs must be scrutinized with particular care in connection with organizations or separate divisions thereof which receive the preponderance of their support from awards made by Federal agencies.

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DEFINITION: ALLOCABLE

• A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:

– (1)Is incurred specifically for the award. – (2)Benefits both the award and other work and can be

distributed in reasonable proportion to the benefits received, or

– (3)Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown.

• Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award

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COST TYPES

• Direct costs, where the final cost objective is

known or a single cost objective or program benefits.

• Indirect costs, incurred for common or joint purposes benefiting more than one cost objective, but which are not readily identified or assigned to the benefiting cost objective (and usually recovered through an indirect cost rate).

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DEFINITION: UNALLOWABLE

• Those specifically identified in the grant or

contract as being unallowable.

• Specifically identified in A-122 as being unallowable.

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

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SELECTED ITEMS OF COST

• These principles apply whether a cost is

treated as direct or indirect.

• Contains 52 Selected Items, which do not represent all allowable or unallowable costs.

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ADVERTISING & PUBLIC RELATIONS COSTS

• Allowable Advertising − Recruitment of Personnel − Procurement of Goods & Services − Disposal of Scrap or Surplus

• Allowable Public Relations − Costs are specifically required by award − Cost of keeping the public informed on matters of

public concern . . . such as notices of contract/grant awards . . . etc.

• Specifically UNALLOWABLE: – Costs of promotional items, memorabilia, gifts and

souvenirs – Costs of advertising and public relations designed

solely to promote the organization

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ALCOHOLIC BEVERAGES

• Costs of alcoholic beverages are UNALLOWABLE!

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COMMUNICATION COSTS

• Communication costs are allowable

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COMPENSATION FOR PERSONAL SERVICES

• Includes all compensation paid currently or accrued by the organization during the period of the award.

• Compensation costs are allowable when: – Reasonable – Consistent/Allocable – Adequately documented

• Fringe benefits – Generally allowable – Authorized absences are allowable if costs are

equitably distributed – Employer contributions are allowable when paid in

accord with established written policies

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COMPENSATION FOR PERSONAL

SERVICES (CONTINUED)

• Support of salaries and wages requires– Personnel Activity Reports(or Time Distribution Reports (i.e. timesheets) to those who in whole or part are assigned directly to the awards.

• The timesheets must reflect an after-the-fact determination of activity

• Must account for total activity for which employee is compensated

• Must be signed by the employee or responsible supervisor

• Must be prepared monthly and coincide with one or more pay periods

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CONTINGENCY PROVISIONS • 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.

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CONTRIBUTIONS

Contributions and donations by the organization to others are UNALLOWABLE.

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DEPRECIATION AND USE

ALLOWANCES

• Costs are allowable • 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.

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DEPRECIATION AND USE ALLOWANCES (CONTINUED)

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

• Adequate property records must be maintained

• Physical inventories must be taken at least once every two years

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DONATIONS

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

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ENTERTAINMENT COSTS

Costs of amusement, diversion, social activities, ceremonials and costs relating to these activities such as meals, lodging, rentals, transportation and gratuities are UNALLOWABLE.

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EQUIPMENT & OTHER CAPITAL

EXPENDITURES

• 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

• UNALLOWABLE as indirect costs • Prior approval from the awarding agency must

be obtained to direct charge

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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.

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GOODS OR SERVICES FOR PERSONAL USE

• UNALLOWABLE regardless of whether the cost is reported as taxable income

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HOUSING AND PERSONAL LIVING 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

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INSURANCE AND INDEMNIFICATION

• 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 coverage – Cost of insurance on officers must represent

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

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INTEREST, FUNDRAISING AND INVESTMENT MANAGEMENT COSTS

• Interest is generally UNALLOWABLE • Fundraising and similar expenses

incurred solely to raise capital or obtain contributions are UNALLOWABLE

• Costs of investment counsel & staff and similar expenses are UNALLOWABLE

• Fundraising and investment activities shall be allocated an appropriate share of indirect costs

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LABOR RELATIONS COSTS

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

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LOBBYING • UNALLOWABLE if:

− 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

• 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

Must keep records to show funds were paid from non-federal source or they are related to allowable lobbying activities

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LOSSES ON OTHER AWARDS

Any excess of costs over income on any award is UNALLOWABLE as a cost of any other award

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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

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MATERIALS AND SUPPLIES

• Costs necessary to carry out a Federal awards are allowable

• Must be charged at actual prices, net of applicable credits.

• Only those actually used for the performance of Federal award may be charged as direct costs.

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MEETINGS AND CONFERENCES

• Costs of meetings and conferences, including travel costs, etc., when the primary purpose is the dissemination of technical information are allowable

− Costs of renting facilities, meals, speakers fees, etc., are allowable

− Should be charged directly whenever possible − Costs for meetings held for general

administration of the organization are allowable

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MEMBERSHIPS, SUBSCRIPTIONS AND PROFESSIONAL ACTIVITY COSTS

• 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

• Memberships in country, social, or dining clubs are UNALLOWABLE.

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ORGANIZATION COSTS

• All costs of organization or reorganization are UNALLOWABLE except with prior approval of the awarding agency

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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 direct costs with prior approval of the awarding agency.

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PRE-AWARD COSTS

• Pre-award costs are costs incurred prior to the effective date of the award directly pursuant to the negotiation of the award

• Pre-award 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

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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 organization are allowable after considering the following factors among others: – Nature and scope of services rendered – Necessity for contracting for the service – Whether the work can be done more economically

by direct employment – Qualifications of the individual or concern rendering

the service – Adequacy of the contractual agreement for the

service

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PUBLICATION AND PRINTING COSTS

• Generally allowable • Direct charges need prior approval of

the awarding agency • Allocate as indirect if not identifiable

with a particular cost objective

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RECRUITING COSTS

• Generally, advertising and associated costs incurred for recruitment of staff are allowable but: − They must meet the test of reasonableness

and − They must conform with established

practices of the organization

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RELOCATION COSTS

• Relocation costs for a permanent change of duty assignment are generally allowable if: −The move is for the benefit of the employer −Reimbursement to the employee is in accord with established written policy −Reimbursement does not exceed actual expenses

• Unallowable costs include:

−Fees associated with acquiring a new home −Loss on sale of former home −Continuing mortgage or loan payments on existing home −Income taxes paid by employee on relocation costs

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SELLING AND MARKETING

• Costs of selling and marketing products or services of the organization are unallowable

• They are allowable as direct cost if prior approval is obtained and they are necessary for performance of the award

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SEVERANCE PAY

• Severance pay is allowable only to the extent that it is required by:

−Law −Employer-employee agreement −Established policy that effectuates an implied agreement on the organization’s part −Circumstances of the employment

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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

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TRAINING AND EDUCATION COSTS

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

• Costs of part-time education, some full-time education, and specialized training courses (whether degree-oriented or not) are allowable, with limitations

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TRANSPORTATION COSTS

• Allowable as direct if provided for in the award

• Allowable as indirect for equitable distribution to all benefiting activities

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TRAVEL COSTS

• 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

• The difference between first class and less than first class air accommodations is unallowable except when the lesser would

− Require circuitous routing − Require travel during unreasonable hours − Greatly increase the duration of the flight − Result in additional costs offsetting the savings − Not meet the medical needs of the traveler

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TRUSTEES

• Travel and subsistence of trustees(or directors) are allowable

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QUESTIONS?

Julie L. Jones Phone: 202-822-5000 Raffa, P.C. Fax: 202-822-0669 1899 L Street, NW, Suite 900 Direct: 202-955-6724 Washington, DC 20036 e-mail: jjones@raffa.com Visit our Web Site at: www.raffa.com