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Department
of Finance
915 L Street
Sacramento, CA 95814
(916) 445-3878
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- Is OMB Circular A-87 mandatory for use by state government?
 answer
- OMB Circular A-87 states that it does not apply to grants
and contracts with (1) publicly-financed educational institutions
subject to OMB Circular A-21, and (2) programs administered
by publicly-owned hospitals and other providers of medical
care that are subject to requirements promulgated by the
sponsoring federal agencies. What is the intent of
this statement and how does it affect the reimbursement
of costs? answer
- Is the indirect costs arrived at by the application of
the indirect cost rate percentage reimbursed to state government?
answer
- Can another federal agency question the costs included
in a central service cost allocation plan submitted to and
approved by a cognizant agency? answer
- Where can state departments receive additional information
or clarification on the implementation of OMB Circular A-87?
answer
- To what does the expression "cost allocation plan"
refer? answer
- What is an indirect cost rate? answer
- Who is responsible for preparing the statewide cost allocation
plan (SWCAP)? answer
- Who is responsible for preparing a state department indirect
cost rate proposal (ICRP)? answer
- Must the indirect cost rate proposal or the central service
cost allocation plan be prepared centrally for each state
department performing under federal grant programs? answer
- How is a central service (SWCAP) plan used? answer
- How can you distinguish between a direct cost and an
indirect cost? answer
- Is it permissible to allocate costs (either directly or
indirectly) on the basis of revenue or on the basis of funds
available under federal grants or contracts? answer
- Where can I obtain a copy of OMB Circular A-87?
answer
- Is there a form titled: “Federally negotiated rate
for indirect costs” relating to federal grants?
Can you tell me if there is such a form and, if there is,
where I can get a copy? answer
- When should an ICRP be submitted? answer
- What documentation is required to be included in an ICRP
package? answer
- Is OMB Circular
A-87 mandatory for use by state government?
Yes. Paragraph 3, Section A, Attachment A of the Circular
states that these principles will be applied by all federal
agencies in determining costs incurred by governmental units
under federal grants, cost reimbursement type contracts,
and cooperative agreements (including sub grants and subcontracts)
except those with (1) publicly-financed educational institutions
subject to OMB Circular A-21, and (2) programs administered
by publicly-owned hospitals and other providers of medical
care that are subject to requirements promulgated by the
sponsoring federal agencies.
“Governmental units,” as used in the paragraph
above, includes state departments.
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- OMB
Circular A-87 states that it does not apply to grants and
contracts with (1) publicly-financed educational institutions
subject to OMB Circular A-21, and (2) programs administered
by publicly-owned hospitals and other providers of medical
care that are subject to requirements promulgated by the
sponsoring federal agencies. What is the intent of this
statement and how does it affect the reimbursement of costs?
Each federal cost principle is designed to be compatible
with the organizational structure, accounting systems and
programs conducted by specific types of organizations, which
perform federal grants and contracts. The design of OMB
Circular A-87 is to be compatible with the type of operations
conducted by state and local government.
Other circulars define cost principles for organization(s)
such as, colleges and universities (OMB Circular A-21).
However, the preceding principles recognizes state and local
central service costs and departmental indirect costs allocable
as developed under the procedures of OMB Circular A-87.
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- Is
the indirect costs arrived at by the application of the
indirect cost rate percentage reimbursed to state government?
Yes. Indirect costs developed in accordance with the procedures
in OMB Circular A-87 will be recognized as part of the total
cost of the federal projects, except where restricted or
prohibited by law. The SWCAP amount included in the state
department’s budget will be recovered and remitted
to the General Fund.
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- Can
another federal agency question the costs included in a
central service cost allocation plan submitted to and approved
by a cognizant agency?
Cognizant federal agencies will coordinate the approval
of central service plans with the other federal agencies
affected. Accordingly, federal agencies will accept, as
part of the costs of a particular state or local government
agency, those costs represented as central service costs,
provided they are in accordance with the amounts in the
negotiation agreement signed by the representatives of the
State and the cognizant federal agency. Contact your cognizant
federal agency for any exceptions.
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- Where
can state departments receive additional information or
clarification on the implementation of OMB Circular A-87?
State departments should:
- Consult the Implementation Guide for OMB Circular
A-87, ASMB C-10. It is available from the website: http://www.hhs.gov/grantsnet/state/asmbc10.pdf.
- Contact the Department of Finance, Fiscal Systems
and Consulting Unit, at (916) 324-0385
or e-mail fiproswp@dof.ca.gov.
- Contact their federal cognizant agency for either
central service cost allocation plans or individual
department indirect cost proposals.
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- To what does
the expression “cost allocation plan” refer?
A cost allocation plan refers to a document that identifies,
accumulates, and distributes allowable costs to grants and
contracts and identifies the procedures used in making such
distribution. It refers to both the central service cost
allocation plan which is used to allocate the costs of central
government services to benefiting government departments
and the indirect cost proposals of those departments or
units performing grants and contracts. In lieu of an ICRP,
a cognizant federal agency may require a state department
to develop and submit a narrative cost allocation plan (CAP).
Rather than propose specific rates, such a plan describes
the methods used to allocate costs.
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- What
is an indirect cost rate?
An indirect cost rate is the ratio of a state department’s
indirect costs to some element of its direct costs, e.g.,
direct salaries and wages. An indirect cost rate is the
net product of an indirect cost rate proposal. Once determined,
the rate is used in billings to the federal government.
The indirect cost rate is multiplied by the direct salaries
and wages charged to a grant or contract.
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- Who
is responsible for preparing the statewide cost allocation
plan (SWCAP)?
It is the responsibility of the Department of Finance to
prepare the statewide cost allocation plan, commonly known
as SWCAP.
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- Who
is responsible for preparing a state department indirect
cost rate proposal (ICRP)?
It is the responsibility of each state department to prepare
the indirect cost rate proposal (ICRP) when indirect cost reimbursement
is sought.
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- Must
the indirect cost rate proposal or the central service cost allocation
plan be prepared centrally for each state department performing
under federal grant programs?
SAM
Section 8755.1 states that each state department receiving
federal funds has the responsibility to file an ICRP with
the federal government. State departments will send their
ICRPs to the Department of Finance for review and approval prior to submitting
the ICRP to the federal government.
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- How
is a central service (SWCAP) plan used?
The central service (SWCAP) plan is used to distribute allowable
central service costs to each of the individual government
departments benefited, in order that they might include
them in their indirect cost rate proposal (ICRP).
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- How can you
distinguish between a direct cost and an indirect cost?
There is no universal rule for classifying costs as direct
or indirect. Generally, a direct cost is one that is incurred
specifically for one activity, program, or cost center.
Indirect costs benefit several activities, programs, or
cost centers. Consequently, some allocation technique must
be used to distribute these indirect costs to the direct
functions benefited. Once a determination is made to a cost
as either direct or indirect, the treatment must be applied
consistently. Changes may be made to correct errors after
a determination has been made of the costs.
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- Is
it permissible to allocate costs (either directly or indirectly)
on the basis of revenue or on the basis of funds available
under federal grants or contracts?
No. The allocation of costs by either of these methods is
unacceptable. Cost must be allocated on the basis of benefits
received as measured by an acceptable direct cost base such
as total direct costs, salaries and wages, or total personal
services costs.
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- Where
can I obtain a copy of OMB Circular A-87?
You can look it up on the Internet. The address is: http://www.whitehouse.gov/OMB/circulars/
Select "State and Local Governments." Then, select
"OMB Circular A-87."
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- Is
there a form titled: “Federally negotiated rate for
indirect costs” relating to federal grants? Can
you tell me if there is such a form and, if there is, where
I can get a copy?
The form you are referring to is called an “Indirect
Cost Rate Agreement.” This document stipulates the
indirect cost rates an organization can use to claim indirect
costs under federal programs. The Agreement covers specific
periods and must be re-negotiated cyclically. The Agreement
is issued by your “cognizant” federal agency,
if you receive federal funding directly. The cognizant federal
agency is the sponsor who provides the most funding. Usually,
the Agreement is signed by both the recipient organization
and the cognizant federal agency that negotiated the indirect cost
rate(s).
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- When
should an ICRP be submitted?
ICRPs must be submitted to the Department of Finance before
sending the ICRP to the cognizant federal agency. Indirect
cost proposals must be submitted to the cognizant federal
agency within six months after the close of each fiscal
year. It is essential that proposals be submitted in a timely
fashion.
- What
documentation is required to be included in an ICRP package?
At a minimum, the documentation
to be included with the ICRP is:
a. Rates proposed with supporting data
b. SWCAP Detail Report by Agency
c. Financial data that is consistent with state budget amounts
and is the same as the information used in the ICRP
d. Organization chart
e. Signed Certificate
f. Summary Form
g. Checklist Form
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