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GHSA/NHTSA Indirect Rate Cost Plan Q&A (May 27, 2010;  revised 7/23/2010)


Question 1: There seems to be confusion regarding SHSO/State responsibilities when a local grantee, who does not have a federally approved Indirect Cost (IDC) rate, requests reimbursement from the SHSO. Does the SHSO/State have to approve the rate or just negotiate and/or monitor the rate?

Answer: The regulation states, "negotiate and monitor." Approval is an unspoken part of that process. The critical part is the periodic monitoring of the Indirect Cost Rate plan in order to ensure that it is current and accurately reflects indirect costs. As a good practice, the involved governmental unit should provide a signed certification that the Indirect Rate costs claimed are "true and correct" similar to what a cognizant federal agency would receive and "approve." (Appendix E, D and E of 2 CFR 225)

We (NHTSA and GHSA) should emphasize that it doesn't have to be the SHSO but more appropriately an audit or finance office that does the review of the IDC plan. If the SHSO doesn't want to pay IDC to locals, they are not obligated to negotiate a rate. Many States have adopted that position because they don't have the skill set to reliably and accurately negotiate an indirect rate. The State audit and finance offices are most often in a better position to perform this function.


Question 2: I have heard from a few states that are struggling to understand how to convert indirect costs to direct costs. For example, one question I had was, could a nonprofit who is currently receiving IDC no longer seek reimbursement for IDC but instead direct charge an accounting position at 25% of an FTE, providing there was adequate supporting documentation.

Answer: The short answer to the question above is “yes” provided that the “consistency” principle is followed:
See 2 CFR 225, Appendix A, D. Composition of Cost, 2. Classification of costs - the rule here is "consistency." It is vital that the SHSO treat like costs the same way that the other State agencies treat them - either as direct or indirect. It is vital that the State conform to the way other State agencies are performing the same function. SHSOs should ask for a certification from the grantee that any “converted” costs are not included as indirect costs in other grants in their organization.
The Cost Principles for Non Profits, 2 CFR Part 230 uses similar language, "However, a cost may not be assigned to an award as a direct cost if any other cost incurred for the same purpose, in like circumstance, has been allocated to an award as an indirect cost." Also if the salary expenses are deemed to be direct costs, the nonprofit sub grantee will have to comply with, the following, "The distribution of salaries and wages to awards must be supported by personnel activity reports, as prescribed in subparagraph 8.m.(2) of this appendix, except when a substitute system has been approved in writing by the cognizant agency."

Notes:
  • If a State/local governmental sub grantee is considering changing a position to direct federal funding, care must be taken to avoid supplanting – the substitution of Federal funding for a general cost of government. The non-profit example given above is a good one because the supplanting concern would not apply.
  • Non-profit sub-grantees would normally be governed by A-122, but in for the issue of indirect cost rate plans, the HHS has determined that 2 CFR 225 will apply. The HHS determination is excerpted here:
“While the regs do not address your common problem directly, state agencies subgranting to a nonprofit, 2 CFR 225 does prescribe the solution we give nonprofits which subgrant to nonprofits. It says “Where a local government only receives funds as a sub-recipient, the primary recipient will be responsible for negotiating and/or monitoring the sub-recipient’s plan. Because the non-profit sub-grantee clearly does not qualify for obtaining a Federal indirect cost rate agreement, if the SHSO wishes to reimburse it or any other subgrantee, governmental or nonprofit, which otherwise cannot obtain a federal indirect cost rate agreement, it would have to negotiate and/or monitor the sub-recipient’s plan.” 2 CFR 225, Appendix E, Sections C and D … provide guidance on allocation of indirect costs and determination of indirect cost rates, and submission and documentation of proposals.” (a copy of the letter and supporting correspondence is available from the NHTSA ROs)

Question 3: There doesn't seem to be consensus within the Regional Offices that the flat 10% indirect cost rate Finding remedy will take effect in FFY 2010, as the following MR Required Action example states:

“Required Action C-1: Develop a Corrective Action Plan to ensure compliance with 2 CFR 225, “Indirect Costs”
A Corrective Action Plan must be developed to ensure that beginning in FY 2010, local subgrantees no longer claim a flat 10 percent indirect rate on personal services. The allowable indirect rate must be negotiated between the locality and a cognizant Federal agency. Where no such negotiated rate exists and a local government only receives funds as a sub-recipient, the primary recipient (the State, for our purposes) will be responsible for negotiating and/or monitoring the sub-recipient’s plan, as per Appendix E of 2 CFR 225 Section D.1.b.”

Answer: The Regional Administrators will be reminded that we are looking forward (starting in FFY 2010) on the 10% indirect cost rate Finding remedy. However, if a state continues to extend the standard 10% rate reserved for interagency agreements to local sub-grantees in FY 2010 and beyond, a required action may include a readjustment of the rate and a recovery of funds. NHTSA will look forward in regard to the remedy, only. A violation of this item is still a Finding of non-compliance whenever it occurred – pre – during – post FY2010.

Notes:
  • The “look forward” agreement is limited to this specific standard 10% or lower rate issue. If a state is paying a subgrantee for indirect costs for some percentage above 10% and lacks a Federal cognizant agency approved rate or when appropriate, a rate that the State has negotiated and monitored, a non-compliance Finding would cited. And an appropriate remedy for the entire amount EG. 13% would be applied, regardless of the date of the violation – even if a pre-FY 2010 project was involved.
  • States that have yet to make this change should do so immediately. Since GHSA and NHTSA are issuing this clarification in July 2010, remedy options for this FY2010-only may include making the project file whole (including cost adjustments) by the immediate establishment (negotiate/monitor) of an indirect cost rate between the State and the sub-recipient or the approval of a plan between the cognizant agency and the sub-recipient, if appropriate. Q&A continued (June 9, 2010)

Question 4: Can the Director of a State’s HSO negotiate and monitor cost allocation plans?<//>

Answer: Strictly speaking, the State, as the primary recipient of our grant funds is responsible for negotiating and/or monitoring the sub-recipients plan. If the SHSO wishes to reimburse any sub-grantee for indirect costs, governmental or non-profit, which otherwise cannot obtain a federal indirect cost rate agreement, it or another State qualified entity would have to negotiate and/or monitor the sub-recipient’s plan.
Ref. 2 CFR 225 and the HHS guidance letter Excerpt from ASMB C-10 implementation guide: “… the primary recipient could require subrecipients to develop the necessary documentation concerning indirect charges and retain the documentation for audit and could then review audit reports to determine whether proper cost charging occurred.”
OMB Circular A-133 states, “Audit required. Non-Federal entities that expend $300,000($500,000 for fiscal years ending after December 31, 2003) or more in a year in Federal awards shall have a single or program-specific audit conducted for that year in accordance with the provisions of this part.”
ASMB C-10, 4.4.3 further states, “Local governments, that only receive funds as a sub-recipient of another government, should follow instructions from their pass-through grantors concerning submission and review (of their plan). However, they are expected to prepare and retain their plans for audit by independent auditors and Federal auditors. Pass- through grantors (primary recipients) are expected to review and monitor subrecipient plans to provide reasonable assurance that provisions of Circular A-87 (2 CFR 225) are being followed.”


Question 5: Are management/grants administration fees, conference sponsorship fees fundable?

Answer: Yes, these are direct costs, as long as it complies with the basic cost principles of 49 CFR 18.20 - “All claimed costs must be accounted for in accordance with State Laws and procedures – the same laws and procedures for expending and accounting for its own funds. Fiscal control and accounting procedures of the States, as well as its subgrantees must be sufficient to permit the preparation of reports required by 49 CFR Part 18 and the NHTSA grants, and permit the tracking of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes.” (excerpted) and 2 CFR 225 Appendix A, C - All costs must be necessary, reasonable, allocable, authorized and not prohibited under State or local laws/regs; and be consistent, accorded consistent treatment, be adequately documented.


Question 6: Do some of your non-profits have a cognizant federal agency indirect cost rate?

Answer: “Major” local governments and major universities and national non-profits may have cognizant agency rates. Ask for a copy of the approved rate plan.


Question 7: Can the SHSO or other State agency/department establish a policy that outlines a rate for all non-profits statewide?

Answer: Yes. Note: all plans are subject to audit. Non-compliance may result in fund recovery. As stated in ASMB C-10, “As accountability for the Federal funds ultimately rests with the primary recipient, the level of risk and exposure should be the determining factors in what oversight will be required.”


Question 8: Are indirect cost rates limited to direct salaries only?

Answer: It depends on the sub-recipient’s relationship to the primary recipient. Yes, if the subrecipient is another State agency (without a cognizant agency rate) seeking the 10% standard interagency rate. In those cases, rather than determining the actual indirect cost which may include central carpool services and group insurance items, a 10% flat rate is allowed on direct salaries-only, in order to lessen the accounting burden.

No, if the SHSO wants to actually negotiate a rate with a sub-recipient that does not have a cognizant agency rate. Care would have to be taken that like costs are treated consistently by the subrecipient for other Federal awards. The SHSO may adopt the interagency rate limitations, if they wish, as long as the plan is documented and retained for review and audit.

Question 9: Must indirect cost rate plans “approved” by the primary recipient be updated annually?

Answer: The State must negotiate and/or monitor the plan. A form of IDC rate plan monitoring would be at the end of each year or the beginning of each FY. For example, the SHSO would send a letter to grantees that had a negotiated rate from the previous year. The purpose would be to determine if the rate was still accurate, supportable and if they planned to use the same rate in the new FY or negotiate a new rate.


Question 10: What will NHTSA examine during an MR?

Answer: Two things:

  1. A document that supports a negotiated IDC rate and
  2. Project files to determine if that rate has been charged accurately
An MR finding would result from the absence of a negotiated and/or monitored plan or if the established rate was billed incorrectly.


Question 11: Who is responsible for developing and monitoring the subrecipients’ indirect cost rate plan?

Answer: The burden for plan development rests on the sub-recipient. It’s neither the SHSO’s responsibility, nor NHTSA’s. Sample plans are contained in the ASMB C-10. Sample certification statements are found in 2 CFR 225 App. E. Still, as noted in the same document in item 4-3, the CFR regulation “…does not specifically prescribe procedures to be used by primary recipients in accepting claims for indirect costs made by organizations to which they make subawards. The Circular states: ‘Where a local government only receives funds as a sub-recipient, the primary recipient will be responsible for negotiating indirect cost rates and/or monitoring the sub-recipient's plan.’ (Att.C, ¶ D.3.) This would permit a primary recipient to actually engage in prospective review and negotiation. Alternatively, the primary recipient could require subrecipients to develop the necessary documentation concerning indirect charges and retain the documentation for audit and could then review audit reports to determine whether proper cost charging occurred. It would also be acceptable for primary recipients to use a combination of these methods, depending upon the relative size of the subrecipient. As accountability for the Federal funds ultimately rests with the primary recipient, the level of risk and exposure should be the determining factors in what oversight will be required.


Question 12: What should the SHSO consider should it wish to negotiate and/or monitor a sub-recipient ICR plan?

Answer: The data and information that a cognizant agency can require is subject to reasonableness. The same test may be applied when a State assumes this role, if they wish. Factors listed in ASMB C-10 (4-4) for cognizant agencies to consider when assessing documentation needs include:  (1) the overall size of the government unit; (2) the timing of previous reviews and the results of such reviews; (3) the appearance of systemic problems; (4) the reoccurrence of problems/issues; (5) the veracity of information provided in the past; and (6) the level of "good faith" exercised in the past by the government or its consultants, if applicable.