# Presentation: 224734

## Washington, D.C. - August 2008
USDOL/VETS
Competitive Grantees Training Conference

Presented by Victor M. Lopez
Chief, Division of Cost Determination/OAMS/BOC/OASAM
202-693-4106 – lopez.victor@dol.gov

**Washington, D.C. - August 2008**
**USDOL/VETS**
**Competitive Grantees Training Conference**
**Presented by Victor M. Lopez**
**Chief, Division of Cost Determination/OAMS/BOC/OASAM**
**202-693-4106 – **_[lopez.victor@dol.gov](mailto:lopez.victor@dol.gov)_

**Allowable/Unallowable Costs**
**Per OMB Circular A-122**

## Web address for DOL’s Division of Cost Determination

- _[http://](http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm)__[www.dol.gov/oasam/programs](http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm)__[/ ](http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm)__[boc/costdeterminationguide/main.htm](http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm)_
**The site contains links to OMB Circulars, the FAR, and other information on documenting **_**indirect cost proposals**_**.**

## What we will cover:

**Structure of OMB Circular A-122 (2 CFR 230) - **_**non-profit cost principles**_**.**
**Definition of Allowable Costs and Unallowable Costs.**
**Selected items of Cost; Attachment B. **We will cover 38  _specific_ items of costs out of 52, and a short quiz.
**Answers to your questions.**
_**Note**_**: Recommend reviewing the **_**entire**_** Attachment B for any follow-up questions, available at: **_**[http://www.whitehouse.gov/omb/circulars/a122/a122_2004.html](http://www.whitehouse.gov/omb/circulars/a122/a122_2004.html)**_

## Attachment A:    General Principles

Attachment B:    Selected Items of 					Cost

Attachment C:    Non Profits not 					subject to this	 			Circular.

**Attachment B****:    Selected Items of ****	****	****	****	****	****Cost**
**Attachment C:    ****Non Profits not ****	****	****	****	****	****subject to this****	**** ****	****	****	****Circular.**

- Structure of A-122 (2 CFR Part 230)

## 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 be against the law
- Not already be included in a cost sharing or matching requirement
- Be net of applicable credits
- Be adequately _documented._
- _*  __Attachment A, OMB Circular A-122 – For Federal Cost Reimbursement._

## Unallowable Costs are those:

- Specifically identified in the _grant/contract_ as being unallowable.
- Specifically identified in Circular A-122, as being unallowable.
- Does not meet the criteria listed in Circular A-122 to be allowable.

## Sample Unallowable Costs

- Alcoholic Beverages
- Bad Debts
- Contingency provisions
- Fines and Penalties
- Lobbying Costs

- Fund Raising Costs
- Entertainment
- Social Memberships
- Fundraising Costs
- Interest on borrowed capital

## Attachment B; Introduction

- These principles apply whether a cost is treated as direct or indirect. _Failure to mention a particular item of cost is not intended to imply that it is unallowable_; rather, determination as to allowability in each case should be based on the treatment or principles provided for similar or related items of cost.

## Advertising & Public Relations(1 of 3)

- Allowable _Advertising_
- Recruitment of personnel required for performance of Federal award
- Procurement of goods & services for the performance of the award
- Disposal of scrap or surplus acquired in the performance of award

- Continued

## Allowable Public Relations
Costs are specifically required by award
Costs of communicating with the press pertaining to accomplishments which resulted from the performance of an award
Cost of keeping the public informed on matters of public concern . . . such as notices of contract/grant awards . . . etc.

- Costs are specifically required by award
- Costs of communicating with the press pertaining to accomplishments which resulted from the performance of an award
- Cost of keeping the public informed on matters of public concern . . . such as notices of contract/grant awards . . . etc.

- Advertising & Public Relations(2 of 3)

- Continued

## Specifically unallowable:

Costs of promotional items, memorabilia, gifts and souvenirs

Costs of advertising and public relations designed solely to promote the organization

- Costs of promotional items, memorabilia, gifts and souvenirs
- Costs of advertising and public relations designed solely to promote the organization

-     Advertising & Public Relations (3 of 3)

## Alcoholic Beverages

- Costs of alcoholic beverages
- are unallowable!

## Audit Costs and Related Services

**Audits required by, and performed in accordance with, the Single Audit Act, **_**as implemented Circular A-133 are allowable.**_
**Other audit costs are allowable if included in an indirect cost rate proposal, **_**or**_** if specifically approved by the awarding agency as a direct cost.**
**The cost of agreed-upon procedures engagements to monitor sub-recipients who are exempted from A-133 are allowable. **

## Bad Debts

- Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collection costs, and related legal costs, _are unallowable_

## Communication

- 	Costs incurred for telephone services, local and long distance telephone calls, telegrams, postage, messenger, electronic or computer transmittal services _and the like are allowable_.

## Compensation for Personal Services(1 of 3)

- 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

- Continued

## Fringe benefits
Generally allowable.  They also need to be  reasonable.
Includes expenses such as, Annual Leave, Sick Leave, Holiday, Social Security, Workers Comp., Pension, UI, etc.
Employer contributions are allowable when paid in accord with established written policies.

**Generally allowable.  They also need to be  reasonable.**
**Includes expenses such as, Annual Leave, Sick Leave, Holiday, Social Security, Workers Comp., Pension, UI, etc.**
**Employer contributions are allowable when paid in accord with established written policies.**

- Compensation for Personal Services (2 of 3)

- Continued

## Support of salaries and wages
Personnel Activity Reports (PARs or Time Distribution Reports)
Must reflect after-the-fact determination of activity (not budget estimates).
Must account for total activity for which employee is compensated.
Must be signed by the employee or responsible supervisor.
Must be prepared at least monthly and coincide with one or more pay periods.

- Personnel Activity Reports (PARs or Time Distribution Reports)
_**Must**_ reflect after-the-fact determination of activity (not budget estimates).
_**Must**_ account for total activity for which employee is compensated.
_**Must**_ be signed by the employee or responsible supervisor.
_**Must**_ be prepared at least monthly and coincide with one or more pay periods.

- Compensation for Personal Services(3 of 3)

## 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.

**Exceptions might be self-insurance, pension funds and reserves for normal severance pay.**

- Contingency Provisions

## Depreciation and Use Allowances(1 of 4)

**Costs are **_**allowable.**_
**A combination of the two methods may not be used in connection with a single class of fixed assets (e.g., buildings, office equipment, computer equipment)**
**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.**

- Continued

## Computation of use allowance or depreciation will exclude:
Cost of land
Any portion donated by Federal Government
Any matching portion 
Maximum use allowance
Buildings and improvements = 2% of acquisition cost
Equipment = 6 2/3% of acquisition cost

**Cost of land**
**Any portion donated by Federal Government**
**Any matching portion **
**Maximum use allowance**
**Buildings and improvements = 2% of acquisition cost**
**Equipment = 6 2/3% of acquisition cost**

- Depreciation and Use Allowances(2 of 4)

- Continued

## Where depreciation method is followed:

Use straight-line                                    , or

Document clear evidence that the expected consumption of the asset will be significantly greater or lesser in the early portions of its useful life and use another depreciation method

“Componentization” of buildings is permitted for purposes of depreciation or the entire building may be treated as a single asset.

- Use straight-line                                    , or
- Document clear evidence that the expected consumption of the asset will be significantly greater or lesser in the early portions of its useful life and use another depreciation method
- “Componentization” of buildings is permitted for purposes of depreciation or the entire building may be treated as a single asset.

- Depreciation and Use Allowances(3 of 4)

- Continued

## Adequate property records must be maintained under either method
Physical inventories must be taken at least once every two years

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

- Depreciation and Use Allowances(4 of 4)

- Property
- Ledger

## 	Contributions or donations rendered, including cash, property, and services, made by the organization, regardless of the recipient, are unallowable 

- Donations and Contributions(1 of 2)

- Continued

## Donations and Contributions(2 of 2)

- The value of _donated services, goods, or space_ received _is not reimbursable either as a direct or indirect cost._
- However, the value of donated services, goods or space _may be used to meet cost sharing or matching requirements._

- Continued

- Donated services received:

## Employee Morale, Health & Welfare Costs 

- Examples - In-house publications, health clinics, recreational activities, etc.
- Costs are _allowable if_:
- In accord with established practice
- Reasonable
- Equitably distributed to all activities
- Offset by income earned

## Entertainment

-    Costs of entertainment, including _amusement, diversion and  social activities_ and costs relating to these activities _such as tickets, meals, lodging, rentals, transportation and gratuities_ _**are unallowable**_**.**

## Equipment & Other Capital Expenditures (1 of 2)

**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
**Capital Expenditures** – expenses for the acquisition cost of capital assets or expenses for improvements that materially increase the value of the capital asset.

- Continued

## Equipment and Capital Expenditures are Unallowable as indirect costs.
Prior approval from the awarding agency must be obtained to direct charge. 

- Prior approval from the awarding agency must be obtained _to direct charge_.

- Equipment & Other Capital Expenditures (2 of 2)

## Fines and Penalties

**Federal**
**Marshal**

- 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.

## Fund Raising and Investment Management Costs

- Fund raising and similar expenses incurred to solely _to raise capital or obtain contributions are unallowable_
- Costs of investment counsel & staff and similar expenses _are unallowable_
- Fund raising and investment activities _shall be allocated an appropriate share of indirect costs_

## Goods or Services for Personal Use

- 	_Unallowable_ regardless of whether the cost is reported as taxable income.

**Federal**
**Marshal**
**IRS**

## 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.

## Idle Facilities and  Idle Capacity

- _Unallowable except_ to the extent that:
- They are necessary to meet fluctuations in workload or
- Were necessary at one point and because of unforeseen changes are no longer necessary (under this exception, costs of idle facilities are allowable for a reasonable period of time, _ordinarily not to exceed one year_)

## Insurance and Indemnification(1 of 2)

- 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 coverages
- Cost of insurance on officers must represent additional compensation and the organization may not be identified as the beneficiary
- Other miscellaneous items

- Continued

## Indemnification includes securing the organization against liabilities to third parties and other loss or damage, not compensated by insurance.
The Federal government is obligated to indemnify the organization only to the extent expressly provided in the award.

- The Federal government is obligated to indemnify the organization _only to the extent expressly provided in the award._

- Insurance and Indemnification(2 of 2)

## Interest

-    Generally unallowable.  See item #23 of the Circular for more details.

## Labor Relations Costs

-    Costs of maintaining satisfactory relations with employees, including labor management committees, employee publications and other related activities _are allowable_.

## Unallowable:
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

- 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

- Lobbying (1 of 3)

- Continued

## 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

- 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

- Lobbying (2 of 3)

- Continued

## Indirect Cost Proposals (ICP) must separately identify lobbying costs and treat them as unallowable
Nonprofits must provide a “Lobbying Certification” with their annual ICP
Organizations shall maintain adequate records to demonstrate the determination of costs as allowable or unallowable in accord with Circular A-122.

- Nonprofits _**must**_ provide a “Lobbying Certification” with their annual ICP
- Organizations _shall maintain adequate records to demonstrate the determination of costs as allowable or unallowable in accord with Circular A-122_.

- Lobbying (3 of 3)

## 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.

## Materials and Supplies (1 of 2)

- M/S costs necessary to carry out a Federal award are allowable
- M/S must be charged at their actual prices, net of applicable credits
- M/S costs may be allowable as direct or indirect

- Continued

## Only materials and supplies actually used for the performance of a Federal award may be charged as direct costs.
Where federally-donated or furnished materials are used in performing the Federal award, such materials will be used without charge. 

- Where federally-donated or furnished materials are used in performing the Federal award, such materials will be used without charge.

- Materials and Supplies (2 of 2)

## Meetings and Conferences

- Costs of meetings and conferences, the primary purpose of which is the _dissemination of technical information, are allowable_
- Costs _include_ meals, transportation, rental of facilities, speakers’ fees, and other items incidental to the meeting or conference
- Caveat – Entertainment & Participant support costs

## Memberships, Subscriptions and Professional Activity Costs (1 of 2)

- 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.

- Continued

**Members**
**Only**

## 
Memberships in country, social, or dining clubs are unallowable.

- Memberships in country, social, or dining clubs _are unallowable._

- Memberships, Subscriptions and Professional Activity Costs (2 of 2)

## Organization Costs

-    All costs of organization or reorganization _are unallowable except with prior approval of the awarding agency._

## 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 as direct costs with the prior approval of the awarding agency**_.

**Participant**
**Express**

## Pre-agreement Costs

- Pre-award costs are costs incurred _prior to the effective date of the award directly pursuant to the negotiation of the award._
- Such 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**_.

## 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 non-profit organization, _**are generally allowable if reasonable and not contingent on recovery of costs from the Federal government**__._

## Publication and Printing

_**Generally allowable**_** and include page charges in professional publications.**
**Allocate as indirect **_**if not**_** identifiable with a particular cost objective.**

## Recruiting

- 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

**Help**
**Wanted**

## Rental Costs

- Rental costs are generally allowable if reasonable.  See item # 43 of the Circular for more details.

**Office Space**
**For Rent**
**Phone 634-5789**

## 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.**

***I.***
***   ******R.***
***       ******S.***

## Termination Costs applicable to Sponsored Agreements

- Termination of awards generally give rise to costs which would not have arisen had the award not been terminated.
- Reasonable and customary costs of terminating an award are generally allowable.  Review additional details in the Circular # 48.

**Closed --**
**Funding**
**Terminated**

- Continued

## Training Costs

- Generally, training and education costs related to employee development, such as, workshops, textbooks, classes, etc. _are allowable_

**Pi R**

## Transportation

- _Allowable as direct if provided for in the award_
- _Allowable as indirect for equitable distribution to all benefiting activities_

## Travel

- 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.

## Trustees

-    Travel and subsistence of trustees (or directors) are allowable, noting restrictions for travel costs (#51).

## Quiz

- Let’s see if you did!

- Did you get it?

## True or False

- If a specific item of cost _**is not**_ mentioned in Attachment B, the implication is that the cost is unallowable.
- False
- Attachment B  (Opening paragraph)

## Costs of advertising and public relations designed solely to promote the non-profit organization are unallowable.
True
1.f.(4)

- Costs of _**advertising and public relations**_ designed _solely_ to promote the non-profit organization are unallowable.
- True
- 1.f.(4)

- True or False

## True or False

_**“**__**Mixed” drinks**_ containing alcohol are allowable.
- False
- 3. Alcoholic Beverages

## Audit costs charged included in the indirect cost pool are not allowable.
False
4.b.

_**Audit costs**_ charged included in the indirect cost pool are not allowable.
- False
- 4.b.

## Legal costs associated with the collection of bad debts, are allowable as indirect costs.
False
5.

- Legal costs associated with the collection of _**bad debts**_, are allowable as indirect costs.
- False
- 5.

## Personal Activity Reports (PARs) must reflect an after-the-fact determination of the actual activity of each employee.  Budget estimates do not qualify as support for charges to awards.
True
8.m.(2)(a)

_**Personal Activity Reports**_ (PARs) must reflect an after-the-fact determination of the actual activity of each employee.  Budget estimates do not qualify as support for charges to awards.
- True
- 8.m.(2)(a)

## The value of donated services is not reimbursable either as a direct or indirect cost.
True
12.b.(1)

- The value of _**donated services**_ is not reimbursable either as a direct or indirect cost.
- True
- 12.b.(1)

## Costs of employee information publications (health, counseling, recreational, etc.) in accord with established practice or custom are allowable.
True
13.a. Employee Morale

- Costs of employee information publications (health, counseling, recreational, etc.) in accord with established practice or custom are allowable.
- True
- 13.a. **Employee Morale**

## True or False

- Cost of _**entertainment**_, including amusement diversion and social activities are allowable as long as the governmental unit has a written "no smoking" policy.
- False
- 14.

## True or False

- Costs of _**idle facilities**_ are allowable if they are necessary to meet fluctuations in workload.
- True
- 21.b.(1)

## Costs incurred for interest on borrowed capital, temporary use of endowment funds, or the use of the non-profit organization’s own funds, however represented, are unallowable.
True
23.a.

- Costs incurred for _**interest**_ on borrowed capital, temporary use of endowment funds, or the use of the non-profit organization’s own funds, however represented, are unallowable.
- True
- 23.a.

## Costs incurred for necessary maintenance, repair, or upkeep of buildings and equipment which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable.
True
27.

- Costs incurred for necessary _**maintenance, repair**_, or upkeep of buildings and equipment which neither add to the permanent value of the property nor appreciably prolong its intended life, _but keep it in an efficient operating condition_, are allowable.
- True
- 27.

## Costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable.
True
29.

- Costs of _**meetings and conferences**_, the primary purpose of which is the dissemination of technical information, are allowable.
- True
- 29.

## Employee memberships in “golf clubs” in certain regions of the country are allowable.
False
30.d.

- Employee _**memberships**_ in “_golf clubs_” in certain regions of the country are allowable.
- False
- 30.d.

## Participant support costs may be charged as indirect if they are allocated equitably to all programs.
False
33. (Awarding agency prior approval is required.)

_**Participant support costs**_ may be charged as indirect if they are allocated equitably to all programs.
- False
- 33. (Awarding agency prior approval is required.)

## Allowable publication and printing costs not identifiable with a particular cost objective should be allocated as indirect costs to all benefiting activities of the non-profit organization.
True
38.b.

- Allowable _**publication and printing costs**_ not identifiable with a particular cost objective should be allocated as indirect costs to all benefiting activities of the non-profit organization.
- True
- 38.b.

## Training costs for an accountant to attend an art class are allowable even if the artistic abilities gained are not used in conjunction with the accountant’s employment.
False
49.b.

_**Training costs**_ for an accountant to attend an _art class_ are allowable even if the artistic abilities gained are not used in conjunction with the accountant’s employment.
- False
- 49.b.

## Where identification with the materials received cannot readily be made, transportation costs may not be charged as an indirect cost, even if the organization follows a consistent, equitable procedure in this respect.
False
50.

- Where identification with the materials received cannot readily be made, _**transportation costs**_ may not be charged as an indirect cost, even if the organization follows a consistent, equitable procedure in this respect.
- False
- 50.

## If travel costs are paid to relocate a newly recruited employee who is hired and decides to quit the job 6 months later due to winning a lottery, the organization will be required to refund or credit such recruitment/relocation costs to the Federal government.
True
41.d.

- If _**travel costs**_ are paid to relocate a newly recruited employee who is hired and decides to quit the job _6_ months later due to winning a lottery, the organization _will be required to refund_ or credit such recruitment/relocation costs to the Federal government.
- True
- 41.d.

## Questions??

## Time to say goodbye

**Time to say goodbye**