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DAY2MORNINGSESSION.MOV

10/04/2020

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>> All right. Welcome back, and good morning. I'm Tim Fuchs from NCIL and we are here to get started with day two of our financial management training. As I promised, at the end of the day yesterday, we're going to begin with a brief review of day one, and we're really going to do that by addressing some questions that we didn't get to yesterday, or maybe a better way to say it is expanding on some of the topics that we didn't finish talking about yesterday.
I didn't get any additional questions overnight, but you're welcome to submit them now. I know John and Paula are each going to start off by addressing some things that were carried over from yesterday, but I'll keep an eye on that Q&A tab, if you all want to enter any questions. We're going to dive right in today because you all are a returning audience, but I want to point out, if you all have any questions about the housekeeping or accessibility items or anything about connecting to the training or the training webpage that we reviewed yesterday, please do let us know. You can use the chat feature. You can also email me at tim@ncil.org. That's T-I-M@ncil.org.
Just a quick plug, I'll ask for your cooperation, let's use the Q&A tab for content questions, and let's use the chat for any technical support, or questions about accessing the training. All right. I'm going to turn it over to John, to talk a little bit more about the SOC 1 examples that we started to discuss yesterday. John.
>> Thanks, Tim. Yesterday, there was a question about, "Could we see a copy of a sample SOC 1 report?" After we finished, I took a look and the SOC 1 reports really aren't published. They really get into the procedures and controls of these service organizations. Keep in mind, we're talking about organizations like your payroll processor. I went on to Paychex and ADP's website to try to get a copy of their SOC 1 Report. I see that you have to be a customer and you have to sign a non-disclosure agreement to be able to see that. That's pretty much across the board, because it does talk about any deficiencies in their system. If you're working with one of these organizations, if they're serving you as a customer or prospective customer, you would have the right to request a copy of that. You'd sign a non-disclosure agreement, which means you're not going to talk about any shortcomings that might be on their report. If you want to get just a little bit of a background of what the report is, if you go to aicpa.org and put in SOC report, it provides a description of what the process is, but basically, it's an evaluation of whether an organization performs the services they claim to perform and has controls over those services. It's an audit of those things. Not a traditional financial statement audit, but an audit of procedures and controls. That's the SOC 1.
Another question that came up was, how to select a good IT service provider. We have an excellent relationship with our IT service provider. I knew the CEO before he even started his own company. He was CEO, but not owner of another IT company. Started off on his own, and he actually rented a couple little offices from us, and now they're in multiple states. They've grown very, very well, a real success story. If you want to look at their website, they're iconicit.com. I-C-O-N-I-C-I-T, iconicit.com. I looked at what services they provided, and they have two big picture menus. One of those is supporting your IT department, so if you have IT people on your staff. They just want to have a resource, to keep up-to-date, to do some things that they're not capable of doing, or it's not practical for them to buy the software to do, then they'll have that relationship with you, and that's going to be on an hourly basis. Or they can be basically your IT backup and support. I looked at the list of services, I'm going to read some of these, but these are the kinds of things that you would look for if you're reaching out to an IT service. They talk about AI-based antivirus, artificial intelligence-based anti-virus, web filtering. Talked about that briefly yesterday, but what that means is that, when you click on a website, before you actually go to that website, the website is checked to see if it's identified as a spam website. Same thing with email filtering, and I believe that this is available with Microsoft 365, formerly called office 365. If you have your Outlook 365, you can have that automatically filtered, the email, before it comes to you. That greatly reduces the chance that unsafe attachments are going to come through. We talked about, yesterday, how to reduce the possibility of social engineering, getting some evil into your system here. This is another layer of protection that will stop an awful lot before our folks even get to consider whether they're at risk.
24/7 network monitoring, they do this automatically. They have software. If you're talking to somebody about this, they can probably show you the kinds of monitoring reports they get. If there's a failure or near failure with one of your hard drives, they'll get an alert, like a fire alarm to them, and they'll reach out to you very promptly on that.
Security patching, application updates, we talked about all that. PC optimization, remember, we talked about things like defragmenting hard drives, so it's that sort of thing. Cloud backup, they will do dark web monitoring. I have a personal experience with this. They reached out to me and they said, "John, we wanted to let that we found what's supposedly one of your passwords on the dark web." They told me what it was, and I said, "Oh, crap. That is one that I use a lot." It really scared me a bit to know that that was on the dark web. Of course, I changed it right away. Now, I like to ride motorcycles. Oh, why did I say that?
At any rate, they'll do that. That can be one of their offerings. We talk about the dark web, it really is a real thing with an awful lot of problems coming from it, so dark web monitoring can be valuable.
Security awareness training. We talked just a little tiny bit about that yesterday, but I think we would all have to agree that that is valuable. I'm sure they charge extra for that, but that's part of their potential offerings.
Finally, 24/7 after-hours emergency support, and business continuity and disaster recovery. Let's say, just with all of that, if you have a serious ransomware attack, they'll help get you back up to speed quickly. That's a pretty good list. I went through it quickly, probably difficult for you to take notes, but if you go to their website, and look at their services, you'll see everything that I read and a few more items. I'm going to call that a benchmark. As an accounting firm, hackers try to get to us all the time. "We've got your social security numbers." "We got your bank account numbers." "We've got your driver's license numbers." We are a prize hack opportunity, so we need to have really, really good security, and these folks have kept us safe for many years. I hope that answers your question, but that's a good example of what you would want to do in terms of an outside IT service provider. Paula, would that kind of a service possibly qualify for that COVID-19 funds?
>> I believe that it would, because of the added risk of staff working remotely. If you've reopened, you might have a little more tough time making a case. With any of your CARES Act Fund expenses, you need to be able to show that it's somehow related to COVID-19 and it's somehow helping people stay safe and healthy, which can include your staff. It can include the fact that they're now remote and you need more protections or more things in place. In fact, 71% of you, one of the things you use the CARES Act funding for, was to upgrade your center's technology. It's not just the security, there are other things, too. The speed at which things work if everybody's tapping in remotely to your server every day, things can be very slow. The security on those devices, making sure that you have the appropriate software, the IT support to get it set up, certainly. Long term, it would not pay for IT support and you'd have to find a place for that, of course, in your Part C and Part D budget or both. I think, absolutely, it makes sense because of the added risk of remote locations and remote staff. I might just take-- Go ahead.
>> No, go ahead Paula.
>> I was just going to say, when we're finished with this topic, I want to take just a second to talk to you about what's what else is allowable in the CARES Act.
>> I was just going to wrap up by saying, when you have this kind of support, we talk about it as purely a security thing, but it's really more than just security. They really will help you with your efficiency. If your technology is not working efficiently, if you can change some things to enhance your ability to work remotely or to do whatever you do, they'll tell you about that. They're going to be very quick to tell you about that, because your systems become immediately more reliable. That means there will be some savings in terms of the amount of time it takes to perform certain tasks. Just as one example, if you have an out of date accounting system or process for getting to it or process for backing it up, they'll tell you about that, as part of this. Any of those things can improve not only the security, but the efficiency. That's it, Paula.
>> I know some of you have been asking what things you can spend your CARES Act funds for. For some of you, it was a very big, new amount of money, and you want to make sure that you're doing it accurately. It's wise for you to think about what is allowable with these funds. The same kinds of things are allowable or not allowable, as we talked about yesterday. In addition to that, everything that you spend CARES Act funds on, has to be related to a response to the COVID-19 crisis, and related to helping the people that you serve, the people with disabilities in your communities, to be safe and healthy throughout this pandemic, however long it may last.
Your funding is good this fiscal year and rolling into next fiscal year, it does cross that line between two fiscal years, and you just use the remainder next year. You can use it for a number of different things, all of which were in that little survey we had you do. It was real clear that one of the things almost all of you spent money on is protective equipment, masks, gloves, hand sanitizer, the kinds of things that you wanted to get out to people. That wasn't a surprise. That's 93% of you who are spending at least some of the funds on that. There were also, as I said, 71% of you are upgrading the technology. That was the second-highest number that we saw.
Technology for consumers and food was the third-highest number of things that you all are buying. Of course, you don't want to duplicate another community service to people. Food has been necessary sometimes, but also, partnerships relating to food have been happening a lot as well, so that you can do some of that hotspots and other internet access for consumers. You're providing them with a way to access services remotely through technology, but they may also need that access. They may not have WiFi access. Some kind of access for consumers is something a lot of you did.
Some of you have hired new staff. About 26% of you have hired somebody new and that's allowable. They have to be working specifically on this situation, or if you have current staff working on this situation, you can charge the time that they spend. We're going to talk about how you split up people's time. The time that they spend on the CARES Act can be broken out and applied against the CARES Act funds. You do want to remember that you also can't carry over your Part C funds. If their salary's covered under Part C now, and you move some of their time over to the CARES Act, then you have to decide what to do with the additional Part C money. Keep that in mind, as you look at that.
Anyway, we saw nursing home transition at 13%. A lot of you need to realize that nursing homes, any congregate living are one of the most high risk places. Nursing homes, prisons, group homes, once it starts spreading in an area where people live, dorms at universities, it tends to spread through that group fairly seriously. Nursing home transition is a way to keep people safe and helping get them out of those congregate living situations. That's also an allowable cost. Just wanted to mention those things so that you'd have a feel for them.
We're going to use a term, moving on into your favorite topic, which is direct and indirect costs, your indirect cost proposals and how you apply your indirect costs. We're going to use a term called cost objective.
>> Hey, Paula.
>> Yes, John. Oh, Tim
>> This is Tim. Could I pose one more question that came in this morning, before we dive in, since we have a few minutes?
>> Yes.
>> Patricia was wondering, we talked yesterday about large dollar amount purchases and Patricia asks, "Is that approval for large purchases over $5,000 needed from the Board of Directors, or from ACL."
>> It's needed from ACL. Some of you told me there was a forum for that, and there is. Maybe I can give that to you, Tim, to post on the site. You have to have ACL's approval. You probably also need your board's approval. That will be in your policies and procedures. At what spending level does the board co-sign or approve in advance or whatever? That should be in your financial policies and procedures. It may be at a lower amount. It may be at 2,500 or 1,000, but you need to follow your own policies, and you need the federal program officer's permission, if you are purchasing it with federal dollars. You need their permission at 5,000. Is 5,000 for a piece of equipment, or for improvements to the building? Because those are both things that you would treat the same way as far as capitalizing them. Did I say that right, John? Is that it?
>> Made sense to me. I've got another one. See if you can help me with this one, because I asked Kathy to help clarify, but you might be able to figure it out. Kathy said, "Is ACL getting a different checklist for these changes?" I wasn't sure what changes she [inaudible] Do you know?
>> I don't for sure. ACL has posted on their website, the comp system, that comprehensive, I forgot it again, observation and measurement.
>> Compliance and outcomes monitoring protocol.
>> [laughs] I can make>> [inaudible]>> Yes, that one. That is in place and they're not changing that. The CARES Act is not changing that process. There will be separate reporting on the CARES Act, so what you do at your end for your program performance report, your PPR, what used to be the [inaudible] report. You will have a similar report for the CARES Act specifically. You'll have to be keeping track now on how you're spending the CARES Act, so that you can tell what the impact has been, both at the end of this fiscal year in a few days and the end of the next fiscal year. I don't know if that's what she means, but there's not a separate checklist. The work that they're doing in the comp applies to all of your federal dollars.
>> One last question just came in from [inaudible] who asks, "I'm late signing in for the CARES Act funds. Does an employee or a consumer name need to be on the payment request for purchases under CARES Act funding?"
>> No, not unless you're giving them the funding directly. We've usually suggested that you purchase gift cards or something like that. A lot of people have difficulty cashing the check. You wouldn't want to put their name on a check. If that's the question, that's what I heard. People are using gift cards of some kind. Some of them can be restricted to food only and sometimes people are doing that. We found that that's been very cumbersome, so what a lot of people are doing is informing the consumer how they expect it to be spent, and then handing them the card. It's difficult to do oversight, for the same reasons that you use a card instead of delivering a box of groceries. You have some remote areas in your service area, and you need to serve those folks. Typically, a specific consumer name is not on the check. It may be in your notes, it certainly would be in that consumer's file, so you can report on it, because that's going to be part of what you're doing there. What should be included with your check is, why is it COVID-19 related? What is it doing to help with the health and safety of a person with disabilities or multiple people with disabilities? That would be in your notes, it wouldn't necessarily be on the check itself. Hope that made sense.
>> Did to me. All right. Thanks, Paula. Let's go on to slide 75.
>> Cost objectives. Sometimes, we think about this as if it is a funding source, but it isn't necessarily a funding source. A cost objective, this is the definition, means a function, an organizational subdivision, a contract or a federal award, which is how we often think of it or other work [inaudible] from which cost data are desired, and for which provision is made to accumulate and measure the cost of processes, projects, jobs and capitalized projects. I know, it's a definition [inaudible]>> It's pretty complex. What we do is, when you allocate funds, when you share them, you have to share them fairly across what funding sources may be, but maybe you can combine your funding sources into a single cost objective or at least a couple of them. This most commonly happens with Part C, and Part D money. If you're serving the same geographic area, and the same people with the same core services, you already know this from your experience, those of you who get both Part B and Part C funds, you cannot really tell if an employee is working under Part B or Part C, because they're doing exactly the same thing. You can't split their time between Part B and Part C based on what they're doing, because what they're doing is the same. We believe in those circumstances, you could combine Part B and Part C grants into one, for purposes of allocation. You wouldn't have to have allocating for Part B and Part C and then your other grants.
You want to do that cautiously. You want to do it only if you truly cannot tell the difference. If there's any reason you can tell the difference, like your Part B grant is specific to you or your part B grant added a new County, if there's a reason why you can tell when they're working Part B or Part C, then they have to be separate. You can put them into a single cost objective if you can't tell the difference. There's just no way to know. John, would you like to talk about that a little more? I'm not sure I made that clear. [laughs]
>> I think you did, but again, we both like to say the same services for the same population during the same timeframe, that that's a single cost objective. You may have multiple funders for a single cost objective. The last item on the slide says, how do you account for the individual funding sources? That's not a question for our group. It's a question for Paula and I. The answer is, we'll combine all of those costs. It really isn't practical to break everything out. You may assess that one funder is covering 70% and another funder is covering 30%. You could break out every single item of payroll and payroll overhead and program supplies, et cetera, but really, a better strategy would be to combine all of those and then break out the totals by funder. Accumulate the totals by category, by function, again, payrolls, supplies, et cetera, for that cost objective and then 70% of it gets charged to one vendor, 30% to the other vendor. That's the easiest way to do that. Have there ever been challenges to that, Paula? I think you would probably answer yes, especially by state funders.
>> Your part B money flows through your state, and so your part B money, even though it's another [inaudible] money, the state has some oversight of it. They're wanting to see that separated out, just for their convenience, but it's really difficult to do if it's truly the same services for the same people, at the same time, in the same place. I've seen you all do it. You say, this independent living specialist works for both, so you make an arbitrary decision, 30/70 as John said. That works within a formula, but it's not based on what they actually did, because there is no difference in what they're actually doing. When that's the case, we can sometimes say, you can have a single cost objective.
If that's all the money you have, only part B and part C, some of you have said, "Then I don't need an indirect cost proposal, because I don't have any indirect costs. I have a single cost objective and all my costs go there." I would say you still need an indirect cost rate, and the reason I would say that is because you're required to do resource development and you should not have only two sources of funding.
As soon as you add one, a fee for service project, or a state grant or anything else, as soon as you add one, they have to be included in sharing those indirect costs. You need to do this anyway, even if you are not currently or as soon as you get that next funding source. Maybe that's a better way to say it.
You're going to have to do an indirect cost rate. Right now, if these are your only two, what do you think, John? Can they just do everything direct? They have a single cost objective?
>> If there's a single cost objective and no resource development, then, yes, they should be able to do that. You would still break out your direct and indirect, but as soon as you get into lobbying, fundraising, resource development, any of these things, those are programs of their own. Of course, if you have a different funding source or different services for the same population, same services for a different population, any of those things adds a different cost objective and the need to do cost allocation.
>> If you only had Part C and now you have CARES Act, you have more than one cost objective because the CARES Act funds are used differently than the Part C funds. You probably need one of these proposals for sure, no matter what. [laughs]
>> Let me just say about accumulating everything as though it's a single cost objective and then breaking it out in total. The results should be exactly the same, and you may want to forward that argument. Remember I said when you're dealing with a funder audit, if you show that you understand this process, you usually fare better. I think most people would have to agree that if it's the same services for the same population, we're going to get the same result, whether we break out each individual component of payroll and payroll overhead, et cetera, or whether we accumulate all of these and break out the totals.
The first method where we break out each individual item is more susceptible to error, just because of the volume of transactions. Really, not only should the results be the same, but breaking things out in total should be more reliable, less susceptible to error.
>> Good clarification. We're going to talk about direct and indirect costs and what they are and how you track them and share them across your cost objectives, however many of those there are. John, you want to take this one?
>> Sure. Direct costs are costs that are directly charged to a specific funding source or cost objective. Not necessarily just one, there may be two, but not all of your activities. If you have costs that benefit all of your activities, they should be treated as indirect, but a little bit of clarification here. Management in general may be the same as indirect, they might not be for a couple of reasons. Paula, you're on.
>> Yes. In a specific program cost objective, when you're looking at a specific cost objective, and you're looking at the admin or management related to that cost objective, it may be that you're going to calculate it differently because you have a different situation. If your center's big enough to have multiple programs, multiple program staff directors over different departments, you're going to find a situation where one department may have different costs than the other, and so it's not just-- Your indirect costs are going to be shared appropriately across those, based on what actually was used or what actually is needed. Sometimes we think about this as an administrative cost. Often, your state is going to call it an administrative cost management or general costs in your financial statements. They may have a limit on how much you can spend on administrative costs, and you need to look at that, but you also need to make your argument that you have to share it. You have an indirect cost rate proposal, and you have to use it against the state money as well as the federal money. Once you have this proposal, you use it for everything. If your state's wanting you to do a cost allocation plan, and you have an indirect cost rate, they have to accept your indirect cost rate, which is just the next step from your cost allocation [inaudible] As John said, you're going to have the same results.
If you have a specific program that requires a specific administrative cost, then you can put that as a direct cost, not as an indirect cost, because it's a cost only that program is sustaining, so you don't want to put it where you have to share it across all costs objectives. You want to put it where it's charged to the specific program that incurred that cost.
Also, in some cases, costs that would potentially be direct, we suggest to simplify things, that you put them in your indirect costs for convenience. I think that's on the next slide. For example, some of you have a code in your copier that you plug in every time that you make copies that tells you which grant those copies should be charged to. Or you check out supplies from office supplies, you have to write down what you're using, and then it gets charged directly against that program. Those costs are not necessary to track in that way. You can really simplify your lives and not have to count copies and ink pens, if you just think about them as a direct cost that is shared across the board and you share it proportionately by using your indirect cost rate. We suggest sometimes that those indirect cost rates include management general costs, but also include things that everybody shares, shared costs. We used to do it on the telephone, too, but I guess long-distance calls don't cost what they used to. We used to have to put in a code to call out on the telephone so that you can charge the call to the right place. Anyway, that makes sense, I hope, for everybody.
>> I've got to say, I've been an accountant for a long time, and I think back in the day, they taught us that more accounting was better, and it's taken me a lot of years to figure out that that isn't necessarily the case. We did. We created an awful lot of detail. Didn't make things better, takes more time, doesn't help for decision-making, doesn't help cost allocation. I'm really a proponent for simplifying your accounting system, combining things, putting smaller items in indirect if they won't have any measurable impact on your indirect cost rate. By the way, Paula and I have seen indirect cost rates get approved at all different levels. Some that seems shamefully high, but they're legitimate, and they were approved. It's not so much what your indirect cost rate is, it's, can you manage this once you get it done? Is it simple enough? Does it give you enough information about the actual costs of programs? Sometimes you need to make some very tough decisions about whether you can continue a program, and having concise information helps you do that.
>> When you look at these numbers, you're not shooting for a number. When you do your indirect cost rate, you're shooting to actually capture, what are the costs for that program and how are they shared in a fair way across all of your cost objectives? We have seen numbers all over the map, from 10%, the minimus that we're going to talk about in a little bit, to rates in the 15% range. They have a very large center and they put 100% of all the management salaries in their indirect pot, so that those were all shared in that way. That gave them a higher number because they had more employees in that indirect pool, as opposed to in charging them directly. There's all kinds of reasons, but you're not shooting for a number. The state might want you to shoot for a number. Sometimes they tend to still do that, but there's not a magic number for when you will or won't be approved.
>> Just doubling back for a minute, on the amount of detail that you need for your direct versus your indirect costs. I suggest that you look at either in your formal year on audited financial statements, if you have them or reviewed financial statements, look at your statement of functional expenses. That will probably give you a very good sense about the level of detail that you need.
By the way, if you want to see how another organization does it, look at the American Red Cross. Billions of dollars, and when you look at the level of detail of those expenses, it's not an awful lot.
The other thing you can look at is your Form 990. If you do the full Form 990, the longer version, there is a page of potential expense categories. One of the pages in that form has the different categories of expense, but most organizations, by far, don't use all of those. It might be 10 or 12 different categories of direct costs. You don't need a lot of detail. Keep in mind, that's per program, so if you have have eight programs and 12 categories of costs, you really have quite a few. You don't need to get into all sorts of detail, for example, about your general insurances. Those can be combined. Your payroll taxes, we don't need to break out the different facets of payroll taxes. You can drill down to get that information, but they're statutory. There's not much you can do about them, so why not combine them?
As we're saying on the side, stick with your methodology. You have to, actually. It's not something that we can tell you to do, it's something that the regulations say you must do. Once you've developed a methodology, you do have to follow it.
Before you're fully committed, simplify your accounting and your vouchering by putting more into indirect by using fewer categories. The indirect rate may go up a little bit, that shouldn't be a problem. You'll have a simpler process. It will be easier for you to comply with your process when you do that.
>> Just remember, again, your indirect cost rate is not just a number, it's a methodology. You're not applying only the number. If something changes in the number of costs objective you have, or whatever, and you have to recalculate, you recalculate based on the methodology that was approved. You don't just apply the same number as things change, you apply the methodology. Is that right, John?
>> That's absolutely right. They say that they approve an indirect cost rate, but they approve an indirect cost methodology, a way of calculating the rate. We're going to divide these costs by those costs. That's really all they approve.
>> You're defining what's direct and what's indirect for your center. We'll talk about some suggestions we have about simplifying based on what we've just said, that your proposal is defining how you do it not the number you apply.
I hope that makes sense. [laughs] Ask questions if they're coming into your mind right now. Tim will interrupt us with big questions because it's some change in your thinking that we're going to be, pushing out a little today.
>> You may want to look back at that statement of functional expenses from your last formal financial statements because it probably has a column for each of your major programs, and then a column for your direct or your management in general. As we said, for most of you, indirect and management in general, are going to be pretty much the same. You really don't need that much more detail, to make good management decisions to inform the board, and so on. I really encourage you to look at the level of detail in your accounting system here and see if it can be simplified.
>> As you actually track your expenses, you're going to relate them back to what you said in your proposal on how you are charging direct and indirect costs, which are your cost objectives, you're going to put all that back as you track your expenses. As you write the check, as you approve the expense, you should be identifying right then how it's supposed to be shared or split. There's no question about how an expense was charged. They suggest that you do it right then. I'm sorry, John.
>> Hopefully, just by cost objective. It's payroll, because it's payroll, and it's this program because it's or this cost objective because that's what it is. That's what you're doing those services for that population.
>> You do need to know what your state's requiring. Whatever you come up with also meets their expectations. When you have an approach, federal rate, the state is supposed to accept that for their grants as well.
>> I would respectfully say, sometimes things the state requests aren't totally logical. You have to work with them, and you have to comply with what they require. You can certainly I asked questions, if something seems illogical to you. For example, requiring you to break out payroll by funding source, even though it's for a single cost objective. You can challenge them. We have and we've seen some changes as a result. Consider doing that.
>> Don't be afraid to. That competence again, isn't it? John and I are going to talk about the topic intelligently. We have to be able to say with confidence what to feel it should be and why? Hopefully, we're giving you some of the tools to do that as we go along. There's more than one choice about how you allocate your costs. We've talked a little bit about, and we'll talk quite a bit more about the approved federal indirect cost rate. You submit a proposal and you get an assigned rate, you have to continually do your calculations, and let them know how close that was to actual and you have to, you can adjust your rate as a part of that, but it's an improved rate. There's the de minimis indirect cost rate, it's a 10% de minimis. We've seen a lot of misunderstanding around what that means. We want to talk about that quite a bit too because it's not a flat 10% charged against all your costs. It's something else, we need to talk about that. If you only have one cost objective, you can allocate everything directly. It's also an option. John, you had a conversation with HHS indirect costing them about that what did they say about indirect or direct?
>> This is the head of the indirect cost the owner and he said, "I don't believe it can be done." He said, "I won't say it's impossible." He said, "I don't believe it can be done." It's certainly would be inefficient. We know some organizations are still doing it. It really represents an awful lot of work for a question we'll resolve we think you can get to the same answer, without going through direct allocation of everything.
>> Direct only works with a single cost objective. As John said a minute ago, lobbying is its own cost objective is to not allow the cost, you're probably going to do it to some extent so you need to track it separately. Therefore it becomes its own cost objective, the same is true with resource development, if you're going to keep good track of whether or not your resource development is effective, whether or not it's actually producing the resources that you want? Then you're going to have to track it separately. We suggest it as a separate cost objective. Even if you only have one funding source, you probably are looking at multiple cost objectives. As I said, since we've added the cares act, you have another reason why you really need to have an indirect cost rate.
>> Fundraising is its own activity as well. If you're fundraising, you're obviously we said yesterday, it's not allowable with federal funds, but some of you probably do that. Hopefully, to have some unrestricted monies or to fill some funding gaps. That is an activity that needs to be allocated, its indirect cost as well as charged with the direct costs of fundraising, whatever they may be.
>> When we say that it's not allowable, we mean not just the direct costs, but also the indirect that applies against it cannot be paid with federal funds. You track it separately, and you apply the indirect cost rate in that indirect cost, it can't be paid with federal funds, either.
>> When we went from the old OMB circulars to uniform guidance, and then later to uniform administrative requirements, one thing the federal government talked about quite a bit is this will assure that we are paying our fair share of program costs. No more than that. They're very insistent much more so than in the past. The rules were actually a little more stringent in the past, but they weren't followed. They weren't even understood as clearly even by some of the federal law and state agencies. Now, they've been quite clear on what their expectations are. They've given you the opportunity to be fully funded for your programs. You may not be if you don't have an indirect cost rate if you're using the 10% de minimis and direct, which we'll talk about in a little bit.
>> Yes. Did you hear John say the old OMB circulars? I sometimes review policies for people to see if they're complete or see if there's anything there. I am surprised that since those circulars have been gone now for a number of years, that there are policies and procedures that still reference them. The OMB circulars that applied, which were 110, 122, and 133. No, they don't longer exist. Everything is in this uniform guidance or uniform administrative requirements. The language that you're going to use to replace that is you're using 45 CFR 75. That encompasses all those circulars and more. That's your reference, not OMB circulars, XYZ. Just another quick tip, if you have 34 CFR in your requirements, that is no longer anything that has to do with Independent Living.
The Independent Living Regulations moved from the Department of Education over to the Department of Health and Human Services in 2014. You should have no references to 34 CFR whatever. That's no longer exists. If you need any references, look up 45 CFR 1329. That will give you that will give us a new reference. That was a free tip thrown in on the side. [laughs]
>> I think that ought to be a homework requirement is just to double-check because I agree with you Paula. I still see references to OMB circular 122 and other circulars. They shouldn't be in there. If you have a funder audit and they are in there, that will be a problem for you.
>> It's a red flag that you're not up to date with the regulations. It is a problem.
>> The slide you're looking at now might be typical of the level of detail you see in your statement of functional expenses or in your form 990. Not a lot of categories and not a huge amount here, but we're looking at about close to a million dollars in total direct and indirect costs. The direct cost categories, what do we have? Three, four, five, and about under 10 categories of direct costs and closer to 15 indirect. This is typical. This to me is a legitimate level here. Keep in mind, payroll, overhead outside services, rent, or occupancy. These are duplicated. Really the number, the 15 expense categories you have on indirect is probably sufficient for both your direct and your indirect. Maybe a couple more because you've got that program supplies on the direct costs but in that range. Certainly, no more than 20, a range of 15 to 20.
Let's move on to the next slide, keeping in mind-- can you go back just a second, Paula here?
>> Yes.
>> Keeping in mind, we've got $859,000 of direct costs and that includes payroll, overhead, and other direct costs. Then an indirect cost of $188,600. We're going to go to the next slide and we're going to calculate the indirect cost rate three different ways here. We're going to calculate it first using total direct costs. We simply divide that 188 by that 859. That's a 21.9% indirect cost rate. As Paula pointed out earlier, it's not really 21.9, it's dividing those roughly 10 things by those-- I'm sorry, those roughly 15 things by those roughly 10 things, whatever that percentage turns out to be. Initially, you'd have a, we'll call it a provisional cost rate for your first year of 21.9. You could divide that same $188,000 of indirect costs by direct payroll only. Just your direct payroll costs that'll give you a much higher rate. Of course, it's a pretty simple process here to do. Let's go down to the third one. Here we're dividing total indirect by payroll and payroll overhead.
Any of these are acceptable. Paula, the first one is more common, but we've probably seen all three of them?
>> Yes, and people are asking me whether or not they can charge indirect costs to the Cares Act. It's not a question of whether or not you can charge it's a question of how you charge it and you do it based on your formula. These numbers, if you don't have any staff paid for it through the Cares Act, and you're doing your indirect cost calculation using payroll, then you won't have anything to charge against the Cares Act for indirect costs because you have no payroll. You have to apply your methodology. Sometimes that's one of the reasons that sometimes people are adding a person over there because they're asking that question. Am I right about that, John? If they're doing the first method and then they can apply it against the Cares Act but if you're doing the second or third and don't have any staff, then the Cares Act can't pick up those indirect costs.
>> Right. This is why we point out that there are different methods and sometimes one or the other is going to be a little bit more beneficial to you. The Cares Act is an anomaly. I hope we don't have anything like this in the future. Not that I'm not a fan of funding but [laughs] not for this reason. Some of these organizations I believe have personal care programs. Personal care programs are very labor-intensive. They really aren't a lot of other costs involved with those personal care programs. Would you want to charge more or less indirect costs to your personal care program? It's a fixed fee arrangement in most cases, isn't it? Rather than reimbursement of costs. It seems that if you have that kind of a program, you may want to pick a total direct cost for charging your indirect cost because then you're charging, less indirect cost to that personal care program. Does that make sense?
>> It does make sense. [crosstalk] As you're looking at your organization, especially the next time you do an indirect cost rate proposal, these are things to take into consideration as you decide your methodology. Most of you have an indirect cost proposal and you can't really change it easily, right? John?
>> That's right. Not the methodology, this is more for people who may have aired with it originally may have chosen to directly allocate everything or may have chosen the 10% de minimis rate. Those folks still have an opportunity to go in and to develop a proper indirect cost rate.
>> What they would tell us, otherwise, as you use your methodology, you may need to correct some of the stuff that you use your methodology. Tim, I bet you have some for us?
>> I do. Yes. I wanted to find a good time and I'm seeing a number of things come in some similar questions. I thought it'd be a good time to break and get through a few of these. I'm going to highlight a couple that I think are common questions. One is, what happens when we as a center sit down and decide our methodology, look over all these numbers, come up with something that we really believe is true and then a funder says, "I'm sorry that your rate is 30.5%. We can't pay anything over 20%." How does that impact your other payers? What do you do in that situation if you really believe that your rate is true and correct, and a funder will pay it or won't approve it?
>> If it's a federal funder, the answer is pretty clear because there's a very strong mandate in the uniform guidance to fully fund the cost of any federal programs. That really shouldn't be happening in the world of federal fund. If it is we can provide a reference where uniform guidance really mandates full funding. If it's a state program that does happen. We do see that happening and there are even some federal programs that have a special modified, an indirect cost rate but these are add-on programs and I don't know whether they really apply here. I would think that this would be possibly a state program. If the state wants you to run a program and they won't fully fund it, then you have to determine whether you can raise the additional money necessary to cover this program. If you cannot, then can you continue to provide this program? It really comes down to that.
>> The other thing that I sometimes we've had a little success with is reminding the people that are telling you that, that this is not your administrative rate, this is your indirect cost rate, which is more than administration. It's administration plus other sharing costs. It's really important to-- I don't know if it helps, but to communicate that to them, because sometimes they're assuming this is your administrative rate, and it's really more than administrative costs, as you said earlier this morning. That can help a little bit anyway.
>> I'm trying to get to my mute button. Paula was asking, as she looked at the examples that you were giving that rent was split between direct and indirect?
>> Absolutely.
>> He was wondering how do you arrive at that number? What portion of something like your rent, which seems it would benefit or cost objectives can be divided between direct and indirect?
>> [crosstalk] I'm sorry. Go ahead, Paula?
>> I was going to say this is interesting for another reason too. That is the issue of consistency of cost and you're supposed to deal with that cost in the same way. Rent is actually used as an example for how to do the cost in the materials that they provide us with. John, go ahead?
>> The answer here is that if your agency has a distinct area, which is the administrative area, maybe where your accounting happens, your HR function happens, and then an area of for programmed services then you would break the rent out into partially indirect, partially direct. If it isn't that clear, then you probably would have to put it all into an indirect.
>> It's usually by square footage. If that answers this question, I think too. You measure the space. If it's distinct, direct, and indirect then the measurement tells its apportionment.
>> Paula, Jackie is saying we have some funders that refuse to pay anything that's in a shared cost. We have an indirect cost rate proposal, but we need to revise it. She says I've not had any luck finding an amendment process for the proposal. Do you have any suggestions? I want to revise my methodology?
>> I know you directed that to me, but I don't know of a way you can do it except next time you're up for an amendment you can try it, they send you that. But is there a way, John to fix your indirect cost rate?
>> The problem is bigger than that. It sounds certain funders are saying, "We're not going to pay any indirect, any shared costs here." Which means they're not fully funding their program. The indirect cost rate is something you've established with your major federal funder, HHS, probably. That was developed by you and reviewed and approved by HHS, to say that this is how you are going to allocate indirect. They're not going to pay anymore. You can't revise it and say, "Since the state won't pay any shared costs, we're going to charge more to the federal." The federal would have no interest in considering that. That's not their problem. They will fully fund their programs. They will not make up for short funding shortfalls in other programs. It's irresponsible on the part of any agency to say that we won't pay any shared costs. It is what it is.
Again, you either need to find additional unrestricted funds through fundraising or supplemental means to cover the cost of that program, or you can't carry that program on. You can't revise your indirect cost rate to charge any more to the federal government.
>> I know we're stuck because they're not fully funding their project, you have to decide, do we go ahead and take the loss, or do we turn back the program and say to them we can't do this because you're not fully funding it? I don't know if you'll have any luck with the argument that your indirect cost rate is not the administrative rate, and it does include some direct costs. That would be you could show them your proposal and show them that's the case. We've had folks who've just said, "We can't run this program with a loss. We're going to have to choose the tough decision." That's not pleasant news, I know.
>> This is telling us exactly the example that what could we offer that they walked away from a county contract because of that. I think, you know, especially given the size of the program I don't have to tell you all that you can't continue to operate programs that lose money for you. Especially for smaller contracts, if negotiations don't work, you may just have to walk away.
>> There are some things that are small enough that you don't apply your indirect cost rate. Typically, those are passed through grants. You're passing through home modifications, or you're passing through transportation passes, or somebody's giving you something and you're passing it through to consumers. That's considered something you do for consumers that does not require you to apply that indirect cost rate because it's small and it's a simple pass-through.
>> I'm going to ask one more question that's come in. If I didn't get to your question, we'll try to address it before the one o'clock break. I want to make a little housekeeping note too. This next question is from Michael it regards the Cares Act funding. Michael asked for the Cares Act, if you do have staff as a personnel cost under Cares Act money, should we take that into consideration when allocating costs, especially those costs shared by all as indirect costs?
>> If your methodology is one of the bottom two, there were your payroll cost is involved in your calculation, then you will have an indirect cost rate based on the payroll costs with the cares act, you can apply back against that Cares Act. If you're doing total direct and total indirect, you may not have a way that you can do that. It just depends on your methodology. I may be getting in the weeds here so I need John to help me out to make sure that that's on target.
>> The total direct certainly has payroll. In fact, payroll is a major component of it. I think the concern is the flip of that, where you don't have any payroll, with your Cares Act funding. Here, we've got a question being posed where they do have payroll, I think that's a pretty easy one, then you would be charging indirect costs to that program, based on whatever your methodology is. But it would be if you're dividing, indirect by total direct, and they have payroll and other direct costs than they would be charged their fair share of it. I just like to comment the difficulties some of you are facing with some state funding, I don't like to be the bearer of bad news. The truth of the matter is, if the states are going to have a really really tough time with their budgets over the next couple of years, the state income taxes are going to be lower because of the unemployment, and the state unemployment funds have been diminished to an extent.
I think you are going to be facing some very tough funding situations from your state funders, particularly over the next couple of years. You need to be very thoughtful and strategic about that until we get everything to get this economy rolling really well.
>> Thanks, John. I just want to make a quick housekeeping announcement. I noticed some folks in the chat mentioned that they lost the feed for a while. Everything looks great on our end. Of course, anytime with a live stream like this, especially over several days, some folks may have issues with internet problems. I want to encourage you all that if you have a problem, if you experience a problem, do let us know. Refresh right away, check your internet connection. If you're at home, you may want to think about checking or even restarting your router if you experience continued issues. Don't forget, you can always call in for your audio, and then watch the slides. That's an option. Those phone numbers are listed on that same agenda page on the training webpage where you connect from. Please do keep those options in mind. I also want to let you all know, we will be loading the videos of the sessions to the training website.
We've made some light edits. That means we'll need to edit the captions as well. Give us a couple of days, but we will be posting these videos as well as the transcripts. I had continued email problems this morning that prevented me from sending the afternoon transcript from yesterday over to Joey at the media site, but he's got those now. We will get them up, and we will continue to upload the transcripts after the session. You're welcome to email them, email me to request them sooner than that. The videos and transcripts will go off if you did miss small portions. I don't want to take any more time. I'll turn it back over to you all. These additional questions that we haven't gotten to we'll try to get in before one o'clock break. Thanks.
>> At the end of the day, you make some decisions. As John mentioned, some of you are have already made this decision and you're applying the rate that you've gotten approved some of you though either we're trying to do it direct were using the 10%, de minimus, which we're going to talk about next. As a result, can still submit another proposal. As we're looking at this, here's some questions that come up, which rate do the federal agencies prefer? I don't think there's a preference, maybe there is?
>> No, I don't think they have a preference. One time I had somebody indicate that they wanted it divided by total direct cost, and I said, "Okay, why is that?" And they said because the rate is lower. As I thought about it yes, the rate is lower, but we're still allocating the same amount of indirect costs. We're just following a different methodology. I don't think they prefer a method. Again, Paula and I have have seen rates all over the board, methodologies, that are different, and if they are logical and consistently applied and they work for you and they should be approved.
>> You do need to think about what programs you have if you're preparing a new proposal. You need to think about what are your cost objectives, and how does that impact what it is that you're going to ask for when you do one of those choices that we mentioned a minute ago, how might each choice affect your situation, and then you decide which indirect cost rate is best for you. All right. The topic of the day, that's going to be the most fun.
>> Right. The 10% de minimis rate. I don't think this is our definition. I'm not sure I would have put the word opportunity in there, but the definition de minimis rate is an opportunity for organizations that do not have a current indirect cost rate agreement to receive an indirect cost rate of 10% of modified total direct costs. Any of you who have been to earlier presentations it didn't read that way before. In fact, it wouldn't have read that way a month ago. The way it would have read is that if you ever had an indirect cost rate in the past you could not use the 10% de minimis indirect cost rate. They've just recently made this more liberal, but still, it's only 10% and it's not 10% of everything. We'll talk about that.
>> If you had that provisional rate we used to say, you can't ever go back, but if your rate expires, you can go back and start over and apply the 10% if you wish, or for a new proposal of some sort. If you opt for the 10% de minimis indirect cost rate you need to think about how it's really working for you, and do you feel that you're really being fully reimbursed for all of your indirect costs? The trick is, and the part that I'm not sure is really well understood out there in the world is you cannot charge some of your costs with an indirect rate. Some of your direct costs don't count as you're figuring out your 10%. It's a modified total direct cost, and that's I'm not sure that everybody has sorted this out. If you're doing a modified total direct cost, what are you charging your 10% rate against? Only some of the specific costs.
That includes salary and wages. It includes fringe benefits. It includes materials and supplies. It includes services and travel and up to $25,000 of each sub-award, but it excludes equipment, capital expenditures, rent, which is a big one for a lot of you, and participant support costs. It's not 10% of everything, I guess that's the-- John helped me with that up to $25,000 of what because I think I'm confused on that one.
>> Oh, right. That may not apply to these agencies. This is when you are passing money through to a sub-recipient. There is some oversight, but if you're passing $250,000 through to a sub-recipient, you can only count $25,000 of those costs, or you can only apply for the 10% of $25,000. Basically, they're saying no matter how much you're passing through, we're only going to allow $25,000 for your oversight of that pass through. By the way, we're going to talk about all of your responsibilities for sub-awards, that you're going to earn that $25,000. Believe me, there's there's quite a bit of work to be done. That's a story for another.
>> You're most of these centers would not have a sub-award.
>> Not not being the passer through her. They receive it, but they don't pass it through for them.
>> What you're passing through is greater. The $25,000 is equivalent to 10% of $250,000.
>> Paula, before we leave that, I really want to emphasize this is something we've had a lot of questions on. There's been a lot of confusion on. Some agencies have reached out and talked about, "We'll just charge more through as direct, that's not an option." You've got two big limitations with the 10% de minimis rate. The one being what Paula just explained it doesn't apply to everything, it doesn't apply to your rental costs, your capital expenditures, your participants' support costs. All of those get kicked out. 10% only applies to the remaining costs. Then you cannot charge through any costs that benefit your programs across the board. You wouldn't be precluded from charging copies and things like that. We advised against it because it's an awful lot of work. It'll be the only way with the 10% indirect cost rate for you to recover a little bit more. Again, that's not an endorsement of it. With these two limitations, I'm going to suggest that it's really tough.
We serve hundreds of nonprofit clients every year, hundreds. I've done it since the '60s [laughs] for a long time. I don't see too many organizations that can live within a 10% indirect cost rate. Here in New York State, our governor said that organizations that are funded primarily with state funds are going to have to get down initially to a 25% indirect rate and ultimately to a 15%. People were screaming and crying about that. I don't know how you can do it on 10%.
>> We've had some people say that they want to do the 10% because it's simpler. When you're applying it against modified total direct costs, I'm not sure that it is any more simple. You still have a lot of complicated things, you have to remove from the calculation before they give you a 10%. Accounting, HR, agency management, insurance grant, none of those counts. 10% of a very smaller, much smaller part of your expenses than maybe some of you realize.
>> Let's go back to the numbers we were working with just a little bit ago. We can even flip back to that slide where we did right before we did those three calculations, where we showed the list of direct and indirect costs. Just one more back there. We've got a direct cost of $859,635. We've got our indirect of $188,600. That's reasonable, not unusual in any method in any way. I'm sorry, I can go back to $86 here. We've got that $180,600 of indirect. The 10% de minimis can be applied to certain things, but no rent or utilities or maintenance. You're actually going to claim $707,701. You can be reimbursed $70,770. That's what de minimis 10% indirect cost rate will get you in that example. By the way, the example is one 
we put together for a prior program before we talked about it is a "de minimis" thing. It just happened this way. This isn't a setup. This is just a typical sort of direct and indirect cost. You've got indirect of $188,600 and by following the "de minimis" indirect, you can claim $70,770.
>> Less than half. Yes.
>> It doesn't work. Tim, I hope there's questions coming in.
>> Yes, there sure are. We can take more whenever you all would like.
>> I think it's appropriate now. I don't want to leave this topic here because Paula and I've talked about this so many times. I don't think we've done a good enough job of it yet but right now, we're trying to be very, very clear on the fact that this won't work for a lot of people but I know there's questions and I'd love to hear them.
>> Right. Well, let's go back to the baseline. There's one question that I see and some folks have asked about this earlier. When we look at slide 82 and the sample methodologies that you might use, some folks were asking some foundational questions like, "How do I know which one to pick? Which one applies to me." I think maybe for some folks who are new to this conversation we could just review quickly why these options exist and how as an organization you might decide which methodology is best for you.
>> Well, I guess I would say if there's going to be a general default, the total direct cost would be the best. I do personally like to see a lower indirect cost rate. It'll probably be an easier sale with state agencies that don't participate in this process. I think a federal agency would have to accept any one of these but that's probably the logical default is to divide it by total direct costs.
I'm just saying these other methods are permissible and if you've got a large personal care program, just as an example, if you wanted to get more indirect costs over to that program, then you might use either the payroll or the payroll and payroll taxes. If you wanted to get less over to them, then you'd go back to the default of the total direct but I think that's the most logical one. Paula, is that the one you see the most?
>> Yes. Not what I see the most, I don't know. Probably it's about half and half direct payroll and indirect, the top two. Probably it's close to half and half but it makes more sense because it covers more situations fairly where you've got that whole issue of do you have staff that are going to be in that program or not?
>> You're muted, Tim.
>> We have a number of questions about rent. Let me try to make it through a few of these. They're all a little bit different. Maria is asking, "If the funder is not familiar with an indirect cost rate and refuses to pay that approved rate but is willing to cover administrative expenses such as part of the rent and utilities, can you bill that funder a portion of your rent even if you generally include rent in your indirect pool?"
>> Well, I'm going to say yes. Let's just say you've got a funder, and again, this can't be a federal funder because a federal funder can't say that, they can't. They shouldn't anyway. If a funder says, "We will pay some of your administrative costs but we don't accept your indirect cost rate," well, if you've got your system designed properly here, you've got all of your indirect costs. Paula, just flip up one more time to slide 81, please. There is the list of indirect, so I get to say," What can we charge?
Here's our actual costs. You should be paying a portion of payroll, payroll overhead, outside services, rent, utilities, maintenance, all the way down to our office supplies and expense, and other. Whatever they will pay for, have them pay for it, but these are the administrative costs and any shortfall goes back to what we said before, you've got to make it up some other way with some other funding source if you're going to pursue this program. So, yes, you can charge the indirect cost rate to your federal programs and then charge whatever a state-funded or county-funded program will pay as far as indirect. That won't be a violation.
>> You actually break out your indirect costs so that they see what each cost is and they say, "Oh yes, well we'll help with that rent because we use the conference rooms, the hallways, lobbies. We'll help with telephone, that's a necessary expense." They'll begin to see, hopefully, and allow you to charge those expenses and show you're just doing a breakdown of your actual indirect.
>> I probably would like us to revisit why rent isn't purely an indirect cost?
>> Well, sometimes the program services are carried out in part of the facility. Paula, you're more hands-on with this than I am. I may be making assumptions without being an insider can you [crosstalk] that?
>> I think one of the reasons that we see it broken out is the very reason that we've been discussing, which is the state not wanting to pay for it otherwise. You could make your rent all indirect if you chose to do that but then you run the risk of your funders saying, "We won't pay that indirect costs." Where if you're breaking it out by square footage and you say, "This employment program utilizes 14% of our rental space, therefore, we'll charge 14% against the grant," they're more likely to accept that direct charge of rent. That's usually the reason it's broken out.
You don't have to do it. There are centers who will include their rent as 100% indirect costs but some people want to see a lower number than what that's going to produce for you related to indirect costs. Making some of it direct related to each cost objective is sometimes advantageous but you can decide. I mean it's your proposal, right?
>> Okay, great. Paula. Annette has asked you, from your example earlier in our last Q&A break, about small pass-through grants. Annette is saying, "What about a grant that is large and has very little payroll and the balance is passed through in indirect costs? What should we do when the indirect cost rate does not cover the indirect cost for that project? Is there a way to calculate it differently because the pass-through is the largest part of the grant?"
>> Well this is going to depend on how you develop your indirect cost rate. If I understand this correctly, this is an agency that passes through a sizable amount of funds. The indirect cost rate should have been developed to look a little bit more like that modified 10% "de minimis" rate where only a portion of the administration wouldn't be attached to that pass-through money.
If you didn't do that and if you do have an approved federal indirect cost rate and if this is problematic to you, then you could go in. I think that that's a legitimate reason to go in and to say either, "Our situation is different or when we submitted this, we didn't anticipate or we didn't account for the fact that some of our direct costs here really carry very little indirect with them."
Seek a modification of that but that what ideally should have been done is that should have been created differently. We do have examples of indirect cost rates where those pass-through funds or other things that just require very little administration get treated differently.
>> That can be included in your proposal. Right, John?
>> Right.
>> Actually identify it in your proposal analysis.
>> Lisa says, "Our existing proposal was based on square footage and now that we're all working from home, we're at a loss. Well, what do we do?"
>> Indirect costs or share based on the square footage, wow, that's different. Well, I assume you're still renting the facility so you still have that base. Again, I think that may be a reason to go in and to say, "The rate that we applied for just isn't applicable in the circumstances." Hopefully, this isn't going to be a long term thing. Hopefully, we'll all be back in our offices before too long but if you're still paying the rent, you could stick with your methodology.
I think it also would be legitimate to reach out to your cognizant federal agency and say, "Boy, this is just not appropriate right now. What do we do, just continue with our provisional rate for an extra year and see if we're back to normal?"
>> The rate that you get approved is always called provisional, that's not unusual. That doesn't mean anything bad happens. It's a provisional rate and then at the end of it, you reconcile the actual rate and resubmit your methodology. In case you're wondering, we might get that again later a little bit more too. All right, more questions. Tim?
>> One more. I think otherwise we've gotten through them. I feel like there might be a missing word here. Help me read this one but Cheryl says, "If we're getting funding as a pass-through recipient from another organization, do we have limits on what we--" Then it says, "On the indirect cost methodology." Maybe what we can charge or what we can include on the indirect cost methodology from a grant where they receive the pass-through funding?
>> Yes. Part B grants might be part of what she's talking about there. The state is actually the grantee. The designated state entity is actually the grantee and then the Part B funds are passed through to the centers on this, so I'm not sure if that's what she's talking about but you would still apply the same rate. I don't--
>> That's right. I think the only time that becomes a question, I don't think it ever would for the Part B funds because those are clearly quarterly federal funds but there are some organizations that have an indirect cost rate and but pass money through to an organization that also has an indirect cost rate.
You are that second entity and you should be allowed to use your indirect cost rate even if it's calculated differently or even if it's higher than the organization that passes it through. We're going to talk about sub-recipient monitoring but that is what is supposed to happen.
I've had some pushback. I had a client who said, "Well their rate is higher than our rate. We can't allow them more than our rate." No. They've got approved federal indirect cost rate and they are allowed to use that. You would use your own rate. That's the bottom line answer.
>> Great. Since we have time, I'm just going back to some of these older questions. Let's see. Cheryl had asked, "Wouldn't payroll, supplies et cetera, all those items be under Part C because Part C can't be used for direct consumer support. Other funding or grant sources would also require allocating indirect costs."
>> I think she may be comparing it to Cares Act maybe because that can be used for direct consumer support where the Part C typically can't. Maybe that's what she's saying but you still got to apply the same methodology to whatever funds you get. It's not going to change because the style of what's proposed is different. It's still the same rate. Did I [crosstalk]
>> Particularly if you're dividing your indirect by your total direct, there'd be different things from these different programs, these different activities, different direct costs but they still all get assessed their share of the indirect.
>> Yes. When you have more than one funding source that the purpose is that you allocate those shared costs in a fair way so it's not fair to give it all to Part C if we have other funding sources that also should pay for those office supplies or other shared costs that you put into the indirect cost rate.
>> John smith is wondering if you all have a recommendation on a firm or consultant that would work with a sale to review or create proposals. Is that something that a sales auditor should be doing as part of their contract or could do for an additional fee? What's your view on that as a CPA?
>> Actually, Paula has helped a lot of organizations with that. I know we got 250 people out there, I don't think we can offer to do all of them.
>> And necessary do all of them, yes.
>> Paula has done an awful lot of these. We work together on this extensively. If there are some questions that Paula should be able to answer them. Sometimes she'll reach out to me for this.
>> 45% of the centers that answered the survey, are utilizing an outside CPA for their accounting, routine accounting services. They certainly need to be part of that discussion, because they're the ones who are going to apply that indirect cost rate. I think that the accountant is usually involved in some way now. I just had a situation where the center director asked the accountants, and she came back maybe three or four times with another question or whatever. The accountant said they were going to charge a huge amount.
I said it's not that hard. You and I can sit down and do it and then the accountant quit. I think because she realized she didn't understand how to do the federal requirements. I think and I hope in the long run, that'll benefit the senate. It's like ouch.
>> Good feedback. There are a lot of resources to get this done with your existing staff with the support of [inaudible]. I would involve certainly contract accountants, involving your auditor, see what support you can get for free before you pay somebody to do it, Samantha?
>> We have a sample proposal on the website on ilru.org. We had a sample indirect cost rate proposal, it's on slide, so each page is bigger and different than it would look at on board, but it is actually the steps in the actual proposal. All the pieces are there for you to [inaudible]>> 
>> I think we've finished the questions. I got a comment from Sally said, "We were given a name of someone to help with this. We contacted him to see about his rate for the indirect or his cost for the indirect cost rate, $10,000.
>> [laughs] I'd be rich.
>> Don't do that.
>> Wouldn't it be nice, no, no, no, no.
>> Gloria asked a housekeeping question. She noticed that the captions are actually ahead. We're actually when we broadcast this, there is a bit of a delay. It sounds like the captions are ahead. Thank you for letting us know, Gloria. We can't do it during the live session. We'll try to pinpoint that for the afternoon session and get it back on point. That's the reason why. John and Paula, back to you. Thanks.
>> Before we leave this, I just wanted to make one mechanical comment here, getting back to the question about a state funder that would not accept the indirect cost rate, but would pay for some of the indirect costs. Mechanically, it's really helpful to have in your accounting system an account for indirect costs, and then all of these other categories of costs, as sub-accounts of that. In other words, to have a grouping. In QuickBooks, you have accounts and sub-accounts. It's really easy to just say this, this, this, and this are all sub-accounts of indirect. What do you need your total indirect for the year, or you need to charge individual components of your indirect to a state contract.
It's really easy to get those. They're readily available. You can also see how well you're doing too against your original rate.
>> It makes sense to make sure you have the detail you need to be able to respond to the situation that you all are presenting to us which is the state wants to only pay the actual cost. If you break it out, and then they have a rent item and you put both your indirect and direct and tell them that's what you're doing, then your rents should be covered across there. I was trying to decide where we are because I thought we had a different slide next.
>> Yes. I think we're on 87 here. We've covered most of 87 to say this calculation needs to be done every year. They've approved the methodology, dividing these costs by those costs. Just get an Excel template with those categories, and you can plug in your new numbers. We've talked about provisional rate. That's how you get a provisional rate. You put in budgetary numbers for the next year.
If you don't expect much of a change at all from this past year, then your actual rate for the year just finished, will probably be your provisional rate for the next year. If you know some things are changing, let's say because of the new funding you've received, then in your provisional rate, you would suggest that your rate be adjusted up or down and provide the documentation for that.
You will get into overcharges, you will get into undercharges. There's nothing that I know of in the regulations that say you must pay these back immediately, or you'll be able to build additional if you didn't charge enough. Generally, I think what will happen is, if you under build, you may be allowed to increase your rate for the coming year by a bit to cover that. If you overbilled, hopefully, you will just decrease your rate for the coming year to adjust for that overcharge.
>> What I wanted to mention related to the overcharges and undercharges is, as far as we know, the only thing that has happened is that your rate changed. If any of you had a payback or some other recovery method, please drop us an email. Let us know about that because that's going to be important for us to be aware of. We do need to be cognizant of whatever you guys are experiencing if it's different from that. Right now, all we're seeing is a rate adjustment to compensate for whatever was over and during the prior period. That's been the approach.
Here are the resources, and that second one is the one I was talking to you about that actually the pages in that presentation, are the pieces of a proposal. Sometimes we're not completely clear on that, we want to make sure you know. The introduction one, the first of those links, just explains that we were told and that we must do an indirect cost rate proposal. It's been a number of years now. I know that some of you have still not done an indirect cost proposal, you're using some other methodology. I urge you, please, please, go ahead and move through this. It's not as scary as it seems. We'll help you if we need to.
That is the expectation from your primary funder that the ACL and the Office of Independent Living programs expect you to have an approved federal indirect cost rate and to apply it. That first one tells you a bit about the requirement. The second one tells you about how to prepare the proposal, as I said, and then how to apply that proposal. We emphasize again, it's your methodology. You say what you're going to do, and then you do it.
Put your money where your mouth is, or whatever the right terminology would be for that. This is the last slide that we had planned to cover this morning. We're so close to the next time. I don't know, John, do you want to go ahead, and do a couple more or do you want to?
>> We are getting into another big area here.
>> Another topic, and it's kind of too big, I think to handle.
>> This is Tim, if I may. Let's just do an open call for a check-in. There were questions that were coming in, but I'd like the audience to know that we have 15 minutes. For those of you that are stuck, and this is a sticky topic. We keep coming back to the indirect cost rate, we know there's confusion. If you all would like to spend some extra time on this, this seems like a good time to do it. It's nice to be a little bit ahead in the schedule because that's not normally the situation we're in. We're usually skipping through the last few slides.
>> We intentionally though left more time in this today as we know this is a tough one. Just so you know, with your questions and answers this afternoon, we're going to cover how you do your payroll allocation. We're going to cover a methodology for that. If you can hold those questions, but anything else related to the indirect cost rate, we would be glad to talk about that now.
>> Let me just quickly remind you all there's a few ways that you can ask questions if you're logged in. If you're watching us on media site on the webinar, just use that ask a question box. That's certainly the easiest way. If you're connected another way or if that's not accessible to you, you're always welcome to email your questions to me at Tim at nickel. org. I think my email is finally working normally again. I won't hold my breath. I've been getting emails and responding all morning. You're welcome to email me at tim@nikel.org. If you're on the full-screen captions at streamtext.net, there's a chatbox there.
I haven't seen a lot of activity there. I have been watching along though. If you want to use that chatbox, you're welcome to send me questions there. Finally, if you're only listening on the phone today, and you don't have another way to ask questions, you could press star nine on your keypad, it'll raise your hand. Again, I'd like to save that option for folks who are only on the phone. If you're not connected to the webinar, that is one way that you can ask a question out loud. The one question that's pending, that came in the last couple of minutes is Jackie asked, "How do we resolve an expired rate?"
>> We have an opportunity to resubmit a rate. That's the good news.
>> Rates technically, methodologies technically shouldn't expire, so I'm not sure what an expired rate is. If the methodology was only approved for a certain period of time, Paula is absolutely right, you do have an opportunity. That's why we're trying to make sure that these concepts are well understood. If they are, you go to the second link that's still up there. Really, that is an indirect cost proposal. It's got the only things that you need to modify are the things you know best.
It's the description of your agency and its operations, and of course, your costs. Other than that, it's got all of the requirements, you should be able to follow. When uniform guidance first came out, there was an indication that everybody was going to have to resubmit their indirect cost rate proposal and breakout. I'm sorry, not everybody, but larger organizations over a certain dollar amount were going to have to break out facilities as a separate cost. I haven't seen much follow up on that. I don't know if you have any sense, Tim, whether this is a very large agency that might fall into that category. Otherwise, I don't know how they would actually expire.
>> Good, I [crosstalk]
>> There's a deadline. I'm sorry, go ahead. I was going to say there's a deadline on the letter itself that tells when it's going to expire and tells you when you need to resubmit with your reconciliation of the prior year. Sometimes, that's on the backside of the letter and not everybody was realizing that there's continual activity around this. It's not inactive, you have to actually reconcile what you did, and continually show that you're using that methodology.
At the period of time that it's good for is different though. I've been really interested in the letters, sometimes there are years, sometimes they're longer, and I don't even know why they do what they do. Look and see the date when you're due to give them reconciliation is on the letter, and you can do that before they send you a warning letter.
>> So, we're not talking about the indirect cost rate methodology. We're talking about the provisional rate expiring. Technically, normally, every provisional rate expires every year. We did have, when the uniform guidance came on, some federal agencies were doing extended provisional indirect cost rates, so those are what we've talked about up to this point.
You've calculated your actual rate per last year, you assume next year is going to be the same. Your federal cognizant agency says, "Okay, here's your provisional rate, it's the same as your actual for last year and we're going to extend it for another year." The rate expired, the methodology is still intact. Dividing these things by those things is still your methodology, but like every organization, you have to calculate your actual at the end of the year or at the end of two years if you've got an extended provisional cost rate.
You need to get a final rate. They will actually issue you a final rate. They'll turn your provisional into a final rate, and boy, keep a record of those very, very important document that you get from your cognizant agency.
>> When I've talked to new executive directors, sometimes they cannot find this indirect cost rate letter. They don't know where it is, they don't know what their rate was, they don't know if there was a rate sometimes and it's difficult to learn that information. At that point, if you can't find anything, just assume there wasn't anything and go ahead and reapply. Otherwise, you should be following the indications on the approvals that you get and do whatever it is that they tell you to do.
>> Jackie said since we asked the question that there was an expiration date on the letter so.
>> The expiration date is when you have to go back and you have to justify what it was you did in the actual rate.
>> What your actual costs were in.
>> Good. Cheryl's got a question going back to slide 85 and she says, "If your indirect cost rate is the 10% "de minimis" and that excludes rent and utilities and materials. You claim 10% of $707, 000, to use that example, and your actual indirect costs are $188,600. How can that work?" She says.
>> That's our point.
>> That's 100% right on. I'm glad you're reinforcing our comment. It doesn't work and that's why we encourage people to look at that, analyze that, and in most cases, transition to an indirect cost rate, so you'd be fully reimbursed.
>> Yes, and you're allowed to make that transition. One of the things that they tell you when you choose the 10% "de minimis" is you can move on to a real proposal after that. That can be just a short-term solution for you until you move on.
>> Great. I got two more questions that I'm going to try to fit in it should timeout well then we'll take a break. Next one it comes in from Gloria. I'm going to send this one to you, Paula, since you do so much close work with the centers on these issues. "Have other centers who can't afford expensive accounting firms had difficulty finding individuals to do their bookkeeping who understand indirect cost rates and how to track them in QuickBooks or other software?"
>> Yes. I wish it weren't the case, but there are a lot of people that don't ever work with federal grants and so they don't know the requirements around allowability, around indirect costs, around a number of the things that we're talking about. You need someone who understands those federal grant requirements and that's usually one of the main questions you ask when you're interviewing for potential people is, do they understand that and if they don't understand it, you have to make some decisions about what you're going to do to help them to get that knowledge and information.
I suppose they can start from scratch and read the regs but if they aren't willing to or if they don't already know about federal regulations, I don't know, it would be really difficult to bring them up to speed, I think.
>> I would ask this question of a proposed accounting firm. Are you a member of the Governmental Audit Quality Assurance Center? That's a section of the AICPA that those of us who work in this area a lot we belong to that, we're members of that. Actually, it has tons of resources that even non-members and anybody can access but additional resources for us who are members of it. The Governmental Audit Quality Assurance Center of the American Institute of CPAs.
>> Great. Good tip. Last question for this section comes from Lisa. Oh, excuse me from Leah. Leah says, "We're allocating indirect cost based on staff time. Is that okay until our indirect cost rate proposal is submitted, John?"
>> In this case, they have not submitted an indirect cost rate proposal. They're allocating costs based on payroll time, is that--
>> I think that's what she's saying. Yes, based on the payroll.
>> They don't have an indirect cost rate. The Federal funders do not have to reimburse for indirect based on that. They haven't, but they can at any time elect the 10% "de minimis". That would probably be the only legitimate opportunity. Now if they're being reimbursed based on that, wonderful, but there's no commitment to do that without a formal indirect cost rate.
They can, you would be able to use payroll time worth, payroll hours as the base for allocating indirect cost. I'm not sure what you would have as a percentage. I can see the mechanics of the methodology but I don't know what you would have as a percentage for provisional rates because you don't have a denominator but I think it could be done if they wanted to continue. If they don't have an approved indirect cost rate now, then that really isn't legitimate. Whether it's happening or not, it's not legitimate.
>> I'm going to sneak this one in because I like it. Lisa's wondering, "When we're attending this training, is this an indirect cost?"
>> Yes.
>> There's no registration fee but how do we build the staff time for a training like this on financial training?
>> Usually, staff call it leave time and may fall into that category is just allocated to the payroll. It's part of payroll overhead that follows the payroll. If you're a direct person when you're working, a direct charge person when you're working, then it would add to that. If you're an indirect person, let's say the accountant, then it would just add to that direct-payroll as part of payroll overhead.
>> Good. I'm going to end with a housekeeping access question. Esther asked, "Are we going to be able to access these slides? It's difficult for me to read them here on the webinar screen." Yes, absolutely. If you were not aware, all of the materials are posted on the training webpage. In fact, if you found that the size of the PowerPoint wasn't really visible to you, you could even leave the webinar open to listen to the audio and you can open up your own version of the PowerPoint, you can magnify it as large as you'd like.
Don't forget, not only are the materials, the PowerPoint and the sample policy guide, financial policies and procedures guide, posted on the training web page, but they're posted in all different formats. Yes, you all should be able to access these materials, open them, use them, download them, save them in any format you like. I did a tour of the training webpage yesterday morning but I realized some people may not have seen that or they may have connected later. If you need any assistance with the training webpage or materials, do let us know. Well, with that, we are at the top of the hour.
We will go ahead and take our afternoon, well it's an afternoon break here on the East Coast anyway. We'll take our two-hour break. Thanks again. Great questions. Great engagement. I know the indirect cost rates can really be perplexing, especially if you've not done one before but thanks so much for all the good questions there. John, Paula, great job. Let us know if any questions come up.
You won't be able to submit questions when the webinar is closed obviously but you're welcome to email them to me at tim@nikel.org. We will begin again at three Eastern. Two-hour break. We'll see you all in two hours for our afternoon session. Thanks so much.