TN 30 (03-02)
DI 39506.300 State Indirect Cost Agreements
The Office of Management and Budget (OMB) issues cost principles for all Federal agencies that award grants and contracts to state and local governments. OMB Circular A-87 establishes cost principles for determining costs applicable to those grants and contracts. The circular contains general principles for determining allowable costs, both direct and indirect. It also contains information and guidance concerning the development and submission of statewide cost allocation plans (SWCAP) and indirect cost rates.
In addition to A-87, the Department of Health and Human Services (HHS), in coordination with OMB, has developed an implementation guide for A-87 entitled, “A Guide for State, Local and Indian Tribal Governments,” (ASMB C-10). The ASMB C-10 is intended to assist governmental units in applying the principles and standards contained in A-87. [The ASMB C-10 replaced and supersedes HHS Brochure OASC-10.] The guide is mandated by OMB in circular A-87 and is a government-wide document. The standards therein supersede any other conflicting standards. These guidelines are available on the internet at the following addresses:
1. OMB Circular A-87
The Circular A-87 also provides that Federally assisted programs shall bear, in addition to direct costs, their fair share of indirect costs except where restricted or prohibited by law. These indirect costs usually occur at various levels in State government.
The tier of Central State organizations providing goods and services to other State departments and agencies represents one level.
The tier of State departments providing services to the various programs they administer represents another level.
In the case of the SSA disability program, indirect costs are usually incurred at a third level. This level is represented by the parent agency where services may be rendered or costs incurred that benefit both the disability program and other programs administered by the parent agency.
State governments, State departments, and parent agencies are fully subject to the provisions of Circular A-87 as described and interpreted in ASMB C-10. Funds for indirect costs may be requested in the DDS Annual Spending Plans and conditionally approved by SSA before a SWCAP Agreement and Department/Agency Indirect Cost Agreement have been consummated and negotiated. However, as directed by the A-87, such agreements must be obtained before obligation may be incurred for indirect costs. [For instructions on the DDS Annual Spending Plans, see PM 00203.]
2. Statewide Cost Allocation Plans (SWCAP)
The purpose of the central service cost allocation plan (CSCAP)--commonly referred to as the state-wide cost allocation plan or SWCAP--is to provide the process through which central service costs can be identified and assigned to benefited activities on a reasonable and consistent basis.
b. Central Service Costs (Section I)
The allocated costs of the CSCAP are commonly referred to as “Section I” costs and are categorized as such in both the plan submission and negotiated agreement. Section I of the CSCAP includes the list of central service costs which may be included as part of the costs of the operating State departments and subsequently recovered only through the State department indirect cost proposal or, where applicable, the parent agency indirect cost proposal.
c. Internal Service Funds (Section II)
The internal service funds (ISF) and other billed services in the CSCAP are commonly referred to as “Section II” costs. Section II includes the list of costs which are recovered by direct billing to the various State departments and agencies, among which may be the disability program. A review of the CSCAP approvals reveals the following central States services listed under Section II.
NOTE: The above list is not necessarily all-inclusive and the services identified for direct billing vary from State to State.
SSA has no authority to reimburse States for the costs of central services unless such costs are included in an approved SWCAP. DDSs should contact the fiscal personnel at the appropriate level of the State government to determine if costs being paid through direct billing will be included in the State's SWCAP--or to request that the State submit an amendment to Section II of the approved SWCAP for inclusion of such costs.
Additional factors regarding reimbursement follow:
The cost of any service that is furnished or controlled by a central State organization can only be reimbursed through submittal and approval of the SWCAP. For instance, if the lease is controlled by a central State-owned space controlled by a central organization, rental costs can be recovered only by submittal and approval of such costs in the SWCAP; or if the lease is controlled by a State organization at the department level, rental costs can be recovered only by submittal of a State department's or parent agency's indirect cost proposal.
However, where the lease is for DDS office space in a privately owned building and is not controlled by a central State organization, the cost for the office space need not be included in the SWCAP but may be billed directly to the disability program.
NOTE: Whether included within the SWCAP, or within an indirect cost proposal, or recovered outside the plan or proposal, the amount claimed for reimbursement for any item of cost must be based upon the principles stated in Attachment B to OMB Circular A-87.
Once central State services are identified, the method approved to recover the costs in the SWCAP--through direct cost distributions or through direct billing mechanisms--is dependent upon the State's accounting system and will be set forth in the official approvals.
Numerous items of central service cost--now charged to the SSA disability program through direct billing mechanisms--may require SSA approval through inclusion in the SWCAP. The deciding factor is whether the service is provided or controlled by a central service organization.
3. Indirect Cost Proposals (Operating State Departments)
Indirect cost proposals must present a plan for distributing to the various agencies, the department's indirect costs including the department's share of statewide costs. These indirect cost proposals can be developed using various methods, but each method generally will express departmental indirect costs as a percentage of total direct costs or total direct personnel services, but may be expressed as a dollar amount. (See ASMB C-10 for examples of various methods.)
Approval of the proposal must be obtained from the cognizant Federal department. The agencies within the State department may claim reimbursement for departmental indirect expense using the stated dollar amount or by applying the approved cost rate percentage against the appropriate base.
4. Parent Agency Indirect Cost Proposals
The parent agency's method of charging for its indirect costs must be reviewed and approved by the Division of Cost Allocation (DCA) or other designated Federal department. The parent agency should identify services which benefit both the SSA disability program and other programs it administers, and develop indirect cost proposals to distribute the costs of such services to the programs involved. The parent agency must submit its own indirect cost proposal to recover its own indirect costs.
NOTE: The DCA urges that indirect cost proposals for division level agencies be submitted with the department's own indirect cost proposal. Unless this is done--or unless the interested State department already has an approved indirect cost proposal--the parent agency will not be allowed to include any departmental indirect costs in its own proposal. The parent agency's department should be able to provide assistance to its component units with questions or problems that arise in the development of such a proposal or provide a contact with personnel in the DCA or other designated Federal department with whom questions may be raised.
5. Timing of Submissions
Indirect cost proposals, both departmental and parent agency, must be developed and submitted within six months after the close of the State fiscal year, unless an exception is approved. In order for the parent agency to recover indirect costs that incur during the fiscal year, they must have an indirect cost proposal in place and approved--either submitted on their own or through the operating State department. If the State does not intend to submit a SWCAP--or if the State department does not intend to submit an indirect cost proposal--the parent agency must submit its own proposal.