Calculating Indirect Rates for Nonprofits Robert Albrecht, CPA Audit Partner December 13, 2012
Developing Indirect Rates for Nonprofits
Why Have an Indirect Rate? Present full costs of all programs p g administered by nonprofit entity Recover donor funds for administrative costs Allocate costs equitably to all programs
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Developing Indirect Rates for Nonprofits
Importance of Indirect Rate for Financial Statement Purposes Ability y of management g to identify y all program costs including allocation of administrative costs Management makes more informed decisions Presentation of ratios for donors and outside readers
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Developing Indirect Rates for Nonprofits
What is the Proper Rate for Your Organization? Public Perception p vs. Reality y Is the rate too low? Is the rate too high?
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Developing Indirect Rates for Nonprofits
Importance of Indirect Rate for Recovery of Donor Funds Preparation p of indirect rate in accordance with US government standards Preparation of indirect rate when receiving private donor funds
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Developing Indirect Rates for Nonprofits
Preparation of Indirect Rates in Accordance with US Govt Standards OMB Circular A-122 ((cost p principles p for nonprofit organizations) principles p OMB Circular A-121 ((cost p for educational institutions) OMB Circular A-87 (cost principles for state, local government and Indian tribes)
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Developing Indirect Rates for Nonprofits
Applicability of OMB Circular A A-122 122 Who is covered? What USG awards are covered?
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Developing Indirect Rates for Nonprofits
General Principles of OMB Circular A-122 Allowability y Reasonableness Consistency Allocability
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Developing Indirect Rates for Nonprofits
Establishment and Approval of Rates by US Government NICRA (p (provisional and final)) – chicken and egg syndrome? Predetermined Fixed
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Developing Indirect Rates for Nonprofits
Structuring of Indirect Rates in Accordance with OMB Circular A-122 Simplified p method Multiple allocation base method Direct allocation method
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Developing Indirect Rates for Nonprofits
Defining Elements of Costs Total costs p per financial statements (audit report) g total direct costs Defining Defining total indirect costs
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Developing Indirect Rates for Nonprofits
Preparation of Indirect Rate in Accordance with OMB Circular A-122 Selected items of cost 1.Salaries and related benefits 2.Occupancy costs 3 Sub grants and sub-awards 3.Sub-grants sub awards 4.Equipment and other capital expenditures 5.Travel costs
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Developing Indirect Rates for Nonprofits
Preparation of Indirect Rate in Accordance with OMB Circular A-122 Selected items of cost (typical ( yp unallowable costs) 1.Advertising 2 B d debt 2.Bad d bt expense 3.Contingencies / provisions 4.Donations and contributions 5.Entertainment (alcoholic beverages) 6.Fines and penalties 7 Interest 7.Interest
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Developing Indirect Rates for Nonprofits
Preparation of Indirect Rate in Accordance with OMB Circular A-122 Treatment of fundraising g costs Treatment of lobbying expenditures Other adjustments
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Developing Indirect Rates for Nonprofits
Sample Rate Calculation Total direct costs
1. T 1 Total t l program service i expense 2. Total fundraising expense 3. Adjustments a. Unallowable expenses b. Grants and contracts in excess of $25,000 c. Reallocation of administrative costs d. Equipment and capital expenditures
Total allowable direct costs 15
Developing Indirect Rates for Nonprofits
Sample Rate Calculation Total indirect costs 1. Total management and general expenses 2. Adjustments a.Unallowable costs b.Lobbying expenditures c Reallocation of administrative costs c.Reallocation
Total allowable indirect costs 16
Developing Indirect Rates for Nonprofits
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Developing Indirect Rates for Nonprofits
Questions?
Connect with Us with Us Robert Albrecht, CPA Email: Telephone: Website: Website: Visit:
[email protected] (301) 951 – 9090 www grfcpa com www.grfcpa.com
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