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How should community action agencies allocate costs under “Uniform Guidance?”

September 9, 2015


On Dec. 26, 2014, the new Code of Federal Regulations Section 200 – “Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards” (“Uniform Guidance”) took effect. In April, we shared our roundup of the impact of the super circular on community action agencies.

At that time, one of the biggest issues was funding procurement. Today, the issue at hand is closely related – cost allocation. We’ve been hearing that many organizations are confused about how costs can be allocated under Uniform Guidance.

Here is what Uniform Guidance says about cost allocation, and how it will impact community action agencies as well as other non-federal entities:

What hasn’t changed?
The appendix related to the allocation of indirect costs between Uniform Guidance and OMB Circular A-122 is virtually identical.  There is no change in how indirect costs are allocated. Under the Simplified Allocation Method, indirect costs can be allocated based on each program’s share of total direct costs or another base that results in an equitable distribution.  However, if an organization chooses to use the Multiple Allocation Base Method, costs need to be allocated based on other methods described in the appendix (but these have not changed from OMB Circular A-122).

The same goes for the Direct Allocation Method. The Direct Allocation Method section of Uniform Guidance is verbatim from OMB Circular A-122.  When using this method, it is important to remember that general administration and general expenses costs should be allocated using an appropriate basis of measurement such as square feet or number of transactions processed.  The continued use of the Direct Allocation Method is further addressed in the FAQ section on Council on Financial Assistance Reform’s website, which specifically says, “Non-federal entities that are able to allocate and charge 100% of their costs directly may continue to do so.”

What has changed?
If a non-federal entity elects to use an indirect cost rate, it can either negotiate a rate with its federal cognizant agency or opt to use the de minimis indirect cost rate of 10 percent of modified total indirect costs. Non-Federal entities electing to use the de minimis rate must have never received an indirect cost rate and must use the de minimis amount for every federal award until the non-Federal entity chooses to negotiate a new rate.

Another key change is a non-federal entity’s ability to extend its current indirect cost rate. As explained in Section 200.414(g) of Uniform Guidance, “any non-federal entity that has a federally negotiated indirect cost rate may apply for a one-time extension of a current negotiated indirect cost rate for a period of up to four years.”

Based on the guidance, any extension will also be reviewed for indirect costs, pending approval. Any extension also locks in the rate, so rate reviews are not an option until after the extension period. Newly negotiated rates are able to be extended for another four-year period, making it possible to negotiate indirect cost rates just once every five years.

How to adapt to Uniform Guidance
The changes from the old circulars to Uniform Guidance have unsurprisingly created some confusion for community action agencies in both the not-for-profit and affordable housing industries.

The first step to adapt to the new guidance is awareness. Specifically, knowledge of the changes and how they compare to the old circulars. The next step is a conversation. If you have any questions or concerns about Uniform Guidance and its nuances, please contact a Clark Schaefer Hackett professional today.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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