Building Federal Budgets

www.illinoisresource.net
Building Federal
Budgets
Illinois ResourceNet
2010
Jay Readey, JD, MBA

Federal Grant Budgeting
• Session Objectives: to understand…
– The threshold levels of financial management
necessary before applying for Federal grants
– Direct vs. Indirect Costs
– Matching/cost sharing
– Allowable Federal rates
– Accounting compliance requirements
– Budget completion and budget narrative principles

Preparing your grant budget
• The starting point is…… your organization’s financial
management
• Let’s define sound financial management
– It includes budgeting, creating effective tracking systems
and reporting the organization’s financial activity and plans.
– When carried out effectively, financial management enables
an organization to plan and monitor financial activities, and
show that all financial resources are responsibly applied to
an organization’s charitable mission.
Source: ACH Region V

Planning and Monitoring:
Thresholds for applying for Federal grants:
• Budgeting
• Financial recordkeeping
• Financial reports
• Financial accountability

Budgeting
Can you answer yes?
• We have an annual organization-wide
budget that is monitored (planned vs.
actual) every month
• The budget includes expenditures for all
salaries, services, space, supplies, etc.
• The budget includes revenue from all
income categories
• The board analyzes, discusses, modifies, if
necessary, and approves the annual budget

Financial Recordkeeping
Can you answer yes?
• All financial transactions (i.e. receipts, expenses, deductions,
credits, etc.) are recorded in a systematic way
• The organization has a computerized bookkeeping system
• We track separately fundraising, program and general
management expenses and we use a project cost accounting
or fund accounting system
• Supporting documentation of all financial transactions is
systematically filed and retained
• Cash balances are reconciled monthly
• Person(s) maintaining financial records are knowledgeable
and skilled in the area
• Financial data is backed up on a regular basis with a copy of
electronic data maintained off-site

Financial Reports
Can you answer yes?
• We have an established fiscal year for which income and
expenses are reported and tracked
• We use either a cash or accrual accounting method to report
income and expenses
– Cash basis: records revenue when money is actually received
and records and expenses are paid
– Accrual basis: records revenue when earned and expenses
when incurred
• The ED and board have a clear understanding of finances and
review on a regular basis (budget vs. actual)
• Financial reports are concise, easy to understand and produced
on a timely basis
• An annual audit is conducted and reviewed by the board

Financial Accountability
Can you answer yes?
• Board reviews and authorizes major financial commitments
• Budget is reviewed prior to any authorization of expenses
• The board assures submission of required state, Federal, and other
reporting to maintain tax-exempt status (e.g. filing IRS Form 990)
• Federal, state and local tax obligations are met
• The board assures the organization has the proper insurance coverage
• Processes for handling finances and money (“internal controls”) are
documented and followed
• The use of restricted funds is monitored
• Financial statements are reviewed in an independent audit conducted
by a CPA

The Grant Budget
• Follow the instructions
• What can I include in my budget?
– Budget MUST follow the program
– Allowable Federal costs (this is technical)
• OMB Circular A-122 – Allowable costs for nonprofits
• Is there a cost-sharing (i.e. match) requirement?
• Most grants require a budget narrative
• Check, re-check and triple check the math

Dialogue Between Program Staff
and Budgeting Personnel
• What costs relate to the proposed activities?
• Does the program proposal track the requirements
of the grant application?
• Later: does the budget narrative match the program
proposal? (come back and check)
• Do other sources pay some of the Direct Costs for
the program activities? (more on costs in a
moment)

Cost Principles

Cost Principles
• Total Costs = allowable direct costs + allowable
indirect costs – any applicable credits
– Total costs = allowable Federal reimbursement
• Direct Costs: costs specifically relating to program
activities for purposes of the grant
• Question: What would be some examples of Direct
Costs?
• Question: What might credits be?

Allowability of Costs
Costs must be:
• Reasonable (to the performance of the award)
• Conforming (to limits in the award)
• Consistent (with non-Federal activities of the organization)
• Consistent (treated the same over time and across program
categories)
• Determined in accordance with GAAP
• Not included in other Federal awards (no double-dipping)
• Adequately documented

Reasonable Costs
Costs are reasonable if they are…
• Ordinary and Necessary (for the organization or
performance of the award)
• Bound by sound and accepted business practices (e.g.
arm’s length negotiation)
• Incurred by persons acting with prudence in the
circumstances
• Not Significant Deviations from established practices
• Question: what would be some unreasonable costs?

Allowability of Costs
• Question: other examples of
unallowable costs?
• What would make a cost inconsistent
with other non-federal programs?

Unallowable Costs:
Which of the following should be allowed for a federal grant?
• Advertising and Public Relations
• Alcoholic beverages
• Bad debts
• Contingency reserves for uncertain events
• Contributions to others
• Entertainment costs
• Capital expenditures
• Fines and penalties
• Housing as fringe benefits
• Interest expenses
• Lobbying
• Social and country club memberships
• Costs of corporate organizing and reorganizing

Allocable Costs
A cost is allocable to a Federal award if it is treated consistently
with other costs incurred for the same purpose in like
circumstances and if it:
• Is incurred specifically for the award;
• Can be distributed in reasonable proportion to the benefits if
it is allocable both to the award and other work; or
• Is necessary to the overall operation of the organization,
even if a direct relationship to a cost objective can’t be
shown.
Don’t shift costs among Federal awards in order to overcome
funding deficiencies, or to avoid restrictions of law or the
award!

Direct Costs: More Detail
• Direct costs are “those that can be identified specifically
with a particular final cost objective”
– i.e., a project, service or direct activity of the organization
• Not allowed as Direct Costs:
– Fundraising Costs
– Services to members:
• Maintenance of membership rolls
• Public information, public relations and lobbying
• Meetings and conferences
• Investment of funds not used in operations
• Administration of group benefits

Indirect Costs
• Indirect costs are “those that have been
incurred for common or joint objectives
and cannot be readily identified with a
particular final cost objective
• Two broad categories:
– Facilities
– Administration

Indirect Costs: Facilities
Facilities costs include:
• Depreciation and use allowances on
buildings, equipment and capital
improvements
• Interest on debt associated with such
capital items, and
• Operations and maintenance expenses

Indirect Costs: Administration
Administration costs include:
• General administration and general expenses
such as the director’s office
• Accounting, finance, general counsel, IT
support
• Administrative personnel & clerical staff
• Library expenses, office supplies, postage, local
telephone

Indirect Cost Rate: Simple
Calculation
• Determine portion of organizational expenses attributable
to Management & General (M&G)
–  Form 990 M&G expense reporting
• Fractional ratio for indirect costs:
M&G Total Expense
________________________________________________
Total of Program Expenses + Fundraising Expenses
• Numerator is called the “base”, and there are several
variants, chosen by the organization

Matching & Cost Sharing

Matching and Cost Sharing
• Many grants contain requirements for a non-
Federal share
• Section 23 of OMB Circular A-110 gives details
• Question: What are non-Federal sources?
• Specific requirements may obtain for the cash
match
– Accounting for the non-Federal share
• Third party, in-kind contributions and how to
value them

• Contributions are accepted as matching
funds if they are:
– Verifiable from records
– Not counted as contributions for another
Federally-assisted program
– Necessary and reasonable for achievement of
project objectives
– Allowable under applicable cost principles
– Not paid for by Federal Government under
another award
– Identified in the budget

• Contributed services and property count:
– As valued on the books at donation, or
– At current fair market value
• Volunteer services count if:
– The work would otherwise incur a cost to the
organization, valued at prevailing market rates
– Ex.: legal, consulting, IT, plumbing
• Loaned executive valued at regular rate of pay
• Donated property, equipment and buildings shall
not be valued at more than FMV at time of
donation

• Requirements for supporting records:
– Cash match must be accounted for
separately in fund accounting system
– Volunteer Services shall be documented
and, if feasible, supported by the same
accounting principles that an organization
uses for its employees
– Basis for determining value of donated
goods, services, equipment and property
must be documented

Allowable Federal Rates
• For some agencies, or some grants, published rates may
limit the amount that will be reimbursed by the Federal
Government
• Example: Department of Education limits indirect rates
to 8% of a MTDC base
• Example: travel rates can be found at GSA.gov, click on
“Per Diem Rates”
• Example: Consultant Fees per day
• Most other costs are allowable or not based on
principles of reasonableness, prudence, and consistency
(see “Allow ability of Costs”)

Budget Narratives

Budget Narrative Principles
• Describe in detail how grant funds will be allocated
and spent in each applicable category
• Show:
– Basis for computation
– Total amount of costs for each category
– If applicable, further explanation of how requested
costs were determined
• Also describe all non-Federal funds that will be used to
meet a cost-sharing or matching requirement
– Describe sources, contributions by budget category,
and how value was determined for in-kind matches

Sample Budget Narrative
Principles
• Personnel Salaries
– List name and title by position
– Salary rate x % of time devoted to grant project
• Taxes/benefits
– List name and title
– Compute taxes and benefits by a percentage, with
description (again observing time devoted to
project)
• Travel
– Itemize travel expenses by purpose
– Observe Federal per diem rates

Principles
• Training
– Show the basis for computation, e.g. a table:
– Purpose of training, location, cost per unit, and
computation
• Expense Items: Printing/Copying, Supplies
– List by type; describe sample costs and list
computations to arrive at total costs
• Equipment
– List and describe non-expendable items (e.g.
computers) to be purchased with grant funds
– Items over $1500 and copiers are not allowed

Principles
• Rent and Utilities
– Include rent (are utilities included? CAM?)
– Telephone and Internet service
– Show and describe computations of totals
• Other
– List by type, with calculations; example:
Item Computation Cost
Liability
Insurance
$1,000/year (total)/4.0
FTEs = $250 for 1.0 FTE
x 50% grant allocation
$125
National
Association
Membership
$100/year x 100% $100
Total $225

Sample Budget Form
Remember: In the end, it’s
not that different from
the budgets you know!
This is a sample Education
Department Budget
Direct Costs are modified
by subtracting
equipment and tuition
(MTDC), then multiplied
by an indirect cost rate
(8%)
Personnel 174,000
Fringe Benefits 50,000
Travel 10,000
Equipment 8,200
Supplies 920
Contractual 4,900
Other
(Tuition)
5,400
Total Direct Costs 253,420
Indirect Costs
(8%)
19,186
Training Stipends 6,300
Total Costs 278,906

Questions?
hank you!
Jay Readey
jay_readey@yahoo.com

Thank You!

Building Federal Budgets

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (6)

Similar to Building Federal Budgets

Similar to Building Federal Budgets (20)

More from Illinois ResourceNet

More from Illinois ResourceNet (16)

Recently uploaded

Recently uploaded (20)

Building Federal Budgets

Editor's Notes