A UNITED STATES DEPARTMENT OF COMMERCE PUBLICATION j&l M/l £? CO ■X- ACCOUNTING MANUAL wm ^ m mm mmmm Multi-funded Economic Development Districts U.S. DEPARTMENT OF COMMERCE Economic Development Administration ACCOUNTING MANUAL FOR MULTI-FUNDED ECONOMIC DEVELOPMENT DISTRICTS PREPARED BY ANDERSON, DAVIS AND EVERHARD CERTIFIED PUBLIC ACCOUNTANTS McALLEN, TEXAS PREPARED FOR THE ECONOMIC DEVELOPMENT ADMINISTRATION C J* UNITED STATES DEPARTMENT OF COMMERCE D ■o 8 ff MAY 1972 •* •< n o ■e ACKNOWLEDGMENTS We wish to express our appreciation to Mr. Frederic A. Heim, Jr., CPA , and Mr. Menno R. Saunders, both of the Office of Audits, United States Department of Commerce, for their technical guidance and valuable assistance in the development and publication of this manual. We also wish to express our appreciation to the officers and staff of the Lower Rio Grande Valley Development Council, McAllen, Texas, for their cooperation and patience during the testing of this system. FOREWORD The growth of Economic Development Districts (EDD) during their relatively short life is evidence of the need that was fulfilled by their creation. Along with all growth comes problems. As EDDs became funded by agencies other than the Economic Development Administration (EDA), accounting and financial management complexi- ties generated problems for which little relevant information had been published. For this reason, EDA has undertaken the development of this accounting manual especially for use by multi-funded Economic Development Districts. The manual is intended to be a practical how-to-do-it guide for executive directors, business officers and public accountants in the establishment and maintenance of efficient accounting systems which will provide meaningful financial information for District manage- ment. We believe the frame-work provided herein is sufficient to make a significant contribution toward improving the overall quality of District financial management. District executives and public accountants are urged to review the manual and adopt all or just those parts of it as fit their needs. Should assistance or advice be required concerning the use or implementation of any part of this manual, please contact the appro- priate EDA Regional Office. Robert A. Podesta Assistant ""Secretary for Economic Development TABLE OF CONTENTS INTRODUCTION 1 GENERAL OBJECTIVES OF THE ACCOUNTING SYSTEM 4 5 ACCOUNTING CONCEPTS TO BE OBSERVED ELEMENTS OF THE ACCOUNTING SYSTEM ]_ FORMAL BOOKS OF ACCOUNT 16 SUPPORTING DOCUMENTATION 17 BUDGETS 18 FINANCIAL REPORTS 19 RECORDS ADMINISTRATION 20 INTERFACE OF WORK PROGRAM WITH COST ACCUMULATION 22 COST ACCOUNTING 27 ACCOUNT CODING STRUCTURE 33 CHART OF ACCOUNTS 35 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 41 TRANSACTIONS 63 EXHIBITS 68 CIRCULAR A-87 93 INTRODUCTION A Multi-funded Economic Development District (EDD) has unusual accounting problems since it is a unique organization. Originally formed as non-profit corporations comprised of representatives of local governmental bodies and private citizens to improve the economic well-being of their territory, many EDD's have expanded their role to include comprehensive regional planning and have become action agencies which carry out many specific projects for State and Federal agencies. Typically, participating governments pay dues based on population within their jurisdiction. These local dues, which are voluntary, become the basis for matching grants from other sources. When EDD's were first organized, they normally had only two sources of revenue, local dues and grants from the Economic Development Administration (EDA) , to carry out various parts of an economic improvement plan. These revenues were used to pay all the expenses incurred in running the organizations. As other agencies recognized the merit of these EDD's, other grants became available to them to carry out programs for related but different purposes. It was this addition of other grants which complicated the accounting for the EDD's. When an EDD had only one grant, which normally began and ended with the fiscal year of the EDD, it contained all the expenses of the district, and the bookkeeping system could be set up to produce the reports necessary to fulfill the financial data required by EDA. However, when the additional grants came along, problems began to arise. Frequently the additional grants did not coincide with the EDD's fiscal year, which made the drawing of an overall budget difficult and complicated the bookkeeping process since some costs had to be carried over more than one fiscal year to enable the district to report the grant expenditures correctly. Also, a problem existed as to the allocation of expenses. This allocation of expenses is where the uniqueness of multi-funded EDD's is magnified. Historically, most recipients of Federal grant funds were in the business of doing something other than administrating grants. Since those organizations which had other "business" had regular sources of income which paid their normal operating expenses, the grant money was considered "extra" and often had either no overhead allowed or a stipulated nominal sum included in the grant. Those organizations which had only one grant for revenue (such as the original EDD's) could charge all their costs to the grant. However, the multi-funded EDD has no other "business", and all of its costs must be charged to its grants or it will become bankrupt. The crucial question for the budget manager of the EDD taking on its first additional grant became: "Since I have all my costs covered in the EDA grant, what am I going to charge to the new grant?" Most of the time, the new grant was charged only those additional costs which were to be incurred in administrating the new grant. Thus, if the EDD was renting a suite of offices which included a conference room, reception room, three offices and a storage room for $300 per month and it became necessary to add one office at $40 per month for the new grant, EDA was charged $300 per month, and the new grant was charged $40 per month. This situation became recognized as basically unfair to the grantors who were the early funding sources. This manual provides a system which can be applied in toto or in part to eliminate most of the accounting problems experienced in the past by multi-funded Economic Development Districts. The account coding structure provided herein is designed to identify receipts and disbursements of funds by work project. This requires the use of only one set of books to record the transactions for any number of work projects. A method for developing cost allocation plans and indirect cost rates is provided so that indirect costs can be easily determined and equitably distributed to the various projects. Financial information needed in making management decisions is provided as a basic product of the system in a form that is easy to understand and use. This system was developed and tested extensively at the Lower Rio Grande Valley Development Council, McAllen, Texas. Since completion of the test, it has been installed and is operating successfully. GENERAL OBJECTIVES OF THE ACCOUNTING SYSTEM It is the purpose of this manual to provide multi-funded Economic Development Districts with a double entry, integrated accounting system which will allow for the accumulation of costs by grant, reasonably distribute common costs, and provide an EDD with periodic reports of progress and an annual financial plan to enable management to make better financial decisions. To fulfill this purpose, the accounting system should be on the accrual basis, provide management with meaningful information for the evaluation of alternatives, provide for the stewardship of assets for the protection of the various interests, be interfaced with the work program so that the goals of the district can be co-ordinat with its financial resources, and provide internal control of the transactions to preserve the integrity and reliability of the records. ACCOUNTING CONCEPTS TO BE OBSERVED Basically, all generally accepted accounting principles are applicable to multi-funded Economic Development Districts. Although there is no "official list" of accounting principles, the following is a brief description of how the most common principles apply to EDD's. 1. Specific Entity : The EDD is an independent entity which is accountable not only to the grantor agencies, but to its members and to the public which it serves. 2. Going Concern : While many grants may be on a year-to-year basis, the districts have established themselves as desirable vehicles for many agencies to carry out their programs, and as long as they continue to do so, their services will be sought from other sources. Therefore, it can be reasonably assumed that the district will continue beyond each fiscal year and that items such as accounts receivable, prepaid expenses, and depreciation of fixed assets over their useful lives are meaningful in the presentation of the district's financial statements. Specifically, for this manual the going concern principle is the authority for not recording grant commitments which extend beyond the fiscal year in the EDD's fund balance. If the district were required to show as a liability its matching share commitments which were beyond the date of a particular balance sheet without being able to include as assets those resources which will become available during the future period, it would result in a gross understatement of the district's financial position. However, it would be appropriate to disclose as a footnote to the financial statements the fact that these commitments exist. For example, a district on the calendar year may not assess its dues until February 1st. It would not be proper to include those dues in its December 31st report since they are not receivable on that date. However, they will be available for use during the coming year. At the same time the district might have a 25% local share matching grant which runs from June 1st to May 31st. This grant might require the use of $5,000 in local funds during the ensuing year to fulfill the matching requirements of the grant. It would not be proper to show the remaining grant commitment as a liability on the December 31st statement. The obligation will not occur unless the district spends funds on that grant during the year, a contingency accepted under the going concern principle. 3. Matching of Income with Expenses : The accrual basis accounting system will enable this principle to be met. 4. Monetary Expression of Accounts : All transactions in an accounting system must be reduced to terms of money. Inventories, pre-payments and fixed assets must be shown in dollars rather than things. 5. Consistency : This principle requires that similar transactions be reported in the same manner both within a period and from period to period. This principle is met in the system described in this manual by providing such things as a chart of accounts for consistent classification, written policies for direct and indirect costs, and written personnel policies . 6. Sound Dollar : Since the major portion of the district's funds is represented in cash or short term assets, changes in the value of the dollar would have no applicability to EDD's. 7. Conservatism : This manual provides for this principle by recognizing income only when earned and by recording liabilities as they are incurred. 8. Internal Control : This manual provides for the dependability of data through the system of checks and balances which is part of a system of internal control. 9. Materiality : This concept is actually the basis on which the concept of an indirect rate and the allocation of indirect costs is justified. Any inequities produced by using an indirect cost rate are not material in relation to the cost and effort required to directly cost each item. 10. Timeliness in financial reporting requires estimates : Accounting is an art and not an exact science. The only 1007o accurate income statement would be one which covered the first day of life of an entity to its last. However, most people don't want to wait that long, and accountants must make estimates such as allowance for uncollectable dues and depreciation, which are at best good guesses. In addition to the generally accepted accounting principles outlined above, this manual adopts the cost principles described in 0MB Circular A-87 which is reproduced herein. Since A-87 is applicable to all Federal agencies and most grant funds are Federally derived, all the principles set out as to allowability and non-allowability of costs should be applicable to the majority of grants. However, as outlined, each grantor agency, in its contract with the EDD, has the right to further restrict the allowability of costs. The contract is the final authority for their eligibility. This manual calls for two cost pools, employee benefits and indirect costs. The employee benefits are allocated against chargeable salary costs, and the indirect costs are charged against total personnel costs. It should be realized that the same dollars of cost would be charged against a cost objective under this particular system if both of these costs were accumulated in one pool and distributed against chargeable salaries. However, for clearer financial reporting, the two pools are used. The only real exception between this manual and A-87 is found in the mechanical steps provided for a cost allocation after it has been prepared. This manual provides (in the section on cost accounting) for the submission of the plan for approval, while A-87 enables a local government to retain the plan until audit. The final accounting concept used in this manual is that of interfacing the work program with the financial plan (budget). Since the entire basis of allocation of personnel costs and indirect costs is on the basis of time records, it is necessary for the district to define its work activities in terms of cost objectives. A cost objective is the lowest level of detail that the district desires to identify and accumulate costs. Very often this level will be a grant. However, if the district wishes to break a grant down into segments and identify the related costs, it may do so by assigning a cost objective code for each segment. By using the account coding structure outlined herein, costs will be accumulated by these segments. Each cost objective must be assignable to one grant, contract, or agreement. Since each grant eventually must be reported in total, the cost objectives must be able to accumulate to these levels of reporting. The concept of interfacing of work programing with financial planning is not difficult to understand. It requires the district to list all the activities in which its personnel will be doing work during the year and assign a work program code and a cost objective code to each activity. As the staff fill out their time sheets, they find their activities on the list and fill in the activity code on the time sheets. The activities are accumulated by cost objectives, and personnel costs are distributed to cost objectives. If a staff member engages in an activity not on the list, that activity must be added to the list and assigned an appropriate cost objective code. ELEMENTS OF THE ACCOUNTING SYSTEM There are four groups of "things" which constitute an accounting system: (1) Written Procedures such as personnel policies, purchasing policies, direct vs. indirect policy statements; (2) Formal Books of Account such as journals and general ledgers; (3) Supporting Documentation such as canceled checks, time sheets, invoices, contracts, etc., which back up the books of account; and (4) Budgets. Each of them is discussed in this manual. Written procedures are generally policy statements which do not often vary. As an EDD grows, it is usually necessary to change the statements from time to time so that they will fit the changing needs of the district. A personnel policy should be adopted by the board of directors and copies furnished to all employees. Basically, it should contain the EDD's policy with regard to all matters concerning personnel and should deal with the matters outlined below: (1) Hiring and Firing: Who has authority (2) Salaries: Who can set, how often changed, merit raises, overtime, compensatory time (3) Fringe Benefits: (a) Group Insurance -- how much, what kind, district's share, employee's share, who is to change plans, who is included or excluded (b) Social Security -- must have employee's consent (c) Retirement Plans -- how much, what kind, district's share, employee's share, vesting, administration (d) Sick Leave -- how accumulated, rate accumulated, what constitutes sick leave, maximum amount accumulated, what happens at termination 10 (e) Annual leave -- how accumulated, rate accumulated, how small a unit can be taken, notice required before taking, amount paid on termination, maximum amount accumulated (f) Administrative leave — military duty, jury duty, emergencie s (g) Leave of absence -- maternity, other, rights of employee and employer (4) Travel: (a) Amount mileage, air fare classes, per diem (also when starts and stops), who is reimbursed, how often, travel advances, documentation required (b) Approval required -- in region, out of region (c) Moving expenses of new employees (5) Any other policies concerning personnel Purchasing procedures set out the authority and the mechanics required in purchasing for the district's operations. A sample of a purchasing procedure is contained herein. The description of a direct vs. indirect policy statement is contained in the section on cost accounting. 11 SAMPLE PURCHASING PROCEDURE Purpose : The purpose of this procedure is to establish guidelines and regulations governing the purchase of supplies, equipment, contractual services, and other items by the development district. This procedure is designed to insure that the development district's funds are expended in accordance with sound business practice, are recorded in accordance with good accounting procedure and that expenditures meet the requirements of Federal and State agencies assisting in financing the district's activities. Procedure : All purchases of supplies, equipment, and contractual services for the district shall be made in accordance with the following: 1. Initiation of Purchase : A purchase may be initiated by any staff member authorized by the Executive Director or Assistant Executive Director to initiate a purchase. When a purchase is initiated, a standard requisition or a memorandum describing the type of purchase or item and quantity of items desired shall be filled out. The requisition or memo shall be signed by the staff member initiating the purchase. 2. Authorization of Purchase : The staff members of the District may make direct purchases of items when the total cost of the purchase does not exceed $25. When items to be purchased are anticipated to cost in excess of $25, approval of the purchase requisition by the Assistant Executive Director of the district is required. All requisitions, regardless of amount, shall be submitted to the Assistant Executive Director, although orders totaling less than $25 may be 12 submitted to the Assistant Executive Director after the order is made. 3. Qualification of Vendors : All vendors providing supplies, equipment, or services to the District shall be reputable firms having the demonstrated capacity to produce or provide supplies, equipment and/or services, and other items within a reasonable period of time or within the time limits established by the district. Vendors shall be subject to disqualification if they are found to misrepresent quality, quantity, or price of supplies, equipment, services, or other items delivered. Vendors will also be disqualified if reasonable time limits or time limits established by the Development Council are exceeded. 4. Selection of Vendors : Whenever possible, qualified vendors will be selected on the basis of price quotations or competitive bids. Competitive bids will be requested for all items exceeding $100 in unit cost and for aggregate orders exceeding $250. Price quotations will be solicited from qualified vendors for items for which unit costs do not exceed $100. Under some circumstances, the district may purchase supplies, equipment, services, or other items without bids or quotations. Bids or quotations shall not be taken if a qualified vendor is the sole source of the supplies, equipment, services, or other items to be purchased or in cases of emergency, when immediate delivery of supplies, equipment, services, or other items is necessary to the continued provision of adequate services by the district. All sole source purchases shall be reviewed by the Executive Director or by the Assistant Executive Director if the Executive Director is not available for the review. In any event, 13 the Executive Director shall be apprised of any sole source purchase as soon as he is available. A written memorandum explaining all sole source purchases exceeding $100 shall be attached to the vendor file copy of the appropriate purchase order. 5. Purchase Orders : All purchases (except under specified circumstances) shall be made by the submission of a purchase order form to a vendor. The purchase orders shall be numbered sequentially. The exceptions to the use of a purchase order are emergency telephone orders, which shall be documented by a memo by the staff member placing the order; contracts for professional services, where the contract shall serve as detailed documentation for entering into agreement for the provision of services to the district; and bills for utilities and office rental. A purchase order shall be filled out in triplicate. It shall list the date, name of vendor, and type and quantity of supplies, equipment, or other items to be purchased. The purchase order will be signed by a staff member who has the officially designated responsibility for signing purchase orders. The initial copy shall be submitted to the vendor as authorization for the purchase. The second copy shall be filed sequentially by number and shall constitute an official record of all purchases made by the district. The third copy shall serve as an official authorization for disbursement after orders have been satisfactorily filled by vendors. 6. Disbursements to Vendors : All disbursements to vendors shall take place in accordance with the following: a. Receipt of all supplies and equipment shall be certified by a staff member of the district who has been designated responsibility for receipt of all purchased items. Deliveries shall be checked against the third copy of the purchase order (or the purchase order copy of the requisition) and shall be checked for 14 conformance to the specifications contained in the order. A delivery slip from the vendor shall be required before the Development Council will accept any item. The delivery slip and the third copy of the purchase order will be signed if the delivery is in conformance with the purchase order. The delivery slip, requisition, and the third copy of the purchase order will be filed in the appropriate section of the accounts payable file, which will be organized alphabetically by the vendor. b. Invoices shall be matched with the receiving slip, purchase order, and requisition when they are received by the Development Council. The invoice shall be examined to insure that the amount requested for payment matches costs, types, and numbers of items listed on the receiving slip. c. The invoice, purchase order, requisition, and receiving slip shall be reviewed by the Assistant Executive Director and certified as to qualification for payment. No invoice (or bill) shall be paid without certification by the Assistant Executive Director. d. Purchase orders will not be required for utility services (telephone, electricity, and gas) or for rental payments. Bills for these services shall be reviewed by the Assistant Executive Director and shall be paid in accordance with standard procedure for disbursement of funds. However, copies of all bills received for rent and utilities shall be retained and filed on a chronological basis for a period of no less than three years. e. Upon proper certification of invoices and bills, disbursements shall be made in accordance with the standard procedures for issuance of checks and vouchers by the Development Council. 15 FORMAL BOOKS OF ACCOUNT Formal Books of Account generally fall into two categories: Journals which are used to record and summarize individual transactions and Ledgers which contain totals and balances that are accumulations of information from journals. The accounting system in this manual requires the following Books of Account: JOURNALS (1) Cash Receipts Journal (one for each bank account)--This should contain an entry for each receipt of money. Districts which take in currency would need a cash receipt book to record the receipt of cash. Other districts could use duplicate deposit "lips as a posting source for this journal. (Exhibit I) (2) Cash Disbursements Journal (One for each bank account) — This should contain an entry for each check issued. Costs for each cost objective should be summarized at the end of each month and posted to the appropriate account. (Exhibit J) (3) General Journal (One for each FundV-This should be used to record each Journal Voucher. (Exhibit K) (4) Payroll Register : This should be used to record each payroll check and provide the proper distribution of amounts withheld from employees' wages. (Exhibit L) (5) Standard Entries Journal : This should be used to make repetitive journal entries which have the same debits and credits but not necessarily the same amount. It can be used to distribute payroll costs and allocate Fringe Benefits and Indirect Costs. (Exhibit M) LEDGERS (1) General Ledger : There should be one for each fund, used to summarize all real and nominal accounts. Any standard ledger form providing debit, credit, and balance columns can be used. (2) Subsidiary Ledgers : These should be used only if the volume of individual accounts within a category of the general ledger warrants a detailed list rather than using consecutive accounts in the general ledger. They most commonly will be used with Local Dues receivable. 16 SUPPORTING DOCUMENTATION Supporting Documentation is as varied as the transaction it documents. The following is a list of commonly found Supporting Documentation: 1. Checks 2. Purchase Orders 3. Invoices 4. Contracts 5. Time Reports (Exhibit N) 6. Payroll Distribution Sheets (Exhibit 0) 7. In-kind Vouchers (Exhibit P) 8. Written Policies 9. Cash Receipts 10. Deposit Slips 11. Bank Statements 12. Letters of Authorization and Certification 13. Board of Directors' Minutes 14. Petty Cash Disbursements Slips 15. Bank Reconciliations 16. Telephone Logs The district should endeavor to use commercially available forms whenever possible because of cost. Examples of forms which are not commonly available are contained herein. 17 BUDGETS Budgets are estimates against which progress toward a goal can be measured. Budgets play an important part in the financial management of an Economic Development District. In developing the Cost Allocation Plan, an annual budget for the EDD is planned. In, addition, the EDD must develop separate budgets for each grant for which it applies, and these budgets often do not have the same fiscal period as the EDD's fiscal year. Exhibit Q is a form which enables management to allocate grant costs between the EDD's fiscal years. The basic budget documents for the EDD are documents which are contained in the Cost Allocation Plan (Exhibits B-G). Each grantor agency will have its own form for the submission of budgets for its grant. No attempt will be made in this manual to discuss the various types of grantor budgets, but the user must be cautioned to provide information within the accounting system to satisfy the reporting requirements of the various funding sources. FINANCIAL REPORTS There are two basic types of financial reports for Economic Development Districts: (1) periodic reports for measuring progress toward budgets, (2) annual reports which may or may not be audited by independent Certified Public Accountants. Periodic reports should be generated by the accounting staff of the EDD and should provide information useful to the EDD and the grantor agency as measurements against the budget. Exhibit R shows the report which should be issued at least quarterly for each cost objective. If the cost objective is a level below a grant, then the form could be modified somewhat. Exhibits S and T are reports which will show the district's status with regard to its cost pools. Annual reports issued by the EDD should be a report of the entire financial operation for the fiscal year. The financial statements should be complete, and if possible, an opinion by an independent accountant should be contained in the report. Exhibits U, V, W, and X are examples of the statements which should be contained in the annual reports. 19 RECORDS ADMINISTRATION An important feature in having sufficient documentation of accounting transactions is being able to locate the supporting documents in a reasonable length of time and in an orderly manner. Too often accounting departments are associated with clutter, and much time is spent searching for documents of various kinds. It is recommended that a system be established for the location of each type of document in some prescribed order. Normally the Chief Financial Officer is responsible for the maintenance and control of the financial records of an EDD, although he may delegate some of this responsibility. The following is a list of the more common types of accounting records and a brief description of how they might be kept: 1. Checks: A three-part voucher type check would be kept as follows: a. Original--The cancelled check should be kept with the bank statement and filed by the date of the bank statement. b. 1st copy-This should be filed in a binder in numerical order. c. 2nd copy — This should be attached to the supporting document (invoice or other) and filed alphabetically according to the vendor's name. A new Vendors File should be begun each year. 2. Purchase Orders: A three-part form would be filed as follows: a. Original — This would be sent to the vendor. b. 1st copy — This should be kept in a pending file until filled, then filed with the invoice and 2nd copy of the check. c. 2nd copy--This could be filed in a binder in numerical order. 3. Time Reports (Filed by month): Time reports of all employees can be filed in one file folder. 4. Journal vouchers: These can be filed by number for each month and each month kept in a file folder. 5. Contracts: These should be filed alphabetically according to the Vendor' s name. 6. Deposit slips: a. The original is filed with the bank statement. b. The duplicate can be filed in order by date in a binder. 20 These and other accounting records should be kept in a proper place so that they are available to auditors and other authorized personnel, but not where they must be handled by many people in the ordinary course of business not connected with accounting. Most financial records should be kept for a reasonable length of time. Most grant agreements specify the length of time which the records must be kept, but normally, it is for five years or until audited, whichever comes first. A district should be careful not to destroy records until specifically authorized to do so. However, a specific plan of systematic destruction of records is essential to proper management of space and should be developed. Normally the only accounting record which should never be destroyed is the General Ledger, since it should contain almost all essential information. 21 INTERFACE OF WORK PROGRAM WITH COST ACCUMULATION The following document is illustrative of one of the most essential parts of co-ordinating the budget process with Accounting. Each activity that district personnel will be engaged in during the year should be assigned to a category, given a work program code, and assigned to a specific grant. If in preparing this document, it becomes apparent that certain activities overlap, the basis by which the time is going to be charged can be determined in advance. As activities arise during the year, the list can be expanded; the district should feel free to modify the attached example to suit its needs. After this has been done, the personnel of the district can use the list to fill out their time reports; this practice should result in accurate charging of time to cost objectives. For example, using the codes on the following document, if a person worked on personnel files, he would charge his time on his time report to A-04, which is personnel under administration. This time would be accumulated under the indirect cost objective and distributed to the indirect cost pool. If another person worked on a solid waste disposal plan, he would charge his time to B-04-02, which would be accumulated under the HUD cost objective and distributed at a direct cost to that grant. 22 CLASSIFICATION AND IDENTIFICATION CODE STRUCTURE FOR WORK PROGRAM IDENTIFICATION Work Program Codes A - ADMINISTRATION 01 02 03 04 05 06 Activities General Administration Program Legislation and Guidelines Membership Personnel Finance Annual Work Program B - COMPREHENSIVE PLANNING 01 02 03 04 Comprehensive Planning - General 01 Census 02 Mapping 03 Bi-National Planning 04 Regional Goals 05 Goals for Texas Housing Transportation Environmental Quality Control 01 Water and Sewer Planning and Management 02 Solid Waste Disposal 03 Air Pollution Control 04 Open Space Environmental Resources Cost Objective INDIRECT INDIRECT INDIRECT INDIRECT INDIRECT INDIRECT HUD HUD HUD HUD HUD HUD HUD HUD HUD HUD HUD HUD HUD 23 B - (Continued) 05 07 08 C - HEALTH PLANNING 01 02 03 04 05 06 07 05 Areawide Sewerage Plan Land Use and Physical Design Human Resources Model Cities Administration Correspondence Manpower Consortium General Conditions Health Manpower Services and Facilities Environmental Health D - LAW ENFORCEMENT & CRIMINAL JUSTICE PLANNING 01 Comprehensive Law Enforcement and Criminal Justice Planning 02 Law Enforcement Training and Education E - INTERGOVERNMENTAL AND COMMUNITY SERVICES 01 02 03 04 05 06 07 08 PNRS - A 95 Review Joint Service Agreements Technical Assistance Emergency Operations Communications Center Texas Communities Tommorrow Model Building Codes and Ordinances Capital Improvement Program Council Meetings TWQB HUD HUD HUD HEW HEW SOCHP HEW HEW HEW HEW CJC/PLANNING CJC/ACADEMY EDA 50%/ HUD 507o HUD INDIRECT INDIRECT HUD HUD HUD INDIRECT 24 E - (Continued) 09 E & D Migrant Project 10 Camps 11 MDTA ECONOMIC DEVELOPMENT 01 02 03 04 05 06 07 08 09 10 11 12 13 14 General Industrial Development Transportation Facilities Development Tourism & Recreation Resources Development Public Works Development Agricultural Natural Resources Development Growth Centers and Positive Action Programs District Action Program OEDP Business Loans U.S., Mexico, etc. Technical Assistance Economic Development Districts Action Bulletins G - PUBLIC SERVICE CAREERS PROGRAM 01 General Administration 02 Training 03 Hiring Agencies 04 Enrol lees INDIRECT INDIRECT INDIRECT EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA EDA/PSC EDA/PSC EDA/PSC EDA/PSC 25 G - (Continued) 05 06 Supportive Services Finance EDA/PSC EDA/PSC EDA HUD HEW TWQB Economic Development Administration Department of Housing and Urban Development Department of Health, Education and Welfare Texas Water Quality Board CJC/PLANNING AND CJC/ACADEMY - Criminal Justice Council SOCHP - State Office of Comprehensive Health Planning PSC INDIRECT Public Service Careers Cost Objective Code 01 02 04 09 lb 21 27 92 26 COST ACCOUNTING There are two basic types of costs which must be accounted for in any cost accounting system: direct costs and indirect costs. OMB Circular A-87 defines them as follows: "Direct Costs are those that can be identified specifically with a particular cost objective," and "Indirect Costs are those (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objective specifically benefited, without effort disproportionate to the results achieved." It should be noted that the only real difference between direct and indirect is the ability to identify the cost with a specific cost objective. No particular cost is in its nature direct or indirect. The only criterion is how readily that particular cost can be matched with a particular cost objective. Also, it should be noted that, at this point, no mention is made as to whether the cost is allowable or unallowable insofar as a particular cost objective is concerned. Multi-Funded Economic Development Districts have a special problem in identifying many of their costs with a particular cost objective. Typically, the pattern of growth in one of these districts has been as follows: (1) Establishment of the EDD with an EDA planning grant and all costs of the district being chargeable to that grant. (2) The addition of one or more grants from other funding sources with the additional grant paying only those costs which increased with the addition of the new grant . Obviously, the agencies which began funding after the EDD was in existence did not share in the full cost of operating their grant, since many of the "overhead" or common expense items were being paid for in the EDA grant. OMB Circular A-87 provides means by which the Federal Government's grants can be charged a portion of those costs which are necessary to the operation of an organization but cannot be specifically identified as a cost of those grants. These documents provide for the establishment of "cost pools" where indirect costs can be accumulated and then prorated to various cost objectives on a reasonable and equitable basis. The entire 27 circular is reproduced at the back of this manual for reference, but only those provisions which are applicable to a normal EDD will be discussed in this section. In most cases, a cost objective for an EDD will be a grant. The account code structure provides for a cost objective code to be used in connection with expenditures, If the EDD prefers or needs to break costs down below the grant level, more than one cost objective code can be used for an individual grant. However, in no case can more then one grant be included in a single cost objective code. Simply stated, this manual provides that all direct costs for a cost objective be accumulated in one section of the general ledger with indirect costs to be accumulated in a separate section. Through a device known as an indirect cost rate, those indirect costs are prorated back to the cost objectives. The indirect cost rate is a ratio between total indirect costs and the items in the particular cost objective against which these costs are prorated. A-87 provides two bases with which to prorate indirect costs: (1) personnel costs and (2) total costs less distorting items such as consultants and capital expenditures. A cost allocation plan is simply a budget which sets out the projected direct costs, the projected indirect costs, the projected base for allocation of these costs, thus arriving at an indirect cost rate (ratio) for these costs. Although A-87 provides various bases for proration of indirect costs, it is felt the base normally applicable to EDDs will be the personnel cost base. The expenses shown in Accounts 9500-9650 in the chart of accounts are illustrative of the typical costs in an indirect cost pool. Because almost every one of the items will tend to increase with the addition of personnel, it seems equitable to prorate these costs against personnel costs. On the other hand, using a total cost basis would cause those cost objectives with items such as travel or printing to bear more of the items in the cost pool. This result does not seem to be as reasonable. 28 The basic steps necessary to prepare a cost allocation plan are as follows: (1) Prepare a direct vs. indirect policy statement. (2) Prepare a personnel costs worksheet. (3) Prepare an allocation of personnel plan. (4) Prepare a statement of employee benefits. (5) Prepare a statement for the indirect costs. (6) Prepare a statement for the base against which to prorate the costs. (7) Prepare a budget which contains all the costs of the cost objectives and shows the allocation of indirect costs to these cost objectives. (8) Prepare a projection of local resources and requirements. The documents needed to prepare a cost allocation plan are explained below: (1) A Direct vs. Indirect Policy Statement — Each EDD should prepare a written policy which outlines the costs which it considers direct, the costs it considers indirect, and the reasons why it considers things thus. This document's purpose is to assure consistency in the charging of costs. A few basic concepts which are applicable to all EDD s are set out below: (A) A cost objective must have direct time before it can be charged with indirect costs. (B) Costs which cannot be charged to a particular cost objective because of the terms of a grant cannot be prorated to the other cost objectives. (C) Travel costs should follow the personnel costs of the person doing the traveling. For example, a person whose salary is charged to the indirect cost pool must also have his travel costs charged to the indirect cost pool. (D) The policy should also include a statement which acknowledges that indirect time not only is time which is fragmented, but that some functions (such as payroll preparation, general administration, receptionist's duties, etc.) are indirect in their nature. 29 EXHIBIT B (2) Personnel costs worksheet: (See Exhibit B for a sample) Heading Position Basis of Pay Daily Rate This year's salary Leave Earned * Sick Leave Taken * Holidays * F.I.C.A, Group Insurance Workmen's Compensation Explanation Named positions on the staff: includes all staff members, both professional and non-professional. Normally, the annual rate is used. The amount per hour, week, or month should be disclosed. Computed as follows: annual - divided by 260 monthly - divided by 22 hourly - multiplied by normal working hours . Round all answers to nearest even dollar. Reflects the actual amount to be paid for that position during the year. Some positions stop and start with grants; the EDD s personnel may fill more than one position during a year, but not at any one time. Should be a function of the EDD's written personnel policy. I f 10 work days' leave is earned annually, 47° will be very close to the actual amount. Should be an estimate based on a prior year's experience. Again, depending on the EDD's personnel policies, such things as time off for funerals, etc., may have to be considered here. This percentage should be derived by dividing the approved number of EDD holidays by 260. Should be computed in accordance with the rates and earnings maximums of Social Security in effect for the period covered. This is the EDD's share. Costs should be obtainable from the carrier of the EDD's group plan. Costs should be obtainable either from the EDD's insurance policy or its insurance agent. Pension Plan Contributions Costs should be obtainable from the plan. * Released Time (3) Allocation of Personnel Plan — This document reflects the estimated personnel efforts for each cost objective. In the example shown on Exhibit C, the chargeable salary obtained from the personnel costs worksheet is entered in the first column. 30 A column should be made for each cost objective of the EDD. Then the percentage of chargeable time per position should be spread under the appropriate cost objective, making sure that 100% is allocated for each position. Each salary is then prorated to each cost objective according to the appropriate percentage. The total direct salary costs for each cost objective are obtained by adding the salary amounts in each cost objective column. (4) Statement of Employee Benef its--This document should contain the estimated costs of the items in the employee benefit pool. The amounts of these items should be obtained from the personnel costs worksheet. An example is shown on Exhibit D. (5) and (6) Statement of Indirect Costs — This document (Exhibit E) should contain the estimated costs of the items which were outlined as indirect in the indirect policy statement. This statement should provide the base against which the indirect costs will be prorated. (7) Annual operating budget--This document (Exhibit F) shows the overall operation of the EDD for the fiscal year. All direct costs are shown on it. The allocation of Employee Benefits and indirect expenses are shown by cost objectives. Also shown is the source of funds to finance the cost objectives. (8) Projection of Local Resources and Requirements--This document (Exhibit G) shows the projected financial resources and requirements of the local EDD for the year involved. Note that the unrestricted state grant is considered in this statement since it can be used to match other grants. The Local requirements shown on this schedule should equal the Local requirements developed in the annual operating budget. This complete set of documents constitutes an indirect cost rate proposal. The indirect cost proposal should be submitted to the Office of Audits, United States Department of Commerce, Washington D.C. 20230, for approval of a preliminary rate. The Office of Audits will review the proposal and issue a document which sets out the 31 approved provisional indirect cost rate. This document will entitle the EDD to use the provisional rate throughout the year on documents submitted to Federal Agencies for cost reimbursement, budget requests, etc. After the year's end, the same documents should be prepared using the actual amounts incurred and should be submitted to the same office for approval of a final rate. After audit, the Department of Commerce will establish a final rate which should be used to submit final reports to grantor agencies. 32 ACCOUNT CODING STRUCTURE Each account in the General Ledger will have a seven digit account code. This code is broken down as follows: one-digit fund code, two-digit cost objective code, four-digit detailed account code. Fund Code : The one-digit fund code designates the group of accounts in which the account is located. Code Fund 1 Operating Fund - Contains local funds and those grants contained in the cost allocation plan 2 Custodial Fund - Contains those grants administered by the EDD but are not in the cost allocation plan because they do not contain salaries of the EDD Personnel 3 Fixed Assets Fund - Contains the cost and related depreciation accumulations of fixed assets purchased by the EDD. Grant/Cost Objective Code : This two-digit code identifies the specific area of cost accumulation and groups all accounts which deal with that specific area. Certain grant/cost objective codes have been reserved to provide uniformity. An essential document in the structure of the accounting system is the Grant Roster. This document (Exhibit A) should contain a list of all grants received by the district during each fiscal year. The grant name should be as detailed as possible so that there is no doubt as to which contract a grant code applies. It is also suggested that the beginning and ending dates of the grant be included in the grant name. Once a grant has been given a number, it should retain that number from year to year. Once a grant has had its final audit and is permanently closed, the number can be reused in the next fiscal year after f inalization. A grant code should never be used for two grants within a single fiscal year. 33 Cost Objective Codes Purpose 00 Not a cost objective. This is used for assets, liabilities, deferred income, fund balances, and revenues. 01-89 Used to identify a particular grant — Grants should be assigned cost objective codes without regard to the fund. 90-99 Indirect Costs — Pools and Allocations -- The last 10 numbers have been reserved so that these accounts will always be at the back of the general ledger. Grant Codes within this group should be changed from year to year so that adjustments to a prior year's indirect cost pool can be readily distinguished from the current year's pool. Detailed Account Codes The first digit of the four-digit account code designates the broad category of accounts in which the particular amount occurs. The first digit codes are as follows: Code Broad Category 1 Assets 3 Liabilities 4 Deferred Revenue 5 Fund Balances 7 Revenue and Resources Applied 8 Direct Costs 9 Indirect Costs - Pools and Allocations 34 The first digit code and the other three numbers constitute the detailed account code. A chart of accounts for each fund should be prepared by each district and should list the complete code for each category. The attached chart of detailed account codes can be used for any fund. The categories are broad enough to provide the district ample room to expand the charts where needed. Accounts which begin with 1-7 will require a separate full account code for each account since grant/cost objective codes will not be used. Generally speaking, accounts ending in ClO can be used as a control or summary account with the detailed accounts following. Only the even hundred (00) accounts will be shown on financial statements for accounts lxxx through 5xxx. Accounts which begin with 8 and some 9 accounts will have the same account title (i.e., 300-travel) for each grant. In other words, the same cost code can be used for the cost category, no matter which grant is involved. ILLUSTRATION: Detailed Account Code Cost Objective Code Fund Code 35 CHART OF ACCOUNTS A S S ETS. 1000-1099 Cash 1001 - Petty Cash 1010 - Cash on Deposit - National Bank 1011 - Cash on Deposit - State Bank 1012 - Cash on Deposit - National Bank 1015 - Cash on Deposit - Payroll Account 1019 - Cash Transfer Account 1050 - Certificates of Deposit 1100-1599 - Accounts Receivable 1100 - Accounts Receivable - Local 1101 - Accounts Receivable - Local Dues 1102 - Allowance for Uncollectible Dues 1103 - Accounts Receivable - Local Other 1200 - Accounts Receivable - State Agencies 1300 - Accounts Receivable - Federal Agencies 1400 - Accounts Receivable - Delegate Agencies 1500 - Inter-fund Receivables 1600-1699 - Prepaid Items 1601 - Prepaid Items 1700-1799 - Fixed Assets - Local Funds 1710 - Land 1720 - Buildings 1730 - Furniture and Equipment 1740 - Automobiles and Trucks 1750 - Accumulated Depreciation 1770 - Accumulated Use Charge 36 1800-1899 Fixed Assets - Grant Funds 1810 - Land 1820 - Buildings 1830 - Furniture and Equipment 1840 - Automobiles and Trucks 1900-1999 Other Assets 1901 - Other Assets LIABILITIES 3000-3099 Accounts Payable 3001 - Accounts Payable 3100-3199 Accrued Liabilities 3101 - Accrued Interest Payable 3103 - Accrued Payroll 3105 - Accrued Leave 3200-3299 Withholding 3201 - F.I.C.A. Payable 3202 - Federal Income Tax Withheld 3203 - State Income Tax Withheld 3204 - Group Insurance Withheld 3300 Notes Payable 3400 Inter- fund Payable DEFERRED REVENUE 4000 - Unapplied Grant Funds - Federal 4100 - Unapplied Grant Funds - State 4200 - Unapplied Grant Funds - Special Local Projects 37 FUND BALANCES 5000 - Unapplied Fund Balances 5500 - Investment in Fixed Asset Fund - Local Funds (Depreciation Method) 5 700 - Investment -In Fixed Asset Fund - Grant Funds REVENUES AND RESOURCES APPLIEJD 7000-7099 Federal Grant Revenue 7001 - Economic Development Administration Planning Grant No. 7002 - Department of Housing and Urban Development Planning Grant No. 7100-7199 State Grant Revenue 7101 - State Water Quality Grant No. 7200-7299 State Unrestricted Revenue 7201 - State Division of Planning Coordination Grant No. 7300-7399 Local Revenue 7301 - Local Dues 7302 - Special Project No. 7400-7499 In-kind Revenue 7401 - In-kind Rent 7402 - In-kind Travel 7600-7699 Local Revenue 7601 - EDA Grant No. 7602 - HUD Grant No. 7800-7850 Sale of Fixed Assets - Local Funds 7851-7899 Sale of Fixed Assets - Grant Funds 38 DIRECT CQS1S. 8100 - Personnel - Chargeable Salaries 8150 - Employee Benefits Allocation 8200 - Consultants and Contracted Services 8300 - Travel 8400 - Printing 8500 - Delegate Agency Costs 8600 - Buildings 8700 - Furniture and Equipment 8800 - Automobiles and Trucks 8900 - Other Direct Costs COST ALLOCATION POOLS 9100-9299 Employee Benefits 9110 - Leave 9120 - Sick Pay 9130 - Holidays 9140 - Payroll Taxes and Administration Fees 9150 - Workmen's Compensation Insurance 9160 - Group Insurance 9170 - Retirement Benefits 9180 - 9190 - 9200 - Employee Benefits Applied 9300-9399 Salaries and Wages Clearing Accounts 9310 - Salaries and Wages 9320 - Salaries and Wages Applied 39 9500-9900 Indirect Cost Pool 9510 - Personnel - Indirect Labor Costs 9520 - Employee Benefits Allocated 9530 - Legal Services 9540 - Accounting Services 9550 - Auditing Services 9560 - Indirect Travel 9570 - Space Costs 9580 - Equipment Rent 9590 - Use Charges 9600 - Depreciation 9610 - Consumable Supplies 9620 - Insurance and Bonding 9630 - Indirect Printing 9640 - Telephone and Telegraph 9650 - Postage and Freight 9660 - 9800 - Indirect Cost Contributions 9900 - Indirect Cost Allocations 40 DESCRIPTION OF GENERAL LEDGER ACCOUNTS ASSETS 1001 - Petty Cash This is a debit balance asset account used to account for an imprest cash fund which should be under the control of one particular person. It is used to make minor cash disbursements for which the issuance of a check is either impractical or impossible. Such disbursements would be postage due and purchase of minor supplies from other than regular sources. Each purchase should be supported by a petty cash voucher. Many types of these forms are commercially available. The amount of currency in the fund plus the total of the petty cash vouchers should always equal the control amount of the fund. At least monthly, the vouchers in the fund should be summarized and the fund replenished with a check to the petty cash custodian for the amount needed to bring the fund back to its authorized balance. The petty cash vouchers which have been submitted for reimbursement should be marked"paid"and filed with other paid bills. The expense accounts should be charged directly from the cash disbursements journal. Posting Contra Posting Contra Debits Source Account Credits Source Account Establishment of Decrease in the fund or amount of fund CR 1010 increase in the fund CD 1010 1010 - Cash on Deposit - National Bank (Operating Fund) This is a debit balance asset account which reflects the cash balance in the operating account. Posting Contra Posting Contra Debits Source Account Credits Source Account Collection of receipts Cash Disburse- 1, 3, 8 from local sources, ments CD or 9 state sources and Series of federal sources which Accounts are used in the 1100- operations of the 1599 or District CR 7000 Series Transfers between „ bank accounts within a fund CR 1019 41 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1015 - Cash on Deposit - Payroll Account This is a debit balance asset account which reflects the imprest cash balance in the account. For each payroll written, there should be a master check drawn on the operating account for the exact amount of the net payroll checks issued. Therefore, the balance in this account should remain constant. If the bank makes activity charges against this account, it should be periodically reimbursed and the bank charges charged to expense. Posting Contra Posting Contra Debit Source Account Credit Source Account Transfers from Transfers to operating account PR 1019 operating account PR 1019 1019 - Cash Transfer Account This is a zero balance clearing account used to accumulate offsetting debits and credits when cash is transferred between bank accounts within a fund. It should always come to zero. Since each deposit must be entered in a cash receipts journal and each check entered in a cash disbursements journal, the transfer of cash between bank accounts within a fund will produce a debit and credit entry in the cash receipts journal of the receiving bank account and a debit and credit entry in the cash disbursements journal of the transferring bank account. This account is used to offset the credit entry produced by the debit in the cash receipts journal against the debit entry produced in the cash disbursements journal. If this account should have a credit balance at the end of a month, then the receipt of a transfer from one account has been recorded without the recording of the issuance of the transfer. Conversely, if the account should have a debit balance, then the issuance of the transfer has been recorded without the receipt having been recorded. This account should never be used to account for transfers between funds. Account 1500-5000 should be used for transfers between funds. Posting Contra Posting Contra Debit Source Account Credit Source Account Transfer to Payroll CD 1010 Transfer from Operating PR 1015 Transfer to Operating from restricted bank Receipt of cash account within from restricted operating fund CD 1012 bank account within operating fund CR 1010 42 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1050 - Certificates of Deposit This is a debit balance asset account which shows the balance of temporary investments of cash. Posting Contra Posting Contra Debits Source Account Credits Source Account Investment of Cash CD 1010 Redemption of Investment CR 1010 Increase in face amount due to interest added to face GJ 730X 1101 - Accounts Receivable - Local Dues This is a debit balance asset account which represents amounts due from members for dues. It is a control account which balances to a detailed subsidiary ledger. At year's end, it should be reviewed for any dues which are not reasonably collectible. Dues should be recorded in this account when they are assessed by the district. Posting Contra Po s t ing Contra Debits Source Account Credits Source Account Recording of annual Collection of dues from members GJ 7301 Receivables Write off of uncollectible dues (by Board Action) CR GJ 1010 1102 43 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1102 - Allowance For Uncollectible Dues This is a credit balance asset account which reflects offsets to accounts receivable which are not reasonably known to be collectible. At each year's end, balances in account 1101 should be reviewed, and any amounts which probably will not be collected within the next twelve months should have an allowance made against them. However, no dues should be written off without the consent of the Board of Directors. Po sting Contra Posting Contra Debits Source Account Credits Source Account Write off of Allowance for uncollectible accounts doubtful (By Board Action) GJ 1101 accounts GJ 7302 Removal of account from allowance because of collection of receivable GJ 7302 1103 - Accounts Receivable - Local Other This is a debit balance asset account which represents amounts due from local sources for purposes other than dues. A subsidiary ledger would be needed only if volume made it necessary. Ordinarily, this account will be used only at the end of a grant or at the end of the district's fiscal year. Accounts 1104-1199 in the general ledger can be used for each agency or grant . Posting Contra Posting Contra Debits Source Account Credits Source Account Amount due from a Collection of member for special Receivable CR 1010 project GJ 730X 44 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1200 Accounts Receivable - State Agencies This is a debit balance asset account which represents amounts due from State funding agencies for contributions to projects. Unrestricted General Support Grants by the State should not be reflected here, but should be taken directly into income when cash is received. These accounts are to be used primarily to account for earned revenue for projects. Posting Debits Source Contra Account Credits Posting Source Contra Account Amount earned but not collected from State GJ 7100 Collection of receivable CR 1010 1300 - Accounts Receivable - Federal Agencies This is a debit balance asset account that is used to reflect amounts due from agencies of the Federal government. This account will normally only be used at the end of a grant or at the end of the district's fiscal year. This can be used as a control account for a subsidiary ledger, or account numbers 1301-1399 can be individually used to record the receivable for each grant. If an amount set up as a receivable should subsequently be determined to be excessive due to disallowance of costs charged to the grant, the balance should be written off to the district's unrestricted fund balance, account 5000, and be shown on the financial statements. Posting Contra Posting Contra Debits Source Account Credits Source Account Amount due from Collection of Federal Agency GJ 7000 accounts receivable CR 1010 45 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1400 - Accounts Receivable - Delegate Agencies This is a debit balance asset account which reflects advances made to delegate agencies for performance of their duties. See the special problems section for a discussion of delegate agencies. Posting Contra Posting Contra Debits Source Account Credits Source Account Amounts advanced CR 1010 Funds used to perform contracts GJ 8500 Return of unused funds CR 1010 1500 Inter- fund Receivables This is a debit balance asset account used to reflect temporary advances between funds. Transfers between funds of a permanent nature should be reflected in fund balance account. Posting Contra Posting Contra Debits Source Account Credits Source Account Purchase of assets Collection of for fixed asset receivable CR 1010 fund CD 1010 46 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 1600 - Prepaid Items This is a debit balance asset account used to account for significant pre-payments of expense which carry over from one accounting period to another. It should be adjusted at least annually to reflect the amortization of each item. Debits Posting Source Contra Account Credits Posting Source Contra Account Cost of 3 insurance on office year policy contents CD 1010 Amortization of current fiscal period ' s expense GJ 8000 or 9000 Series 1700 - Fixed Assets This is a debit balance asset account used to account for the cost of assets purchased by the district. The amount shown as a balance should be supportable by an analysis which shows the cost of each asset, the date acquired, and the source of the funds from which it was purchased. Assets which are subsequently disposed of through trade-in, sales, loss, or other should be removed from this account. Posting Contra Posting Contra Debits Source Account Credits Source Account Cost of Fixed Removal of Assets GJ 5500 cost of asset due to disposition GJ 5500 1750 - Accumulated Depreciation This is a credit balance auxiliary account used to accumulate the depreciation charges made against assets which were purchased from local funds. Assets purchased with local funds can be depreciated in accordance with any method acceptable to the Internal Revenue Service. Debits Posting Source Contra Account Credits Posting Source Contra Account Disposition of Assets GJ 1700 Depreciation Allowance GJ 9600 47 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 3001 - Accounts Payable This is a credit balance liability account used to reflect major unpaid obligations which do not fit into the other liability classifications. Since most districts pay bills currently, it is not anticipated that this account will be used except to record significant unpaid items which exist at the year's end. It can also be used to accrue unpaid direct expenses of a grant which ends within a year. Amounts included in accounts payable should be definite amounts supportable by documents and not estimated costs. Debits Posting Source Contra Account • Credits Posting Source Contra Account Payment of obligations CD 1010 1 Liabilities unpaid at year' s end or other , GJ 1000 or 8000 Series 3101 - Accrued Interest Payable This is a credit balance liability account used to reflect unpaid interest charges on borrowings. Posting Contra Posting Contra Debits Source Account Credits Source Account Payment of Amount of interest CD 1010 interest due at end of accounting period GJ 8900 3103 - Accrued Payroll This is a credit balance liability account used to reflect employees' gross wages earned but not paid at the end of each month. Debits Posting Source Contra Account Credits Posting Source Contra Account Payment of wages accrued CD 1010 Unpaid wages GJ 9310 48 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 3105 - Accrued Leave This is a credit balance liability account reflecting the district's obligation for annual leave earned but not taken. The amount should be supportable by a written personnel policy which has been approved by the governing board and by detailed leave records maintained for each employee. The accrual should be adjusted annually and the adjustment made through account # 9100 - Leave. The balance should agree with the accrued leave schedule prepared annually by the district. See Exhibit H Posting Contra Posting Contra Debits Source Account Credits Source Account Adjustment to year s Amount of end schedule of unused leave unused leave (if earned GJ 9110 less than previous year' s accrual) GJ 9110 3201 - F.I.C.A. Payable This is a credit balance liability account which reflects the district's obligation for both the employer's and employees' share of Social Security tax. Debits Posting Source Contra Account Credits Posting Source Contra Account Payment of Tax CD 1010 Employees ' share withhe Employer 1 s share accrue Id d CD GJ 9310 9140 3202 - Federal Income Tax Withheld This is a credit balance liability account which reflects the amount of Federal Income Tax withheld but not transmitted to the government. Debits Posting Source Contra Account Credits Posting Source Contra Account Payment of Tax CD 1010 Employees ' withheld tax CD 9310 49 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 3203 State Income Tax Withheld This is a credit balance liability account which reflects the amount of State Income Tax withheld but not transmitted to the government. Debits Posting Source Contra Account Credits Posting Source Contra Account Payment of tax CD 1010 Employees ' tax withheld CD 9310 3204 - Group Insurance Withheld This is a credit balance liability account which reflects the employees' unremitted portion of a group insurance plan. The district's portion of the premiums should be charged to account 9160. Posting Contra Posting Contra Debits Source Account Credits Source Account Remittance of Collection from premiums CD 1010 employees Amount of District ' s CD 9310 contribution GJ 9160 3300 - Notes Payable This is a credit balance liability account which reflects amounts due for outside borrowings. Such borrowings should be in conformity with written board policy or be approved by the governing board in a legal meeting. Debits Posting Source Contra Account Credits Posting Source Contra Account Payments of principal CD 1010 Receipt of loan proceeds CR 1010 50 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 3400 - Interfund Payable This is a credit balance liability account which reflects amounts due to other funds for temporary advances. It is the offsetting account to account 1500 in the fund which made the advance. Debits Posting Source Contra Account Credits Posting Source Contra Account Payment of obligation CD 1010 Advance by another fund GJ Any account 4000 - Unapplied Grant Funds - Federal This is a credit balance liability account which reflects the excess of Federal grant funds received over the Federal portion of costs incurred for that grant. For example, if a 3/4 matching grant had advanced $50,000 towards a project which had total accumulated costs of $60,000, the Federal portion of that grant would be $45,000 and $5,000 would be unapplied grant funds. This account should be used at the year's end to set up any such unapplied balances. At the end of the grant, the additional Federal portion of that grant which is earned should be transferred to account 7000 - Federal Grant Revenue. Any remaining balance would be due to the funding agency. Account 4000 can be used as a control account, or accounts 4001-4099 can be used to reflect balances of individual grants. Pc sting Contra Posting Contra Debits Source Account Credits Source Account Additional amount Excess of earned under grant amount GJ 7000 award subsequent to received over year end closing GJ 7000 amount earned Unearned receipts returned to Federal grantor CD 1010 51 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 4100 - Unapplied Grant Funds - State This account would work exactly like the 4000 series of accounts, except that it would apply to State Grants. 4200 - Unapplied Grant Funds - Special Local Projects This account would be used as 4000 and 4100 series, except it would contain grants from local sources for special projects. 5000 - Unapplied Fund Balance This is a credit balance equity account which reflects the amount of unexpended local resources. Each year tb e revenues and expenditures are closed to this account. Posting Contra Posting Contra Debits Source Account Credits Source Account Prior year's Closing of Entire expenditures 4000, Revenue GJ Series disallowed from 4100, 7 xxx grants GJ 4200 Purchase of Fixed Assets from Local Funds CD 1010 Closing of Expenditures GJ 8 xxx 9xxx Series 52 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 5500 - Investment in Fixed Asset Fund - Local Funds (Depreciation Method ) This is a credit balance equity account which reflects the undepreciated cost of fixed assets purchased with local funds. Posting Contra Posting Contra Debits Source Account Credits Source Account Close out Amount of local depreciation funds used to expense at year purchase fixed end GJ 9600 assets GJ 1700 Undepreciated cost of Fixed Asset disposed GJ 1700 5700 - Investment in Fixed Asset Fund - Grant Funds This is a credit balance equity account which reflects the cost of fixed assets acquired by the District which were purchased with grant funds. The amounts which will appear in this account should contain both the grantor and grantee portion of the cost. If the asset is subsequently disposed the original cost of the asset should be removed from the books. A seperate grant code should preface each 5700 account so that the exact source of funds can be identified. Debits Posting Source Contra Account Credits Posting Source Contra Account Disposition of Asset GJ 1800 Purchase of Asset GJ 1800 53 DESCRIPTION OF GENERAL LEDGER ACCOUNTS RE VE NUE S 7000-7099 - Federal Grant Revenue These are credit balance revenue accounts which reflect the amount of revenue received from Federal sources for each grant. Each grant should be given a separate account number beginning with 7001. During the year, this account will reflect the amount of cash received from the source and at year's end (or at the end of the grant) will be adjusted to reflect the amount of Federal Revenue earned. If Federal Revenue earned exceeds revenue received, the adjustment will be through accounts receivable (Accounts 1300); if revenue received exceeds revenue earned, the adjustment will be through unapplied grant funds (Accounts 4000). Posting Contra Posting Contra Debits Source Account Credits Source Account Excess of Receipts of receipts over grant funds CR 1010 revenue earned GJ 4000 Closing entry GJ 5000 Accrual of additional revenue GJ 1300, 4000 7100-7199 - State Grant Revenue These are credit balance revenue accounts which are handled exactly as the 7000-7099 accounts, except that they reflect revenue from State grants for particular projects. 7200-7299 - State Unrestricted Revenue These are credit balance revenue accounts which are used to reflect the amount of State revenues received to support the overall district program. These revenues become local in nature when received and can be used to match Federal grants. Debits Posting Source Contra Account Credits Posting Source Contra Account Closing entry GJ 5000 Receipt of State funds GJ 1010 54 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 7300-7399 - Local Revenue These are credit balance revenue accounts which reflect the amount of revenue from local sources. A separate account should be set up for each category of local revenue. Revenue for local dues can be accrued when the district has reasonable assurance of collection. Posting Contra P osting Contra Debits Source Account Credits S ource Account Closing entry GJ 5000 Assessment of local dues Receipt of funds for special project GJ CR 1100 1010 DIRECT COSTS 8100 - Personnel - Chargeable Salaries This is a debit balance expense account reflecting the cost of direct time which has been charged to a particular cost objective. Debits Posting Source Contra Account Credits Posting Source Contra Account Chargeable salaries SE 9320 Closing entry GJ 5000 8150 - Employee Benefits Allocation This is a debit balance expense account reflecting the amount of employee benefits which have been allocated to this cost objective based on the rate developed at the beginning of the year. At year's end, this account will be adjusted to reflect the actual rate. Posting Debits Source Contra Account Credits Posting Source Contra Account Allocation of employee benefits SE Adjustment to year's end actual rate GJ 9200 9200 Adjustment to year' s end actual rate Closing entry GJ GJ 9200 5000 55 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 8200-8999 - Direct Costs (Other than personnel) These are debit balance expense accounts which reflect direct costs of projects in accordance with the district's policy for direct and indirect costs. The account titles shown on the chart of accounts are self-explanatory. Accounts 8200-8499 and 8700 are the most common direct costs found in districts. Accounts 8900-8999 are for direct costs which might be peculiar to a particular grant, such as HUD's inspection fee. Accounts 8600, 8700, 8800 are for purchases of fixed assets from grant funds. Delegate Agency Costs (Accounts 8500-8599) are those costs incurred when a district, in effect, subcontracts a grant to another organization. It is not unusual for a district to be the applicant for a grant that will be wholly performed by others. However, it must be emphasized that since the district is the applicant, it is primarily responsible for the costs incurred being proper and for seeing that all reporting requirements are met. The distinction between a delegate agency grant and a custodial grant is that there will be personnel costs and perhaps overhead costs charged to a delegate agency grant, whereas a custodial grant normally does not have these costs. If the delegate agency's salary costs were shown in the records of the district as salary costs, the proration of the district's indirect costs on the basis of salary costs would become confusing. Therefore, the district should show delegate agency costs in lump sum and keep a detailed record of the budget off line from the accounting system. Posting Contra Posting Contra Debits So urce Account Credits Source Account Direct expenses CD or 1010 or Closing GJ Other appropriate account entry GJ 5000 Unpaid significant items at year's end GJ 3001 56 DESCRIPTION OF GENERAL LEDGER ACCOUNTS EMPLOYEE BENEFITS 9110 - Leave This is a debit balance expense account which reflects the cost of leave taken and accrued during the year. Posting Contra Posting Contra Debits Source Account Credits Source Account Cost of leave Adjustment taken during of accrued year SE 9320 leave if less than at year' s Adjustment of end last year GJ 3105 accrued leave if more than at year's end last year GJ 3105 Closing entry GJ 5000 9120 - Sick Pay This is a debit balance expense account which reflects the cost of sick leave taken during the year. Accrued sick leave should not be charged as a cost unless it is the district's policy to pay for unused sick leave. Posting Contra Posting Contra Debits Source Account Credits Source Account Cost of sick Closing leave taken SE 9320 entry GJ 5000 9130 - Holidays This is a debit balance expense account which reflects the cost of paid holidays . Debits Posting Source Contra Account Credits Posting Source Contra Account Cost of paid holidays SE 9320 Closing entry GJ 5000 57 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 9140 - Payroll Taxes and Administration Fees This is a debit balance expense account which reflects the district's share of employment taxes and the administration fees charged by State agencies for handling F..I.C.A. taxes. Posting Contra Posting Contra Debits Source Account Credits Source Account Accrual of Closing district's share entry GJ 5000 of payroll taxes SE 3201 Administration fees CD 1010 9150 - Workmen's Compensation Insurance This is a debit balance expense account which reflects the district's cost of Workmen's Compensation Insurance. Posting Contra Posting Contra Debits Source Account Credits Source Account Workmen' s Compensation Insurance Closing Premiums CD 1010 entry GJ 5000 9160 - Group Insurance This is a debit balance expense account which reflects the district's share of any group insurance program. Posting Contra Posting Contra Debits Source Account Credits Source Account District's share Dividends on of group insurance CD 1010 policies Closing CR 1010 entry GJ 5000 58 DESCRIPTION OF GENERAL LEDGER ACCOUNTS 9170 - Retirement Benefits This is a debit balance expense account which reflects the district's out-of-pocket costs for a pension plan. Debits Post ing Source Contra Account Credits Posting Source Contra Account Pension plan contributions CD 1010 Closing entry GJ 5000 9200 Employee Benefits Applied This is a credit balance allocation account which reflects the total amount of Employee Benefits allocated to grants, based on the rate developed the cost allocation plan. At the end of the year, this account is adjusted to equal the total of Accounts 9100 - 9299 and the difference prorated in accordance with chargeable salaries. Posting Contra Posting Contra Debits Source Account Credits Source Account Adjustment to Allocations equal final based on negotiated rate GJ 8150 preliminary rate SE 8150 Closing entry GJ 5000 59 9310 - Salaries and Wages This is a debit balance control account which is used to accumulate the gross amount of salaries and wages paid and accrued. It is used only to offset the 9320 account . Debits Posting Source Contra Account Credits Posting Source Contra Account Gross salaries CD 1010 60 9320 - Salaries and Wages Applied This is a credit balance control account which accumulates the amount of wages which have been allocated to cost objectives. It should always equal account 9310. Debits Posting Source Contra Account Credits Posting Source Contra Account Allocation of salaries and wages GJ 8100, 9110. 9120, 9130. 9510 61 9500-9900 - Indirect Costs These are debit balance expense accounts which accumulate the costs which have been assigned to the indirect cost pool. These costs should be in accordance with 0MB Circular A-87. Posting Contra Posting Contra Debits Source Account Credits Source Account Indirect costs CD, GJ 1010 or Other Appro- priate Account Closing entry GJ 5000 62 TRANSACTIONS Since all accounting transactions must have a debit and a credit to enable a double entry set of books to be kept, the journal entry provides a good graphic method to illustrate which accounts are affected by a transaction and in what way they are affected. Actually, all journals are really only tools to recap a series of journal entries into a few entries. The series of journal entries below illustrates most transactions which will take place in an EDD. The first series will illustrate normal or month-to-month transactions. (1) Debit Credit 1-00-1101 Accounts Receivable - Local Dues 12,000 1-00-7301 Revenue - Local Dues 12,000 (To record assessment of dues) (2) 1-00-1010 Cash on Deposit - National Bank 27,000 1-00-1101 Accounts Receivable - Local Dues 3,000 1-00-7010 Revenue - EDA 7,000 1-00-7201 Revenue - State Planning Grant 17,000 (To record cash receipts) (3) 1-00-1001 Petty Cash 150 1-00-1010 Cash on Deposit _ National Bank 15 ° (To record establishment of petty cash fund) (4) 1-00-1019 Cash Transfer 1,000 1-00-1010 Cash on Deposit - National Bank 1,000 (To record transfer of funds to State Bank) (5) 1-00-1011 Cash on Deposit - State Bank 1,000 1-00-1019 Cash Transfer 1,000 (To record receipt of transfer from National Bank) 63 (6) 1-00-9310 Salaries and Wages 10,000 1-00-3201 F.I.C.A. Payable 520 1-00-3202 Federal Income Tax Withheld 1,000 1-00-3204 Group Insurance Withheld 480 1-00-1010 Cash on Deposit - National Bank 8,000 (To record salaries paid and master check drawn to payroll account) (7) 1-91-9140 Payroll Taxes 520 1-00-3201 F.I.C.A. Payable 520 (To accrue payroll taxes payable) 5,000 2,000 1,000 1,000 350 200 450 1-01-8100 Personnel - EDA (8 1-02-8100 Personnel - HUD 1-04-8100 Personnel - HEW 1-92-9510 Personnel - INDIRECT 1-91-9110 Leave Taken 1-91-9120 Sick Pay Taken 1-91-9130 Holidays 1-00-9320 Salaries and Wages Applied (To distribute wages in accordance with time sheets) 10,000 (9) 1-01-8150 Employee Benefits Allocated - EDA 500 1-02-8150 Employees Benefits Allocated - HUD 200 1-04-8150 Employee Benefits Allocated - HEW 100 1-92-9520 Employee Benefits Allocated - INDIRECT 100 1-91-9200 Employee Benefits Applied 900 (To allocate employee benefits according to 10% rate on chargeable salaries) (10) 1-01-9900 Indirect cost allocations - EDA 2,750 1-02-9900 Indirect cost allocations - HUD 1,100 1-04-9900 Indirect cost allocations - HEW 550 1-92-9900 Indirect Cost Allocations 4,400 (To allocate indirect costs based on 507o indirect rate) (11) 1-01-8200 Consultants - EDA 3,000 1-01-8300 Travel - EDA 750 1-02-8300 Travel - HUD 300 1-04-8400 Printing - HEW 600 1-92-9530 Legal 125 1-92-9560 Travel - Indirect 320 1-92-9610 Consumable Supplies 650 1-00-3201 F.I.C.A. Payable 1,040 1-00-3202 Federal Income Tax Withheld 1,000 1-00-1010 Cash on Deposit - National Bank 7,785 (To record the payment of bills and expenses) (12) 1-00-1400 Advances - Delegate Agency 10,000 1-00-1010 Cash on Deposit - National Bank 10 000 (To record advances to delegate agency for contract) (13) 1-07-8500 Delegate Agency Costs 3,800 1-00-1400 Advances Delegate Agency 3 800 (To record expenses incurred by delegate agency) (14) 1-09-8300 Travel 300 1-00-7402 In-Kind Travel 300 (To record receipt of in-kind voucher for donated travel) (15) 1-00-5000 Unapplied Fund Balance 1,000 3-00-1700 Fixed Asset - Local Funds 1,000 1-00-1010 Cash on Deposit - National Bank 1,000 3-00-5500 Investment in Fixed Asset Funds - Local Funds 1,000 (To record purchase of fixed asset from local fund.) (16) 1-01-8700 Equipment and Furniture - EDA 2,500 3-00-1800 Fixed Assets - Grant Funds 2,500 1-00-1010 Cash on Deposit - National Bank 2,500 3-00-5700 Investment in Fixed Asset Fund - Grant Funds 2,5 00 (To record purchase of fixed assets from EDA Grant Funds.) 65 The second series will illustrate the year end entries which will be necessary after the normal month-to-month entries have been made: (1) 1-01-8200 Consultants - EDA 1-04-8200 Consultants - HEW 1-92-9610 Consumable Supplies 1-92-9640 Telephone and Telegraph 1-00-3100 Accounts Payable (To record unpaid obligations at year end) 1-91-9110 1-00-3105 (2) 1,500 2,000 200 400 4,000 Leave Accrued Leave To adjust earned but untaken annual leave to amount on accrued leave schedule: 4,100 4,000 1-91-9200 1-01-8150 1-02-8150 1-04-8150 1-92-9520 1-01-9900 1-02-9900 1-04-9900 1-92-9900 Accrued leave on books Accrued leave per schedule Adjustment 6,000 10.000 4,000 (3) Employee Benefits Applied 2,000 Employee Benefits Allocation - EDA Employee Benefits Allocation - HUD Employee Benefits Allocation - HEW Employee Benefits Allocation - Indirect (To reduce employee benefit allocations to actual costs incurred) 500 750 250 500 Amount of Employee Benefits allocated at 10% Amount of Employee Benefits incurred Ad jus tment (4) Indirect Cost Allocations - EDA Indirect Cost Allocations - HUD Indirect Cost Allocations - HEW Indirect Cost Allocations (To increase indirect cost allocations to actual costs incurred) Amount of Indirect Costs Allocated at 50% Amount of Indirect Costs Incurred Adjustment 24,000 22.000 2,000 400 600 300 1,300 64,000 65.300 1,300 66 (5) 1-00-1300 Accounts Receivable Federal Agencies - HUD 1-00-7002 Federal Grant Revenue - HUD (To record excess of Grant Revenues earned over actual amounts received) (6) 1-00-7001 Federal Grant Revenue - EDA 1-00-4000 Unapplied Grant Funds - EDA (To remove from current revenues the excess of funds received over funds earned) 5,000 2,000 5,000 2,000 (7) 1-00-7201 State Unrestricted Revenue 1-00-7301 Local Dues 1-00-7401 In-Kind Rent 1-00-7402 In-Kind Travel 1-00-7601 EDA Grant #1 1-00-7602 HUD Grant #2 1-00-7603 HEW Grant #4 1-00-5000 Unapplied Fund Balance (To show the amount of local revenue matched against specific grants for the fiscal year, balance of revenue going to unapplied fund balance) 10,000 12,000 600 400 6,000 9,000 4,000 4,000 (8) 1-00-7601 EDA Grant #1 1-00-7001 EDA Federal Revenue 1-00-5000 Unapplied Fund Balance (To close out revenues for EDA Grant # Repeat for each Grant) 6,000 18,000 24,000 (9) 1-00-5000 Unapplied Fund Balance 1-01-8100 EDA - Chargeable Salaries 1-01-8150 EDA - Employee Benefit Allocation 1-01-8200 EDA - Consultant 1-01-8300 EDA - Travel (To close out expenditures for EDA Grant # Repeat for each Grant) 24,000 12,000 4,000 6,000 2,000 (10) 1-00-5000 Unapplied Fund Balance 1-93-8900 Non-Matching Costs (To close out costs not matched against grants) 4,000 4,000 67 A DEVELOPMENT DISTRICT GRANT ROSTER 19 EXHIBIT A Grant/Cost Objective Name Not a Cost Objective Economic Development Administration Planning Grant No. Department of Housing and Urban Development Planning Grant No. Economic Development Administration Public Works Project No. Employee Benefits Pool Indirect Costs Pool Non-Matching Begins 3/1/71 1/1/71 7/1/69 1/1/71 1/1/71 1/1/71 Ends 2/28/72 12/31/71 8/31/73 12/31/71 12/31/71 12/31/71 Cost Objective Code 00 01 02 03 91 92 93 Employee Benefits Pool Indirect Costs Pool Non-Matching 1/1/70 1/1/70 1/1/70 12/31/70 12/31/70 12/31/70 95 96 97 68 tO HJ 4J -P- C fH 4- cu cu o - ru u xi o o o m o ,, o o -J^l o- en in o o m o- co vn w «) id ^i-i m o m co- in , ■ 3 4J tH 0) U nl 9) j3 3 >sOi ^ )-« M CL CO to O •-J - J3 o d 4J 3 o n) CD GO c M C T} ctf M s O O e U a h Ofl O E o i ■H >, CJ to 4-> U .-I 60 r ■u nJ 69 EXHIBIT C ALLOCATION OF PERSONNEL PLAN For Year Ended Total Chargeable Salary Indirect Chargeable Direct Charg eable Position ---8100 EDA ---8100 HUD ---8100 PSC Etc Executive Director $ 16 650 20% 50% 30% -- $ 3 330 $ 8 325 $ 4 995 Director of Planning $ 14 400 10% 10% 55% $ 1 440 $ 1 440 $ 7 920 Receptionist/ Typist $ 4 344 100% $ 4 344 Totals $105 000 $ 22 235 $ 14 200 $ 29 400 $ 5 400 Et 70 A DEVELOPMENT DISTRICT STATEMENT OF EMPLOYEE BENEFITS Exhibit D 19 Leave Earned $ 4 525 Sick Leave 3 525 Holidays 3 625 F.I.C.A. 4 150 Group Insurance 2 600 Workmen's Compensation Insurance 1 100 Pension Plan Contributions 3 525 TOTAL EMPLOYEE BENEFITS. $ 23 050 Allocation Base: Total Salaries Less Released Time £HAEGEABLE SALARIES. EMPLOYEE BENEFIT RATE ($23,050 -r $105 ,000) $116 11 675 675 $105 000 21 .9% 71 A DEVELOPMENT DISTRICT STATEMENT OF INDIRECT COSTS 19 Exhibit E Salaries Employee Benefits (21.9%) Accounting Legal Office Space Furniture and Equipment Rent Telephone and Communications Consumable Supplies Postage Travel Printing and Publications Insurance and Bonding TOTAL INDIRECT COSTS, Indirect Cost Basis: Direct Chargeable Salaries ($105,000 minus $22,235) Employee Benefits (21.9%) DIRECT PERSONNEL COSTS INDIRECT COST RATE ($64,033 -J- $100,946) $22 235 4 869 $ 27 104 2 550 1 800 6 400 8 000 5 500 4 000 2 000 4 500 1 000 1 179 $ 64 033 $ 82 765 18 181 $1QQ 946 63. 4% 72 A DEVELOPMENT DISTRICT ANNUAL OPERATING BUDGET 19 EXHIBIT F Total EDA HUD PSC Non- Matching Direct Expenses: Chargeable Salaries Employee Benefits Total Direct Personnel Costs Consultants and Contracted Services Travel Printing Other Direct Expenses Total Direct Indirect Expenses Total Costs Source of Funds: Local Matching State Grant Revenue Federal Grant Revenue $ 82 765 $14 200 $ 29 400 $ 5 400 $ -0- 18 181 3 110 6 439 1 182 -0- $100 946 $17 310 $ 35 839 $ 6 582 $ 150 000 30 000 10 000 5 000 15 000 4 000 1 000 1 000 $38 310 10 975 $49 285 65 000 15 000 3 000 1 000 $119 839 22 722 $142 561 17 000 2 000 500 500 $26 582 4 173 $30 755 2 -0- -0- -0- 000 $295 946 64 033 $2 000 -0- $359 979 $2 000 $ 68 000 $17 250 $ 35 640 $ -0- $2 000 44 000 -0- -0- -0- -0- 247 979 32 035 106 921 30 755 -0- $359 797 $49 285 $142 561 $.30 755 $2 QQQ 73 A DEVELOPMENT DISTRICT PROJECTED LOCAL RESOURCES AND REQUIREMENTS 19 EXHIBIT G Resources: Unapplied Fund Balance Operating Fund 1/1/. Revenues: Local Dues Local Contributions to Special Projects In -kind Contribution Unrestricted State Funds Total Revenue Total Resources $29 000 15 000 11 000 29 000 $ 23 000 84 000 $107 000 Requirements: Annual Operating Budget Transfer to Fixed Asset Fund Total Requirements $ 68 000 15 000 83 000 PROJECTED UNAPPLIED FUND BALANCE OPERATING $ 24 000 74 A DEVELOPMENT COUNCIL ACCRUED LEAVE SCHEDULE December 31, 19 Exhibit H Name No. Days Accrued 1/1 Days Earned Days Taken Days Accrued 12/31/ Daily Rate 12/31 Accrual 75 xi 4-i cr> rt c o a) O oJ 1-' ' c o a> rt 1-1 p 76 c o 4J (11 a X c 3 O 4-> i -,-t < XI QJ l-i U 4J S 3 O < u 01 M ■o 0) cd e 0) 3 O E 4-1 < X) a -u C! 3 O < > •rt 4J tu o 4-1 O o c 3 O c 3 O 1 CD a o U 0) > XI o u c 3 O § < c 3 < p o 4J 4J X* 0) p 3 <: a < ai M c 1— 1 w a) C XI 3 0) O >, U CD cj C^ < p O tn M 0) J3 w w c U M H XI -•• o (3 "3 0) — -i o u T3 01 M O X Q 3 M X> 0) En >, e X 0) p C 01 a -o u u u < > U U Q) CO U X> o O g u ra u ^ < 80 < H O H S3 ■-j c s s o o> :c 1 — vO LT| -* on Si ~ o 0> 00 < r- i— 1 ■sO :■:; m ^J - o c- j-:. i - vD " -a- tn « - 0) > U 4J o J3 o X e O 60 O 3 O O U K -1 > >1 l-t D a- U CD i c o ■1-1 03 A* ■H > ■H U < po o CO 0) >-> CO >1 O PC c o > >> u (U a C/3 .-J < B o O <; m > H < O o > •i-l (J < H O Ui < CM U O O •z M 3 Cm CJ *-> CJ 3= u en CM H O W < hJ w OS o H CO H 01 E H i-i a 3 e O ■x. U O h-J 0) E H n) O H O M 0) CM o ■H o Cu o u >- 1-1 to CD 82 o o o o 00 E-S — . ~tt CO o o o o o CO in CO — . Cvl '" H -CO O o O o » b „ <£) MD ,_, O o o o o 00 s vO O c ,H ^O TJ on ^D CO i—i i— i O O o O ON 3^ * ^o o o rfl CM PU t-H ON vD M 1 U i—i CO >*, M r-- O o to n) o ^O O o C n) n O -, - , o 4-i C/D ON tJ . h 00 >, e O c o j-i *~3 e a fi n) p-i o 4-1 0) H P4 ! QJ QJ C cu O C p C O C PM o o O •-) O C s *o > M )-i o C O 1) < < 3 a w m Pi cd H > o o H Pi Pi P-. O FM O S H 5 H CQ u oi u CO < Q M W 2 O Pi I co <; p H W IS Ctt >• w £ UJ O Qi U co <; p < > >-! Pi > CO CJ Pi I CO <3 O H W Sa P&i >-< to CJ Pi I co < Q M W IS fu >- W CJ Di W co <; p 85 OS O x> xi Q CJ z z X! p P o ^ pq o XI H XI e> p p PQ CO ccj a CO ti p p XI <: p H CJ < CO CO a o H rt CO rvj x 2 H OS XI XI p p o > Z P O P P ^ pq H XI CJ Q PQ e CO B a p w CO e 3 Z CO > cj CO XI o o cj ctj c ^1 CO c XI <: p H O < P •• XI O Z H Z a p M P o- XI z o H < CJ M P PQ p p ^) CJ z g M OS P PS XI p H o H CJ P >-> o OS P p < <; 86 EXHIBIT S INDIRECT COSTS REPORT AS OF DATE PREPARED FISCAL YEAR A DEVELOPMENT DISTRICT CURRENT PERIOD YEAR TO DATE ACTUAL BUDGET OVER (UNDER) BUDGET DESCRIPTION ACTUAL BUDGET OVER (UNDER) BUDGET TOTAL BUDGET UN- EXPENDED BALANCE INDIRECT SALARIES EMPLOYEE BENEFITS ALLOCATIONS TOTAL PERSONNEL COSTS ACCOUNTING LEGAL OFFICE SPACE EQUIPMENT RENT TELE. & COMM. CONSUM. SUPPLIES POSTAGE TRAVEL PRINT. & PUB. INSR. & BONDING TOTAL INDIRECT (A' Basis : Direct Salaries Employee Benefits Allocations Total Direct Personnel (B) Indirect Rate (Ajl $) EXHIBIT T EMPLOYEE BENEFITS REPORT AS OF DATE PREPARED FISCAL YEAR A DEVELOPMENT DISTRICT CURRENT PERIOD ACTUAL BUDGET OVER (UNDER) BUDGET DESCRIPTION ACTUAL BUDGET OVER (UNDER) BUDGET TOTAL BUDGET UN- EXPENDED BALANCE ANNUAL LEAVE PAID HOLIDAYS SICK LEAVE F.I.C.A. HOSPITALIZATION TOTAL (A) Basis Gross Salaries Less: Released Time Chargeable Time (B) Rate A-B A DEVELOPMENT DISTRICT BALANCE SHEET EXHIBIT U December 31. 19 ASSETS Cash on Hand and on Deposit Accounts Receivable: Local State Water Quality Board Department of Housing and Urban Development Department of Health Education and Welfare Total Accounts Receivable $ 7 643 1 258 28 942 1 834 $ 60 951 39 677 $1QQ 628 LIABILITIES AND FUND BALANCES Accounts Payable Accrued Leave Excess of Funds Received Over Expenditures: Public Service Careers Farmers Home Administration TOTAL LTARTLTTIES. Unapplied Fund Balance Total Fund Balances TOTAL LIABILITIES AND FUND BALANCES $24 911 53 $35 176 $ 36 952 3 536 24 964 65 452 35 176 $1QQ 628 89 A DEVELOPMENT DISTRICT EXHIBIT V STATEMENT OF REVENUES, EXPENDITURES AND FUND BALANCES 19 Revenues: Local: Dues Law Equipment Matching Special Contribution Other Local Revenue In-kind Contributions Total Local Revenue State: Criminal Justice Council State Planning Grant Water Quality Board In-kind Contributions Total State Revenue Federal: Department of Housing and Urban Development Economic Development Administration Department of Health, Education and Welfare Public Service Careers Farmers Home Administration Total Federal Revenue Total Revenue Expenditures: Expenditures for grants (Exhibit W) Non-matching expenditures Total Expenditures Excess of Revenue over Expenditures Unapplied Fund Balance, January 1, 19 UNAPPLIED FUND BALANCE, DECEMBER 31, 19 $ 11 063 7 613 5 790 84 16 986 $55 623 21 340 74 583 26 700 $ 89 356 32 150 18 259 14 089 27 446 $ 41 536 178 246 181 300 $401 082 $388 609 3 423 $392 032 $ 9 050 26 126 $ 35 176 90 A DEVELOPMENT DISTRICT 19 EXHIBIT W STATEMENT OF INDIRECT COSTS Personnel Employee Benefits Accounting Legal Office Space Furniture and Equipment Rent Telephone and Communications Consumable Supplies Postage Travel Printing and Publications Insurance and Bonding TOTAL INDIRECT COSTS $ 23 541 3 581 $ 27 122 2 554 1 780 6 393 8 316 5 937 4 609 1 816 3 299 876 1 171 $ 63 873 STATEMENT OF EMPLOYEE BENEFITS Employee Benefits Social Security Hospitalization Insurance Sick Leave Holidays Vacations TOTAL EMPLOYEE BENEFITS, $ 4 365 2 494 774 2 376 6 812 $ 16 821 91 o~> \o ro o 3 en o o ■~ >-] 1— 1 :: C_) o r^- CM O CO 1 o m CT\ O F-* O n ro C> O 0> CO - o o OCO iHH rH C +J M U u -u e cu q xi a) ,_, ^_i . H e -h U D U -U D. U U c o u u v *-> a h u H ft U O U 92 BUREAU OF THE BUDGET CIRCULAR A-87 - PRINCIPLES FOR DETERMINING COSTS OF GRANTS AND CONTRACTS WITH STATE AND LOCAL GOVERNMENTS 93 BUREAU OF THE BUDGET CIRCULAR A-87 EXECUTIVE OFFICE OF THE PRESIDENT Bureau of the Budget Washington, D. C. 20503 May 9, 1968 CIRCULAR NO. A-87 TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS SUBJECT: Principles for determining costs applicable to grants and contracts with State and local governments. 1. Purpose . This Circular promulgates principles and standards for determining costs applicable to grants and contracts with State and local governments. They are designed to provide the basis for a uniform approach to the problem of determining costs and to promote efficiency and better relationships between grantees and their Federal counterparts . 2. Coverage . This Circular applies to all Federal agencies responsible for administering programs that involve grants and contracts with State and local governments. However, it does not apply to grants and contracts with (a) publicly financed educational institutions subject to Bureau of the Budget Circular No. A-21, and (b) publicly owned hos- pitals and other providers of medical care subject to requirements promulgated by the sponsoring Federal agencies. Any other exceptions will be approved by the Bureau of the Budget in particular cases where adequate justification is presented. 3. Cost Principles . The principles to be followed in determining costs are set forth in Attachment A. Standards with respect to the allow- ability of selected items of cost are set forth in Attachment B. 4. Effective date . The principles will be applied at the earliest practicable date but not later than January 1, 1969, with respect to State governments and January 1, 1970, with respect to local governments, This arrangement will permit prompt implementation in programs where that is possible, but also allow time for study and development of necessary procedures in more complex programs. PHILLIP S. HUGHES Acting Director Attachments Table of Contents Attachment B - STANDARDS FOR SELECTED ITEMS OF COST Page Purpose and applicability 1. Objective 1 2. Application 1 Allowable costs 1. Accounting » 1 2. Advertising. . . . . 1 3. Advisory councils 1 4. Audit service 1 5 . Bond ing 2 6. Budgeting 2 7. Building lease management 2 8. Central stores 2 9. Communications 2 10. Compensation for personal services 2 11. Depreciation and use allowances 3 12. Disbursing service o 4 13. Employee fringe benefits 4 14. Employee morale, health and welfare costs 4 15. Exhibits 4 16. Legal expenses... 4 17. Maintenance and repair 4 18. Materials and supplies 5 19. Memberships, subscriptions and professional activities 5 20. Motor pools 5 21. Payroll preparation „ 5 22. Personnel administration „ 5 23. Printing and reproduction „ 5 24. Procurement service „ 5 25 . Taxes 6 26. Training and education 6 27. Transportation 6 28. Travel 6 Costs allowable with approval of grantor agency 1. Automatic data processing 6 2. Building space and related facilities 6 3. Capital expenditures 7 4. Insurance and indemnification 7 5. Management studies „ 8 6. Preagreement costs 8 7. Professional services „ 8 8. Proposal costs 8 Unallowable costs 1. Bad debts 8 2 . Contingencies 8 3. Contributions and donations 8 4. Entertainment 8 5. Fines and penalties 8 6. Governor' s expenses 9 7. Interest and other financial costs 9 8. Legislative expenses 9 9. Underrecovery of costs under grant agreements 9 ATTACHMENT A Circular No. A-87 PRINCIPLES FOR DETERMINING COSTS APPLICABLE TO GRANTS AND CONTRACTS WITH STATE AND LOCAL GOVERNMENTS A. Purpose and scope . 1. Objectives . This Attachment sets forth principles for determining the allowable costs of programs administered by State and local governments under grants from and contracts with the Federal Government. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local parti- cipation in the financing of a particular grant. They are designed to provide that federally assisted programs bear their fair share of costs recognized under these principles, except where restricted or prohibited by law. No provision for profit or other increment above cost is intended. 2. Policy guides . The application of these principles is based on the fundamental premises that: a. State and local governments are responsible for the efficient and effective administration of grant and contract programs through the application of sound management practices. b. The grantee or contractor assumes the responsibility for seeing that federally assisted program funds have been expended and accounted for consistent with underlying agreements and program objectives. c. Each grantee or contractor organization, in recognition of its own unique combination of staff facilities and experience, will have the primary responsibility for employing whatever form of organization and management techniques may be necessary to assure proper and efficient administration. 3. Application . These principles will be applied by all Federal agencies in determining costs incurred by State and local governments under Federal grants and cost reimbursement type contracts (including subgrants and subcontracts) except those with (a) publicly financed educa- tional institutions subject to Bureau of the Budget Circular A-21, and (b) publicly owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Federal agencies. B. Definitions . 1. Approval or authorization of the grantor Federal agency means documentation evidencing consent prior to incurring specific cost. 2„ Cost allocation plan means the documentation identifying, accumulating, and distributing allowable costs under grants and contracts together with the allocation methods used. 3. Cost, as used herein, means cost as determined on a cash, accrual, or other basis acceptable to the Federal grantor agency as a discharge of the grantee's accountability for Federal funds. 4. Cost objective means a pool, center, or area established for the accumulation of cost. Such areas include organizational units, functions, objects or items of expense, as well as ultimate cost objectives including specific grants, projects, contracts, and other activities. 5. Federal agency means any department, agency, commission, or instrumentality in the executive branch of the Federal Government which makes grants to or contracts with State or local governments. 6. Grant means an agreement between the Federal Government and a State or local government whereby the Federal Government provides funds or aid in kind to carry out specified programs, services, or activities. The principles and policies stated in this Circular as applicable to grants in general also apply to any federally sponsored cost reimbursement type of agreement performed by a State or local government, including contracts, subcontracts and subgrants. 7. Grant program means those activities and operations of the grantee which are necessary to carry out the purposes of the grant, including any portion of the program financed by the grantee. 8. Grantee means the department or agency of State or local government which is responsible for administration of the grant. 9. Local unit means any political subdivision of government below the State level. 10. Other State or local agencies means departments or agencies of the State or local unit which provide goods, facilities, and services to a grantee. 11. Services , as used herein, means goods and facilities, as well as services. 12. Supporting services means auxiliary functions necessary to sustain the direct effort involved in administering a grant program or an activity providing service to the grant program. These services may be centralized in the grantee department or in some other agency, and include procurement, payroll, personnel functions, maintenance and operation of space, data processing, accounting, budgeting, auditing, mail and messenger service, and the like. C. Basic guidelines . 1. Factors affecting allowability of costs . To be allowable under a grant program, costs must meet the following general criteria: a. Be necessary and reasonable for proper and efficient administra- tion of the grant program, be allocable thereto under these principles, and, except as specifically provided herein, not be a general expense required to carry out the overall responsibilities of State or local governments. b. Be authorized or not prohibited under State or local laws or regulations. c. Conform to any limitations or exclusions set forth in these principles, Federal laws, or other governing limitations as to types or amounts of cost items. d. Be consistent with policies, regulations, and procedures that apply uniformly to both federally assisted and other activities of the unit of government of which the grantee is a part. e. Be accorded consistent treatment through application of generally accepted accounting principles appropriate to the circumstances. f. Not be allocable to or included as a cost of any other federally financed program in either the current or a prior period. g. Be net of all applicable credits. 2. Allocable costs . a. A cost is allocable to a particular cost objective to the extent of benefits received by such objective. b. Any cost allocable to a particular grant or cost objective under the principles provided for in this Circular may not be shifted to other Federal grant programs to overcome fund deficiencies, avoid restrictions imposed by law or grant agreements, or for other reasons. c. Where an allocation of joint cost will ultimately result in charges to a grant program, an allocation plan will be required as prescribed in section J. 3. Applicable credits . a. Applicable credits refer to those receipts or reduction of expen- diture-type transactions which offset or reduce expense items allocable to grants as direct or indirect costs. Examples of such transactions are: purchase discounts; rebates or allowances; recoveries or indemnities on losses; sale of publications, equipment, and scrap; income from personal or incidental services; and adjustments of overpayments or erroneous charges. b. Applicable credits may also arise when Federal funds are received or are available from sources other than the grant program involved to finance operations or capital items of the grantee. This includes costs arising from the use or depreciation of items donated or financed by the Federal Government to fulfill matching requirements under another grant program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given grant. D. Composition of cost . 1. Total cost . The total cost of a grant program is comprised of the allowable direct cost incident to its performance, plus its allocable portion of allowable indirect costs, less applicable credits. 2. Classification of costs . There is no universal rule for classifying certain costs as either direct or indirect under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the grant or other ultimate cost objective. It is essential therefore that each item of cost be treated consistently either as a direct or an indirect cost. Specific guides for determining direct and indirect costs allocable under grant programs are provided in the sections which follow. E. Direct costs . 1. General . Direct costs are those that can be identified specifically with a particular cost objective. These costs may be charged directly to grants, contracts, or to other programs against which costs are finally lodged. Direct costs may also be charged to cost objectives used for the accumulation of costs pending distribution in due course to grants and other ultimate cost objectives. 2. Application . Typical direct costs chargeable to grant programs are: a. Compensation of employees for the time and effort devoted speci- fically to the execution of grant programs. b. Cost of materials acquired, consumed, or expended specifically for the purpose of the grant. c. Equipment and other approved capital expenditures. d. Other items of expense incurred specifically to carry out the grant agreement. e. Services furnished specifically for the grant program by other agencies, provided such charges are consistent with criteria outlined in Section G. of these principles. F. Indirect costs . 1. General . Indirect costs are those (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefited, without effort disproportionate to the results achieved. The term "indirect costs, " as used herein, applies to costs of this type originating in the grantee depart- ment, as well as those incurred by other departments in supplying goods, services, and facilities, to the grantee department. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies providing services to a grantee department. Indirect cost pools should be distributed to benefiting cost objectives on bases which will produce an equitable result in consideration of relative benefits derived. 2. Grantee departmental indirect costs . All grantee departmental indirect costs, including the various levels of supervision, are eligible for alloca- tion to grant programs provided they meet the conditions set forth in this Circular. In lieu of determining the actual amount of grantee departmental indirect cost allocable to a grant program, the following methods may be used: a. Predetermined fixed rates for indirect costs . A predetermined fixed rate for computing indirect costs applicable to a grant may be nego- tiated annually in situations where the cost experience and other pertinent facts available are deemed sufficient to enable the contracting parties to reach an informed judgment (1) as to the probable level of indirect costs in the grantee department during the period to be covered by the negotiated rate, and (2) that the amount allowable under the predetermined rate would not exceed actual indirect cost. b. Negotiated lump sum for overhead . A negotiated fixed amount in lieu of indirect costs may be appropriate under circumstances where the benefits derived from a grantee department's indirect services cannot be readily determined as in the case of small, self-contained or isolated activity. When this method is used, a determination should be made that the amount negotiated will be approximately the same as the actual indirect cost that may be incurred. Such amounts negotiated in lieu of indirect costs will be treated as an offset to total indirect expenses of the grantee department before allocation to remaining activities. The base on which such remaining expenses are allocated should be appropriately adjusted. 3 . Limitation on indirect costs. a. Federal grants may be subject to laws that limit the amount of indirect cost that may be allowed. Agencies that sponsor grants of this type will establish procedures which will assure that the amount actually allowed for indirect costs under each such grant does not exceed the maximum allowable under the statutory limitation or the amount otherwise allowable under this Circular, whichever is the smaller. b. When the amount allowable under a statutory limitation is less then the amount otherwise allocable as indirect costs under this Circular, the amount not recoverable as indirect costs under a grant may not be shifted to another federally sponsored grant program or contract. G. Cost insurred by agencies other than the grantee . 1. General . The cost of service provided by other agencies may only include allowable direct costs of the service plus a prorata share of allowable supporting costs (section B.12.) and supervision directly required in performing the service, but not supervision of a general nature such as that provided by the head of a department and his staff assistants not directly involved in operations. However, supervision by the head of a department or agency whose sole function is providing the service furnished would be an eligible cost. Supporting costs include those furnished by other units of the supplying department or by other agencies. 2. Alternative methods of determining indirect cost . In lieu of determining actual indirect cost related to a particular service furnished by another agency, either of the following alternative methods may be used provided only one method is used for a specific service during the fiscal year involved. a. Standard indirect rate . An amount equal to ten percent of direct labor cost in providing the service performed by another State agency (excluding overtime, shift, or holiday premiums and fringe benefits) may be allowed in lieu of actual allowable indirect cost for that service. b. Predetermined fixed rate . A predetermined fixed rate for indirect cost of the unit or activity providing service may be negotiated as set forth in section F.2.a. H. Cost incurred by grantee department for others . 1. General . The principles provided in section G. will also be used in determining the cost of services provided by the grantee department to another agency. J. Cost allocation plan . 1. General . A plan for allocation of costs will be required to support the distribution of any joint costs related to the grant program. All costs included in the plan will be supported by formal accounting records which will substantiate the propriety of eventual charges. 2. Requirements . The allocation plan of the grantee department should cover all joint costs of the department as well as costs to be allocated under plans of other agencies or organizational units which are to be included in the costs of federally sponsored programs. The cost allocation plans of all the agencies rendering services to the grantee department, to the extent feasible, should be presented in a single document. The alloca- tion plan should contain, but not necessarily be limited to, the following: a. The nature and extent of services provided and their relevance to the federally sponsored programs. b. The items of expense to be included. c. The methods to be used in distributing cost. 3. Approval of cost allocation plan . The allocation plan for a given cost area or objective will serve all the Federal agencies involved. a. At the State level, the Department of Health, Education, and Welfare will be responsible for the negotiation and approval of the cost allocation plans for central support services to grant programs. The approved plans will be accepted by other Federal agencies, unless an agency determines that the approved plan would result in significant inequitable or improper charges to programs for which it is responsible. The Department of Health, Education, and Welfare will collaborate with the other Federal agencies concerned in the development of guidance material concerning the cost allocation plan and in the negotiation and approval of the plan. It will also collaborate with the States concerning procedures for the administra- tion of the cost allocation plan. The Department of Health, Education, and Welfare will be responsible for the audit of costs resulting from the cost allocation plan, the results of which will be accepted by other Federal agencies, b. At the grantee department level in a State, and for local govern- ments, Federal agencies will work towards the objective of designating a single Federal agency, the one with predominant interest, which will have responsibility similar to that set forth in a. above for the negotiation and approval of the cost allocation plan and for the audit of costs. ATTACHMENT B Circular No. A-87 STANDARDS FOR SELECTED ITEMS OF COST A . Purpose and applicability . 1. Objective . This Attachment provides standards for determining the allowability of selected items of cost. 2. Application . These standards will apply irrespective of whether a particular item of cost is treated as direct or indirect cost. Failure to mention a particular item of cost in the standards is not intended to imply that it is either allowable or unallowable, rather determination of allow- ability in each case should be based on the treatment of standards provided for similar or related items of cost. The allowability of the selected items of cost is subject to the general policies and principles stated in Attachment A of this Circular. B. Allowable Costs . 1. Account ing . The cost of establishing and maintaining accounting and other information systems required for the management of grant programs is allowable. This includes cost incurred by central service agencies for these purposes. The cost of maintaining central accounting records required for overall State or Local government purposes, such as appropriation and fund accounts by the Treasurer, Comptroller, or similar officials, is considered to be a general expense of government and is not allowable. 2. Advertising . Advertising media includes newspapers, magazines, radio and television programs, direct mail, trade papers, and the like. The adver- tising costs allowable are those which are solely for: a. Recruitment of personnel required for the grant program. b. Solicitation of bids for the procurement of goods and services required. c. Disposal of scrap or surplus materials acquired in the performance of the grant agreement. d. Other purposes specifically provided for in the grant agreement. 3. Advisory councils . Costs incurred by State advisory councils or committees established pursuant to Federal requirements to carry out grant programs are allowable. The cost of like organizations is allowable when provided for in the grant agreement. . 4. Audit service . The cost of audits necessary for the administration and management of functions related to grant programs is allowable. 5. Bonding . Costs of premiums on bonds covering employees who handle grantee agency funds are allowable. 6. Budgeting . Costs incurred for the development, preparation, presen- tation, and execution of budgets are allowable. Costs for services of a central budget office are generally not allowable since these are costs of general government. However, where employees of the central budget office actively participate in the grantee agency's budget process, the cost of identifiable services is allowable. 7. Building lease management . The administrative cost for lease manage- ment which includes review of lease proposals, maintenance of a list of available property for lease, and related activities is allowable. 8. Central stores . The cost of maintaining and operating a central stores organization for supplies, equipment, and materials used either directly or indirectly for grant programs is allowable. 9. Communications . Communication costs incurred for telephone calls or service, telegraph, teletype service, wide area telephone service (WATS), centrex, telpak (tie lines), postage, messenger service and similar expenses are allowable. 10. Compensation for personal services. a. General . Compensation for personal services includes all remuneration, paid currently or accrued, for services rendered during the period of performance under the grant agreement, including but not necessarily limited to wages, salaries, and supplementary compensation and benefits (section B.13.). The costs of such compensation are allowable to the extent that total compensation for individual employees: (1) is reasonable for the services rendered, (2) follows an appointment made in accordance with State or local government laws and rules and which meets Federal merit system or other requirements, where applicable; and (3) is determined and supported as provided in b. below. Compensation for employees engaged in federally assisted activities will be considered reasonable to the extent that is is consistent with that paid for similar work in other activities of the State or local government. In cases where the kinds of employees required for the federally assisted activities are not found in the other activities of the State or local government, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the employing government competes for the kind of employees involved. Compensation surveys providing data representative of the labor market involved will be an acceptable basis for evaluating reasonableness. b. Payroll and distribution of time . Amounts charged to grant programs for personal services, regardless of whether treated as direct or indirect costs, will be based on payrolls documented and approved in accord- ance with generally accepted practice of the State or local agency. Payrolls must be supported by time and attendance or equivalent records for indi- vidual employees. Salaries and wages of employees chargeable to more than one grant program or other cost objective will be supported by appropriate time distribution records. The method used should produce an equitable distribution of time and effort. 11. Depreciation and use allowances . a. Grantees may be compensated for the use of buildings, capital improvements, and equipment through use allowances or depreciation. Use allowances are the means of providing compensation in lieu of depreciation or other equivalent costs. However, a combination of the two methods may not be used in connection with a single class of fixed assets. b. The computation of depreciation or use allowance will be based on acquisition cost. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used in the computation. The computation will exclude the cost or any portion of the cost of buildings and equipment donated or borne directly or indirectly by the Federal Government through charges to Federal grant programs or otherwise, irrespective of where title was originally vested or where it presently resides. In addition, the computation will also exclude the cost of land. Depreciation or a use allowance on idle or excess facilities is not allowable, except when specifically authorized by the grantor Federal agency. c. Where the depreciation method is followed, adequate property records must be maintained, and any generally accepted method of computing depreciation may be used. However, the method of computing depreciation must be consistently applied for any specific asset or class of assets for all affected federally sponsored programs and must result in equitable charges considering the extent of the use of the assets for the benefit of such programs . d. In lieu of depreciation, a use allowance for buildings and improvements may be computed at an annual rate not exceeding two percent of acquisition cost. The use allowance for equipment (excluding items properly capitalized as building cost) will be computed at an annual rate not exceeding six and two-thirds percent of acquisition cost of usable equipment . e. No depreciation or use charge may be allowed on any assets that would be considered as fully depreciated, provided, however, that reasonable use charges may be negotiated for any such assets if warranted after taking into consideration the cost of the facility or item involved, the estimated useful life remaining at time of negotiation, the effect of any increased maintenance charges or decreased efficiency due to age, and any other factors pertinent to the utilization of the facility or item for the purpose con- templated. 12. Disbursing service . The cost of disbursing grant program funds by the Treasurer or other designated officer is allowable. Disbursing services cover the processing of checks or warrants, from preparation to redemption, including the necessary records of accountability and recon- ciliation of such records with related cash accounts. 13. Employee fringe benefits. Costs identified under a. and b. below are allowable to the extent that total compensation for employees is reasonable as defined in section B.10. a. Employee benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, court leave, military leave, and the like, if they are: (1) provided pursuant to an approved leave system, and (2) the cost thereof is equitably allocated to all related activities, including grant programs. b. Employee benefits in the form of employers' contribution or expenses for social security, employees' life and health insurance plans, unemployment insurance coverage, workmen's compensation insurance, pension plans, severance pay, and the like, provided such benefits are granted under approved plans and are distributed equitably to grant programs and to other activities. 14. Employee morale, health and welfare costs . The costs of health or first-aid clinics and/or infirmaries, recreational facilities, employees' counseling services, employee information publications, and any related expenses incurred in accordance with general State or local policy, are allowable. Income generated from any of these activities will be offset against expenses. 15. Exhibits . Costs of exhibits relating specifically to the grant programs are allowable. 16. Legal expenses . The cost of legal expenses required in the administration of grant programs is allowable. Legal services furnished by the chief legal officer of a State or local government or his staff solely for the purpose of discharging his general responsibilities as legal officer are unallowable. Legal expenses for the prosecution of claims against the Federal Government are unallowable. 17. Maintenance and repair . Costs incurred for necessary maintenance, repair, or upkeep of property which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable. 18. Materials and supplies . The cost of materials and supplies necessary to carry out the grant programs is allowable. Purchases made specifically for the grant program should be charged thereto at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received by the grantee. Withdrawals from general stores or stockrooms should be charged at cost under any recog- nized method of pricing consistently applied. Incoming transportation charges are a proper part of material cost. 19. Memberships, subscriptions and professional activities . a. Memberships . The cost of membership in civic, business, technical and professional organizations is allowable provided: (1) the benefit from the membership is related to the grant program, (2) the expenditure is for agency membership, (3) the cost of the membership is reasonably related to the value of the services or benefits received, and (4) the expenditure is not for membership in an organization which devotes a substantial part of its activities to influencing legislation. b. Reference material . The cost of books, and subscriptions to civic, business, professional, and technical periodicals is allowable when related to the grant program. c. Meetings and conferences . Costs are allowable when the primary purpose of the meeting is the dissemination of technical information relating to the grant program and they are consistent with regular practices followed for other activities of the grantee. 20. Motor pools . The costs of a service organization which provides automobiles to user grantee agencies at a mileage or fixed rate and/or provides vehicle maintenance, inspection and repair services are allowable. 21. Payroll preparation . The cost of preparing payrolls and maintaining necessary related wage records is allowable. 22. Personnel administration . Costs for the recruitment, examination, certification, classification, training, establishment of pay standards, and related activities for grant programs, are allowable. 23. Printing and reproduction . Cost for printing and reproduction services necessary for grant administration, including but not limited to forms, reports, manuals, and informational literature, are allowable. Publication costs of reports or other media relating to grant program accomplishments or results are allowable when provided for in the grant agreement. 24. Procurement service . The cost of procurement service, including solicitation of bids, preparation and award of contracts, and all phases of contract administration in providing goods, facilities and services for grant program, is allowable. 25. Taxes . In general, taxes or payments in lieu of taxes which the grantee agency is legally required to pay are allowable. 26. Training and education . The cost of in-service training, customarily provided for employee development which directly or indirectly benefits grant programs is allowable. Out-of-service training involving extended periods of time is allowable only when specifically authorized by the grantor agency. 27. Transportation . Costs incurred for freight, cartage, express, postage and other transportation costs relating either to goods purchased, delivered, or moved from one location to another are allowable. 28. Travel . Travel costs are allowable for expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business incident to a grant program. Such costs may be charged on an actual basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip, and results in charges consistent with those normally allowed in like circumstances in nonfederally sponsored activities. The difference in cost between first-class air accommodations and less-than-f irst-class air accommodations is unallowable except when less-than-f irst-class air accommodations are not reasonably available. C. Costs allowable with approval of grantor agency . 1. Automatic data processing . The cost of data processing services to grant programs is allowable. This cost may include rental of equipment or depreciation on grantee-owned equipment. The acquisition of equipment, whether by outright purchase, rental-purchase agreement or other method of purchase, is allowable only upon specific prior approval of the grantor Federal agency as provided under the selected item for capital expenditures. 2. Building space and related facilities . The cost of space in privately or publicly owned buildings used for the benefit of the grant program is allowable subject to the conditions stated below. The total cost of space, whether in a privately or publicly owned building, may not exceed the rental cost of comparable space and facilities in a privately owned building in the same locality. The cost of space procured for grant program usage may not be charged to the program for periods of nonoccupancy , without authorization of the grantor Federal agency. a. Rental cost . The rental cost of space in a privately owned building is allowable. b. Maintenance and operation . The cost of utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, normal repairs and alterations and the like, are allowable to the extent they are not otherwise included in rental or other charges for space. c. Rearrangements and alterations . Cost incurred for rearrangement and alteration of facilities required specifically for the grant program or those that materially increase the value or useful life of the facilities (section C.3.) are allowable when specifically approved by the grantor agency. d. Depreciation and use allowances on publicly owned buildings. These costs are allowable as provided in section B.ll. e. Occupancy of space under rental-purchase or a lease with option- to-purchase agreement . The cost of space procured under such arrange- ments is allowable when specifically approved by the Federal grantor agency. 3. Capital expenditures . The cost of facilities, equipment, other capital assets, and repairs which materially increase the value or useful life of capital assets is allowable when such procurement is specifically approved by the Federal grantor agency. When assets acquired with Federal grant funds are (a) sold, (b) no longer available for use in a federally sponsored program, or (c) used for purposes not authorized by the grantor agency, the Federal grantor agency's equity in the asset will be refunded in the same proportion as Federal participation in its cost. In case any assets are traded on new items, only the net cost of the newly acquired assets is allowable. 4. Insurance and indemnification . a. Costs of insurance required, or approved and maintained pursuant to the grant agreement, is allowable. b. Costs of other insurance in connection with the general conduct of activities is allowable subject to the following limitations: (1) Types and extent and cost of coverage will be in accordance with general State or local government policy and sound business practice. (2) Costs of insurance or of contributions to any reserve covering the risk of loss of, or damage to, Federal Government property is unallowable except to the extent that the grantor agency has specifically required or approved such costs. c. Contributions to a reserve for a self-insurance program approved by the Federal grantor agency are allowable to the extent that the type of coverage, extent of coverage, and the rates and premiums would have been allowed had insurance been purchased to cover the risks. d. Actual losses which could have been covered by permissible insurance (through an approved self-insurance program or otherwise) are unallowable unless expressly provided for in the grant agreement. However, costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, and minor losses not covered by insurance, such as spoilage, breakage and dis- appearance of small hand tools which occur in the ordinary course of operations, are allowable. e. Indemnification includes securing the grantee against liabilities to third persons and other losses not compensated by insurance or otherwise. The Government is obligated to indemnify the grantee only to the extent expressly provided for in the grant agreement, except as provided in d. above. 5. Management studies . The cost of management studies to improve the effectiveness and efficiency of grant management for ongoing programs is allowable except that the cost of studies performed by agencies other than the grantee department or outside consultants is allowable only when author- ized by the Federal grantor agency. 6. Preagreement costs . Costs incurred prior to the effective date of the grant or contract, whether or not they would have been allowable there- under if incurred after such date, are allowable when specifically provided for in the grant agreement . 7. Professional services . Cost of professional services rendered by individuals or organizations not a part of the grantee department is allowable subject to such prior authorization as may be required by the Federal grantor agency. 8. Proposal costs . Costs of preparing proposals on potential Federal Government grant agreements are allowable when specifically provided for in the grant agreement. D. Unallowable costs . 1. Bad debts . Any losses arising from uncollectible accounts and other claims, and related costs, are unallowable. 2. Contingencies . Contributions to a contingency reserve or any similar provision for unforeseen events are unallowable. 3. Contributions and donations . Unallowable. 4. Entertainment . Costs of amusements, social activities, and incidental costs relating thereto, such as meals, beverages, lodgings, rentals, trans- portation, and gratuities, are unallowable. 5. Fines and penalties . Costs resulting from violations of, or failure to comply with Federal, State and local laws and regulations are unallowable. 6. Governor ' s expenses . The salaries and expenses of the Office of the Governor of a State or the chief executive of a political subdivision are considered a cost of general State or local government and are unallowable. 7. Interest and other financial costs . Interest on borrowings (however represented), bond discounts, cost of financing and refinancing operations, and legal and professional fees paid in connection therewith, are unallowable except when authorized by Federal legislation. 8. Legislative expenses . Salaries and other expenses of the State legislature or similar local governmental bodies such as county supervisors, city councils, school boards, etc., whether incurred for purposes of legis- lation or executive direction, are unallowable. 9. Underrecovery of costs under grant agreements . Any excess of cost over the Federal contribution under one grant agreement is unallowable under other grant agreements. it U. S. GOVERNMENT PRINTING OFFICE : 1972 — 511-319/82 PE TlP| 1 i A |!^ UNIVERSITV LIBR/\R1ES~