Transmittal No. 02-2008: Definition and allowability of direct and administrative costs.
SOCIAL SERVICES BLOCK
U.S. Department of Health and Human Services
Administration for Children and Families
Office of Community Services
Division of State Assistance
370 L'Enfant Promenade, S.W.
Washington , D.C. 20447
Transmittal No. 02-2008
Date: June 15, 2007
TO: Social Services Block Grant (SSBG) State Officials and State Program
SUBJECT: Definition and allowability of direct and administrative costs.
PURPOSE: To clarify for States the definition and allowability of “direct” program and
“administrative” costs under the Social Services Block Grant (SSBG).
REFERENCES: Title XX of the Social Security Act Social Services Block Grant; 45 CFR 96 – Subpart G; OMB Circular A-122; OMB Circular A-133.
The Social Services Block Grant (SSBG) program is implementing an accountability measure that is designed to decrease total SSBG funds identified as “administrative costs” in the post-expenditure reports by States to nine percent. Total SSBG funds would include any transfer from the Temporary Assistance for Needy Families (TANF) program. In addition, OMB Circular A-122, Cost Principles for Non-Profit Organizations uses similar terms, with different meanings, in providing guidance on setting indirect cost rates and charging expenditures to grants. OMB Circular A-122 Attachment A. This Information Memorandum (IM) is provided to clarify the definitions of costs for programmatic reporting requirements under the SSBG statute; this IM does not modify the requirements of OMB Circular A-122 or how grantees define costs for the purposes of establishing indirect cost rates for the SSBG program.
SSBG funds may be used to provide a wide range of critical services to vulnerable older adults; persons with disabilities; at-risk adolescents and young adults; and children and families. Expenditures for such services may also include expenditures for planning and evaluation, personnel training and retraining directly related to the provision of services, licensing activities, and the overhead costs of providing services as authorized under Title XX of the Social Security Act, as amended and codified at Section 2002 (a)(2)(B)[42 U.S.C.1397a]. The relatively unusual flexibility to fund SSBG services, which sometimes have managerial and administrative qualities may generate questions regarding the character of those expenditures. Therefore, the Office of Community Services (OCS) is providing guidance regarding what constitutes a direct (service category) or administrative cost in those circumstances. Furthermore, OCS is reaffirming that such expenditures are allowable costs under the SSBG statute.
A new SSBG accountability measure and terminology used in OMB Circular A-122 require some clarification for grantees and auditors regarding (1) the definition of different cost categories in the SSBG program and (2) the character and allowability of SSBG expenditures to coordinate and link multiple social service programs.
For Social Services Block Grant program reporting requirements, OCS defines “direct” program and “administrative” costs in accordance with three criteria: (i) meeting Congressional intent for the program; (ii) achieving consistency with U.S. Department of Health and Human Services (HHS) audit and financial management standards; and (iii) ensuring a common basis for reporting expenditures to the standard post-expenditure reporting form (OMB Reporting Form No. 0970-0234).
Eligible programmatic activities explicitly include social services best suited to meet the needs of the individuals residing within the State and directed at the goals of SSBG as authorized under Title XX of the Social Security Act, as amended and codified at Section 2002 (a)(2)(A)[42 U.S.C.1397a]. These efforts often entail planning and management functions that facilitate integrated approaches among more categorical public, private, and non-profit entities within a community. They also provide additional resources to enhance or supplement the activities of programs that receive other Federal, State, local, and private funding. OCS considers such functions to constitute a core SSBG program purpose, significant and necessary to the grantee mission, pursuant to Congressional intent. Use of SSBG funds to augment and coordinate other programs is an allowable cost. Furthermore, although some of these functions have administrative qualities, related expenditures that can be specifically identified with a programmatic activity to coordinate and strengthen other programs and services should be categorized as direct program costs, because they achieve an outcome intended by Congress in the express language of the SSBG reauthorizing statute.
Program and Administrative Standards for SSBG
Grantees participating in the Social Services Block Grant program are subject to the administrative standards set forth in 45 CFR Part 96. However, Part 96 provides only the broadest of program and administrative guidance:
(a) Fiscal control and accounting procedures. Except where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Fiscal control and accounting procedures must be sufficient to (a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. (45 CFR §96.30(a)).
Under Part 96, the Federal expectation is for States to apply their own administrative standards. This would include the application of State standards relating to the definition and allowability of administrative costs. States may be familiar with 45 CFR Part 92, which is applicable to Federal programs such as Head Start and TANF. The uniform administrative requirements of Part 92 do not apply under the SSBG program. However, Part 92 does give clear guidance on the definition and allowability of administrative costs. As such, although not directly applicable, many States have adopted Part 92 standards relating to the definition and allowability of administrative costs.
Again, neither the general administrative regulations for State, local and tribal governments (45 CFR Part 92) nor the generally applicable OMB Cost Principles apply under the SSBG program. However, if the State has no standards for administrative costs we can encourage (but not compel) the adoption of standards for administrative costs similar to those in Part 92 (as set forth in this IM) for purposes of SSBG pre-expenditure and post-expenditure reporting.
Definitions of SSBG Direct Program Costs and Administrative Costs
Title XX, as amended, requires each State to prepare an annual report on its activities carried out with funds made available (or transferred for use) under the statute. (42 U.S.C. §1397(e)). In addition, SSBG regulations require States report non-service expenditures, including administrative costs as defined by the State. (45 CFR §96.74(b)(4)). For the purpose of this programmatic report, OCS offers guidance on defining these terms to help ensure consistency among grantees in assigning costs to these categories --
Direct Program Costs for SSBG Reporting. Direct program costs can be specifically identified with delivery of a particular service or activity undertaken by a grantee to achieve one of the five statutory goals of the SSBG program (42 U.S.C. §1397). For SSBG, such direct costs derive from the funding objectives specified in the amended statute and are reflected in the 29 categories of Uniform Definitions of Services as defined in 45 CFR 96.74 (b), Appendix A and the administration and management expenditures related directly to the provision of any of these services. Direct program costs are incurred for the service delivery and management components within a particular program or project. Therefore, direct costs include expenditures on some activities with administrative qualities, including salaries and benefits of program staff and managers, equipment, training, conferences, travel, and contracts, as long as those expenses relate specifically to a particular program or activity, not to the general administration of the grant.
Administrative Costs for SSBG Reporting. In the context of SSBG statutory reporting requirements, “administrative costs” are equivalent to the familiar concepts of “indirect” costs or “overhead.” As distinguished from program administration or management expenditures that qualify as direct program costs, administrative costs refer to central executive functions that do not directly support a specific project or service, and expenditures that cannot be attributed to service recipients. Rather, administrative costs are incurred for common objectives that benefit programs administered by the grantee and as such are not readily assignable to a particular program funding stream. Administrative costs relate to the general management of the grantee, such as accounting, budgeting, personnel, procurement, and legal services.
Other Related Information Regarding Direct Program Costs and Administrative Costs
OMB Circular A-122 Definitions. OMB Circular A-122 establishes general principles for determining the costs of Federal grants for non-profit organizations. In contrast, the new SSBG efficiency measure focuses on developing a more accurate categorization of service expenditures, particularly in regards to activities reported in the category of “administrative costs” that should be reported against a specific SSBG service category.
The Circular provides grantees with guidance on accumulating direct and indirect costs in order to ascertain the total or “full costs” of a grant program. Circular requirements ensure that a grantee is internally consistent in the manner it charges costs to Federal grant sources, so that costs charged to a grant as “direct” costs do not duplicate the same or similar costs included and charged to a grant through an approved indirect cost rate. Furthermore, indirect costs may be classified within the subcategories of “administrative” costs and “facilities” costs. The Circular permits grantees substantial latitude in defining and grouping these costs, dependent on an organization's structure, number of programs operated, funding sources, and accounting systems.
Therefore, “administrative” costs as defined under the OMB Circular A-122 are not necessarily interchangeable with “administrative” costs for SSBG program reports. If the Circular's definitions were used for SSBG programmatic reporting requirements, the latitude provided in the Circular could result in “direct” and “administrative costs” being overstated or understated for purposes of SSBG program reports. For example, the Circular permits grantees to include all facility costs, including maintenance and operations, as a separately identified category in calculating their indirect cost rates. However, for SSBG program reports, facility costs attributable to the operation of direct program activities should be reported as “direct” costs, and facilities costs associated with general management of the organization should be reported as “administrative” costs. The same principle for assigning a direct cost in SSBG program reports applies to any other costs included in an organization's approved indirect cost rate that can be identified with delivery of a particular activity to achieve an objective of the SSBG award.
Thus, in SSBG program reports, grantees might deviate from the definition of “administrative” costs used in developing an indirect cost rate under OMB Circular A-122. Again, such a recasting for purposes of a SSBG program report does not in any way modify the requirements of the Circular or the classification of costs in a grantee's approved indirect cost rate. Claims for actual expenditures on Federal grant programs must remain consistent with the classification of costs used in the approved indirect cost rate.
Please address inquiries to:
Director, Division of State Assistance
Office of Community Services
U.S. Department of Health and Human Service
370 L’Enfant Promenade, SW
Washington, DC 20447
Telephone: (202) 401-4608
Fax: (202) 401-5718
Josephine B. Robinson
Office of Community Services