Building Federal Budgets

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Writing a federal proposal is a multi-step process with every tier requiring an equal level of intense consideration. The federal budget piece is probably the most detailed and specific item on the federal proposal to-do list. Illinois ResourceNet’s face-to-face workshop will tackle the topic of federal budgets and help attendees sort through this daunting section of the federal proposal. In addition, this session describes the principles used in developing a budget narrative.

Illinois ResourceNet’s instructor will explain the importance of managing your organization’s finances to improve your success in applying for a federal grant.
Attendees will walk away knowing how to plan and monitor financial activity, while establishing a solid line of communication between program staff and budgeting staff. This course helps to prepare organizations to manage the detailed federal budget section of their proposals.

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  • Don’t be surprised, but this doesn’t start with your grant. Rather the starting point here is with your organization’s financial management.
  • Since we aren’t the accounting team, I’m giving a bit more detail here.
    Hybrid – more accurate picture of the org.’s finances and required for audit
  • -Major commitments: space rental, building purchase, new services (health insurance, retirement plans, etc.)
    -Insurances include: general liability, D&O, commercial property, professional liability, liability related to clients (malpractice), workers comp
  • Example: salary payments for a counselor to developmentally disabled clients in a job training and workforce readiness grant
    Credits: rebates, refunds, insurance proceeds
  • Advertising: Exceptions for recruiting, procurement and surplus disposal necessary for performance of an award
    Capital Expenditures: not without prior approval, unless < $5000 for special purpose equipment (e.g., X-rays)
    Interest only in limited instances of post-award financing
  • Note hidden slides that people can look at in the handout, especially different methods and the tension between keeping 990 M&G down and recovering enough indirect costs from federal grants
  • Note hidden slide in handout
  • Building Federal Budgets

    1. 1. www.illinoisresource.net Building Federal Budgets Illinois ResourceNet 2010 Jay Readey, JD, MBA
    2. 2. www.illinoisresource.net Federal Grant Budgeting • Session Objectives: to understand… – The threshold levels of financial management necessary before applying for Federal grants – Direct vs. Indirect Costs – Matching/cost sharing – Allowable Federal rates – Accounting compliance requirements – Budget completion and budget narrative principles
    3. 3. www.illinoisresource.net Preparing your grant budget • The starting point is…… your organization’s financial management • Let’s define sound financial management – It includes budgeting, creating effective tracking systems and reporting the organization’s financial activity and plans. – When carried out effectively, financial management enables an organization to plan and monitor financial activities, and show that all financial resources are responsibly applied to an organization’s charitable mission. Source: ACH Region V
    4. 4. www.illinoisresource.net Planning and Monitoring: Thresholds for applying for Federal grants: • Budgeting • Financial recordkeeping • Financial reports • Financial accountability
    5. 5. www.illinoisresource.net Budgeting Can you answer yes? • We have an annual organization-wide budget that is monitored (planned vs. actual) every month • The budget includes expenditures for all salaries, services, space, supplies, etc. • The budget includes revenue from all income categories • The board analyzes, discusses, modifies, if necessary, and approves the annual budget
    6. 6. www.illinoisresource.net Financial Recordkeeping Can you answer yes? • All financial transactions (i.e. receipts, expenses, deductions, credits, etc.) are recorded in a systematic way • The organization has a computerized bookkeeping system • We track separately fundraising, program and general management expenses and we use a project cost accounting or fund accounting system • Supporting documentation of all financial transactions is systematically filed and retained • Cash balances are reconciled monthly • Person(s) maintaining financial records are knowledgeable and skilled in the area • Financial data is backed up on a regular basis with a copy of electronic data maintained off-site
    7. 7. www.illinoisresource.net Financial Reports Can you answer yes? • We have an established fiscal year for which income and expenses are reported and tracked • We use either a cash or accrual accounting method to report income and expenses – Cash basis: records revenue when money is actually received and records and expenses are paid – Accrual basis: records revenue when earned and expenses when incurred • The ED and board have a clear understanding of finances and review on a regular basis (budget vs. actual) • Financial reports are concise, easy to understand and produced on a timely basis • An annual audit is conducted and reviewed by the board
    8. 8. www.illinoisresource.net Financial Accountability Can you answer yes? • Board reviews and authorizes major financial commitments • Budget is reviewed prior to any authorization of expenses • The board assures submission of required state, Federal, and other reporting to maintain tax-exempt status (e.g. filing IRS Form 990) • Federal, state and local tax obligations are met • The board assures the organization has the proper insurance coverage • Processes for handling finances and money (“internal controls”) are documented and followed • The use of restricted funds is monitored • Financial statements are reviewed in an independent audit conducted by a CPA
    9. 9. www.illinoisresource.net The Grant Budget • Follow the instructions • What can I include in my budget? – Budget MUST follow the program – Allowable Federal costs (this is technical) • OMB Circular A-122 – Allowable costs for nonprofits • Is there a cost-sharing (i.e. match) requirement? • Most grants require a budget narrative • Check, re-check and triple check the math
    10. 10. www.illinoisresource.net Dialogue Between Program Staff and Budgeting Personnel • What costs relate to the proposed activities? • Does the program proposal track the requirements of the grant application? • Later: does the budget narrative match the program proposal? (come back and check) • Do other sources pay some of the Direct Costs for the program activities? (more on costs in a moment)
    11. 11. www.illinoisresource.net Cost Principles
    12. 12. www.illinoisresource.net Cost Principles • Total Costs = allowable direct costs + allowable indirect costs – any applicable credits – Total costs = allowable Federal reimbursement • Direct Costs: costs specifically relating to program activities for purposes of the grant • Question: What would be some examples of Direct Costs? • Question: What might credits be?
    13. 13. www.illinoisresource.net Allowability of Costs Costs must be: • Reasonable (to the performance of the award) • Conforming (to limits in the award) • Consistent (with non-Federal activities of the organization) • Consistent (treated the same over time and across program categories) • Determined in accordance with GAAP • Not included in other Federal awards (no double-dipping) • Adequately documented
    14. 14. www.illinoisresource.net Reasonable Costs Costs are reasonable if they are… • Ordinary and Necessary (for the organization or performance of the award) • Bound by sound and accepted business practices (e.g. arm’s length negotiation) • Incurred by persons acting with prudence in the circumstances • Not Significant Deviations from established practices • Question: what would be some unreasonable costs?
    15. 15. www.illinoisresource.net Allowability of Costs • Question: other examples of unallowable costs? • What would make a cost inconsistent with other non-federal programs?
    16. 16. www.illinoisresource.net Unallowable Costs: Which of the following should be allowed for a federal grant? • Advertising and Public Relations • Alcoholic beverages • Bad debts • Contingency reserves for uncertain events • Contributions to others • Entertainment costs • Capital expenditures • Fines and penalties • Housing as fringe benefits • Interest expenses • Lobbying • Social and country club memberships • Costs of corporate organizing and reorganizing
    17. 17. www.illinoisresource.net Allocable Costs A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it: • Is incurred specifically for the award; • Can be distributed in reasonable proportion to the benefits if it is allocable both to the award and other work; or • Is necessary to the overall operation of the organization, even if a direct relationship to a cost objective can’t be shown. Don’t shift costs among Federal awards in order to overcome funding deficiencies, or to avoid restrictions of law or the award!
    18. 18. www.illinoisresource.net Direct Costs: More Detail • Direct costs are “those that can be identified specifically with a particular final cost objective” – i.e., a project, service or direct activity of the organization • Not allowed as Direct Costs: – Fundraising Costs – Services to members: • Maintenance of membership rolls • Public information, public relations and lobbying • Meetings and conferences • Investment of funds not used in operations • Administration of group benefits
    19. 19. www.illinoisresource.net Indirect Costs • Indirect costs are “those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective • Two broad categories: – Facilities – Administration
    20. 20. www.illinoisresource.net Indirect Costs: Facilities Facilities costs include: • Depreciation and use allowances on buildings, equipment and capital improvements • Interest on debt associated with such capital items, and • Operations and maintenance expenses
    21. 21. www.illinoisresource.net Indirect Costs: Administration Administration costs include: • General administration and general expenses such as the director’s office • Accounting, finance, general counsel, IT support • Administrative personnel & clerical staff • Library expenses, office supplies, postage, local telephone
    22. 22. www.illinoisresource.net Indirect Cost Rate: Simple Calculation • Determine portion of organizational expenses attributable to Management & General (M&G) –  Form 990 M&G expense reporting • Fractional ratio for indirect costs: M&G Total Expense ________________________________________________ Total of Program Expenses + Fundraising Expenses • Numerator is called the “base”, and there are several variants, chosen by the organization
    23. 23. www.illinoisresource.net Matching & Cost Sharing
    24. 24. www.illinoisresource.net Matching and Cost Sharing • Many grants contain requirements for a non- Federal share • Section 23 of OMB Circular A-110 gives details • Question: What are non-Federal sources? • Specific requirements may obtain for the cash match – Accounting for the non-Federal share • Third party, in-kind contributions and how to value them
    25. 25. www.illinoisresource.net Matching and Cost Sharing • Contributions are accepted as matching funds if they are: – Verifiable from records – Not counted as contributions for another Federally-assisted program – Necessary and reasonable for achievement of project objectives – Allowable under applicable cost principles – Not paid for by Federal Government under another award – Identified in the budget
    26. 26. www.illinoisresource.net Matching and Cost Sharing • Contributed services and property count: – As valued on the books at donation, or – At current fair market value • Volunteer services count if: – The work would otherwise incur a cost to the organization, valued at prevailing market rates – Ex.: legal, consulting, IT, plumbing • Loaned executive valued at regular rate of pay • Donated property, equipment and buildings shall not be valued at more than FMV at time of donation
    27. 27. www.illinoisresource.net Matching and Cost Sharing • Requirements for supporting records: – Cash match must be accounted for separately in fund accounting system – Volunteer Services shall be documented and, if feasible, supported by the same accounting principles that an organization uses for its employees – Basis for determining value of donated goods, services, equipment and property must be documented
    28. 28. www.illinoisresource.net Allowable Federal Rates • For some agencies, or some grants, published rates may limit the amount that will be reimbursed by the Federal Government • Example: Department of Education limits indirect rates to 8% of a MTDC base • Example: travel rates can be found at GSA.gov, click on “Per Diem Rates” • Example: Consultant Fees per day • Most other costs are allowable or not based on principles of reasonableness, prudence, and consistency (see “Allow ability of Costs”)
    29. 29. www.illinoisresource.net Budget Narratives
    30. 30. www.illinoisresource.net Budget Narrative Principles • Describe in detail how grant funds will be allocated and spent in each applicable category • Show: – Basis for computation – Total amount of costs for each category – If applicable, further explanation of how requested costs were determined • Also describe all non-Federal funds that will be used to meet a cost-sharing or matching requirement – Describe sources, contributions by budget category, and how value was determined for in-kind matches
    31. 31. www.illinoisresource.net Sample Budget Narrative Principles • Personnel Salaries – List name and title by position – Salary rate x % of time devoted to grant project • Taxes/benefits – List name and title – Compute taxes and benefits by a percentage, with description (again observing time devoted to project) • Travel – Itemize travel expenses by purpose – Observe Federal per diem rates
    32. 32. www.illinoisresource.net Sample Budget Narrative Principles • Training – Show the basis for computation, e.g. a table: – Purpose of training, location, cost per unit, and computation • Expense Items: Printing/Copying, Supplies – List by type; describe sample costs and list computations to arrive at total costs • Equipment – List and describe non-expendable items (e.g. computers) to be purchased with grant funds – Items over $1500 and copiers are not allowed
    33. 33. www.illinoisresource.net Sample Budget Narrative Principles • Rent and Utilities – Include rent (are utilities included? CAM?) – Telephone and Internet service – Show and describe computations of totals • Other – List by type, with calculations; example: Item Computation Cost Liability Insurance $1,000/year (total)/4.0 FTEs = $250 for 1.0 FTE x 50% grant allocation $125 National Association Membership $100/year x 100% $100 Total $225
    34. 34. www.illinoisresource.net Sample Budget Form Remember: In the end, it’s not that different from the budgets you know! This is a sample Education Department Budget Direct Costs are modified by subtracting equipment and tuition (MTDC), then multiplied by an indirect cost rate (8%) Personnel 174,000 Fringe Benefits 50,000 Travel 10,000 Equipment 8,200 Supplies 920 Contractual 4,900 Other (Tuition) 5,400 Total Direct Costs 253,420 Indirect Costs (8%) 19,186 Training Stipends 6,300 Total Costs 278,906
    35. 35. www.illinoisresource.net Questions? hank you! Jay Readey jay_readey@yahoo.com
    36. 36. www.illinoisresource.net Thank You!

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