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October 31, 1973. If this program is extended or refunded, the period of audit coverage would cover the period through December 31, 1973.

(c) CSA programs that were not included in the scope of the grantee's last audit of its principal grant before January 1, 1972 because of different funding periods should be audited at the end of the funding period even though this occurs after January 1, 1972 but on a one time basis only. Thereafter, these programs should be included in the first complete audit after January 1, 1972, based on the grantee's program year.

gram year. Subsequent annual audits will cover the balance of these funds.

(b) An example of the funding actions to be included in the scope of a grantee's annual audit is:

(1) Grantee A had a program year that ended on December 31, 1972, and has funds from three CSA offices, as follows:

(i) Grant #50100, action 01, funded by the Regional Office for the program year January 1, 1972 to December 31, 1972.

(ii) Grant #50100, action 02, funded by the Regional Office for the period from March 1, 1972 to June 30, 1972.

(iii) Grant #50100, action 01, funded by the Office of Program Development for the grant period May 1, 1972 to October 31, 1973.

(2) Grant #50100 funded by the Regional Office for the grantee's program year is the principal grant under which the grantee operates. The program year of this grant determines the period of audit coverage for the annual audit. The grantee contracts with its Certified Public Accountants (CPA's) to perform an annual audit and provide one report covering the following funding actions:

(i) Grant #50100, action 01 (Region al) would be reported for the program year January 1, 1972 to December 31, 1972.

(ii) Grant #50100, action 01 (Regional) would cover transactions during the period March 1, 1972 to December 12, 1972.

(iii) Grant #50100, action 01 (Headquarters) would cover transactions during May 1, 1972 to December 31, 1972.

(3) The following year's annual audit would provide coverage as follows:

(i) Grant #50100, action 01 (Regional) would be reported for the program year January 1, 1973 to December 31, 1973.

(ii) Grant #50100, action 02 (Regional) would cover transactions during the period January 1, 1973 to June 30, 1973. If this program were refunded, the report would also cover transactions during the period July 1, 1973 to December 31, 1973.

(iii) Grant #50100, action 01 (Headquarters) would cover transactions during the period January 1, 1973 to

$ 1068.43-6 Grantees with predetermined

fiscal year. (a) Exceptions to the above criteria for determining the period of coverage of the annual audit will be made for those grantees who, prior to receiving funds from CSA, had a fiscal year or 12-month operating period which does not correspond to the program year or funding period under which CSA grants have been awarded and which elect to use such predetermined fiscal year for this purpose.

(b) Since it is CSA's intention to reduce problems associated with the scheduling of annual audits covering programs with varying refunding or termination dates, grantees who wish to exercise this exception should write or contact the CSA Regional Auditor servicing the geographic area in which they are located.

(c) The Regional Auditor will coordinate the grantee's request to change the annual audit report to the organization's fiscal year with the CSA program offices funding the grantee.

(d) Grantees may change the period of audit coverage only after they have received the written approval of the CSA Regional Auditor. The Regional Auditor will also indicate to the grantee what audit coverage is to be provided during the conversion process. 8 1068.43–7 Changes to CSA guidance.

Amendments to CSA Manual 2410-1 (the Audit Guide) will be forthcoming to reflect the changes to financial statements to be included in annual

§ 1068.50-1

audit reports as a result of this subpart.

Subpart 1068.50—Cost Principles

AUTHORITY: Sec. 602, 78 Stat. 530, (42 U.S.C. 2942).

SOURCE: 45 FR 64940, Oct. 1, 1980, unless otherwise noted.

and does not wish to be governed by these cost principles while under this award, that organization will so inform the CSA Regional or Headquarters office responsible for administering the grant. In such a situation the organization will continue to be bound for the remainder of the funding period by those regulations superseded by the cost principles. However, the cost principles will apply at the start of the next award made to that organization.

81068.50-4 Supersession.

The cost principles published in OMB Circulars A-21, A-122, and 74-4 supersede cost principles previously issued by CSA except those cost principles which have been legislatively mandated.

8 1068.50-1 Applicability.

The provisions of OMB Circular A21, Cost Principles for Educational Institutions, OMB Circular A-122, Cost Principles for Nonprofit Organizations and Circular 74-4, Cost Principles applicable to Grants and Contracts with State and Local Governments, are applicable to all grants and agreements made under the Economic Opportunity Act of 1964, as amended, when the assistance is administered by the Community Services Administration. All subawards (delegate agency agreements, subcontracts, etc.) are subject to those cost principles applicable to the particular organization concerned, e.g. if a nonprofit grantee enters into a delegate agency agreement with a nonprofit organization Circular A-122 shall apply; however, if that same grantee contracts with a college or university, Circular A-21 shall apply.

$ 1068.50-2 Purpose.

The purpose of this subpart is to implement the cost principles pursuant to OMB Circulars A-122, A-21, and 744 by advising organizations, agencies, units of government and educational institutions funded by CSA of their applicability and to incorporate Circular A-122 into CSA's body of published regulations in order to assure that it is readily accessible to nonprofit organizations. Circulars A-21 and 74-4 may be obtained by writing to the Office of Administration, Publications Unit, Room G-236, New Executive Office Building, Washington, D.C. 20503.

APPENDIX TO SUBPART 1068.50—OMB

CIRCULAR A-122, COST PRINCIPLES FOR NONPROFIT ORGANIZATIONS

(CIRCULAR No. A-122] June 27, 1980.

To The Heads of Executive Departments and Establishments

Subject: Cost principles for nonprofit or. ganizations.

1. Purpose. This Circular establishes principles for determining costs of grants, contracts and other agreements with nonprofit organizations. It does not apply to colleges and universities which are covered by Circular A-21; State, local, and federally recog. nized Indian tribal governments which are covered by Circular 74-4; or hospitals. The principles are designed to provide that Federal Government bear its fair share of costs except where restricted or prohibited by law. The principles do not attempt to prescribe the extent of cost sharing or matching on grants, contracts, or other agreements. However, such cost sharing or matching shall not be accomplished through arbitrary limitations on individual cost elements by Federal agencies. Provision for profit or other increment above cost is outside the scope of this Circular.

2. Supersession. This Circular supersedes cost principles issued by individual agencies for nonprofit organization.

3. Applicability. a. These principles shall be used by all Federal agencies in determining the costs of work performed by nonprofit organizations under grants, cooperative agreements, cost reimbursement contracts, and other contracts in which costs are used

8 1068.50-3 Implementation date.

The provisions of these Circulars are effective as of October 31, 1980. However, if an organization has an existing award as of October 31, 1980

services of employees rendered during the period of the award (except as otherwise provided in paragraph g. below). It includes, but is not limited to, salaries, wages, director's and executive committee member's fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differentials.

b. Allowability. Except as otherwise specifically provided in this paragraph the costs of such compensation are allowable to the extent that:

(1) Total compensation to individual employees is reasonable for the services rendered and conforms to the established policy of the organization consistently applied to both Government and non-Government activities; and

(2) Charges to awards whether treated as direct or indirect costs are determined and supported as required in this paragraph. C. Reasonableness. (1) When the organization is predominantly engaged in activities other than those sponsored by the Government, compensation for employees on Governmentsponsored work will be considered reasonable to the extent that it is consistent with that paid for similar work in the organization's other activities.

(2) When the organization is predominantly engaged in Government-sponsored activities and in cases where the kind of employees required for the Government activi. ties are not found in the organization's other activities, compensation for employees on Government-sponsored work will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved.

d. Special considerations in determining allowability. Certain conditions require spe. cial consideration and possible limitations in determining costs under Federal awards where amounts or types of compensation appear unreasonable. Among such conditions are the following:

(1) Compensation to members of nonprof. it organizations, trustees, directors, associates, officers, or the immediate families thereof. Determination should be made that such compensation is reasonable for the actual personal services rendered rather than a distribution of earnings in excess of costs.

(2) Any change in an organization's com pensation policy resulting in a substantial increase in the organization's level of compensation, particularly when it was concurrent with an increase in the ratio of Government awards to other activities of the organization or any change in the treatment of allowability of specific types of compensa. tion due to changes in Government policy.

e. Unallowable costs. Costs which are unallowable under other paragraphs of this Attachment shall not be allowable under this paragraph solely on the basis that they constitute personal compensation.

f. Fringe benefits.

(1) Fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as vacation leave, sick leave, military leave, and the like, are allowable provided such costs are absorbed by all organization activities in proportion to the relative amount of time or effort actually devoted to each.

(2) Fringe benefits in the form of employer contributions or expenses for social security, employee insurance, workmen's compensation insurance, pension plan costs (see paragraph g. below), and the like, are allowable provided such benefits are granted in accordance with established written organization policies. Such benefits whether treated as indirect costs or as direct costs, shall be distributed to particular awards and other activities in a manner consistent with the pattern of benefits accruing to the individuals or group of employees whose salaries and wages are chargeable to such awards and other activities.

(3)(a) Provisions for a reserve under a selfinsurance program for unemployment compensation or workmen's compensation are allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation, and the types of coverage, extent of coverage, and rates and premiums would have been allowable had insurance been purchased to cover the risks. However, provisions for self-insured liabilities which do not become payable for more than one year after the provision is made shall not exceed the present value of the liability.

(b) Where an organization follows a consistent policy of expensing actual payments to, or on behalf of, employees or former employees for unemployment compensation or workmen's compensation such payments are allowable in the year of payment with the prior approval of the awarding agency provided they are allocated to all activities of the organization.

(4) Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibility are allowable only to the extend that the insurance represents additional compensation. The costs of such insurance when the organization is named as beneficiary are unallowable.

g. Pension plan costs.

(1) Costs of the organization's pension plan which are incurred in accordance with the established policies of the organization are allowable, provided:

2. Negotiations and approval of rates (Circular No. A-122]

ATTACHMENT A (RESERVED)

ATTACHMENT B
SELECTED ITEMS OF Cost

Table of Contents 1. Advertising costs 2. Bad debts 3. Bid and proposal costs (reserved) 4. Bonding costs 5. Communications costs 6. Compensation for personal services 7. Contingency provisions 8. Contributions 9. Depreciation and use allowances 10. Donations 11. Employee morale, health and welfare

costs and credits 12. Entertainment costs 13. Equipment and other capital expendi

tures 14. Fines and penalties 15. Fringe benefits 16. Idle facilities and idle capacity 17. Independent research and development

(reserved) 18. Insurance and indemnification 19. Interest, fund raising, and investment

management cost 20. Labor relations costs 21. Losses on other awards 22. Maintenance and repair costs 23. Materials and supplies 24. Meetings, conferences 25. Memberships, subscriptions, and profes

sional activity costs 26. Organization costs 27. Overtime, extra-pay shift, and multishift

premiums 28. Page charges in professional journals 29. Participant support costs 30. Patent costs 31. Pension plans 32. Plant security costs 33. Preaward costs 34. Professional service costs 35. Profits and losses on disposition of de

preciable property or other capital assets 36. Public information service costs 37. Publication and printing costs 38. Rearrangement and alteration costs 39. Reconversion costs 40. Recruiting costs 41. Relocation costs 42. Rental costs 43. Royalties and other costs for use of pat

ents and copyrights 44. Severance pay 45. Specialized service facilities 46. Taxes 47. Termination costs 48. Training and education costs 49. Transportation costs

50. Travel costs
(Circular No. A-122]

ATTACHMENT B

SELECTED ITEMS OF Cost Paragraphs 1 through 50 provide principles to be applied in establishing the allowability of certain items of cost. These principles apply whether a cost is treated as direct or indirect. Failure to mention a particular item of cost is not intended to imply that it is unallowable; rather determination as to allowability in each case should be based on the treatment or principles provided for similar or related items of cost.

1. Advertising costs.

a. Advertising costs mean the costs of media services and associated costs. Media advertising includes magazines, newspapers, radio and television programs, direct mail, exhibits, and the like.

b. The only advertising costs allowable are those which are solely for (i) the recruitment of personnel when considered in conjunction with all other recruitment costs, as set forth in paragraph 40; (ii) the procurement of goods and services; (iii) the disposal of surplus materials acquired in the performance of the award except when organizations are reimbursed for disposals at a predetermined amount in accordance with Attachment N of OMB Circular A-110; or (iv) specific requirements of the award.

2. Bad debts. Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collection costs, and related legal costs, are unallowable.

3. Bid and proposal costs. (reserved) 4. Bonding costs.

a. Bonding costs arise when the Government requires assurance against financial loss to itself or others by reason of the act or default of the organization. They arise also in instances where the organization requires similar assurance. Included are such bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds.

b. Costs of bonding required pursuant to the terms of the award are allowable.

c. Costs of bonding required by the organization in the general conduct of its oper. ations are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances

5. Communication costs. Costs incurred for telephone services, local and long distance telephone calls, telegrams, radiograms, postage and the like, are allowable. 6. Compensation for personal services.

a. Definition. Compensation for personal services includes all compensation paid currently or accrued by the organization for

services of employees rendered during the period of the award (except as otherwise provided in paragraph g. below). It includes, but is not limited to, salaries, wages, director's and executive committee member's fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differentials.

b. Allowability. Except as otherwise specifically provided in this paragraph the costs of such compensation are allowable to the extent that:

(1) Total compensation to individual employees is reasonable for the services rendered and conforms to the established policy of the organization consistently applied to both Government and non-Government activities; and

(2) Charges to awards whether treated as direct or indirect costs are determined and supported as required in this paragraph.

c. Reasonableness.

(1) When the organization is predomi. nantly engaged in activities other than those sponsored by the Government, compensation for employees on Governmentsponsored work will be considered reasonable to the extent that it is consistent with that paid for similar work in the organization's other activities.

(2) When the organization is predominantly engaged in Government-sponsored activities and in cases where the kind of employees required for the Government activi. ties are not found in the organization's other activities, compensation for employees on Government-sponsored work will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved.

d. Special considerations in determining allowability. Certain conditions require special consideration and possible limitations in determining costs under Federal awards where amounts or types of compensation appear unreasonable. Among such conditions are the following:

(1) Compensation to members of nonprof. it organizations, trustees, directors, associates, officers, or the immediate families thereof. Determination should be made that such compensation is reasonable for the actual personal services rendered rather than a distribution of earnings in excess of costs.

(2) Any change in an organization's compensation policy resulting in a substantial increase in the organization's level of compensation, particularly when it was concurrent with an increase in the ratio of Government awards to other activities of the organization or any change in the treatment of allowability of specific types of compensation due to changes in Government policy.

e. Unallowable costs. Costs which are unallowable under other paragraphs of this Attachment shall not be allowable under this paragraph solely on the basis that they constitute personal compensation.

f. Fringe benefits.

(1) Fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as vacation leave, sick leave, military leave, and the like, are allowable provided such costs are absorbed by all organization activities in proportion to the relative amount of time or effort actually devoted to each.

(2) Fringe benefits in the form of employer contributions or expenses for social security, employee insurance, workmen's compensation insurance, pension plan costs (see paragraph g. below), and the like, are allowable provided such benefits are granted in accordance with established written organization policies. Such benefits whether treated as indirect costs or as direct costs, shall be distributed to particular awards and other activities in a manner consistent with the pattern of benefits accruing to the individuals or group of employees whose salaries and wages are chargeable to such awards and other activities.

(3)(a) Provisions for a reserve under a selfinsurance program for unemployment compensation or workmen's compensation are allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation, and the types of coverage, extent of coverage, and rates and premiums would have been allowable had insurance been purchased to cover the risks. However, provisions for self-insured liabilities which do not become payable for more than one year after the provision is made shall not exceed the present value of the liability.

(b) Where an organization follows a consistent policy of expensing actual payments to, or on behalf of, employees or former employees for unemployment compensation or workmen's compensation such payments are allowable in the year of payment with the prior approval of the awarding agency provided they are allocated to all activities of the organization.

(4) Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibility are allowable only to the extend that the insurance represents additional compensation. The costs of such insurance when the organization is named as beneficiary are unallowable.

g. Pension plan costs.

(1) Costs of the organization's pension plan which are incurred in accordance with the established policies of the organization are allowable, provided:

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