2024-002 – Indirect Costs
Auditor Description of Condition and Effect. During our testing of indirect cost rates we observed that overhead was included in the Institute's indirect cost rate reimbursement calculation for one out of the Institute's three indirect cost calculations (the general and adm...
2024-002 – Indirect Costs
Auditor Description of Condition and Effect. During our testing of indirect cost rates we observed that overhead was included in the Institute's indirect cost rate reimbursement calculation for one out of the Institute's three indirect cost calculations (the general and administrative calculation). As a result of this condition, the Institute did not fully comply with the Uniform Guidance applicable to the above noted grants.
Auditor Recommendation. We recommend that the Institute review its policies and procedures in regard to the review of the calculation of indirect costs reimbursement to ensure that it conforms with the approved indirect cost rate and all provisions of the indirect cost rate approved by the Institute's cognizant agency.
Corrective Action. Altarum’s indirect rate agreement with the Federal government is a provisional rate agreement, meaning the rates and their bases are not yet finalized. Under FAR Subpart 42.7,
Altarum has the flexibility to propose the rates, and their bases provided we comply with the FAR. The following FAR clauses address flexibility:
Indirect Cost Rates: Under FAR 42.703-1, companies must accumulate indirect costs in logical groupings and allocate them using a base that reflects the benefits accruing to cost objectives. This ensures fairness and consistency in cost allocation.
Flexibility: FAR Subpart 42.7 provides flexibility in cost allocation methods, particularly under FAR 42.705 (Final Indirect Cost Rates). This section allows companies to adjust indirect cost allocation methods in response to significant changes in business operations or other relevant circumstances.
Certification: The requirement for contractors to certify their indirect cost proposals is detailed in FAR 42.703-2 (Certificate of Indirect Costs). This ensures compliance with applicable regulations and establishes the validity of the cost proposals.
In June 2024, Altarum submitted a certified indirect rate proposal utilizing the total cost input method, excluding subrecipients over $25,000, as the base for our general and administrative (G&A) cost pool. This base was chosen to reflect the benefits accruing to those cost objectives. The accompanying proposed rate Altarum submitted reflected this calculation. Our provisional G&A rate was approved at the percentage that included overhead in our G&A base. However, the narrative in our provisional nonprofit rate agreement did not accurately reflect our proposal, as it inadvertently included the term "total direct costs" when describing the base for the G&A rate. For the fiscal year 2024, Altarum incorporated overhead costs into the base of the associated general and administrative cost rate as certified in our proposal to the Federal government in June 2024.
To address the discrepancy between the provisional rate agreement, our proposal, and our system, we sought guidance from our cognizant agent at US Department of Health and Human Services (HHS). In discussions, Altarum was advised to update the allocation base as part of our next proposal package submission, June 2025. Additionally, we were advised that the reviewer from HHS will update the allocation base when finalizing the indirect cost rates for fiscal year 2024.
Altarum will follow the advice of HHS and resolve the discrepancies in the rate agreement later this year.
Responsible Person. Denise Sturm
Anticipated Completion Date. 6/30/2025 – submissions to Federal government; final resolution subject to DHHS's review of our submissions.