ICR 101
Indirect Cost Recovery (ICR) Policy
and Procedures
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SECRETARIAT FOR ADMINISTRATION AND FINANCE
SEPTEMBER 2007
Ver.12
OAS Indirect Cost Recovery (ICR) Policy and Procedures (Ver. 1)
I
Overview
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What is ICR?
■ Indirect cost recovery is about project management. It’s about full
costing of all project resources, allowing proper identification of hidden
or omitted costs.
■ It’s a mechanism to partially recover GS/OAS costs incurred in the
administration of grants (incremental costs of human resources, audits,
financial transactions, office space, procurement, etc).
■ Well established organizations must recognize the full cost of their
activities to enable informed decisions, and must partially recover these
costs.
■ ICR is not a new concept; it’s an industry standard in the public sector.
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What is ICR? (continued . . .)
■ For example, PAHO has an average ICR rate or Program Support
Cost (PSC) of 13%. Other examples: United Nations and World
Bank.
But what do these three organizations have in common with
the OAS?
■ They are all international public organizations with common
mandates that are financed through both Regular (e.g. quotas)
and Specific Funds (e.g. voluntary contributions).
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Why do these organizations need to recover
indirect costs if they count with a Regular Fund?
■ Most Regular Fund budgets partially cover indirect costs (e.g.
basic operational costs and infrastructure).
■ However, these organizations have increasing mandates financed
through Specific Funds, with limited or no increase in their
Regular Fund budgets.
■ This means that incremental Specific Funds have a heavy impact
on static Regular Fund budgets.
■ Thus, a mechanism to partially recover the incremental costs on
basic operations and infrastructure is needed.
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How does this translate to the OAS?
Regular Fund Program-Budget versus Specific Funds Contributions
(in millions of USD)
120.0
100.0
80.0
60.0
Regular Fund
(includes basic indirect costs)
Trend line for Specific Funds
40.0
Specific Funds
(incremental indirect costs)
20.0
1994
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1995
1996
1997
1998
1999
2000
2001
2002
OAS Indirect Cost Recovery (ICR) Policy and Procedures
2003
2004
2005
2006
6
How does this translate to the OAS?
(continued . . .)
■ The OAS conducted an institutional study of indirect costs for fiscal
year 2005, independent of source of financing.
■ The study concluded that the institutional indirect cost to execute
$1 was approximately $0.50.
■ In other words, at the OAS, approximately $0.50 is spent in
indirect costs for every $1 executed in direct costs.
■ Thus, the ICR rate to recover indirect costs in full would have to be
approximately 50%; however, this is unrealistic to attain.
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How does this translate to the OAS?
(continued . . .)
■ The new OAS ICR policy aims to recover some of these costs by
establishing a mandatory minimum of 11% ICR rate.
■ By recovering at least 11% in indirect costs, the impact on basic
operations and infrastructure is reduced from current 50%.
■ Ideally, all of this recovery needs to be in cash rather than in-kind.
Prior approval for accepting in-kind indirect contributions (as ICR)
from SAF and DPCE is required.
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How is the ICR allocated?
■ For 2007-08, ICR collected will de allocated as follows:
Technical
Areas
(indirect costs)
ICR =
+
Central
Administration
(indirect costs)
+
Regular Fund
Reimbursement
($2.5 million)
FAQ: What is the allocation percentage
to each one?
FAQ: Why pay back the
Regular Fund?
Answer: There is no definite
percentage. All areas have to prepare
justified indirect cost requirements.
Answer: To partially
reimburse the Regular Fund
for basic operational costs
and infrastructure provided.
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II
ICR Policy Details
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ICR Policy details
There are no major operational changes:
■ Primary Dependencies continue negotiating agreements with donors,
including ICR.
■ Indirect costs incurred within the General Secretariat will continue to
be covered.
The new policy is based on:
■ Article 80 of General Standards, Executive Order 07-01, and
Administrative memo (to be issued shortly).
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ICR Policy details (continued…)
■ Specific Fund contributions must include a provision for ICR.
▪
Agreements with Member states require 11% minimum ICR
▪
Agreements with all other donors require 12% minimum ICR
■ Exemptions may be found under Article 80 of the General Standards.
■ Interest income will be credited to the ICR Service Account, unless
otherwise specified in the donor agreement.
■ Donor in-kind contributions (indirect cost only) may be accepted to
defray indirect costs.
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Committee on Administrative Matters (CAM)
■ Established through Administrative Memorandum “ICR Policy”.
■ Entrusted to oversee the ICR application as established in the ICR
Policy.
■ Presided by SAF and integrated with representatives from DPCE, OIG
and designated administrative personnel from Primary Dependencies.
■ CAM, through SAF, will submit all recommendations regarding
coverage of indirect costs to the Chief of Staff for approval.
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Accounting for ICR in OASES
■ All ICR collections are centrally recorded in a new service account:
Fund 610.
■ An Unprogrammed AWARD/PROJECT is established to record ICR
revenue from donors’ contributions.
■ An award is created for each primary dependency. A project is created
for each secondary dependency. ICR is allocated to these
awards/projects based on agreed-upon indirect costs.
■ Indirect costs are disassociated from individual ICR collections. The
purpose is to assure that eligible indirect costs are covered.
Primary Dependency (PD): executive Secretariats of the OAS.
Secondary Dependency (SD): departments or offices under the Primary Dependencies.
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ICR allocation process
ICR allocation will be based on:
■ Availability and projections of Specific Funds.
■ Indirect cost requirements within the General Secretariat (central
administration and technical areas).
■ $2.5M Regular Fund Program-Budget 2007 requirement.
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ICR allocation process
LEGEND
Budget template
provided by SAF
Approval by...
SAF
Secretariat for
Administration
and Finance
CAM
Committee on
Administrative
Matters
PD
Primary
Dependency (eg.
Multidimensional
Security,
Secretariat for
Political Affairs)
SD
Secondary
Dependency
(eg. CICAD)
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PD
SD prepares
semi-annual
requirement
of indirect
cost
Jul – Dec 07
SAF allocates ICR
to dependencies
within ICR Service
Account
CAM
PD reviews
and
approves
requirements
prepared by
each SP

CAM compiles
and analyzes
PD’s
requirements
CAM
CAM oversees
application of ICR
policy. Submits
ICR utilization to
Chief of Staff
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Summarized ICR cycle
1
6
Periodic reports
Exceptions are
disclosed, annual
review of ICR
cycle and lessons
learned
Summarized
ICR Cycle
Project budget
proposal
Proposal presented by
Technical Area and
reviewed by SAF to
include 11% or 12% ICR
2
5
OASES Grant
Setup
SAF records ICR as
project expenditure
and records revenue
to ICR Service
Account (610)
(unprogrammed)
ICR funds are
expended
PDs and SDs enter
requisitions to cover
indirect cost
requirements
4
ICR allocation to
Regular Fund
SAF transfers ICR funds
to Regular Fund ($2.5
million)
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ICR allocation to PDs
(independent of ICR
collections)
SAF allocates ICR to PD's
award/project within ICR
Service Account (610)
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Advantages of the new ICR policy
After the transition period (end of 2008), the new ICR policy
will allow GS/OAS to:
■ Move towards a refined costing system.
■ Better identify and measure costs.
■ Focus on individual activities.
■ Allow better classification of costs.
■ Transparency and accountability.
■ Move towards Results Based Activity
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ANNEXES
Glossary and FAQs
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Glossary
■ Direct Costs: costs that can be attributed to a particular activity with a
high degree of accuracy.
■ Indirect Costs: costs that are incurred for a common purpose which
cannot be easily attributed to a particular activity.
■ Indirect Cost Recovery (ICR): recovery of costs that cannot be directly
linked to specific projects, although incurred by the General
Secretariat in the administration of contributions/grants and within
the Central Administration.
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Annex A
Difference between direct and indirect costs
DE C IS IO N C HAR T : IS IT A DIR E C T O R AN INDIR E C T C O S T ?
Q1: W ould the cos t
exis t if the project did
not?
NO
DIR E C T C O S T
YES
DIR E C T C O S T
YES
Q2: C an the cos t be
linked and/or prorated to a particular
activity of the
project?
NO (Due to the c omplex ity of the work performed)
INDIR E C T C O S T
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Annex A (continued . . .)
Difference between direct and indirect costs
E X AMP L E O F A DIR E C T C O S T
A program s pecialis t manages 3 projects (X , Y and Z ) for an annual cos t to the O AS of $100 thous and. His or her time
can be pro-rated in 3 equal parts to different activities within one or more projects .
Q 1: Would the cos t s till exis t if one of the projects did not?
Q 2: C an the cos t be linked and/or pro-rated to a paticular activity of a project?
YES
YES
Note: As a direct cos t, his /her s alary s hould be pro-rated to each of the project budgets .
E X AMP L E O F AN INDIR E C T C O S T
An adminis trative as s is tant s upports an array of 15 projects for an annual cos t to the O AS of $100 thous and. His or her
time cannot be eas ily pro-rated to the activities within the different projects .
Q 1: Would the cos t s till exis t if at leas t 5 of the 15 projects did not?
Q 2: C an the cos t be linked and/or pro-rated to a paticular activity of a project?
YES
NO
Note: As an indirect cos t, his /her s alary s hould be cos ted within IC R S ervice Account (F und 610).
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Annex B
Interest accreditation
DE C IS IO N C HAR T : WHAT IS T HE P O L IC Y O N INT E R E S T E AR NE D AND IT S US E O N IC R ?
Q1: Is the contribution
contemplating the minimum
IC R rate?
NO
Interes t earned is c redited to IC R
S ervic e Ac c ount (F und 610) to partially
defray indirec t c os ts .
NO
Interes t earned is c redited to IC R
S ervic e Ac c ount (F und 610) to partially
defray indirec t c os ts .
YES
Q2: D oes the donor
agreement contain an explicit
claus e requiring either return
of interes t to donor or
project?
YES
Interes t earned is c redited to
AWAR D/P R O J E C T and returned to
donor, if s o required.
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Annex C
In-kind contributions
P R INC IP L E S
►
►
►
►
►
In-kind contributions form an integral part of the project cos ting proces s and s hould be included in budgets .
In-kind contributions are non-cas h contributions to S pecific F und P rojects which can be as s igned a
monetary value.
T he monetary value of each in-kind contribution s hould be equivalent to the cos t the O AS would have
incurred in the project had it not received the benefit.
In-kind contributions to a project are contributed by the O AS and/or a donor.
In-kind contributions may be as s ociated to a direct or indirect cos t of a particular project.
E X AMP L E O F AN O AS IN-K IND C O NT R IB UT IO N
A program s pecialis t manages 3 different projects (X , Y and Z ) for an annual cos t to the O AS R eg ular F und of
$100 thous and. His or her time is pro-rated and budgeted to each project as O AS in-kind contributions .
P roject
% of total time allocated
X
Y
Z
20
30
50
E s timated O AS in-kind
contribution
$
$
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20,000
30,000
50,000
100,000
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Annex D
ICR calculation in project budgets
As an alternative, a cos t contingency line may be added within the agreement claus es to addres s the ris k
of cos t es calations and cover potential s hortfalls of cos t es timates prepared at the planning s tage of the
project. In-kind contributions s hould not include cos t contingency.
= 5. S UB -T O T AL D irect C os ts ($260,000) x 3%
P R O J E C T O NE 'S B UDG E T
S ources of financing:
T otal cos t
(A = B + C + D )
1
O AS in-kind
Member s tate
P erm. O bs erver
(B )
(C )
(D )
D irect C os ts :
2
D irect C os t X
3
D irect C os t Y
75,000
-
25,000
50,000
4
D irect C os t Z
40,000
-
30,000
10,000
515,000
25,000
230,000
260,000
14,700
-
6,900
7,800
529,700
25,000
236,900
267,800
65,798
-
29,280
36,518
5
6
7
8
9
$
S UB -T O T AL D irect C os ts
400,000
C os t C ontingency (3% of s ub-total direct cos ts by contribution)
T O T AL D irect C os ts
Indirect C os t R ecovery (11% or 12% of the contribution)
T O T AL P roject C os ts (total contribution)
$
595,498
$
$
25,000
25,000
$
$
175,000
266,180
$
$
200,000
304,318
S TE P 1
7. T O T AL D irect C os ts ($236,900)
= ----------------------------------------------100% - IC R R 11% (or 1.00 - 0.11)
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S TE P 2
=
9. T O T AL P roject C os ts minus
7. T O T AL D irect C os ts
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