On October 5, 2018, the President signed the Disaster Recovery Reform Act[i] into law, ushering in the most significant changes to the Robert T. Stafford Disaster Relief and Emergency Assistance Act in a generation. Over the last few weeks, I have responded to several calls from subrecipients seeking clarity related to their administrative costs, primarily because for all major disasters and emergencies declared between August 1, 2017 and October 5, 2018, they now have multiple options in choosing how FEMA treats those costs. The short answer is—when given options, one size doesn’t fit all.
If you have pending questions, let’s hit the highlights and key considerations when making your election.
Question #1: When was your major disaster or emergency declared?
- Before August 1, 2017: Stop here. No change to your direct administrative cost (DAC) options.
- After October 5, 2018: Stop here. You now fall under the new administrative cost requirements posted within the Disaster Recovery Reform Act.
- Between August 1, 2017 and October 4, 2018: You have options!
Now that we have narrowed the population, let’s focus on those subrecipients with options relating to their administrative costs. First, what are my options?
Option #1: Maintain participation in management cost and direct administrative cost policies in effect at the time the emergency or major disaster was declared.
- No cap to eligible direct administrative costs. Based on actual time incurred.
- Must maintain records on project-by-project basis.
- Election for this option must be made by February 12, 2019.
- DAC is written into each project worksheet and subject to the same cost share requirement
Option #2: If a previous DAC Pilot option was selected prior to October 5, 2018, subrecipients may stay in the pilot program.[ii]
- DAC amount is locked-in at 5 percent of the total eligible project costs based on project worksheets that have been signed and submitted to FEMA within two years of the disaster declaration date.
- DAC underruns may be kept by subrecipient and applied to approved activities.
- 5 percent includes a 1 percent closeout incentive, which is deobligated if timely closeout requirements are not met.
- 5 percent calculation is based on the eligible project costs prior to insurance and cost share reductions.
- Does not include donated resource project worksheets.
- Cannot use funds for indirect costs, ineligible projects, or the local share.
- Subject to the prevailing cost share for the declared event
- Defines management costs as indirect costs, direct administrative costs, and other administrative expenses associated with a specific project.
- Subrecipient receives up to 5% of total project costs, net of reductions, for management costs, which are funded at 100% federal cost share on a Cat Z project worksheet.
- Does not include donated resources project worksheets in the project cost calculation.
- Reimbursed based on actual costs up to the 5% cap. Excess management cost funding may not be retained by the subrecipient.
The following key considerations should be reviewed holistically as you evaluate your options.
- Understand the insurance and other estimated reductions to your grants:
- Option #2 is based on gross project amounts while Option #3 is based on net project amounts. If you have significant reductions, this may change how you would make your administrative cost election.
- Determine local share at time of disaster
- Option #1 has a local share that will be applied to your DAC costs based on the local share in place for CAT A-G projects at the time of your disaster.
- Review estimated direct and indirect costs for managing your grant activities. This includes internal time and consultant time.
- Options #2 and #3 are capped grants. Option #2 allows for you to keep underruns and apply to pre-approved activities.
- Review estimated indirect costs associated with grant management activities and whether or not your state passes through an indirect cost rate.
Make the best decision for your jurisdiction based on the information you have and understand that it is likely not one size fits all.
At HORNE, we’re skilled at assessing and navigating the impacts to these legislative changes and would love to continue this conversation with you. Contact us, and subscribe to the blog to stay informed and receive updates of new posts.
About the Co-Authors
Chuck Addington, CPA, is a government services manager at HORNE LLP where he performs grant management and state mandated compliance reviews for federally funded public assistance projects.
Alex Yarbrough, CFE, is a government services manager at HORNE LLP specializing in client management and serving as a subject matter expert on federal procurement regulations and Section 3 compliance.