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New OAS Indirect Cost Recovery (ICR) Policy


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Title: New OAS Indirect Cost Recovery (ICR) Policy

New OAS Indirect Cost Recovery (ICR) Policy
Mandate 2007 Budget Resolution
  • 7. Recovery of Indirect costs
  • To instruct the Secretary General to analyze the
    cost recovery policy for technical supervision
    and administrative support of all funds
    administered by the General Secretariat, taking
    into account the Inspectors Generals audit on
    overhead charges, and present a report to the PC
    prior to September 30, 2006, for consideration,
    that proposes amendments to the General Standards
    as required, so as to reflect a new cost recovery
    policy that is coherent, consistent and

The Function of the OAS Secretariat
  • The OAS Secretariat translates the mandates of
    the governing bodies into services, initiatives,
    programs and projects.
  • These activities are funded by either Regular or
    Specific funds.
  • Well executed programs and the trust of our
    Member States and the international community are
    essential elements to sustain and increase
    support for the mission of the OAS, as well as to
    meet the Organizations financing needs.

Why does the OAS need Specific Funds?
  • Regular funds have decreased in real terms.
  • Mandates from Member States have increased.
  • Specific Funds have been identified by the Budget
    Resolution as necessary to complement the Regular
    Fund budget.
  • The cost of overseeing Specific Funds generate
    costs that are not contemplated fully in the
    Regular Fund Budget, and which must somehow be

Why does the OAS need a new Indirect Cost
Recovery (ICR) Policy?
  • The OAS is financed with multiple funding
    sources, requiring efficiency, effective
    record-keeping and a transparent environment that
    will earn the confidence of our donors and staff.
  • A sound indirect cost-recovery policy ensures
    transparency and reduces cross-subsidization
    among projects and Funds.
  • A principal criteria in establishing an indirect
    cost recovery policy is the proportional sharing
    of all indirect costs among all projects and

What is an Indirect Cost?
  • DIRECT COSTS Costs that can be attributed to a
    particular activity with a high degree of
  • INDIRECT COSTS Costs that are incurred for a
    common purpose which cannot be easily attributed
    to a particular activity.

What is an Indirect Cost? (cont.)
  • Examples of indirect costs include
  • Staffing of administrative functions of the
  • Procurement of goods and services
  • Setup and management of accounts
  • Recording and processing of transactions
  • Financial reporting
  • Internal and external audit coordination
  • Legal and financial review of agreements
  • Planning, monitoring, review and evaluation
  • Resource mobilization
  • Facilities and utilities
  • General use office equipment and supplies

What is an Indirect Cost? (cont.)
  • Most donors recognize the need to provide
    indirect cost recovery to recipients.
  • In fact, when acting as a donor, OAS recognizes
    that need and provides, in some cases, up to 30
    for indirect costs.

Immediate Context
  • The Secretariat has a mandate from the General
  • The 2007 Budget Resolution requires an additional
    indirect cost contribution to the Regular Fund
    Budget, from 0.7 million in 2006 to 2.5 million
    in 2007.
  • To increase its limited capacity to administer
    Specific Funds, the Secretariat is
  • revising its current ICR policy
  • requesting CAAP to approve relevant modifications
    to General Standards supporting the revised ICR
    policy and,
  • simultaneously, improving its administrative
  • This presentation addresses the implementation of
    a revised ICR policy.

Evolution of Funds 1994 - 2005 (in millions of
678 employees
605 employees
Background (cont.)
Current ICR policy
Current ICR policy
  • General Standards require Specific fund
    contributions to include a provision for ICR,
    with the exception of emergency, humanitarian and
    contributions under US100,000.
  • General Standards grant authority to the
    Secretariat to negotiate the ICR rate.
  • Interest income accrued on Specific Fund
    contributions is credited towards defraying
    indirect costs, unless otherwise specified in the

Current ICR policy (cont.)
  • ICR rate for central administrative support is
    2, while any ICR above the 2 is retained by the
    areas for technical support and supervision.
  • Some donors do not include a provision to cover
    indirect costs, while others provide up to 30.
  • Some donors have required that ICR be directed
    exclusively to technical areas managing the
    projects and do not take into consideration the
    impact of these projects on the other areas of
    the Secretariat.

Calculation of Direct and Indirect Costs
Secretariats financial transactions in 2005
181 million
  • Excluded Activities of a unique nature which do
    not form part of the pool of activities analyzed
    to determine Secretariats indirect costs.
  • Eligible Normal functions of the Secretariat
    which generate indirect costs.

Eligible costs for 2005 analysis of direct and
indirect costs
In 2005, The Secretariat required an additional
0.53 in support costs for every 0.97 managed.
Therefore, the indirect cost rate was 54.6
(0.53 / 0.97).
Fundamentals of indirect costs
  • It is not uncommon to have a large indirect cost
    rate (universities managing grants usually have
    rates of over 50).
  • Full recovery of indirect costs cannot be
    expected, but a reasonable recovery should be
  • A number of costs at the Secretariat are
    currently charged as indirect, when they should
    be included in the budgets as direct.
  • As costs are better classified, the ICR rate
    should decrease accordingly.

Considerations in establishing an OAS ICR policy
Donors caps on ICR
  • Donors have varied caps on ICR
  • U.S. Federal grants limit recovery for indirect
    costs to 26, though in few cases USAID has
    allowed 33. Some U.S. funding sources allow ICR
    through interest income on U.S. fund deposits.
  • CIDAs (Canada) policy provides a fixed overhead
    rate of 12, though in most cases the Secretariat
    has recovered 2.
  • AECI (Spain) has allowed ICR through interest
    income (which is variable), though its policy
    allows for 7 ICR.
  • SIDA (Sweden) has placed an ICR cap on the
    Secretariat of 3.5.

What similar organizations do
  • ICR rates in similar organizations range from 4.5
    to 21
  • UN System 13
  • PAHO 6 21
  • PADF 16
  • EU 7 20
  • UNDP 5 7
  • IICA 4.5 and over

However, these organizations have done a better
job of classifying direct and indirect costs more
There are at least three different types of
OAS/donor activities
  • A. Partnership mutual cooperation agreements
    requiring significant Secretariats technical
    involvement. Secretariat is responsible for
    outcome. (e.g. MAPP, Demining, CIM-women/children
  • B. Executing Agency mutual cooperation
    agreements requiring minimal Secretariats
    technical involvement. Secretariat is
    responsible for outcome. (e.g. Guarani Acquifer
    System, Panama SENACYT).
  • C. Flow-through funds channeled through the
    Secretariat for which the Secretariats
    responsibility is limited to its administration
    and financial management. Secretariat is not
    responsible for the outcome. (e.g. Mexico

ICR base for 2006
  • An estimated 27.1 million in contributions will
    be subject to ICR in 2006, even though 58
    million in Specific Fund contributions are
  • 30.9 million are estimated to be excluded from
    the ICR policy
  • unprogrammed contributions (includes FEMCIDI)
    10.5 M
  • non-contributing donors 8.8
  • programs approved before current ICR policy
  • contributions under 100,000
  • conferences and meetings co-financed by RF
  • contributions for feasibility studies 1.1

What will happen in 2007 if the current ICR
policy remains in place?
  • Estimate based on projected eligible Specific
    Fund contributions of 27.1 million (similar to

New ICR Rate Policy
New ICR rate policy
  • Considering that
  • the Regular Fund has a limited capacity to
    administer the large portfolio of Specific Funds
  • the Secretariat has the responsibility to meet
    immediate needs of 5.5 million for 2007
  • interest income may be used to partially defray
    indirect costs
  • ICR should be applied to all eligible Specific
    Fund activities and,
  • donors have caps on ICR.

New ICR rate policy (cont.)
  • The Secretariat
  • will enforce the policy that all budgets for
    eligible Specific Fund projects include an ICR.
  • will exclude the following contributions from
    ICR disaster relief, conferences and meetings
    co-financed by Regular Fund and contributions for
    feasibility studies.
  • may apply interest income generated by Specific
    Funds and some types of in-kind contributions to
    partially defray ICR.

New ICR rate policy (cont.)
  • Existing ICR agreements will not be amended,
    although renegotiation of long-term and framework
    agreements will be considered, as appropriate.
  • The Secretary General may approve exceptions to
    ICR upon recommendation of the Project Evaluation
    Committee, in coordination with the Resource
    Mobilization Committee.
  • Any exception results in an implicit increased
    subsidy from the Regular Fund.
  • The Secretary General shall determine the
    distribution of indirect cost recoveries among
    eligible areas based on transparent criteria.

New ICR rate policy (cont.)
Within OAS mandates OAS technical participation OAS responsible for outcome New ICR rate
Partnership YES HIGH YES 12
Executing Agency YES LOW YES 15
Flow-through NO NONE NO 20
Expected 2007 financial outcome with new policy
  • Estimated eligible Specific Fund contributions
    58.4 million
  • Less likely exclusions from ICR policy 10.4
  • Projected ICR base 48.0 million
  • unprogrammed contributions (FEMCIDI) 4.5
  • conferences and meetings co-financed by RF 1.3
  • existing agreements 3.5 M
  • contributions for feasibility studies 1.1

Expected 2007 financial outcome (cont.)
New ICR rate 2007 projected contributions Projected ICR collection
Partnerships 12 47.5 5.7
Executing Agency 15 0.5 0.1
Flow-through 20 0.0 0.0
TOTAL 48.0 5.8
  • Interest income and certain in-kind contributions
    may be applied to partially defray ICR.

Next steps
  • To modify General Standards and issue a
    corresponding Executive Order by January 15,
  • To have a focal point for negotiations between
    donors and the Secretariat on ICR issues.
  • To develop by January 15, 2007 an internal policy
    to equitably and transparently distribute
    indirect cost recoveries throughout the
    Secretariat (excluding the 2.5 million which
    must be transferred to the Regular Fund, per the
    2007 Budget Resolution).
  • To retain the new policy through the end of 2007,
    when its results will be assessed.
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