SECRETARIAT FOR ADMINISTRATION AND FINANCE

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ICR 101 Indirect Cost Recovery (ICR) Policy and
Procedures
SECRETARIAT FOR ADMINISTRATION AND
FINANCE SEPTEMBER 2007 Ver. 2
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I Overview
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What is ICR?

• Indirect cost recovery is about project
  management. Its about full costing of all
  project resources, allowing proper identification
  of hidden or omitted costs.
• Its 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 its 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?
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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)
Central Administration (indirect costs)
Regular Fund Reimbursement (2.5 million)
ICR


FAQ What is the allocation percentage to each
one? Answer There is no definite percentage.
All areas have to prepare justified indirect cost
requirements.
FAQ Why pay back the Regular Fund? 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)
PD
CAM
SD prepares semi-annual requirement of indirect
cost Jul Dec 07
PD reviews and approves requirements prepared by
each SP
CAM compiles and analyzes PDs requirements
SAF allocates ICR to dependencies within ICR
Service Account
CAM
CAM oversees application of ICR policy. Submits
ICR utilization to Chief of Staff
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Summarized ICR cycle
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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 ADifference between direct and indirect
costs
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Annex A (continued . . .)Difference between
direct and indirect costs
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Annex BInterest accreditation
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Annex CIn-kind contributions
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Annex DICR calculation in project budgets
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