Overhead Compensation Policy for Non-Repayable Contribution Agreements with Canadian Organizations under the International Development Assistance Program
Amendment to the January 2008 Version
- 1. Policy Objective
- 2. Policy Statements
- 3. Application
- 4. Definitions
- 5. Policy Requirements
- 6. References
- 7. Monitoring
- 8. Information Requests
- Appendix I: Definitions
- Appendix II: Eligibility Criteria for Volunteers
- Appendix III: Application of the 12% Fixed Overhead Compensation Rate
1. Policy Objective
It is recognized that indirect/overhead costs are a necessary part of an organization’s operations and that the organization will be compensated for some of this overhead as part of a contribution agreement with Global Affairs Canada under its International Development Assistance Program.
The objective of this policy is to inform Canadian organizations on how Global Affairs Canada will contribute towards their indirect/overhead costs when they enter into a contribution agreement with Global Affairs Canada under the International Development Assistance Program. The policy provides direction to determine which costs are eligible for compensation. It aims to ensure uniformity of application in order to be fair to all organizations.
2. Policy Statements
It is the policy of Global Affairs Canada to provide a contribution towards an organization’s indirect/overhead costs for the period covered by their contribution agreement with Global Affairs Canada under the International Development Assistance Program.
This policy is applicable once Global Affairs Canada has agreed on which costs it is willing to contribute towards under a specific contribution agreement.
3. Application
3.1 Effective Date
The amended version of this current policy is effective starting May 15, 2016.
This policy applies to all new Non-Repayable contribution agreements that commence on or after May 15, 2016.
This policy will be reviewed five years after the implementation date and periodically thereafter.
3.2 Scope
This document details Global Affairs Canada’s policy regarding the compensation of indirect/overhead costs incurred by Canadian organizations carrying out development assistance projects subject to a contribution agreement with Global Affairs Canada.
This policy applies to all contribution agreements with Canadian organizations approved by Global Affairs Canada under the International Development Assistance Program.
This policy does not apply to Canadian provincial, territorial, and municipal governments, including their institutions, organizations and agencies, or to other Canadian government departments and crown corporations.
The policy applies only to contribution agreements whose value is equal to or below $20 million. The compensation for overhead applicable to contribution agreements valued at over $20 million will be determined on a case-by-case basis.
4. Definitions
Definitions to be used for the interpretation of this policy can be found in Appendix I.
5. Policy Requirements
5.1 Overhead Compensation Rate
This contribution is based on:
- A fixed overhead compensation rate of 12 percent applicable to Global Affairs Canada’s contribution towards the direct program/project costs eligible for the application of the overhead compensation rate; and
- A fixed overhead compensation rate of 12 percent applicable on a deemed in-kind value of $200 per working day per Canadian volunteer (notwithstanding the organization’s estimated value) for purposes directly related to the program/project. The organization must keep auditable records to substantiate that Canadian volunteers were sent overseas and the duration of time spent working on the program/project.
Examples of application and eligibility criteria for volunteers can be found in Appendix II and Appendix III.
5.2 Indirect/Overhead Costs Covered by the 12 percent Overhead Compensation Rate
The 12 percent overhead compensation rate is an allowance to cover the organization’s indirect/overhead costs of their office(s) in Canada. These types of expenses cannot be claimed as direct program/project costs in the contribution agreement. Examples of such indirect costs are:
- Advertising and promotion (non-program/project specific)
- Amortization/depreciation
- Bank charges (non-program/project specific)
- Board activities
- Business development activities
- Capital taxes
- Communication - excluding long distance calls that are related to the execution of the program/project
- Computer maintenance expenses
- Financing costs such as interest expenses and costs to obtain irrevocable letters of credit
- General staff training
- Insurance (e.g. office, board of directors, liability)
- Internal or external audits of the organization
- Office supplies and equipment
- Organization restructuring costs
- Professional fees relating to the administration of the organization (e.g. legal, accounting)
- Proposal preparation activities
- Rent and utilities
- Repairs and maintenance expenses
- Review and negotiation of agreements
- Salaries and fringe benefits relating to the administration of the organization
- Staff recruitment
- Strategic planning activities
- Travel (non-program/project specific)
- Workstations, including computers
- Other indirect/overhead type of expenditures relating to the organization's office in Canada
5.3 Direct Program/Project Costs
The overhead compensation rate is applied against eligible direct program/project costs. The overhead compensation is paid to the organization on the same timing basis as the other costs covered by the contribution agreement.
5.3.1. Eligible Direct Program/Project Costs for the Application of the Overhead Compensation Rate
- Program/project salaries actually paid by the organization to their personnel (Canadian, local or in any other country as accepted by Global Affairs Canada) and related fringe benefits allowed under the agreement;
- Consultants/subcontractors fees.
- Program/project travel, accommodation and daily per diem and incidentals (actuals not to exceed Treasury Board Travel Directive and Special Travel Authorities);
- Overseas costs required for the execution of the program/project (e.g. rent, leasehold improvements, utilities, office expenses, office computer, general maintenance);
- Bank transfer fees related to the execution of the program/project;
- Costs associated with program/project reporting and production of reading material(e.g. reproduction, translation);
- Long distance communications, mail and courier costs related to the execution of the program/project;
- Technical assistance and meeting costs specifically related to the execution of the program/project except those relating to flow-through funds (see definition in Appendix I);
- Procurement of goods specifically required for the execution of the program/project (excluding those disallowed under 5.3.2 below) and related shipping costs (e.g. packaging, containers, freight, freight insurance);
- Construction costs (i.e. material, equipment and construction-related labour) where the total of construction costs is normally less than 20% of the contribution by Global Affairs Canada to the project;
- Benefits and allowable expenses for personnel on long-term field assignment and personnel on short-term relocation, not exceeding those stipulated in Global Affairs Canada’s Technical Assistance Handbook of the International Development Assistance Program;
- Costs allowed under the manual entitled Management of Students and Trainees in Canada (excluding those disallowed under 5.3.2 below);
- Any other direct costs necessary to implement the program/project that are auditable and not listed under section 5.2 or disallowed under 5.3.2 below. Prior written approval must be obtained from Global Affairs Canada’s project management for the cost to be eligible.
5.3.2 Ineligible Direct Program/Project Costs for the Application of the Overhead Compensation Rate
- Flow-through funds are not eligible for the application of the overhead compensation rate (see definition in Appendix I).
- The following costs are not eligible for the application of the overhead compensation rate even if they are related to the execution of the program/project:
- Large capital expenditures/leases of machinery and medical equipment directly related to the execution of the program/project where each item costs $100,000 or more; and
- Any other costs that have been substantiated by the organization and deemed by Global Affairs Canada in the contribution agreement to be a direct cost ineligible for the application of the overhead compensation rate.
5.3.3 Direct Program/Project Costs for the Application of the Overhead Compensation Rate to be Determined on a Case-by-Case Basis
- Construction costs including material, equipment and construction-related labour (see definition in Appendix I).
- Where the total construction cost exceeds 20 percent of the contribution to the project by Global Affairs Canada, the rate for all construction costs will be negotiated on a case-by-case basis.
- Bulk purchases of goods involving one or more transactions to purchase the same goods, such as material, food and medical supplies, will be negotiated on a case-by-case basis.
6. References
The Overhead Compensation Policy includes references to the following documents:
- Treasury Board Travel Directive;
- Treasury Board Special Travel Authorities;
- Global Affairs Canada’s Manuals for Executing Agency entitled:
- Management of Students and Trainees in Canada; and
- Technical Assistance Handbook for the International Development Assistance Program.
7. Monitoring
The policy may be assessed and evaluated as part of a formal internal audit carried out by the Internal Audit function of Global Affairs Canada.
The Financial Compliance Unit (SGFF) will monitor the implementation of this policy in the context of the regular audits it carries out.
The calculations relating to the application of the overhead compensation rate should be properly documented by both the organization and Global Affairs Canada personnel.
8. Information Requests
Any request for clarification or interpretation should be made to Global Affairs Canada International Development Assistance Program’s Project Management.
Appendix I: Definitions
Assuming performance risk: Assuming performance risk means that the organization is responsible for the ultimate results/outcomes and if those results/outcomes are not achieved the organization has the financial obligation to rectify the situation. GAC will not reimburse the costs of rectifying the situation nor will GAC reimburse the initial costs if the situation is not rectified. The organization’s responsibility regarding performance risk would be clearly stated in the contribution agreement.
Canadian organization: An organization is considered Canadian if it is incorporated in Canada.
Canadian volunteer: A holder of Canadian citizenship, a landed immigrant or a permanent resident who meets the eligibility criteria for volunteers described in Appendix II.
Construction Costs:Footnote 1 Construction comprises work, material and equipment related to activities of construction for the project. For more information, please refer to the United Nations’ Detailed structure and explanatory note.
Direct program/project costs: Direct program/project costs are those costs that are actually disbursed and are directly related and considered a necessary expenditure in executing the program/project.
Flow-through funds: Flow-through funds are defined by Global Affairs Canada as monies included in the contribution agreement exclusively for providing an administrative mechanism to transfer funds and for which the organization under the contribution agreement with Global Affairs Canada has administrative and financial management responsibility, but is not obliged to assume the performance risk.
Indirect/overhead costs: Indirect costs are those costs that cannot be obviously traced to a specific program/project, i.e. all indirect costs associated with the organization’s Canadian office(s).
Organization: In this context, the term “organizations” is taken to mean incorporated Canadian for-profit and not-for-profit organizations, partnerships, sole-proprietor businesses, universities, colleges and hospitals.
Appendix II: Eligibility Criteria for Volunteers
To be eligible for the overhead compensation, the following criteria must be met:
- Volunteer is a Canadian citizen, landed immigrant or permanent resident in Canada;
- Volunteer is sent overseas;
- Volunteer does not receive any remuneration (e.g. salary, honorarium) from the organization that has entered into the contribution agreement with Global Affairs Canada;
- Volunteer’s services are essential to the program/project’s success, are eligible under the program/project’s terms and conditions and would otherwise be delivered by a paid employee or contractor to achieve project results;
- Use of volunteers is supported by a commitment from the organization and clearly indicated in the contribution agreement; and
- Volunteer services must be identifiable, verifiable and auditable during and after the program/project period.
Examples of acceptable auditable records:
- List of volunteers working on the program/project;
- Original airline ticket and travel agent invoice supporting expense claimed and indicating fare paid;
- Boarding pass and/or corroborating information (expense report, airport tax receipts, and hotel bills) indicating that trip was taken;
- Original receipts and invoices for hotels or other expenditures to prove that the volunteer was working on the project during the time claimed;
- Signed and approved timesheets indicating program/project, location and time claimed per project per day.
Appendix III: Application of the 12 Percent Fixed Overhead Compensation Rate
Program/Project Budget
Global Affairs Canada’s Contribution | Organization's Contribution | Total | |
---|---|---|---|
Personnel in Canada and on a short-term assignment in the field (4 consecutive months or less) | $610,000 | $610,000 | |
Canadian personnel on a long-term assignment in the field (12 consecutive months or more) | $250,000 | $250,000 | |
Locally engaged personnel | $600,000 | $600,000 | |
Canadian volunteers sent overseas (25 volunteers x 100 working days) | $875,000 | $875,000 | |
Travel, accommodation and daily per diem and incidentals - according to Treasury Board Travel Directive and Treasury Board Special Travel Authorities | $420,000 | $420,000 | |
Office rent, expenses, and security in the field | $313,300 | $313,300 | |
Communication costs (long distance calls related to the execution of the program/project) | $110,000 | $110,000 | |
Vehicles | $125,000 | $125,000 | |
Education and training | $641,450 | $267,907 | $909,357 |
Subtotal - Direct Program/Project Costs Eligible for the Application of the Overhead Compensation Rate | $3,069,750 | $1,142,907 | $4,212,657 |
Overhead Compensation on Eligible Direct Program/Project Costs ($3,069,750 @ 12%) | $368,370 | - | $368,370 |
Overhead Compensation on In-Kind Value of Canadian Volunteers ([25 vol. x 100 working days x $200] @ 12%) | $60,000 | - | $60,000 |
Global Affairs Canada’s Contribution | Organization's Contribution | Total | |
---|---|---|---|
Flow-through funds | $358,973 | - | $358,973 |
Total | $3,857,093 | $1,142,907 | $5,000,000 |
Footnotes
- Footnote 1
Large capital expenditures in which each item costs $100,000 or more are not eligible for the application of the overhead compensation rate.
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