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Everything You Need to Know About Indirect Costs

by eCivis on September 17, 2020
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In last week’s blog, we covered three ways to survive the next fiscal year. The common denominator? Indirect costs. And while many organizational or grant leaders may wonder what these have to do with maximizing funding, the reality is indirect costs already exist and you cannot operate without them. Think of your payroll, IT services, human resources, and any of your administrative services or staff needed to perform the essential missions you do. 

At eCivis, we’re dedicated to helping governments leverage their indirect costs to bring in more revenue, especially during this stressful time when so many public-sector entities are experiencing revenue shortfall. Rather than letting them go under-utilized, we’ve found that governments that fully maximize their indirect costs can stretch grant dollars to the fullest and deliver more impact to their communities. 

For this blog, we wanted to take some of your most frequently asked questions on indirect costs and answer them right here. Below is a snapshot of everything you need to know about indirect costs. If you want more on the basics of indirect costs, you can download our free guide on them here. Additionally, be sure to review our breakdown of the latest Uniform Grant Guidance updates with regards to cost principles here

What is the best practice in determining the indirect cost rate to be applied to a specific program? For example, if the NICRA is 20% what portion is applied to the program?

The best practice of determining an indirect cost rate to be applied to a program is to apply the entire rate to the program to understand the true cost. So, for every program dollar spent, you would add $0.20 to determine what the cost of service is. However, this is a policy decision for your organization. If you have a Negotiated Indirect Cost Rate (NICRA) of 20% you can charge up to  the full 20% against a program but you might decide in some cases you want to subsidize the program. In such cases, you can charge less. 

What is the point of calculating an indirect cost rate if there is an administrative cap on the grant itself?

The reason for calculating your indirect cost rate is so you know how much it is costing you to perform a grant. If you don’t know the true costs of performing a grant, you don’t know how much you are subsidizing at any given time. Additionally, this rate can be used on other programs you are supporting instead of just one. 

Do I have to negotiate an indirect cost rate?

If you want to be able to use your indirect cost rate on your grants then the answer is ‘yes.’ If you want to be able to apply your indirect cost rate as your match, then you are also required to use a negotiated indirect cost rate in that instance.

Can I use my indirect cost allocation plan for direct costs that are not included in the grants budget for finance personnel?

Depending on the particular functions of the finance personnel, the answer is ‘yes.’ You can do this through allocation to determine what would be considered directly related to the program and charge this as a direct cost. If the finance personnel performs a function, such as payroll, that supports everyone who works in your organization, then it cannot be classified as a direct cost. However, if the finance personnel has a more limited role in your organization, then you can determine (through allocation) a portion as a direct cost. 

If our federal grants outline an “administrative costs” budget, and other non-federal grants give a 10% budget limit for administrative costs, when would we have to use indirect cost allocation?

If the program sets a limit upfront, then you would not need to use cost allocation unless you are trying to claim unspent dollars from the previous year against that 10% rate. You would also want to use the indirect cost rate or cost allocation plan as a tool to determine program budgets moving forward so you can get reimbursed for your NICRA instead of the 10% de minimis rate.

Will including a portion of the negotiated indirect rate as match make reporting the match more difficult? 

No. It may actually make reporting easier because once you obtain approval, all you have to do is supply the NICRA as your justification to cover the match. For example, if the match is 25% and your NICRA is 35% then your full match will be covered by your NICRA so you just have to supply the NICRA as your justification. The only time it might be a little complicated is if your match is 50% and your NICRA does not fully cover the match requirement. In this case, additional information will be required to show the remaining amount for your match. 

Can you charge different rates for federal grants?

Yes, you can. It’s recommended that you have multiple rates negotiated that relate to different types of programs. Once you obtain the NICRA(s), you also can make a policy decision to charge anywhere up to the full NICRA. You are not required to charge the full amount and you can decide on a case by case basis on what rate up to the NICRA amount that you charge.

Ready to see how we can help you assemble your cost allocation plan and maximize your indirect costs? Reach out to info@ecivis.com to schedule a free demo with our indirect cost experts today. 

Topics: Indirect Costs, Grant Impacts, CARES

3 min read time