We’ve entered the fall season. And for grants administrators, we know what that means. It’s the time for preparing indirect cost rates, which are due six months after the close of the fiscal year. For many grant professionals, it can be a stressful time, especially as the current fiscal year closes out–with reporting on grants and other programs due.
Too often, many government entities make the mistake of discounting what their indirect costs can do for them in terms of maximizing limited funding streams. For example, given the revenue shortfall resulting from the pandemic, do you know how you're going to cover your indirect costs for the coming year? Will you still be able to support your programs on the federal and/or state side?
Failure to capture your indirect costs could mean you don’t have revenue from your general funds to subsidize and will have to cut funding from your most important programs. For example, less funding in your transportation programs could mean having to reduce available bus routes for commuters, or not having enough to purchase virtual technologies to support business continuity for your agency.
If you’re wondering how to get through this time and survive another fiscal year, here are three things you can do with your indirect costs that can help your agency save millions.
Know the Ins and Outs of Indirect Costs
Be sure to take some time to review the most important terms when it comes to indirect costs and cost allocation plans.
Many governments miss the opportunity to use their cost allocation plan to get reimbursed for services from non-General fund operations (those that are covered by taxpayer dollars) within an agency. Make sure to include your indirect costs in advance to account for user fees related to citizen-facing services so these can be included in front-facing reports to the public.
Prepare Your Cost Allocation Plans
While most government executives believe the primary benefit of cost allocation is simply for accounting purposes, it can actually have an enormous impact on your grant programs and fiscal health.
Now is the time to double down on your cost allocation plan to ensure you’re capturing the true costs of your agency or department’s services. By taking indirect costs into account in advance, you can understand what it actually costs to perform a program or grant and request the needed funding in advance. Below is an example of the difference a cost allocation plan can make in determining an agency’s true costs at the city or county level. For state governments, these could be applied to your health and human services programs, transportation, defense, etc.
Negotiate Your Indirect Cost Rate
Too often, governments carry on with the indirect cost rate they have, not realizing they’re actually leaving money on the table when it comes to subsidizing grants. You can avoid that same mistake and cover the full costs of your grant programs by negotiating your indirect cost rate. Rather than accepting a 10 percent de minimis, you can calculate an indirect cost rate that encompasses all of your costs at the agency and departmental levels to ensure maximum revenue recovery.
A Negotiated Indirect Cost Rate Agreement (NICRA) can help you calculate the appropriate allocation of indirect costs associated with any project by applying your negotiated indirect cost rate. That way you can:
- Create a more defensible cost allocation plan
- Maximize past funding opportunities (as far as two years prior)
- Recover any indirect costs associated with the management, oversight, accountability, and transparency of all programs and expenditures
If you’re worried about how your agency will stay afloat for another fiscal year, don’t wait. Reach out to firstname.lastname@example.org and our indirect costs experts can help you get started so you can maximize every dollar available to your agency.
You can also download our free Guide to Indirect Costs to read more.