Community Action Partnership
2016 Annual Convention
August 30 – September 2, 2016 | Austin, TX | J.W. Marriott Austin
Indirect Cost Rates
Thursday, September 1, 2016
11:00 am – 12:30 pm
Presented by:
Denes L. Tobie, CPA, Partner
NONPROFIT AND GOVERNMENT PRACTICE
www.wipfli.com/ngp | 888.876.4992
Reproduction or use of any training materials in this manual, except within a participant’s agency
without express written permission is prohibited by copyright law. © Wipfli LLP
Indirect Cost Rate
Trainer: Denes L. Tobie, CPA, Partner
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Materials/Disclaimer
Please note that these materials are
incomplete without the accompanying oral
comments by the trainer(s).
These materials are informational and
educational in nature and represent the
speakers' own views. These materials are for
the purchasing agency’s use only and not for
distribution outside of the agency or publishing
on a public website.
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Agenda
• Direct vs. Indirect
• Direct Cost Allocation
• Is an Indirect Rate Required?
• Classifying Expenses as Direct vs. Indirect
• Distribution Bases for Indirect Costs
• Types of Indirect Cost Rates
• Methods for Allocating Indirect Costs
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Indirect vs. Direct
There are 2 ways to do cost allocation:
Direct Costing Methods
Indirect Cost Rate
Allocate costs based on
relative benefit received
Used to allocate indirect
costs
Charge shared costs to
programs based on an
activity or non-monetary base
Device for determining in a
reasonable manner the
proportion of indirect costs
each program should bear;
a ratio of indirect costs and
a direct cost base
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Subpart E. Cost Principles – Direct and Indirect
NEW§200.412 Classification of costs
There is no universal rule for classifying certain
costs as either direct or indirect (F&A) under every
accounting system.
It is essential that each item of cost incurred for
the same purpose be treated consistently in like
circumstances either as a direct or an indirect
(F&A) cost.
45 CFR 75.412
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Subpart E. Cost Principles – Direct
§200.413 Direct Costs
(a) Direct costs are those that can be easily and
accurately assigned to a specific award
45 CFR 75.413
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Subpart E. Cost Principles – Direct
§200.413 Direct Costs
(c) NEW Salaries of administrative and clerical staff
should normally be treated as indirect. Direct
charge only if all of the following are met:
(1) Administrative or clerical services are integral to the
project,
(2) Individuals involved can be specifically identified with
the project,
(3) Such costs are explicitly included in the budget or have
prior written approval, and
(4) The costs are not also recovered as indirect.
45 CFR 75.413
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Direct Allocation Plans
Type of Service
Indirect Cost Rate
Bases for Allocation
Accounting
# of transactions processed
Auditing
Direct audit hours
Facilities lease management
# of leases
Legal services
Direct hours
Mail
# of documents handled
Office space use and related
services (heat, light, janitorial)
Square feet of space
Payroll services
# of employees
Procurement services
# of transactions processed
Telephones
# of phones
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Direct Allocation Plans
Identify the costs to be allocated and measures
of activity that will fairly allocate the costs
Type of Service
Bases for Allocation
Shared vehicle
# of miles driven
Food preparation
# of meals served
Building and maintenance
# of square feet
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Direct Costing – how to do it
Real-time allocations – allocated to programs
and grants as soon as the cost is entered into
the accounting system.
• Example: rent expense
Month-end allocations – allocated after month
end.
• Similar costs are combined and allocated
together
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Direct Cost Allocation
• Should be supported by current data
• All programs have to participate
• Costs have to be allowable to all programs
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Cost Allocation Summary
Close counts – you will
never get it right
The goal of cost allocation is
fairness. Each funding source
should bear its fair share of
allocated costs
Don’t spend $2 to
allocate $1
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Indirect Costs
What’s in Your Pool?
Independent
Auditor
Finance
Staff
Toner
Division of
Cost Allocation
Utilities
Training
Paper
IT Director
Maintenance
Funding
Sources
Travel
Software
Meeting
Costs
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Is an Indirect Rate Required?
Answer: No. There has been no regulatory
guidance that has specifically mandated a
negotiated indirect cost rate agreement
However, it depends on your interpretation of
the Uniform Guidance
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Is an Indirect Rate Required?
• Non-Federal entities that are able to allocate
and charge 100% of its costs may continue to
do so
• Claiming reimbursement for indirect costs is
never mandatory
• Non-Federal entities may determine that the
amount it would recover is immaterial and not
worth the effort and time to obtain it
• May use non-Federal funds to pay indirect costs
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Is an Indirect Rate Required?
From COFAR* FAQs, issued Sept. 2015:
.331-5 Indirect Cost Rates and Entities Who Do Not
Have Indirect Costs
2 CFR 200.210(a)(15), 2 CFR 200.331(a)(1)(xiii) and (a)(4) all make
reference to indirect cost rates as a requirement for recipients and
subrecipients. Not all entities charge indirect cost rates. Will they now be
forced to establish such rates?
No. Non-Federal entities that are able to allocate and charge 100% of their
costs directly may continue to do so. Claiming reimbursement for indirect
costs is never mandatory; a non-Federal entity may conclude that the
amount it would recover thereby would be immaterial and not worth the
effort needed to obtain it.
*Council on Financial Assistance Reform
Indirect Cost Rate
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Cost Pool
What goes into the Cost Pool? (cont.)
• Indirect costs that
– Are allowable, and
– Benefit all programs
What does not go into the Cost Pool?
• Do not include costs that are
–
–
–
–
Capital expenditures
Losses on awards
Unallowable costs
Expenditures that benefit some, but not all,
programs
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Subpart E. Cost Principles – Indirect
§200.414 Indirect Costs
(c) Negotiated rate must be accepted by all Federal
agencies
(d) Pass-through entities are subject to the
requirements in §200.331
(e) Appendix IV Cost allocation plans for nonprofits;
Appendix V & VI Cost allocation plans for units of
government
45 CFR 75.414
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Subpart E. Cost Principles – Indirect
§200.414 Indirect Costs (cont.)
(f) NEW Any non-Federal entity that has never
negotiated an IDCR may elect to charge a de
minimis rate of 10% of modified total direct costs
(MTDC) which may be used indefinitely
45 CFR 75.414
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How is a 10% rate different
• A 10% rate is a flat rate charged without regard
to actual indirect expenses
• A standard indirect rate is based on actual
expenses
• No approval required to obtain a 10% rate
• An entity can lose or potentially make money on
a 10% rate
• You do not have to prove costs
• Must be consistently used once elected until the
entity choses to negotiate for a rate
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10% De Minimis Rate
Any non-Federal entity that has never received a
negotiated indirect cost rate, may elect to charge
a de Minimis rate of 10% of modified total direct
costs (MTDC) which may be used indefinitely.
– Exceptions for those non-Federal entities
described in Appendix VII to Part 200—
States and Local Government and Indian
Tribe Indirect Cost Proposals, paragraph
D.1.b
2 CFR Part 200.414(f)
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Modified Total Direct Costs
§200.68 Modified Total Direct Cost (MTDC).
MTDC means all direct salaries and wages, applicable fringe
benefits, materials and supplies, services, travel, and up to the
first $25,000 of each subaward (regardless of the period of
performance of the subawards under the award).
MTDC excludes equipment, capital expenditures, charges
for patient care, rental costs, tuition remission,
scholarships and fellowships, participant support costs
and the portion of each subaward in excess of $25,000.
Other items may only be excluded when necessary to avoid a
serious inequity in the distribution of indirect costs, and with
the approval of the cognizant agency for indirect costs.
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Modified Total Direct Costs
§200.75 Participant support costs.
Participant support costs means direct costs for items
such as stipends or subsistence allowances, travel
allowances, and registration fees paid to or on behalf
of participants or trainees (but not employees) in
connection with conferences, or training projects.
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Modified Total Direct Costs
Patient Care:
§200.502 Basis for determining Federal awards expended
(h) Medicare. Medicare payments to a non-Federal entity for
providing patient care services to Medicare-eligible individuals
are not considered Federal awards expended under this part.
(i) Medicaid. Medicaid payments to a subrecipient for providing
patient care services to Medicaid-eligible individuals are not
considered Federal awards expended under this part unless a
state requires the funds to be treated as Federal awards
expended because reimbursement is on a cost-reimbursement
basis.
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Modified Total Direct Costs
Tuition Remission:
§200.466 Scholarships and student aid costs.
(b) Charges for tuition remission and other forms of
compensation paid to students as, or in lieu of, salaries and
wages must be subject to the reporting requirements in
§200.430 Compensation—personal services,
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How to Determine if a 10% Rate is for You
• For each grant and collectively, start with total
expenses for each grant
• Subtract out allocated and direct charged
administrative costs
• Back out excluded items based on the MTDC
definition
• Multiply each grant by 10%
• Adjust for grants administrative cost limits if
necessary
• Compare to the total estimated M&G expenses
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How to Determine if a 10% Rate is for You
Example of what a 10% rate analysis could look like:
Head Start
Start with total expenses
Job
Training
Weatherization
State Housing
Grant
Fund-raising
Event
For-Profit
Weatherization
Discretionary
1,504
8,123,611
2,709,173
7,288,240
1,071,165
30,285
23,816
Back out allocated and direct
charged administrative costs
(464,898)
(216,743)
(658,931)
(97,379)
(2,753)
(2,165)
Back out adjusting items:
In-kind (supplies and other)
Capital expenditures
Subawards over $25,000
(2,109,744)
(900,000)
(325,000)
(40,000)
-
-
-
-
-
(2,109,744)
(40,000)
(1,225,000)
Which gives you MTDC
Indirect Cost
Pool
Total
19,247,794
(137)
(1,443,006)
4,648,969
2,167,430
6,589,309
973,786
27,532
21,651
1,367
14,430,044
Which you multiply by 10%
464,898
216,743
658,931
97,379
2,753
2,165
137
1,443,006
The look at programs that
limit admin or don't pay
admin/indirect
(35,000)
(210,483)
(97,379)
-
-
1,501,633
(58,627) Loss
-
-
(342,862)
Final result
(401,489) Loss
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How to Determine if a 10% Rate is for You
Using a 10% de minimis
Head Start
Job
Training
Weatherization
State Housing
Grant
Fund-raising
Event
For-Profit
Weatherization
Discretionary
Indirect Cost
Pool
Total
Salaries
Fringe benefits
Supplies
Occupancy
Travel
Other
Inkind
3,257,895
1,169,248
365,087
168,974
56,048
190,487
2,450,974
1,413,978
834,801
36,484
46,089
60,787
100,291
-
2,804,387
1,604,789
930,481
143,657
304,897
841,098
-
640,752
248,904
34,057
21,042
10,564
18,467
-
18,406
8,297
483
102
35
209
-
9,204
3,004
5,804
810
724
2,105
-
205
94
236
45
130
657
-
8,144,827
3,869,137
1,372,632
380,719
433,185
1,153,314
2,450,974
783,945
337,823
23,841
209,871
65,412
80,741
-
Subtotal expenses
7,658,713
2,492,430
6,629,309
973,786
27,532
21,651
1,367
17,804,788
1,501,633 A
(325,000)
(40,000)
-
-
-
-
(2,109,744)
(40,000)
(1,225,000)
4,648,969
X 10% =
2,167,430
X 10% =
6,589,309
X 10% =
973,786
X 10% =
27,532
X 10% =
21,651
X 10% =
1,367
X 10% =
464,898
216,743
658,931
97,379
2,753
2,165
137
Less adjusting items:
In-kind (supplies and other)
Capital expenditures
Subawards over $25,000
Total direct expenses
Indirect charge to programs
(2,109,744)
(900,000)
Rate
Indirect charged to programs
Actual indirect expenses
Loss on indirect cost pool
-
14,430,044
1,443,006 B
10.00%
1,443,006 B
1,501,633 A
(58,627)
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How to Determine if a 10% Rate is for You
….and another way of looking at the 10% de minimis
Head Start
Job
Training
Weatherization
State Housing
Grant
Fund-raising
Event
For-Profit
Weatherization
Discretionary
Indirect Cost
Pool
Total
Salaries
Fringe benefits
Supplies
Occupancy
Travel
Other
Inkind
Indirect expenses
3,257,895
1,169,248
365,087
168,974
56,048
190,487
2,450,974
464,898
1,413,978
834,801
36,484
46,089
60,787
100,291
216,743
2,804,387
1,604,789
930,481
143,657
304,897
841,098
658,931
640,752
248,904
34,057
21,042
10,564
18,467
97,379
18,406
8,297
483
102
35
209
2,753
9,204
3,004
5,804
810
724
2,105
2,165
205
94
236
45
130
657
137
783,945
337,823
23,841
209,871
65,412
80,741
(1,443,006)
8,928,772
4,206,960
1,396,473
590,590
498,597
1,234,055
2,450,974
-
Total expenses
8,123,611
2,709,173
7,288,240
1,071,165
30,285
23,816
1,504
58,627
19,306,421
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Other Matters to Consider
•
The 10% de minimis option is federal, funding that
is pure state, local and other may not allow a 10%
de minimis rate
•
Just because the 10% option is there, it doesn’t
mean your grants have the administrative limit to
support it
•
Funding sources/monitors could have different
interpretations in what they believe should be
excluded from MTDC or what should be charged to
the de minimis pool instead of to the program
•
Keep in mind what your future funding will look like
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Subpart E. Cost Principles – Indirect
§200.414 Indirect Costs
(g) NEW Any non-Federal entity that has a current
federally negotiated indirect cost rate may apply
for a one-time extension of the rate in that
agreement for a period of up to 4 years
• Must be approved by a cost negotiator
• If approved, may not request a rate review until
the extension ends
• At end of extension, must apply for a new rate
• Subsequent one-time extensions (up to 4
years) are permitted if approved
45 CFR 75.414
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Indirect Cost Rates
Negotiation and Approval of Rates
• Apply to the appropriate cognizant agency for
indirect costs
– The cognizant agency is usually the Federal
agency from which an entity receives the largest
amount of Federal funds
• Indirect cost rate proposal
– Based on most recent audited financial statements
adjusted for anticipated changes
– Details of the indirect cost pool
– Base
– Calculation of the requested rate
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Exercise – Indirect Cost Pool
Item
In the
indirect
cost pool
Not in the
indirect
cost pool
Need more
information
Salary of the accounts payable clerk
Cost of purchasing a vehicle to be used
by Admin staff
Salary of the Weatherization accountant
Child care fees that were written off
because the parent didn’t pay
100% of the costs of the office of the
Executive Director
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Exercise – Indirect Cost Pool
Item
In the
indirect
cost pool
Not in the
indirect
cost pool
Need more
information
Costs of preparing a proposal for a new
grant which the Organization won
Loss on a program funded by a state
grant
Administrative costs in excess of 5% for
the HUD program
Worker’s comp claim paid for a former
Senior Services program employee
Annual single audit fee
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Types of Indirect Rates
Predetermined – Based on estimated costs to
be incurred during the rate period (may be
longer than 1 year)
• A predetermined rate is firm – not subject to
adjustment
• May be issued when the cost negotiator has
enough information and history to confidently
predict the amount of indirect costs
Can apply the
one-time extension to
this rate!
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Types of Indirect Rates
Fixed rate with carry-forward – Based on
estimated costs to be incurred during the fiscal
year
• Has aspects of predetermined and provisional
rates but none of their drawbacks
• Not subject to retroactive adjustment
• The difference between estimated and actual
costs is carried forward to the next year
• Typically given to units of government
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Types of Indirect Rates
Provisional rate – temporary rate issued for
use during the fiscal year
• Adjusted to a final rate after year-end
• Typically given to nonprofits
Final rate – based on actual allowable costs
and applied to the previous year
• Differences between a provisional and final
rate may require adjustment to amounts
charged to grants during the year
Can apply the
one-time extension
to this rate!
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Indirect Cost Rates
Bases:
• Modified Total Direct Costs (MTDC)
– Total direct salaries and wages, applicable fringe
benefits, materials and supplies, services, travel
and subawards up to the first $25,000
– Excludes equipment, capital expenditures,
participant support costs and the portion of each
subaward in excess of $25,000
– This is the required base for the 10% de minimis
rate
• Direct salaries and wages
• Direct salaries, wages and fringe benefits
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Indirect Cost Rates
General formula:
• Indirect cost pool ÷ Base = ICR
Costs in the indirect cost pool are:
• Allowable, and
• Benefit ALL programs
• NOT in the pool: capital expenditures, losses on
awards, unallowable costs, and expenditures
that benefit some but not all programs
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Applying Indirect Cost Rate
Perfect World Example
Indirect Cost Rate
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Indirect Cost Rates
What are the advantages of an indirect cost
rate agreement?
• Provides for one method to allocate almost all
administrative costs
• Potentially can make budgeting easier – direct
salaries might be easier to estimate than the
number of transactions Finance will perform
• Rate and method are federally approved
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Indirect Cost Rates
What are the disadvantages of an indirect
cost rate agreement?
• Rate and method are federally approved –
subject to individual cost negotiator preferences
• May lose some flexibility in how you determine
the manner in which programs are charged for
administrative costs
• May need to finalize and get approval for the
rate every year
• Inconsistencies in charging the rate to
nonfederal funding sources
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Indirect Cost Rates
Applying an Indirect Cost Rate
Grant period
07/01/14 - 06/30/15
Calendar Year Ended
Direct cost base
12/31/2014
12/31/2015
Total
$
400,000
X
10.0%
$ 500,000
X
15.0%
$ 900,000
$
40,000
$
$ 115,000
Indirect cost rates
Indirect costs
75,000
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Head Start Administrative Limit
Amount
Revenue
Grant revenue
In-kind
$800,000
$200,000
Total revenue
$1,000,000
Expenses
Salaries
Fringe benefits
In-kind
Other expenses
$500,000
$100,000
$200,000
$100,000
Total expenses before indirect allocation
$900,000 -A
Net revenue before indirect allocation
$100,000
Share of Indirect Cost Pool
Indirect cost rate
Share of indirect costs (rate x exp)
Total costs
(A x B)
(A + C)
10.00% -B
$90,000 -C
$990,000 -D
Grant / Program limit
Grant / Program limit calculated
(D x E)
15.00% -E
$148,500 -F
Share of indirect costs
Administrative limit
CF-
$90,000
$148,500
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HUD Home Administrative Limit
Amount
Revenue
Grant revenue
$800,000
Expenses
Salaries
Fringe benefits
Other expenses
$500,000
$100,000
$100,000
Total expenses before indirect allocation
$700,000 -A
Net revenue before indirect allocation
$100,000
Share of Indirect Cost Pool
Indirect cost rate
Share of indirect costs (rate x exp)
Total costs
(A x B)
(A + C)
10.00% -B
$70,000 -C
$770,000 -D
Grant / Program limit
Grant / Program limit calculated
(D x E)
5.00% -E
$38,500 -F
Share of indirect costs
Administrative limit
Indirect Cost Rate
CF-
$70,000
$38,500
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Subrecipient – Indirect Cost Rates
• PTEs are responsible for approving indirect cost
rates of subrecipients
• Approvals must be based on the UG cost
principles
• The procedures followed in evaluating and
approving the subrecipient’s indirect cost
proposal should be documented and are
subject to review
• Upon request, the Division of Cost Allocation
(DCA) will provide technical assistance
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Applying for an Indirect Cost Rate
Submit a proposal to your cognizant agency
• Cognizant agency is the department that
provides your organization with the most direct
federal funding
• If the cognizant agency is DHHS, the proposal
is submitted to the Regional Division of Cost
Allocation (DCA) responsible for your
geographical area
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Applying for an Indirect Cost Rate
If you do not have direct federal funding, then it
is up to the agency that provides the most
indirect federal funding
• Most non-federal entities have been hesitant to
award indirect cost rates to their subrecipients
but may change with 2 CFR Part 200
If you already have an indirect cost rate
• Due 6 months after the end of your fiscal year,
you can request an extension under
extenuating circumstances
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Applying for an Indirect Cost Rate
Governmental Entities
• Department or agency with more than $35
million in direct Federal funding submits its
indirect cost proposal to cognizant agency
• All others develop a proposal in accordance
with the Uniform Guidance and maintain as
supporting documentation for audit – not
required to submit, DHHS is rejecting if under
$35 million
• If funds are only received as a subrecipient, the
pass-through entity is responsible for rate
negotiation
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What to Submit with the Proposal
• Must be accompanied by and cross referenced
to your independently audited financial
statements
• If a rate is based on future projected costs, the
rate must be cross-referenced and reconciled to
the organization’s budget for that year
• Approximate amount of direct cost base costs
incurred under federal awards
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What to Submit with the Proposal
Fringe benefit information
• A listing of the fringe benefits provided to the
organization’s employees
• A copy of the organization’s fringe benefit
policies
• A description of the method(s) used to budget
and charge fringe benefit costs to programs or
activities
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What to Submit with the Proposal
Fringe benefit information (cont.)
• The funding practices of a “defined benefit”
pension plan along with the treatment of prior
service costs and actuarial gains and losses
• If a fringe benefit rate is used, reconciled and
cross referenced to the organization’s financial
statements
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What to Submit with the Proposal
If there are variances from information required
on indirect cost rate proposals, this can be
explained by the following from the DHHS
NPO review guide
• Determine whether the proposal package is
complete, in sufficient detail to permit an
adequate review, and is the a format that can
be readily followed by the negotiator
• Make sure that any information specifically
requested by the DCA* in prior correspondence
is included in the proposal package
*Division of Cost Allocation
Indirect Cost Rate
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Approval of Rates
• DCA* will approve an indirect cost rate(s) with
the organization
• In some cases, DCA* may request an audit of
the proposal before the rates are approved
• Approval will be formalized by a Rate
Agreement signed by the DCA* and an
authorized representative of the organization
• Rate Agreement will include the type of rate,
base used and other general terms and
conditions
*Division of Cost Allocation
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Approval of Rates
• Expect questions, DCA’s* NPO review guide
requires negotiator’s to do the following:
– Perform a 3 year trend analysis of indirect costs,
rates and allocation bases
– Compare how much certain indirect costs are
increasing when compared to the increases in the
nonprofit organization’s direct base
• Any non-Federal entity can apply for a one-time
extension of a currently negotiated rate for up to
4-years.
*Division of Cost Allocation
Indirect Cost Rate
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Approval of Rates
Approval of indirect cost rates with subgrantees
and subcontractors
• Prime contractors and grantees are responsible
for approving indirect cost rates
• Approvals must be based on the federal cost
principles
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Approval of Rates
Approval of indirect cost rates with subgrantees
and subcontractors (cont.)
• The procedures followed by the grantee or
contractor in evaluating the subawardee’s
indirect cost proposal and approving the rate
should be should be documented and are
subject to review
• Upon request, DCA* will provide technical
assistance
*Division of Cost Allocation
Indirect Cost Rate
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Disputes
• DCA* will make an unilateral determination of
the rate(s) considered acceptable by the
Department and will notify the organization of
the determination
• DCA* will also advise the organization of its
right to appeal the determination and the appeal
procedures to follow
• The organization may appeal the determination
under either the Department’s Grant Appeals
Regulations (45 CFR, Parts 75 and 16) or the
disputes provision of affected contracts
*Division of Cost Allocation
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Having your Auditor Prepare a Proposal
• 2 CFR 200.509(b)
– An auditor who prepares the indirect cost proposal
or cost allocation plan may not also be selected to
perform the audit required by this part when the
indirect costs recovered by the auditee during the
prior year exceeded $1 million.
• Keep in mind Government Auditing Standards
on independence as well – no management
decisions
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Subpart E. Cost Principles – Direct and Indirect
§200.415 Required Certifications
The annual and final fiscal reports or vouchers requesting
payment must include a certification signed by an official who
is authorized to legally bind the entity attesting to the following:
“By signing this report, I certify to the best of my knowledge and
belief that the report is true, complete, and accurate, and the
expenditures, disbursements and cash receipts are for the purposes
and objectives set forth in the terms and conditions of the Federal
award. I am aware that any false, fictitious, or fraudulent
information, or the omission of any material fact, may subject
me to criminal, civil or administrative penalties for fraud, false
statements, false claims or otherwise.”
45 CFR 75.415
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Division of Cost Allocation (DCA) FAQs
Question # 6: What is the primary issue the DCA
faces when receiving indirect cost rate proposals?
Answer: The primary issue usually falls into one of
two categories. The documentation submitted to
support the development of the indirect cost rate is
not adequate and/or the proposal is not reconciled to
the organization’s audited financial statements.
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Division of Cost Allocation (DCA) FAQs
Question # 12: What should a grantee do when an award does not
provide for indirect cost reimbursement or provides for indirect costs
at a rate lower than the one in the negotiation agreement? How
does this effect the development of the indirect cost rate?
Answer: The decision to accept an award that does not pay indirect
costs or pays indirect costs using a rate lower than what has been
negotiated is a grantee decision. However, when developing the
indirect cost rate, all awards, regardless of whether they pay full
indirect costs or not, must be included in the direct cost base.
Indirect costs that are not reimbursable under a Federal or nonFederal award due to administrative or statutory restrictions may not
be shifted to another Federal award unless specifically authorized by
Federal legislation or regulation. Non-Federal revenue sources must
be used to pay for these un-recovered costs.
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Division of Cost Allocation (DCA) FAQs
Question # 13: Our grant with HHS totals $500,000 and includes a
provisional indirect cost rate of 10%. Our final indirect cost rate is
13%. Will HHS provide us with additional grant funds due to our
higher indirect cost rate?
Answer: HHS will not provide your organization with additional grant
funds due to a higher final indirect cost rate than the established
provisional rate. However, a grant modification may be allowed to
transfer budgeted direct costs to the indirect cost category due to
the increased indirect costs.
This would be subject to the terms and conditions of the grant
agreement, e.g. approval of grant officer, indirect cost ceilings, and
administrative cost limitations. The grants officer should be
contacted for additional information.
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Division of Cost Allocation (DCA) FAQs
Question # 14: Can our indirect cost rate proposal be
developed using only Federal funds since it only
represents 15% of our total revenue?
Answer: No. An indirect cost rate proposal must be
based on total organization costs, regardless of
funding.
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2 CFR Part 200 Appendices
Appendix IV Indirect (F&A) Costs Identification
and Assignment, and Rate Determination for
Nonprofit Organizations
Appendix V Appendix V to Part 200—
State/Local Government-wide Central Service
Cost Allocation Plans
Appendix VII to Part 200—States and Local
Government and Indian Tribe Indirect Cost
Proposals
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Considerations…
• What about grants that disallow
some costs or limit the amount of
administrative costs you can charge?
• You are required to charge all programs fairly
and to follow your plan
– Therefore, invoice funding sources according to grant
requirements, but charge all costs according to your
plan
– Then record other revenue or move expenses to
offset unallowed costs
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Considerations…
• Include program managers in cost allocation
decisions. They must understand how cost
allocation works and how their grants will be
affected
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Considerations…
• You may still have to do some cost allocation
• Typically, the organizations we see with indirect
cost rate agreements are larger organizations
with many types of costs to allocate across
many programs
• Also, it is state specific, some states seem to
have organizations with more indirect cost rates
than others
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Considerations
• Not all programs allow for indirect costs or
some programs limit them – you need to
determine what funds will cover those costs
(CSBG, discretionary funds?)
• Generally, all activities need to be included in
your indirect cost allocation plan, this would
include any for-profit or fundraising activities in
your organization
• There also is an option to allocate fringe benefit
costs using a separate indirect cost rate for
fringe benefits
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Indirect Costs
Resources to help you:
• Many indirect cost links are on our NGP website
• https://rates.psc.gov
• Your auditors
• Federal agency websites
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Visit the Wipfli Booth (#402)
for more details or email
[email protected]
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