Indirect Costs: Huh?

On a recent trip to visit my nomadic daughter in Africa, I discovered working on indirect costs is like navigating the bulldozer size potholes and tooth loosening speedbumps in Uganda. You either take them on like a lion or avoid them like the plague. However, indirect costs can be a valuable source of funds for managing grants. First, you must learn to accept and understand them as a part of life in the grant world.

Institutions such as universities, local school districts, nonprofit organizations, state, local and tribal governments use indirect costs. Federal grant indirect cost regulations can be found in 2 CFR Part 200 414(f) of the Office of Management and Budget (OMB) “Super Circular” or Uniform Guidance. However, in addition to Part 200, always refer to the specific grant guidelines in the proposal you are working on when preparing the budget.

Private non-profit foundations are notorious for failing to provide monies to organizations above the direct cost of providing services. However, the federal government recognizes that it costs money to run your organization, above the costs of providing direct services.

A few examples of administrative indirect costs are:

- Information technology support, telephone systems, copiers, and maid service

- Human resources, purchasing costs - Staff training and liability insurance

- Clerical staff and receptionist not dedicated to specific programs; office space used by these staff members to include utilities and rent

- Most importantly, grants management. For example, is an outside consultant or agency helping with accountability and managing your grant funds after the award? You may be able to use indirect costs to help pay for their services. In most cases, this does not include paying them for writing the grant or any other pre-award support costs.

Our government has a complex, but standard method to determine indirect cost rates. The best source to find the indirect cost rate for your grant is the finance manager who will provide the approved organizational rate. Once you get the approved rate, just plug in the percentage of the indirect cost in the line item for the grant. An example would be an 8 percent indirect cost rate. If your total line item is $435,000, then your 8 percent indirect cost is $34,800. Note: If your non-federal organization does not have a set negotiated indirect cost rate, 10 percent is the current federal de minimis rate. This 10 percent rate is based on Modified Total Direct Costs (MTDC) in the grant budget. Here is a useful article from a CPA with more information.

A few pointers. Indirect costs must be reasonable, allowable and allocable, not limited or excluded by Federal Cost Principles. Policies must be applied uniformly to federal finance and other activities, and must be adequately documented. A few examples of disallowable costs are: alcoholic beverages, past bad debts, entertainment costs, fines or penalties, goods for personal use, personal living expenses, lobbying, and any other restrictions by the awarding organization.

Navigate the potholes and speedbumps on the highway of indirect costs. Be the lion and attack the indirect costs with vigor.