Indirect Cost

Presented by Bonita BrownHMEP Grant Program

Direct vs. Indirect Cost

In addition to understanding the concepts of allowability, allocability, and reasonableness, you should know that:•If a cost can be identified specifically with a particular cost objective, such as a grant, project, service, or other activity, it is a direct cost.•If a cost has been incurred for common or joint objectives that cannot be readily identified with a particular cost objective, it is an indirect cost.

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Indirect Cost

• General administration and management• Costs of activities that are for the

direction and control of the grantee’s affairs that are organization-wide

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Consistent Treatment of Cost

A few restrictions exist stemming from the principle that items of cost should be

consistently treated.

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Indirect and Direct Restrictions

A cost may not be assigned to a Federal award as a direct cost or an indirect cost if another cost incurred for the same purpose, in similar circumstances, has been allocated to the award as an indirect cost or direct cost, respectively.

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Reasonable Practicality

If treated consistently for all cost objectives, a direct cost of a minor

amount may be treated as an indirect cost for reasons of

practicality.

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Important Cost Requirements

Direct costs allocated to a particular Federal award will be reimbursed by the Federal government if they are also:-allowable -reasonable under the applicable cost principles.

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Indirect Cost Reimbursement

Reimbursement of indirect costs under Federal awards is determined by an organization’s indirect cost rate, which recipients negotiate with their cognizant agency.

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Indirect Rate Negotiation

Absent a statutory or regulatory prohibition or limit on indirect

costs, all Federal agencies must accept the rate negotiated by the

cognizant agency.

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Cognizant Agency Concept

A single Federal agency represents all the Federal

agencies on negotiating and approving indirect cost rates with organizations receiving

funds “directly.”10

“Fair Share” Concept

• OMB Circulars establish the policy that Federal programs bear their fair share of costs recognized under the Circulars

• The fair share policy includes honoring requests for budgeting and reimbursing of indirect cost claims that are supported by a “current” indirect cost rate agreement from the grantee’s cognizant agency

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Indirect Cost: Part of the Total Cost

The full cost of a program, function, or activity includes both indirect costs and direct costs

Total Program Costs

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Examples of Indirect and Direct Costs

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Indirect Cost Rates (IDCR)

The indirect cost rate is a ratio or percentage of an organization’s total indirect costs to its direct cost base.

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Budget & Budget Narrative

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Indirect Cost Agreement

Applicants should provide a copy of either their latest indirect cost agreement or, if no such agreement exists, applicants should seek the assistance of the agency’s grants management office for information on how to obtain an indirect cost rate.

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IDCR Bases

• An indirect cost rate must be applied to a “direct base” to determine the amount of indirect costs charged to Federal awards.

• Two types of direct cost bases:– Direct Salaries and Wages (S + W) May either include or exclude fringe benefits

• Modified Total Direct Costs (MTDC)– Total Direct Costs minus distorting items

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Grantee has Right to:

• Take lesser %• Waive Rate• Use as a source of matching

The conditions include:• No cost shifting• Use same direct base

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Example – Use an approved IDCR that is properly applied BUDGET INFORMATION – Non-Construction Programs (SF-

424A)SECTION B – BUDGET CATEGORIES

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Indirect Costs and Fringe Benefits

1- Indirect Costs generally will not be paid unless there is a currently approved rate.2 – Fringe benefit rates should not be paid without an officially approved rate.

a) Stated on the Indirect Cost Rate Agreement/Letterb) State governments can obtain an approved rate

in their Statewide Cost Allocation plan approved by DHHS.3 - Fringe Benefits may always be charged from actuals.

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2014 Supercircular

On December 26, 2013, the Office of Management and Budget (OMB) Published the Uniform Guidance or the “Supercircular,: which includes: – Uniform Administrative Requirements, – Cost Principles, and – Audit Requirements for Federal Awards in the

Federal Register.

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Supercircular Goal

The goal of the reform is to streamline regulations and requirements affecting grants management.

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The Uniform Guidance

• The Uniform Guidance is found at 2 CFR 200. • Federal regulations currently governing the

administration of Federal grants are subdivided by: – administrative requirements, – audit requirements, and –Cost principles.

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SuperCircular Fun Facts

• The regulations also differ based on the type of recipient entity.

• The Uniform Guidance consolidates eight grants circulars into a single document that creates uniform requirements, with only minor exceptions, for all recipient entities.

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Cost Principles Included in the SuperCircular

• The Uniform Guidance does not incorporate the Cost Principles for Hospitals at 45 CFR Part 74.

• The Uniform Guidance removed 2 CFR parts 215, 220, 225, and 230 effective immediately.

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Regulation/Entities Chart

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Subject Regulation Entity

2 CFR 225(OMB Circular A-87)

State, Local, and Indian TribalGovernments

2 CFR 220(OMB Circular A-21)

Institutions of Higher Education

2 CFR 230(OMB Circular A-122)

Nonprofit Organizations

2 CFR 215(OMB Circular A-110)

Educational Institutions, Hospitals, andNonprofits

OMB Circular A-102 State and Local Governments

OMB Circular A-133 State and Local Governments, Educational Institutions, and Nonprofits

OMB Circular A-50 Federal

CFDA OMB Circular A-89 Federal

Cost Principles

AdministrativeRequirements

Audits

Implementation 2014

• The Uniform Guidance was published on December 26, 2013 and was immediately applicable to Federal awarding agencies.

• Federal agencies must develop and publish implementing regulations with an effective date of December 26, 2014.

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Indirect Cost Rate

The pass-through entity must identify the indirect (F&A) cost rate in the subaward.

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Pass-through entities can:

• accept the negotiated indirect (F&A) cost rate agreed upon by the cognizant agency for indirect costs;

• indicate the subrecipient has elected to accept the 10% de minimis indirect cost rate; or

• negotiate an indirect (F&A) cost rate with the subrecipient.

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