RSA INDIRECT COST Q & A – CONFERENCE CALL
OCTOBER 30, 2007
Background on Grant Programs:
A.) The State Grant for AT program: is a formula grant program (average grant size is
$400,000). These grants are provided to state agencies (which includes universities). Most state
agencies directly administer the grant program while a few merely act as a pass-through to
community-based organizations (CBOs) that do the implementation through a subcontract. The
statute includes a “supplement not supplant” provision and limits indirect costs to 10%: “Not
more than 10 percent of the funds made available through a grant to a State under this section
may be used for indirect costs.”
B.) The (AFP)/telework program is: a discretionary program with a 3 to 1 match requirement
(grants range from $1 million to $7-8 million). Grants are for only 1 year, but the activities
(providing financial loans) are to continue indefinitely. These grants go to a state agency, but (in
all but a few cases) the state agency acts only as a pass-through to a CBO through a subcontract.
The statute includes a “supplement not supplant” provision and limits indirect costs to 10%: “An
assurance that the percentage of the funds made available through the grant that is used for
indirect costs shall not exceed 10 percent.” Regulation requires that the 10% be recalculated
every year based on the growth of the loan fund: “For each 12-month budget period, grantees
must recalculate their allowable indirect cost rate, which may not exceed 10 percent of the
amount of funds in the permanent and separate account and any outstanding loans from that
account.”
1
C.) The AT reuse demonstration program is: a discretionary program (grant size does not
exceed $200,000). These 3-year grants go to a mixture of entities, state agencies, universities,
CBOs. Regulation includes a “supplement not supplant” provision and limits indirect costs to
10% or actual indirect costs, whichever is less.
1)
Where are the pertinent regulations/guidance for indirect cost rates?
Office of Management and Budget (OMB) Circular A-87 for State and Local governments (2
CFR 225).
OMB Circular A-122 for NPOs (2 CFR 230)
OMB Circular A-21 for Colleges and Universities (2 CFR 220)
Federal Acquisition Regulations for Commercial firms (48 CFR Parts 30 & 31)
EDGAR Section 75.563 for restricted program discretionary grants.
EDGAR Sections 76.560 to 76.569 for restricted program formula grants.
ICG has a “blue book” for State and Local Government agencies (hard copy only)
The US Department of Labor Guide for Indirect Cost Rate Determination for NPOs is on line at
http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm#toc
Questions from the grantee’s perspective:
2) What is the difference between a direct cost and an indirect cost?
A direct grant/contract cost is any cost that can be identified specifically with a final cost
objective (e.g., a particular direct activity).
An indirect cost is NOT directly identified with a single final cost objective, but is identified
with two or more final cost objectives, such as accounting, personnel, or depreciation on
equipment.
2
All costs specifically identified with other grants/contracts are direct costs for those awards and
should not be charged to another grant/contract directly or indirectly. In other words charges
cannot be duplicated.
Indirect costs charged to various grants/contracts should be based on the benefit received. If the
grant/contract did not benefit materially, it should not share the indirect cost.
Costs must not be charged to a grant/contract as direct costs if other costs incurred for the same
purpose in like circumstances have been charged as indirect costs to that grant/contract or any
other grant/contract. In other words, be consistent.
While indirect costs are an important consideration in the analysis of every cost proposal, the
share of cost that they represent will vary from organization to organization.
Costs should be allowable, allocable and reasonable.
3)
How do I know if I have indirect costs?
The decision to classify a cost as direct or indirect is not always a clear choice. There is no
absolute list of costs that must be treated as direct costs or indirect costs. Grantees/contractors
have the right and responsibility to define costs within their own accounting systems. At the
same time, the Government prescribes guidelines for use by grantees/contractors in making
decisions and for reviewing the appropriateness of their decisions. If you have more than one
cost center to which you have to allocate indirect type costs, it is usually more pragmatic to
allocate the indirect costs through an indirect cost rate rather than distributions. Non-state and
local government entities can use eight (8) percent (or actual rate if lower) for restricted indirect
cost rates. A cost allocation plan is another method, instead of an indirect cost rate agreement.
3
For non-profit organizations, in the absence of an Indirect Cost Rate Agreement, take a look at
the IRS form 990 tax return to see what is classified as Management and General, which may
parallel indirect costs.
4) What is the difference between indirect costs and administrative costs?
Depending on the intent of the program statute or legislation, administrative costs can be wholly
indirect costs claimed through the application of an approved indirect cost rate, or a coupling of
direct grant administration plus indirect costs.
For the three restricted indirect cost rate RSA programs we assume indirect and administrative
costs are the same. If you have questions on direct administration, consult your program office.
5) What are restricted indirect costs rates?
Restricted indirect cost rates are lower than non-restricted indirect cost rates and don’t recover all
the indirect costs in the non-restricted indirect cost rates. Restricted indirect cost rates are used
by grantees/contractors for programs having a statutory requirement prohibiting use of Federal
funds to supplant non-Federal funds. The restricted indirect cost rates formula is located in
EDGAR at 34 CFR 76.564. RSA programs 84.224A, 84224C, 84.235T and 84.235V are
“supplement, not supplant” programs, and they also have 10 percent administrative caps as well.
The indirect Cost Group will post an updated list of Restricted CFDA numbers on their website
in the next few weeks.
6) I’ve been told that indirect costs for my state formula grant for AT are limited to
10% of my grant budget. What does this mean?
4
The administrative cap for the state formula grant for AT is 10 percent of the grant amount, but
not a 10 percent rate cap. The statutory caps for the AFP/telework program and AT reuse
demonstration program are caps of 10 percent of different defined bases.
The typical MTDC base reads: “Total direct cost less: capital expenditures, alterations,
renovations, and individual sub-contracts and sub-grants in excess of $25,000.”
For the state formula grant for AT, do the following three steps to see how budgeted indirect
costs relate to the 10 percent of grant cap: 1) Determine the grant cap amount. 2) Multiply the
negotiated restricted indirect cost rate times its MTDC base. 3) Compare 1) and 2) and limit the
indirect cost recovery to the cap amount or a lower amount if the restricted indirect cost rate
recovers less than the cap amount.
Example A: (indirect rate of 15 % of MTDC is greater than cap)
Grant amount
$450,000
Grant cap: $450,000 times 10 percent= $45,000
MTDC rate base with distorting adjustments of $40,000 removed is:
$450,000 - $45,000(indirect)-$40,000(equip.)=$365,000 (MTDC base)
$365,000 (MTDC base) x 15% (indirect rate)= $54,750 (indirect rate applied)
$45,000 (cap) minus $54,750 (rate applied))= $9,750 (indirect not recoverable)
Example B: (indirect rate of 12.33 of MTDC recovers exactly the cap)
Grant amount
$450,000
5
Grant cap: $450,000 times 10 percent= $45,000
MTDC rate base with distorting adjustments of $40,000 removed is:
$450,000 - $45,000(indirect)-$40,000(equip.)=$365,000 (MTDC base)
$365,000 (MTDC base) x 12.33 (indirect rate)= $45,000 (budget indirect recovery)
$45,000 (cap) minus $45,000 (rate applied))= (indirect fully recoverable)
Example C: (indirect rate of 10 % of MTDC is less than cap)
Grant amount
$450,000
Grant cap: $450,000 times 10 percent= $45,000
MTDC rate base with distorting adjustments of $40,000 removed is:
$450,000 - $37,273(indirect)-$40,000(equip.)=$372,727 (MTDC base)
$372,727 (MTDC base) x 10% (indirect rate)= $37,273 (rate applied)
$45,000 (cap) minus $37,273 (rate applied) = $7,727 (amt. base may be increased
because 10 % indirect rate recovers less than cap: $365,000 +$7,727 =$372,727
new base)
7) I’ve been told that if I want to take indirect costs, I need to have a rate agreement with
the Federal government. What is this agreement and how do I get one?
If you receive funding from more than one Federal Agency, the Federal Agency providing the
most direct funding is your cognizant Federal Agency for approving indirect cost rates. If you
have more than one direct cost center/grant/contract then you may need an indirect cost rate to
distribute indirect costs to these multiple direct cost center/grant/contracts. If you receive at least
one direct grant or contract from the Federal government, then you may prepare an indirect cost
rate proposal and submit it to your cognizant Federal Agency for an approved indirect cost rate.
Multiple sources of funding for one cost center exist in RSA programs. An indirect cost rate is
6
not needed for one direct cost center. Preparing and approving an indirect cost rate proposal is a
considerable amount of work, so be sure you need it before preparing an indirect cost rate
proposal. The US Department of Education, Indirect Cost Group (ICG), where I work, approves
indirect cost rates for those organizations for which ED is cognizant. ICG has instructional
material which can be sent to you upon request to Katrina McDonald at 202-377-3838.
If you do not receive direct funding from a Federal Agency, you must have your indirect costs
approved by the state agency or other entity that passes Federal funding to you.
8) How often do I need to calculate my indirect cost rate?
Generally annually.
9) The organization I work for has a negotiated restricted indirect cost rate with the
Federal government, but it is much higher than 10%. What should I do?
You have to compare the statutory ceiling to the indirect cost recovery (approved I/C rate
multiplied by a modified total direct cost base) and claim up to the ceiling.
For non-state and local entities, EDGAR allows 8% of MTDC for a restricted rate without a
proposal, or the actual rate if it is lower.
If you don’t have a restricted indirect cost rate, you may include it in your next indirect cost
proposal to your cognizant agency.
10) I’m a subcontractor who implements the grant on behalf of a state agency. Do I need
an indirect cost rate agreement with the Federal government?
7
Where a NPO or local government only receives funds as a sub recipient, the primary recipient is
responsible for negotiating and/or monitoring the sub recipient's plan. If the subcontractor
received a direct grant or cost contract from a Federal agency, that agency is responsible or
“cognizant” for indirect cost negotiations.
11) In my state, a state agency receives the grant but gives almost all of the money to a
non-profit through a subcontract. Do both of us get to take 10% of the grant for
indirect costs?
No, because the state agency will usually use a MTDC base. The MTDC base excludes flow
through and it excludes subawards in excess of $25,000. Also, if the award is considered to have
been made to a group of eligible applicants, the indirect cost recovery will not exceed what the
fiscal agent would be allowed. Subs as well as primes are subject to restricted indirect cost rates.
12) I’ve gotten grants in three years from the same grant program. Do I have separate
indirect costs for all three years?
Yes, unless your rate is predetermined for more than one year. An indirect rate is calculated
based on the organization’s total expenditures for a particular fiscal year. A one-year grant may
straddle two different fiscal years subject to two different indirect cost rates because the indirect
rates are computed on the recipient’s fiscal year rather than grant period.
8
13) I’m a program and policy person, not a fiscal agent. In my agency, who should be
responsible for dealing with all of this?
Generally the accounting office prepares the I/C proposal. Occasionally we see it prepared by a
budget office or another office, or an outside contractor.
14) Do directly charged occupancy costs to restricted rate programs require prior
approval?
Yes. 34 CFR 76.568 (c)
15) What happens if my provisional rate is higher or lower than my final rate?
Billing of indirect costs must be adjusted to the final rate, if recoverable. If a higher final rate
causes the grant or contract to over-run, recovery of the over-run may or may not be made.
16) What is the definition of equipment in MTDC?
Non-Federal fund purchases costing more than the threshold stated on page one of the indirect
cost rate agreement should be capitalized and recovered through depreciation. The purchase
amount threshold may be up to $5,000 but should be the same threshold as used in the
organization’s financial statements. Equipment bought with Federal funds may not be
depreciated. If the equipment purchase is under the threshold, it is a supply cost.
9