In my last article, I posed the question “Do the Uniform Guidance FAQs Really Matter?” As promised, in this second part of the three part series, I’m going to do a deep dive into the world of indirect costs and some of the “unintended consequences” that surfaced in the latest FAQs from OMB.
Indirect costs continue to be a source of confusion and opportunity for federal grant recipients. If you feel like you’ve been all alone in deciphering the Uniform Guidance when it comes to indirect costs, I want to assure you that you are not alone. The Office of Budget and Management (OMB) recently released a newly updated set of FAQs to clarify several of these types of issues for grant managers.
In this second article of my three-part series on changes to the Uniform Guidance, I’m going to focus on three areas of indirect cost allocation that I’ve seen create a lot of pain among grant recipients. I hope these explanations will help simplify your life managing federal awards.
Here are my three favorite points of light around indirect costs in the recently released FAQs:
#1 Pass-Through Entities Dictating Indirect Cost Rates to Subrecipients
If you are an older sibling, you may recall the time when your parent put you in charge of your younger siblings for a brief time. Being the youngest, I never got to experience Favorite FAQs that feeling of power and control! (But I do still remember telling one of my older siblings that “they weren’t the boss of me!” Big mistake!
Pass-through entities are much like those older siblings put in charge of babysitting the younger kids when the parents are gone. Pass-through entities are Favorite FAQs supposed to “step in the shoes” of the federal government when it comes to monitoring subrecipients. And occasionally they get a little “power-hungry”. Witness the OMB FAQ on whether or not pass-throughs can IMPOSE the new 10% de minimis rate on subrecipients Favorite FAQs.
The short answer is NO. But the why behind this answer often gets overlooked.
When you are a subrecipient of a federal award, you have the same rules, responsibilities, and opportunities as the prime recipient. In other words, if you have an approved federally recognized Favorite FAQs indirect cost rate, you have the right to use that on your subaward. Likewise, if you have negotiated a rate with your pass-through entity, you can use that one. Finally, if you meet the criteria in §200.414 (f) to elect the 10% of MTDC de minimis rate because you have never had a negotiated rate, then you could elect to Favorite FAQs use that rate. It’s your call.
The point is that the prime recipient can’t dictate that you use the de Favorite FAQs minimis rate or lower rate unless the award comes with restrictions on recovering administrative costs.
#2 How to Verify the Existence of an Indirect Cost Rate
Of course, all this talk about the 10% de minimis rate raises another question. How do you tell if an organization ever had a negotiated indirect cost rate?
OMB recognizes that this aspect of being able to use the 10% de minimis rate may be a little challenging if you don’t know whether or not a negotiated indirect cost rate existed in the past.
(Was it lost in the in the organizational consciousness in years past?)
That is why they provide a listing in the recent FAQ with tips on indirect cost rates and ways to contact the various agencies. This information could prove useful if you are wondering how to verify the existence of a negotiated indirect cost rate at your organization.
- National Science Foundation: https://www.nsf.gov/bfa/dias/caar/docs/idcsubmissions.pdf
- USAID: http://www.usaid.gov/work-usaid/resources-for-partners/indirect-cost-rate-guide-non-profit-organizations
- U.S. Department of Agriculture: National Institute of Food and Agriculture (NIFA): https://nifa.usda.gov/indirect-costs
- U.S. Department of Health and Human Services: https://rates.psc.gov/
- U.S. Department of the Interior: https://www.doi.gov/ibc/services/finance/indirect-cost-services
- U.S. Department of Labor: https://www.dol.gov/oasam/boc/dcd/np-comm-guide.htm. See page II-4 and Section III.
Organizations can contact the likely cognizant agency or the funding agency to see if there was a previously negotiated indirect cost rate. If an indirect rate was previously in place, the organization can’t elect to use the ten percent de minimis rate.
#3 Documenting Your Indirect Costs for the De Minimis Rate
I admit it. This headline is a bit of “fake news.” Like “Documenting Your Receipts with Per Diem.” The problem is that too often we ask people to turn in receipts with their expense report while also claiming per diem. It’s the worst of BOTH worlds!
This same worst of BOTH worlds approach has happened with the 10% de minimis rate. Now people are being told to submit documentation on costs when using the 10% rate. Thank goodness the OMB has clarified this in their recent FAQs.
According to OMB, for organizations eligible to use the 10 percent de minimis rate, the whole point was to reduce the burden of developing and documenting indirect cost rates. As such, there is no proof required of grant recipients to lay out what makes up the 10% rate. Yes, there is a requirement in § 200.510 to note in the SEFA whether or not you have elected the rate, but that is a pretty light load in comparison.
Bonus Topic: Administrative Costs Can Be the Same as Indirect Costs, But NOT Always
Reading OMB’s discussion on the difference between administrative costs and indirect costs made my head want to explode! Most of us are familiar with the concept of indirect costs, like accounting, purchasing, and human resources that support federally sponsored programs indirectly. And if you’ve worked with institutions of higher education, you may have even heard indirect costs referred to as F & A costs as in “Facilities and Administrative” costs.
So what’s the big hullabaloo about administrative costs?
Well as it turns out, the statutory limits that some grants run into for recovering support costs are imposed on administrative costs. Now it’s true that sometimes that is the same as indirect costs, but not always.
Here’s an example:
If you have a federally sponsored program that has personnel and other costs related to the overall direct management of the program and direct clerical support these costs are administrative in nature even though they are properly classified as direct costs. As OMB says, these costs are “not directly related to the provision of services to participants” even though they meet the criteria in the Uniform Guidance §200.413 (c) (1) to be called direct costs.
Next, if you are working with an award that limits administrative costs, you may have some costs that need to be included in the calculation of administrative costs when looking at the statutory limit.
So if I was designing a checklist to prepare for this possibility of limited administrative cost recovery, here’s what it would look like:
- Are there statutory limits on that restrict the percentage of administrative costs we can recover from federal awards, if so, what are they?
- Does the authorizing program statute have a definition of administrative costs in the restricted rate, and does it define what base (such as modified total direct cost aka MTDC) to use when calculating the restricted rate recovery?If so, what are they? If not, are there similar provisions in the award terms and conditions.
- Does the organization have direct costs that meet the definition of administrative costs and therefore included in the calculation of the recoverable administrative costs?
Administrative vs. Indirect Costs definitions are one of those grant management “speed bumps” that you may not encounter often, but when you do, you don’t want to hit it at 65 MPH!
That is why we created this infographic on the topic shown below.
In my next article in the series, I’ll wrap up the newly released FAQs by looking a few more favorites from OMB about the Uniform Guidance. Stay tuned!
Ready to Improve Your Grant Management?
How about you?
Would you like to be a better grant manager?
We have another grant management training seminar coming soon.
Click here to get all the details!
Hope to see you there!
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.