INDIRECT COST POLICY

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Gabriella Fields
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1 INDIRECT COST POLICY The National Fish and Wildlife Foundation (NFWF) recognizes that in some instances, award recipients may have costs that are not directly attributable to projects or activities being funded by the Foundation, but that the recovery of those indirect costs is necessary in order to effectively implement the respective projects or activities. In those situations, the following indirect cost policy applies. Please review the Definitions (D), Frequently Asked Questions (E), and Appendix sections of this document for more information. A. INDIRECT COST POLICY 1. Recipients with a valid Negotiated Indirect Cost Rate (or Recovery) Agreement (NICRA) can charge indirect costs to projects based on their negotiated indirect cost rate, but not to exceed (NTE) 15% of the project s total modified direct costs (as defined in the NICRA), whichever is less. o o A valid NICRA is one in which the effective period has not expired. Valid provisional, final or fixed NICRAs will be accepted. Grantees must provide a copy of their valid NICRA with their application in order for indirect costs reimbursement to be considered If the effective period of the NICRA has expired but the grantee has documented evidence (via an indirect cost rate proposal) that they have reapplied for a new rate, the expired rate may be accepted. 2. Entities without a valid NICRA cannot charge indirect costs to projects. 3. The Foundation may request additional information in order to determine if a proposed expense is a direct or indirect cost. 4. NFWF, at its discretion, reserves the right to allow or disallow indirect cost charges. B. RATE APPLICATION The following table illustrates the appropriate rate to use when applying indirect costs to projects: Valid NICRA NICRA Rate NFWF Maximum Rationale 1. Yes 28% 15% Rate NTE 15%, whichever is less 2. Yes 12% 12% Rate NTE 15%, whichever is less 3. X No N/A 0% No valid NICRA exists 1

2 C. COST BASE Indirect costs must be calculated using the cost base defined in the organization s NICRA. This may be on a total modified direct cost or total direct cost basis as stipulated in the NICRA. The following table illustrates the appropriate cost base to be used based on a sample NICRA. Example A Rate = 12.5% Rate = 25.0% Example B Labor 25,000 Labor 25,000 Fringe 5,000 Fringe 5,000 Travel 15,000 Travel 15,000 Contractual 99,940 Contractual 99,940 a. Contract 1 55,500 a. Contract 1 55,500 b. Contract 2 44,440 b. Contract 2 44,440 Equipment 6,000 Equipment 6,000 Supplies 500 Supplies 500 Other Direct Costs 1,500 Other Direct Costs 1,500 Total Direct Costs 152,940 Total Direct Costs 152,940 TMDC 1,5 97,000 TMDC 1,5 97,000 Indirect Costs 2 12,125 Indirect Costs 2 14,550 Total Project Cost 165,065 Total Project Cost 167,490 Per the entity s sample NICRA 4 : Cost Base 3 : 1 TDC less equipment, less the excess over 1st $25K of each subaward Indirect Rate: 2 Calculation is based on NICRA rate but not to exceed 15% D. DEFINITIONS Capital Expenditures expenditures for the acquisition of capital assets (equipment, buildings, and land) or expenditures to make improvements to capital assets that materially increase their value or useful life Cognizant Agency the federal agency responsible for negotiating and approving indirect cost rates on behalf of all federal agencies 3 Cost Base calculation defined in an entity s NICRA that is multiplied by an indirect cost rate to determine indirect costs allocable to a project Direct Costs costs that can be attributed specifically to a particular project, program, activity or final cost objective Equipment an asset with a useful life of greater than or equal to one year and a fair market value of greater than or equal to $5,000 2

3 Indirect Cost Rate Proposal the documentation prepared by an organization to substantiate its claim for the reimbursement of indirect costs. The proposal provides the basis for the review and negotiation leading to the establishment of an organizations indirect cost rate by their cognizant agency 2 Indirect Costs indirect costs are those costs that have been incurred for common or joint objectives and cannot be easily attributed to any one project, program or cost objective. Typical examples of indirect costs for many nonprofit organizations may include depreciation and use allowances, interest, operating, maintenance, general administration, and general overhead costs, however because of varying situations and applications; it is not possible to apply this definition in all situations. 4 Negotiated Indirect Cost Rate (or Recovery) Agreement (NICRA) agreement between the entity and their cognizant federal agency regarding the fair share of indirect costs that can be charged to federally funded projects Rate Types there are three general types of indirect cost rates: Provisional rate temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement and reporting indirect costs on awards pending the establishment of a final rate for the period Final rate an indirect cost rate applicable to a specified past period which is based on the actual costs of the period Fixed rate an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period Subaward an award made by a recipient to a subrecipient/contractor or by a subrecipient to a lower tier subrecipient/ contractor 5 Total Modified Direct Costs (TMDC) calculation of project direct costs excluding cost items as identified in the entity s NICRA Unallowable Costs costs that are expressly prohibited from being charged to a project (i.e. alcoholic beverages) Unrecoverable Costs allowable costs that cannot be charged to a project due to a funder or NFWF imposed restriction or cost maximum E. FREQUENTLY ASKED QUESTIONS Q 1. Q 2. Q 3. Who is required to obtain an indirect cost rate? NFWF requires all applicants wishing to charge indirect costs to projects have a valid NICRA that stipulates the appropriate indirect cost rate and base to be applied. How do I determine my cognizant agency? Generally, the cognizant agency is the federal agency from which you receive the most federal financial assistance. How do I apply for an indirect cost rate? Work with your cognizant federal agency for procedures on applying for an indirect cost rate. 3

4 Q 4. Q 5. Q 6. Q 7. Q 8. Q 9. Q 10. Q 11. Q 12. Q 13. Q 14. What rate should be used if our federally approved NICRA is higher than the 15% maximum rate allowed by NFWF? A valid indirect rate greater than the 15% allowed by NFWF is considered unrecoverable and cannot be charged to the project. What if our entity does not have a NICRA? If your entity does not have a valid NICRA, you cannot charge indirect costs to a NFWF project. What documentation is required to verify that my entity has a valid NICRA? When applying for a NFWF award, applicants must attach a copy of their current/valid NICRA or if the NICRA is expired, the expired NICRA and the most recently submitted Indirect Cost Rate Proposal for the appropriate period to being covered. When can administrative, overhead, or operational costs be directly charged to a project? If a cost can be shown to be directly attributable to a specific project or program it may be considered direct. An example would be administration, overhead, or operational costs charged to a project because it is the sole project on and for which work is conducted. Can unrecoverable indirect costs be treated as match/cost share? Yes, unrecoverable indirect costs can be used as match unless expressly prohibited by the funder or funding agreement. Can existing equipment, insurance or maintenance costs be charged directly to a project? Generally no, these costs are considered indirect costs and would be recovered via an indirect cost rate if applicable. Can government agencies charge indirect costs to a project? Yes, if the agency has a valid NICRA. Additionally, agencies required to fully recover direct and indirect costs can do so with documentation of authorization from the agency Director in addition to a valid and approved cost allocation plan (CAP) and/or indirect cost rate proposal. NFWF will not approve rates exceeding 15%. If the aforementioned documentation is not in place, indirect costs cannot be charged. What does a Negotiated Indirect Cost Rate Agreement look like? Please refer to your cognizant agency for details; however an example is provided in Appendix 1 of this document. What cost base should be used to calculate my entity s indirect cost? Awardees should calculate indirect costs using the base defined and authorized in their NICRA, taking into consideration the authorized cost base inclusions and exclusions. Who at NFWF do I contact if I have questions about allowable or allocable indirect costs? Please contact the Program Manager or Grants Administrator for specific questions. Can NFWF direct subrecipients allow indirect costs to be charged to projects that they award to their subrecipients under the same program/project? Once NFWF has awarded funds to a direct subrecipient, the determination to allow the next tier subrecipient to charge indirect costs to the project or program must be made by the direct subrecipient, in compliance with the applicable OMB guidelines. 4

5 APPENDIX 1 Negotiated Indirect Cost Rate Agreement - Example Nonprofit Organization ORGANIZATION: DATE: May 20, 2011 XYZ Organization FILE REF: th Street, N.W. Washington, D. C The rates approved in this Agreement are for use on grants, contracts, and other agreements with the Federal Government to which OMB Circular A-122 applies, subject to the conditions and limitations in Section II of this agreement. The rates were negotiated by ABC Organization and the U.S. Department of XYZ in accordance with the authority contained in the Circular. SECTION I: RATES EFFECTIVE PERIOD TYPE FROM TO RATE* LOCATION APPLICABLE TO Final 7/1/2009 6/30/ % All All Programs Final 7/1/2010 6/30/ % All All Programs Provisional 7/1/2011 6/30/ % All All Programs Provisional 7/1/2012 6/30/ % All All Programs SECTION II: BASE: *Total direct costs excluding capital expenditures (buildings, individual items of equipment; alterations and renovations), and that portion of each sub-award in excess of $25,000. Fringe benefits are specifically identified to each employee and are charged individually as direct or indirect costs (as applicable). SECTION III: GENERAL A. LIMITATIONS: Use of the rate(s) contained in the Agreement is subject to all statutory or administrative limitations and is applicable to a given grant or contract only to the extent that funds are available. Acceptance of the rate(s) agreed to herein is predicated upon the following conditions: (1) that the same costs that have been treated as indirect costs have not been claimed as direct costs, (2) that similar types of costs have been accorded consistent treatment, and B. PROVISIONAL-FINAL RATES: Provisional rates must be in established within 90 days of the award. The grantee/contractor must submit a proposal to establish a final rate within six months after their fiscal year end. Billings and charges to federal awards must be adjusted if the final rate varies from the provisional rate. If the final rate is greater than the provisional rate and there are no funds available to cover the additional indirect costs, the organization may not cover all indirect costs. Conversely, if the final rate is less than the provisional rate, the organization will be required to pay back the 5

6 difference to the funding agency. Indirect costs allocable to a particular award or other cost objective may not be shifted to other Federal awards to overcome C. SPECIAL REMARKS: Indirect costs charged to Federal grants/contracts by means other than the rate(s) cited in this Agreement should be adjusted to the applicable rate(s) cited herein and be applied to the appropriate base to identify the proper amount of indirect costs allocable to the program. SECTION IV: ACCEPTANCE Organization Name Street Address City, State and Zip Code Cognizant Agency Name Street Address City State and Zip Code Signature Signature Name Name Title Title Date Date Telephone Number 6

U.S. Department of Housing and Urban Development Office of Housing Counseling

U.S. Department of Housing and Urban Development Office of Housing Counseling Understanding Indirect Cost Rates, De Minimis Rate, and Cost Allocation Plans Booth Management Consulting 7230 Lee Deforest