1. 2 CFR 200.414 – 200.419 + Appendices III - VII
Indirect costs
2 CFR – +
Appendices III - VII

2. Indirect/F&A Costs 2 CFR 200.56
Costs incurred for Common or Joint purposes
Benefit more than one cost objective
Cannot be readily identified with particular cost objective without undue effort
After Direct costs have been identified and assigned directly to awards/activities, indirect costs are those remaining to be allocated
A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost

3. IHEs & Major Nonprofits 2 CFR 200.414(a)
Facilities
Depreciation & allowable Interest on certain debts for:
Buildings, Equipment & Capital Improvements
Library expenses of IHEs
Administration
General Administration & General Expenses
Director’s office, Accounting, Personnel & other expenses
Library expenses of nonprofit organizations
Major nonprofits receive more than $10 million in direct Federal funding

4. Nonprofit Organizations 2 CFR 200.414(b)
For Entities which receive $10 million or less in direct Federal funding, Indirect Costs include:
Depreciation on Buildings & Equipment
Facilities Operation & Maintenance costs
Salaries & Expenses of Executive Officers
Personnel Administration
Accounting

5. Governmental Organizations Appendix VII Paragraph A.4.
The Types of Governmental costs which may be classified as indirect costs cannot be specified in all situations.
Typical Examples may include:
Certain state/local central service costs
General Administration
Accounting
Personnel [HR] services
Depreciation on Buildings & Equipment
Facilities Operations & Maintenance costs

6. Federal Agency Acceptance of Negotiated ICRs 2 CFR 200.414(c)
All Agencies must accept negotiated ICRs except when different rate required
By Statute or regulation
Approved by Awarding Agency head
Limitation on Allowance of Costs 2 CFR
Statutory requirements may limit maximum amount
Amount not recoverable may not be charged to award

7. Pass-through Entities 2 CFR 200.414(d) & 200.331(a)(4)
Are to accept an Approved Federal ICR
If no approved ICR exists, either:
Negotiate an ICR with subrecipient, or
Use a 10% de minimus ICR
Note that statutory limitations still apply

8. ICR Development & Submission 2 CFR 200.414(e)
Contained in Appendices
Institutions of Higher Education [IHEs]
Nonprofit Organizations
State/Local Government & Indian Tribe-Wide Central Service Cost Allocation Plan
Public Assistance Cost Allocation Plans
State/Local Government & Indian Tribe Indirect Cost Proposals
IX. Hospital Cost Principles

9. De Minimus Rate 2 CFR (f)
Entities that never received negotiated ICR
Except Government Departments or Agencies that receive more than $35 million in direct Federal awards
May elect to charge de minimus rate of 10% MTDCs
May be used indefinitely
Must be used consistently for all Federal awards
May choose to negotiate an ICR at any time
Note: Costs must be charged consistently as indirect or direct, but may not be double charged or inconsistently charged as both direct & indirect

10. Modified Total Direct Costs 2 CFR 200.68
MTDC include:
All direct Salaries, Wages, & Fringe Benefits
Materials & Supplies
Services
Travel
Subawards up to first $25,000 of each
MTDC exclude:
Equipment & Capital Expenditures
Charges for Patient Care
Rental costs
Tuition remission, Scholarships & Fellowships
Participant Support costs
Portion of Subawards in excess of $25,000

11. Indirect Cost Rate Extension 2 CFR 200.414(g)
All may APPLY for One-Time extension of current ICR [in effect at time of request]
For a period of up to four [4] years
Implies one could request 1, 2, 3 or 4 year extension
Request subject to Agency Review & Approval
If granted:
May NOT request Rate Review until period ends
Must Re-Apply for Negotiated Rate at end of period

12. Required Certifications 2 CFR 200.415
Annual & Final Fiscal Reports or Vouchers requesting payment
Signed by official authorized to legally bind entity
For indirect plans/proposals
Certificate of Cost Allocation Plan or
Certificate of Indirect Costs
Signed by individual at level not lower than VP or CFO
Nonprofit organizations
Certification they are not Major Corporations
Those receiving more than $10 million in direct Federal awards

13. Special Considerations for Governmental Entities 2 CFR 200.416 - 417
Central Service Cost Allocation Plan
Mechanism for assigning shares to Operating Agencies
Motor Pools, Computer Centers, Purchasing, Accounting, etc.
Operating Agencies normally have own ICRs
Indirect Costs should include:
Indirect Costs originating in the individual agency
A Share of Central Services Costs
Costs of Services provided by one agency to another
Direct costs of the service + pro-rated share of Indirect
Allowance of 10% of Direct Salaries & Wages of providing service
Excludes overtime, shift premiums & fringe benefits

14. Special Considerations for Institutions of Higher Education 2 CFR 200
Costs incurred or paid by a state or local government on behalf of its IHEs for fringe benefit programs are allowable IHE costs if:
They meet cost principles requirements
Are properly supported by approved cost allocation plans
Are not otherwise borne directly or indirectly by the Federal government
IHEs that receive aggregate Federal awards totaling $50 million or more
Must comply with CASB’s cost accounting standards
Must disclose cost accounting practices
File a Disclosure Statement [DS-2]

15. Cognizant Agency for Indirect Costs
Federal agency responsible for reviewing & approving Indirect Cost Rate
For Institutions of Higher Education
HHS – Department of Health & Human Services
DOD – Dept of Defense’s Office of Naval Research
For Nonprofit organizations
Federal Agency with largest dollar value of awards
For Governmental organizations
See next slide

16. Cognizant Agency for Governmental Entities
Federal agency responsible for reviewing & approving Indirect Cost Rate
HHS – Public Assistance & state-wide CAPs
DOI – Indian Tribal & Territorial governments and state & local park and recreational districts
DOL – State & local labor departments
DOEd – School Districts and state & local education agencies
DOAg – State& local agriculture departments
DOT – State & local airport and port authorities & transit districts
DOC – State & local economic development districts
HUD – State & local housing & development districts
EPA – State & local water and sewer districts

17. Indirect Cost Base
The accumulated direct costs used to distribute indirect costs to individual Federal awards.
Either Total Direct Salaries & Wages
Or Total Direct Costs exclusive of any extraordinary or distorting expenditures [MTDC]
The Direct Cost Base selected should result in each Federal award bearing a fair share of Indirect Costs in Reasonable Relation to the Benefits Received from the costs

18. Base Period
Period in which indirect costs are incurred and accumulated for allocation to activities performed in that period
Should normally coincide with entity’s Fiscal Year
Must be selected so as to avoid inequities in the allocation of costs

19. Indirect Cost Pool
The Accumulated costs that jointly benefit two or more programs or other cost objectives

20. INDIRECT COST RATE
Device for determining the proportion of indirect costs each program should bear
The ratio is expressed as a percentage of an indirect cost pool and some direct cost base.
Indirect Cost Pool =
Indirect Rate %
Direct Cost Base

21. P B = R INDIRECT COST RATE PBR: “Pabst Blue Ribbon”
Some might say it’s…
PBR: “Pabst Blue Ribbon” P B
= R
Pool/Base = Rate

22. How is an indirect cost rate calculated?

23. Methods of Calculating an Indirect Cost Rate
Simplified Method
Multiple Allocation Method
Special Rates

24. Simplified Method
Used whenever the major functions of an organization benefit from its indirect costs to approximately the same degree.
Allocation accomplished by:
First classifying total costs for the base period as either direct or indirect
The indirect costs, net of applicable credits, are divided by some equitable distribution base to arrive at a rate
Expressed as a percentage of allowable indirect to base selected
The rate is multiplied by each programs’ share of the base to equitably distribute the indirect costs amongst benefiting programs

25. Simplified Method Both Direct & Indirect costs must exclude:
Capital Expenditures & Unallowable costs
Unallowable costs must be included in Direct costs if they represent activities to which Indirect costs are properly allocable
Distribution base may be either:
Total Direct Costs excluding capital expenditures and other distorting items [MTDC], such as:
Pass through funds, subawards in excess of $25,000, participant support costs, etc.
Total Direct Salaries and Wages, or
Another base which results in an equitable distribution

26. Multiple Allocation Base Method
Used when unit’s indirect costs benefit its major functions in varying degrees
Costs are accumulated into separate groupings which are allocated individually to benefitted functions
Each grouping should constitute a pool of expenses
Of like character in terms of functions benefitted and
In terms of the allocation base which best measures relative benefits provided to each function
When allocation can be made by assignment of a cost grouping directly to function benefitted, it MUST
When expenses are more general in nature, allocation should be made through a selected base

27. What Multiple Allocation Base to Use?
Any Cost Element associated with unit’s activities is a potential base provided:
It can readily be expressed in terms of Dollars or Other Quantitative Measures
Total direct costs, direct salaries & wages, staff hours applied, square feet used, hours of usage, number of documents processed, population served, etc
It is common to the benefitted functions during the base period
Allocation bases might be:
Accounting Department - # of transactions
Purchasing Department - # of purchase orders
Personnel Department - # of FTEs

28. Special Indirect Cost Rates
Used when a particular Federal award is carried out in an environment which appears to generate a significantly different level of indirect costs [e.g. off-site rate]
Separate Indirect Cost Pool should be developed &
Resulting Indirect Cost Rate should be used if
Rate differs significantly from basic rate developed &
Federal award to which rate would apply is material in amount
Restricted Rate may have to be developed when Federal Law restricts reimbursement of certain indirect costs

29. I N D R E C T O S Direct Cost Base $500,000 Rate 30% Direct Cost Base
Salaries $90,000
Fringe ,000
Rent ,000
Consultants ,000
Travel ,000
Supplies ,000
Communications 2,000
Miscellaneous ,000
Total Pool $150,000
Labor Base $300,000
Rate % Direct Labor Base
Direct Cost Base $500,000
Rate % Direct Cost Base

30. Examples of Indirect Cost Rates
Indirect Costs: $150,000
Direct Costs:
Salaries, Wages & Benefits $300,000
Other Direct Costs ,000
Total Direct Costs $500,000
$150,000
$300,000 = 50.0% Direct Labor Base
$500,000 = 30.0% Direct Costs Base

31. Recovery of Costs Direct Labor Base Contr./Grant "A" $150,000
Times rate %
Indirect costs recov. $ 75,000
Contr./Grant "B" $150,000
Total recovered $150,000
Total Direct Cost Base
Contr./Grant "A“ $275,000
Times rate %
Indirect costs recov. $ 82,500
Contr./Grant "B" $225,000
Indirect costs recov. $ 67,500
Total recovered $150,000

32. Submission of Proposals
Institutions of Higher Education
Regular Method
Must use standard format found on OMB website
Simplified Method for Small IHEs
Not more than $10 million per Fiscal Year
Nonprofit organizations
Must submit to cognizant agency
Government organizations
All Depts/Agencies desiring to claim indirect costs must prepare a proposal and related supporting documentation
Must be retained for Audit
Not required to submit unless requested
Depts/Agencies receiving more than $35 million in direct Federal funding
Must submit proposal to cognizant agency

33. When are Proposals Submitted?
Developed & submitted [when required] within six months of end of fiscal year unless exception approved by cognizant agency
Initial Proposal for entity w/o prior ICR
Develop & Submit immediately upon being advised that it is to receive a direct Federal award
No later than 3 months after effective date of award

34. Documentation of Proposals
Rates Proposed + subsidiary worksheets
Copy of Financial Data upon which based
Financial statements, annual financial report, executive budgets, accounting reports, etc.
Approximate amount of direct base costs incurred under Federal awards
Broken out between Salaries & Wages and Other
Organization Chart [or revisions to prior]
Certificate of Indirect Costs

35. Negotiation & Approval
Rates will be reviewed, negotiated & approved on a timely basis
Rate will be accepted & used by all Federal agencies unless prohibited or limited by law
Use of Predetermined Rates is encouraged
Results of each negotiation must be formalized
Refunds must be made if proposals include
Costs later found to be unallowable
As specified by law or regulation
Under Considerations for Selected Items of Cost
By terms & conditions of Federal awards
Costs found to be clearly not allocable to Federal awards

36. Adjustments for Unallowable Costs in ICRs and/or F&A rates 2 CFR 200
Adjustments for Unallowable Costs in ICRs and/or F&A rates 2 CFR CFR
Rates that included Unallowable Costs
Must be adjusted or a Refund must be made
Regardless of type of Rate:
Predetermined, Final, Fixed or Provisional
Does not constitute Reopening of Rate Negotiation
May result in Reissuance of Negotiated Rate Agreement
For Future Period
Costs removed from pool & Rates are adjusted
For Past Period
Unallowable amounts, including interest, to be refunded
For Current Period
Either Rate Adjustment or Refund option available

37. Questions? ?
Ed Donahue