23 Sep Taking the Fear out of Grant Management: Indirect Cost Allocation By: Kellie Brungard, GPC

By now, I hope you are realizing grant management doesn’t have to be a scary web of confusing topics and rules. With this grant management series, I aim to outline some of the commonly seen issues and provide resources to learn more. Check out the previous posts on conflict of interest policies and procedures and time and effort!

recap, the National Grants Management Association (NGMA) defines grant management as “the comprehensive process of overseeing all activities related to a grant.” NGMA divides the grant lifecycle into three phases: pre-award, award, and post-award. A grant manager is anyone involved in the management and administration of a grant (e.g., finance staff, grant writers, program staff, consultants, and grant administrators). Compliance and best practices in grant management is usually associated with federal grant awards, but it equally applies to state and local government funding, pass-through funding (which likely originated at the federal level), and foundation and corporate grants (though maybe not as stringent). Best practices in grants management indicate an organization should follow the same processes for all grant funding, regardless of the source. By doing so, the organization strengthens its capacity for more complex funding streams and reduces the risk posed by human error and confusion over which process to follow.

There are two essential things to remember when broaching grant management:

1. You don’t have to change everything overnight, so take learning piece by piece and you will continue to grow your understanding and application.
2. It doesn’t have to be scary. Sure, you may learn that something has been done wrong in the past, but making changes now will prepare your organization for future success.

Have you ever wondered what indirect costs entail, or heard the term “de minimus rate” and questioned what that means?  An organization looking to implement a program calculates the staff involved and supplies needed. What about the share of occupancy expenses for using the building or the administrative staff who keep the organization running smoothly? These indirect costs can be allocated to grant proposals. The key is knowing how your organization’s policy and procedure for allocating indirect costs and what this entails.

What are indirect costs?

Indirect costs (facilities and administrative (F&A)) are those costs spent for a common or joint purpose benefitting more than one cost objective within the organization. These costs are necessary to operating the organization, such as overhead, maintenance, and administration, but aren’t typically eligible for direct costs on grants. Say your organization receives a grant for translation services that will increase access using a video phone translation service. The direct costs (service, equipment, training) are likely direct costs, but the administrative assistant’s increase in time spent facilitating these services isn’t allowable. That is an indirect expense to this particular grant project.

There are many nuances to indirect costs that an organization should be aware of and consider if they choose to request within grant budgets. There are three main choices as to how the organization handles indirect costs.

1. Choose not to use them altogether. The caveat here is potentially leaving funding on the table, especially if you manage federal grant awards.
2. Allocate and distribute joint costs using the federally de minimis rate of 10% for modified total direct costs (MTDC). This rate is expected to raise to 15% in October as part of the OMB Uniform Guidance updates. The de minimis rate may be applied to all modified total direct costs, which includes all direct salaries and wages, applicable fringe benefits, materials and supplies, contracts and services, travel, and up to the first $25,000 of each subaward.
3. Negotiate and maintain an indirect cost rate agreement through its cognizant agency. An organization’s cognizant agency is the one from which most federal funds are received. This is beneficial for organizations with high administrative costs, such as institutions of higher education, to be able to correctly capture the indirect expense required to manage grant awards. It can be a complicated, time-intensive process (up to a year or more!) with entire legal accounting firms dedicated to helping organizations through this process.

Regardless of the option chosen, keep in mind organizations must properly allocate indirect costs (IDC’s) among cost objectives. To do this, the organization must balance the work it takes to establish cost pools to track the costs and cost objectives and to distribute indirect costs with serving their community through mission-driven work.

How does this relate to grant management?

Issues associated with indirect costs and grant management are the inconsistency of applying indirect costs across projects or programs, not clearly separating administrative costs applied to grants from indirect costs, and not understanding what indirect costs are and if/how an organization applies these to grant proposals. Developing an indirect cost policy and procedure can help an organization and its grant staff understand indirect costs, how the organization has determined costs will be allocated, and what steps need to be taken internally.

The difference between administration costs and indirect costs comes down to how the organization defines these costs within their cost allocation plan. Once this plan is set, (it’s complicated!) staff not included in the allocation plan may charge their time to grants as administration. However, staff tracked as administrative costs must track their time and effort. Grant professionals must make sure individuals’ time isn’t spoken for through indirect or administration costs elsewhere – duplication of this is a major red flag, regardless of the funding source(s). Since administrative costs are often incorporated as a percentage of administrative costs to their program budgets, be crystal clear on what is tracked as indirect and administrative expenses within the organization.

Additional Resources:

• Office of Justice Program’s Indirect Costs Guide Sheet
• National Council of Nonprofits blog “Consider adding a federally negotiated indirect cost rate to your revenue portfolio”
• AGS’s Distribution of Indirect Costs Checklist (registration required)

Strong grant management practices ensure grant funds are used appropriately across an organization and in accordance with funder requirements. AGS’s expanded grant management team is here to help with the full lifecycle of grant management needs. Check out our Grant Management Training Series to increase knowledge, skills, and personal comfort implementing these activities! If you are interested in learning more about grant management services, Julie Assel, CGMS, GPC, President/CEO, will be happy to talk with you about this opportunity and provide you with a quote for grant services.

This blog post is aligned with the Grant Professional Certification Institute’s Competencies and Skills.

Competency #5: Knowledge of post-award grant management practices sufficient to inform effective grant design and development

Skill 5.1: Identify standard elements of compliance

Skill 5.2: Identify effective practices for key functions of grant management