Get an Indirect Cost Rate when doing business with the feds

Administrative overhead expenses are a fact of organizational life. They might be called overhead, administrative, operating, or indirect. No matter what you call them, less-than-exciting necessities such as balancing the books, auditing the finances, and maintaining the computer system cost money.

As the new federal Super Circular from the federal Office of Management and Budget (OMB) goes into effect in the coming months, even organizations without a federal negotiated Indirect Cost Rate (ICR) can request up to 10 percent of direct costs as operating overhead.

“That’s good news, ” said Barbara Floersch, director of The Grantsmanship Center in Los Angeles. “But, 10% is rarely realistic when administering a large federal grant. Approved ICRs often provide a much higher level of support.”

Applying for an ICR can seem intimidating, and Floersch offered these suggestions for getting started:

  • Call the project officer for the grant program that provides the most federal funding to your organization. Ask that staffer whom to contact about negotiating an ICR. You can also get this information by consulting the Compliance Supplement to OMB Circular A-133 that is web posted on the OMB web site.
  • Speak with financial staff at organizations that have an ICR with the feds. Find out how they put together the needed paperwork, what accountant they use, and what experiences they have had with the ICR.
  • Connect with an experienced nonprofit accountant who is knowledgeable of federal rules and regulations concerning ICRs.

You might need to hire an accountant to help with your first and maybe second ICR application. If so, ask the accountant to mentor your financial staff members so that reapplications can be done in-house.

Every federal funding program won’t pay the full ICR for which your organization is eligible. And those that won’t might allow the difference between the ICR rate and what they’ll pay to be counted toward matching resource requirements. Another way to cope with IDC shortfalls is to examine the option of charging some administrative costs as direct when they can be attributed directly to a program. This is another benefit provided by the new Super Circular.

“Managing federal grants well consumes significant organizational resources.” said Floersch, “If your organization receives federal grants, negotiate an Indirect Cost Rate (ICR).”