The Indirect Rate Toolkit for Nonprofits with Federal

GrantsWebinar Series, Part III – Building an Indirect Rate

for Nonprofits with Federal Awards

2

Gelman, Rosenberg & Freedman CPAs is now GRF CPAs & Advisors

Please note our new address:

4550 Montgomery Avenue, Suite 800N, Bethesda, MD 20814

Housekeeping

• Important: Three (3) CPE words will be provided during the presentation. Please write them down – we

will not provide them again via GoToWebinar or email (no exceptions).

• Please complete the electronic survey that will appear automatically at the end of the webinar.

• Attendees seeking CPE for this presentation must complete the survey and enter all three CPE words.

You cannot claim CPE unless we receive a completed evaluation with the correct words.

• This presentation will be recorded and made available to download at www.grfcpa.com/webinars.

• Technical questions about the survey can be addressed to Nathan McElveen at nmcelveen@grfcpa.com.

3

CPE Credit/Technical Support

Housekeeping

4

Additional Information

Learning Objective

To provide practical guidance for building an indirect rate for nonprofits with federal awards

Instructional Delivery Methods

Group Internet-based

Recommended CPE

1.0 CPE Credit

Recommended Fields of Study

Accounting – Technical

Prerequisites

None required

Advance Preparation

None

Program Level

Basic

Course Registration Requirements

None

Refund Policy

No fee is required to participate in this session.

Cancellation Policy

In the event that the presentation is cancelled or rescheduled, participants will be contacted

immediately with details.

Complaint Resolution Policy

GRF CPAs & Advisors is committed to our participants’ 100% satisfaction and will make every reasonable effort to resolve complaints as quickly as possible.

Please contact kdavis@grfcpa.com with any concerns.

Disclaimer

This webinar is not intended as, and should not be taken as, financial, tax, accounting, legal, consulting or any other type of advice. Readers and users of this webinar information are advised not to

act upon this information without seeking the service of a professional accountant.

Paul H. Calabrese

5

Principal | GRF CPAs & Advisors

Tricia Katebini, CPA, MBA

Senior Manager | GRF CPAs & Advisors

PresentersMeet the Instructors

Practical Exercise in Preparing an Indirect Rate for Nonprofits

• Direct Cost are costs specifically identified or traceable to a Federal award, project or activity 200.413(a)

• Examples: direct labor and related fringe benefit cost, direct material, supplies, consultants, sub-awards,

travel 200.413(b) & Appendix IV B.3.b.(4)2nd paragraph

• Direct charging of salaries of administrative personnel 200.413(c)

• Direct proration of cost between 2 or more activities without undue effort 200.405(d)

• Unallowable direct cost remain in base 200.413(e)

Direct Cost Definitions

7

• Indirect rates synonymous with:

o Burdens

o Loading

o “Overhead”

• Types

o Fringe

o G&A (Indirect, Management & General from IRS Form 990)

o F&A: Facilities & Administrative rates

Indirect Rate Types

8

Polling Question #1

A. Office supplies

B. Telephone

C. Postage

D. Periodicals

E. All of the above

Which of the following expense items are generally considered indirect and requires an indirect rate for allocating these items?

• Indirect Cost are costs not directly identified with a single final cost objective (grant), but rather relates to two or

more final cost objectives, or a service center, like occupancy department.

• Indirect costs cannot be economically traced to each grant so they must be placed in a cost pool to be allocated on a

causal-beneficial basis to the final cost objective or grant.

• In developing a cost pool special care that costs can first be identified direct to a program, no double-charging

Appendix IV B.3.b.(4) 2nd paragraph

• Typical indirect expenses are: office supplies, postage, local telephone, periodicals, memberships per Appendix IV

B.3.b.(4) 2nd paragraph

Indirect Cost Definitions

10

• For example, fringe cost includes pension, medical insurance and payroll taxes

• For direct personnel, working on multiple programs,

• That cannot be economically assigned to each of those grants.

Fringe Expense Pool

11

• Each of the fringe expenses reside in a cost pool to be allocated on a causal-beneficial basis to the final cost objective

or grant.

• Fringe expenses is the numerator and total labor dollars (including paid absence) is the denominator to develop a %

via a fraction.

• Total labor has a functional relationship with fringe expense where total labor is the independent variable and fringe

is the dependent variable.

o The fringe cost pool dependent variable

o The fringe allocation base (total labor cost) is the independent variable

Relationship Between Pool & Base

12

• Fringe Pool & Base Example:

• Fringe Indirect Cost Pool:

• $1,500 Pension

• 1,500 Medical Insurance

• 500 Payroll Tax

• $3,500 Total Fringe Total

Fringe Rate Computation

13

• $2,000 Direct Labor (D/L) Grant A

• $8,000 D/L Grant B

• $10,000 Total Grant D/L* (Allocation Base)

• $3,500/$10,000 = 35% Fringe Indirect Burden Rate

• *Missing indirect labor applied to G&A.

• Grant A:

• $ 2,000 D/L

• 700 Fringe ($2,000 D/L x 35% fringe rate)

• 1,400 Other Direct Costs (ODCs)

• $ 4,100 Total cost for Grant A-final cost objective

Application of Fringe

14

• Grant B:

• $ 8,000 D/L

• 2,800 Fringe ($8,000 D/L x 35% fringe rate)

• 9,600 ODC

• $20,400 Total cost for Grant B-final cost objective

• General fund = administrative costs

• Executive director’s office

• Finance, HR, IT, Purchasing, Facility Mgmt.

• Office Space, Utilities, Audits, Insurance

• Value of indirect pool = $150,000 (A)

Indirect Example

15

• Programs, Value allocation base = $1,000,000 (B)

• $900,000 in non-federal: programs, fundraising,

membership, promotion, P/R

• $100,000 federal grant

• Fractional relationship between general fund (F&A) and

Programs = 15%

Indirect Example

16

• Total Cost of Grant

• $100,000 direct costs

• $ 15,000 applied indirect (15% x $100,000)

• $115,000 = total value of grant

• Total Cost Definition

• The sum of direct and indirect costs allocable to an award less credits, refunds, rebates; and excluding unallowable costs.

Definition of Total Cost

17

2 CFR 200.412

• Indirect Rate Loading Factor:

o Fringe (1.35) x G&A (1.25) = 1.6875

o For every D/L $1.00 spent, there will be an additional cost of 69¢ in burden cost.

Indirect Rate Multiplier

18

Fringe Pool

19

Polling Question #2

A. True

B. False

An ideal indirect rate is the highest rate percentage that you can obtain for full cost recovery.

• 15% is lower for IRS 990

• 40% higher recovery?

• Which is better 1 or 2? It depends.

• Rates are a function of base

• Foundations place limits on rates

• Under Federal rules you get all of your cost pool

• Evaluate your indirect rate based on a comparison between 2 FYs

Ideal Indirect Rate?

21

• Must be for a 12 month fiscal period

• Must be for only 1 entity

• Must benefit the entire organization as a whole

o Or it becomes a Special Rate

3 Mandatory Requirements of G&A

22

Best Practice

• Last FY & current YTD Trial Balance

• Current Chart of Accounts

• Most Current FY Audited Financials

• Statement of Functional Expenses (SoFE)

• Annual Budget

• Grant documents – cost limitations

• Previous negotiated rates w/ an agency

List of Requested Items

23

• Need historical data for 12 month period for a “final”

rate from post-audit Trial Balance

• Hybrid based on historical and budget

o More relevant at 9 month YTD

o Actual cost data can be combined with budget to provide

full year forecast for a predetermined indirect rate

Trial Balance – Historical Cost

24

• Outside forces on NFPs

o IRS 990 SoFE, Part IX

o (FASB 117) ASC 958 SoFE

• Dept. of Labor & HHS Indirect Cost Rate Proposal templates

Importance of SoFE*

25

*Statement of Functional Expense

Polling Question #3

A. Fully allocating overhead costs from M&G (Management & General) to the other Program and Fundraising activities.

B. Distributing occupancy, utilities and depreciation from M&G to other Program and Fundraising activities.

C. Depreciation cannot be apportioned unless it is 100% indirect.

D. I let my public accounting firm prepare my Statement of Functional Expense.

Which one of the following statements is true regarding the Statement of Functional Expense?

SAMPLE Statement of Functional Expense

27

SAMPLE Statement of Functional Expense

28

• Format

o Should be similar to schedule of functional

expenses for integration

o Budget used for this year’s projected indirect cost

rate

o Budget may be modified to include impact of

management and general on each program’s

“bottom line”

Annual Budget

29

Put in SoFE Format

• How the rate is computed, i.e. allocation base

• Cognizant agency and contacts

• Any special limitations

• Applicable historical fiscal year(s)

• New provisional rate

• How long ago – may be out of date

Prior Indirect Rate Agreements

30

Old NICRAs Provide Useful Info

• Framework for cost accounting system & indirect rate computations

o Facilitate an adequate project cost system

o Separate cost/funds between grants, or programs services

o Distinguish between direct and indirect cost

o Identify and segregate unallowable cost, direct or indirect

Cost Accounting Matrix

31

Cost Accounting Matrix

32

• Revenue & Expense Structure

o 4000 – Revenue (Income)

o 5000 – Direct cost (COGS)

o 6000 – Fringe benefits (Expense)

o 7000 – Occupancy / Facility (Expense)

o 8000 – G&A (Expense)

o 9000 – Unallowable expenses (Expense)

• Facilitates indirect rate development

Cost Accounting Matrix

33

• Things to consider:

• Occupancy costs allocated to programs for GAAP or 990 SFE can be reclassified back to a total G&A pool

• You can have a GAAP/990 vs. OMB G&A rate

• Consolidations, separate INC from affiliates

• Cross-company affiliates, require allocation reduction for fringe relating to affiliates

Building Indirect Rates

34

• Things to consider:

• For rental income, gain on the sale of assets and the like, become offsets to occupancy pool

• Look for fundraising expenses offset to fundraising revenue for an event in SoA

• HHS will not permit alternative or special indirect rates such as local overhead or bifurcated G&A, however,

• DOJ did permit a bifurcated rate

Building Indirect Rates

35

Developing an Indirect Rate for Real Nonprofits

36

NICRA Agreement

Preparation of “Helping Hands” ICRP

Nonprofit Indirect Cost Rate Proposal (ICRP)

• Hyperlink List

Agency ICRP Templates

38

• HHS

o https://rates.psc.gov/

o https://rates.psc.gov/fms/dca/orgmenu1.html

o https://rates.psc.gov/fms/dca/np1.html

o https://rates.psc.gov/fms/dca/np_exall2.html

• CNCS

o https://www.nationalservice.gov/sites/default/files/resource/rr7-idcrate-ho1-4-13-12.pdf

Agency Indirect Rate Templates

39

List of Hyperlinks

• DOJ-OJP

o https://ojp.gov/financialguide/DOJ/index.htm

o https://ojp.gov/financialguide/index.htm

o https://ojp.gov/financialguide/PostawardRequirements/chapter16page4.htm

o https://ojp.gov/funding/Apply/Resources/IndirectCosts.pdf

• DOL

o https://www.dol.gov/oasam/boc/DCD-2-CFR-Guid.pdf page 25

o https://www.dol.gov/oasam/boc/dcd/np-comm-guide.htm

o https://www.dol.gov/oasam/boc/dcd/dcd-agency-list.htm

Agency Indirect Rate Templates

40

List of Hyperlinks

• DoEd

o https://www2.ed.gov/about/offices/list/ocfo/fipao/abouticg.html

o https://www2.ed.gov/about/offices/list/ocfo/fipao/faq.html

• Request for Technical Assistance

o Please send any questions concerning indirect costs to the following mailbox: IndirectCostGroup@ed.gov

• NSF

o https://www.nsf.gov/bfa/dias/caar/indirect.jsp

• DOI

o https://www.doi.gov/ibc/services/finance/indirect-cost-services

Agency Indirect Rate Templates

41

List of Hyperlinks

• LINKS: FILING INSTRUCTIONS

o https://www.doi.gov/ibc/services/finance/indirect-Cost-Services/nonprofit-orgs

Agency Indirect Rate Templates

42

List of Hyperlinks

Questions?Contact Us

Paul H. CalabresePrincipal

pcalabrese@grfcpa.com

Tricia Katebini, CPA, MBASenior Manager

tkatebini@grfcpa.com

Disclaimer

This webinar is not intended as, and should not be taken as, financial, tax, accounting, legal, consulting or any other type of advice. While we use reasonable efforts to furnish accurate and up-to-date information, we do not warrant that any

information contained in or made available in this presentation is accurate, complete, reliable, current or error-free. We assume no liability or responsibility for any errors or omissions in the content of this presentation.

The use of the information provided in this presentation does not establish any contractual or other form of client engagement between GRF CPAs & Advisors and the reader or user. Any U.S. federal tax advice contained in this

presentation is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law. Readers and users of this presentation information are advised not to act upon this information without seeking the service of a

professional accountant.