assignment of indirect costs

Understanding Cost Structure: Direct, Indirect Costs & Allocation Methods

Explore the intricacies of cost structures, including direct and indirect costs, and learn about various cost allocation methods across different industries.

Every business, regardless of its size or industry, must grapple with the complexities of cost management. Understanding how costs are structured is crucial for making informed financial decisions and ensuring long-term sustainability.

Effective cost management involves distinguishing between direct and indirect costs, as well as employing appropriate allocation methods to accurately assign these costs.

Key Components of Cost Structure

A comprehensive understanding of cost structure begins with recognizing the various elements that contribute to a company’s overall expenses. These components can be broadly categorized into fixed and variable costs. Fixed costs remain constant regardless of production levels, such as rent, salaries, and insurance. On the other hand, variable costs fluctuate with production volume, including raw materials, utilities, and direct labor. This distinction is fundamental for budgeting and forecasting, as it helps businesses anticipate how changes in production levels will impact their financial health.

Another important aspect is the differentiation between product and period costs. Product costs are directly tied to the creation of goods or services and include expenses like raw materials, labor, and manufacturing overhead. These costs are capitalized as inventory on the balance sheet until the product is sold. Period costs, however, are expensed in the period they are incurred and include selling, general, and administrative expenses. Understanding this distinction aids in accurate financial reporting and compliance with accounting standards.

Additionally, the concept of economies of scale plays a significant role in cost structure. As businesses expand their operations, they often experience a reduction in per-unit costs due to increased efficiency and bargaining power. This can lead to competitive pricing and higher profit margins. Conversely, diseconomies of scale can occur when a company grows too large, leading to inefficiencies and increased per-unit costs. Balancing growth with operational efficiency is therefore a strategic consideration for any business.

Direct Costs Analysis

Direct costs are those expenses that can be directly traced to the production of specific goods or services. These costs are integral to the manufacturing process and include raw materials, direct labor, and manufacturing supplies. For instance, in an automobile manufacturing company, the cost of steel used to build car frames and the wages paid to assembly line workers are considered direct costs. These expenses are easily identifiable and can be directly attributed to the end product, making them straightforward to manage and allocate.

The precision in tracking direct costs is paramount for businesses aiming to maintain accurate financial records and optimize their production processes. Advanced software tools like SAP and Oracle ERP systems are often employed to monitor these costs in real-time. These platforms offer detailed insights into material usage, labor hours, and other direct expenses, enabling companies to make data-driven decisions. For example, a company might use these tools to identify inefficiencies in their supply chain, such as excessive material waste or underutilized labor, and implement corrective measures to enhance productivity and reduce costs.

Moreover, understanding direct costs is essential for pricing strategies. By accurately calculating the total direct costs involved in producing a product, businesses can set prices that cover these expenses while ensuring a reasonable profit margin. This is particularly important in competitive markets where pricing can be a significant differentiator. For instance, a bakery that meticulously tracks the cost of ingredients and labor for each type of pastry can price its products competitively while maintaining profitability.

Indirect Costs Analysis

Indirect costs, unlike direct costs, cannot be easily traced to a specific product or service. These expenses are necessary for the overall operation of a business but are not directly tied to the production process. Examples include utilities, rent, administrative salaries, and depreciation. These costs are often referred to as overhead and can be more challenging to allocate accurately. Understanding and managing indirect costs is crucial for maintaining financial health and operational efficiency.

One of the complexities in dealing with indirect costs is their allocation across various departments or products. This process often involves using cost drivers, which are factors that cause changes in the cost of an activity. For instance, the number of machine hours used might be a cost driver for allocating factory overhead. Advanced accounting software like QuickBooks and Xero can assist in tracking and allocating these costs more precisely. These tools can automate the allocation process based on predefined criteria, reducing the risk of human error and ensuring more accurate financial reporting.

Another important aspect of indirect costs is their impact on budgeting and forecasting. Since these costs are not directly tied to production levels, they can be more stable and predictable. However, they still require careful management to avoid unnecessary expenditures. For example, a company might negotiate better lease terms or invest in energy-efficient equipment to reduce utility costs. By closely monitoring and controlling indirect costs, businesses can improve their overall cost structure and enhance profitability.

Cost Allocation Methods

Cost allocation methods are essential for distributing indirect costs across various departments, products, or services within a business. One widely used method is the Activity-Based Costing (ABC) approach, which assigns costs based on the activities that drive them. For example, if a company identifies that machine hours are a significant cost driver, it will allocate overhead costs proportionally to the number of machine hours each product consumes. This method provides a more accurate reflection of resource usage and helps in identifying inefficiencies.

Another common method is the Direct Allocation method, which assigns costs directly to cost objects without any intermediate cost pools. This approach is simpler but may not be as precise as ABC. It is often used in smaller organizations where the complexity of operations does not justify the need for more sophisticated allocation methods. For instance, a small consulting firm might allocate administrative costs directly to client projects based on billable hours, providing a straightforward way to manage expenses.

The Step-Down Allocation method is another technique that sequentially allocates service department costs to production departments. This method recognizes the interdependencies between departments and allocates costs in a hierarchical manner. For example, the costs of the human resources department might first be allocated to the IT department, which in turn allocates its costs to production departments. This method ensures that all indirect costs are accounted for in a systematic way.

Cost Structure in Different Industries

The cost structure of a business can vary significantly depending on the industry in which it operates. For instance, manufacturing companies typically have a high proportion of direct costs due to the substantial expenses associated with raw materials and direct labor. In contrast, service-based industries, such as consulting or software development, often have higher indirect costs, including salaries for administrative staff and office rent. Understanding these industry-specific cost structures is essential for effective financial planning and management.

In the retail sector, cost structures are heavily influenced by inventory management and supply chain logistics. Retailers must carefully balance the costs of purchasing and storing inventory with the need to meet customer demand. Advanced inventory management systems like NetSuite and TradeGecko can help retailers optimize their stock levels, reducing holding costs and minimizing stockouts. Additionally, the rise of e-commerce has introduced new cost considerations, such as shipping and fulfillment expenses, which must be carefully managed to maintain profitability.

In the healthcare industry, cost structures are often complex due to the diverse range of services provided and the regulatory environment. Hospitals and clinics must manage both direct costs, such as medical supplies and staff salaries, and indirect costs, including facility maintenance and administrative expenses. Cost allocation methods like ABC can be particularly useful in this context, helping healthcare providers understand the true cost of different services and identify areas for cost reduction. Moreover, healthcare organizations often invest in specialized software like Epic and Cerner to track and manage their costs more effectively.

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2 CFR § 200.414 - Indirect (F&A) costs.

(a) Facilities and administration classification. For major Institutions of Higher Education (IHE) and major nonprofit organizations , indirect (F&A) costs must be classified within two broad categories: “Facilities” and “Administration.” “Facilities” is defined as depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses. “Administration” is defined as general administration and general expenses such as the director's office, accounting, personnel and all other types of expenditures not listed specifically under one of the subcategories of “Facilities” (including cross allocations from other pools, where applicable). For nonprofit organizations , library expenses are included in the “Administration” category; for IHEs, they are included in the “Facilities” category. Major IHEs are defined as those required to use the Standard Format for Submission as noted in appendix III to this part, and Rate Determination for Institutions of Higher Education paragraph C. 11. Major nonprofit organizations are those which receive more than $10 million dollars in direct Federal funding.

(b) Diversity of nonprofit organizations. Because of the diverse characteristics and accounting practices of nonprofit organizations, it is not possible to specify the types of cost which may be classified as indirect (F&A) cost in all situations. Identification with a Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect (F&A) costs of Federal awards. However, typical examples of indirect (F&A) cost for many nonprofit organizations may include depreciation on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

(c) Federal Agency Acceptance of Negotiated Indirect Cost Rates. (See also § 200.306 .)

(1) The negotiated rates must be accepted by all Federal awarding agencies. A Federal awarding agency may use a rate different from the negotiated rate for a class of Federal awards or a single Federal award only when required by Federal statute or regulation, or when approved by a Federal awarding agency head or delegate based on documented justification as described in paragraph (c)(3) of this section.

(2) The Federal awarding agency head or delegate must notify OMB of any approved deviations.

(3) The Federal awarding agency must implement, and make publicly available, the policies, procedures and general decision-making criteria that their programs will follow to seek and justify deviations from negotiated rates.

(4) As required under § 200.204 , the Federal awarding agency must include in the notice of funding opportunity the policies relating to indirect cost rate reimbursement, matching, or cost share as approved under paragraph (e)(1) of this section. As appropriate, the Federal agency should incorporate discussion of these policies into Federal awarding agency outreach activities with non-Federal entities prior to the posting of a notice of funding opportunity .

(d) Pass-through entities are subject to the requirements in § 200.332(a)(4) .

(e) Requirements for development and submission of indirect (F&A) cost rate proposals and cost allocation plans are contained in Appendices III-VII and Appendix IX as follows:

(1) Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) ;

(2) Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations;

(3) Appendix V to Part 200—State/Local Governmentwide Central Service Cost Allocation Plans;

(4) Appendix VI to Part 200—Public Assistance Cost Allocation Plans;

(5) Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals; and

(6) Appendix IX to Part 200—Hospital Cost Principles.

(f) In addition to the procedures outlined in the appendices in paragraph (e) of this section, any non-Federal entity that does not have a current negotiated (including provisional) rate, except for those non-Federal entities described in appendix VII to this part, paragraph D.1.b, may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC) which may be used indefinitely. No documentation is required to justify the 10% de minimis indirect cost rate. As described in § 200.403, costs must be consistently charged as either indirect or direct costs, but may not be double charged or inconsistently charged as both. If chosen, this methodology once elected must be used consistently for all Federal awards until such time as a non-Federal entity chooses to negotiate for a rate, which the non-Federal entity may apply to do at any time.

(g) Any non-Federal entity that has a current federally-negotiated indirect cost rate may apply for a one-time extension of the rates in that agreement for a period of up to four years. This extension will be subject to the review and approval of the cognizant agency for indirect costs . If an extension is granted the non-Federal entity may not request a rate review until the extension period ends. At the end of the 4-year extension, the non-Federal entity must re-apply to negotiate a rate. Subsequent one-time extensions (up to four years) are permitted if a renegotiation is completed between each extension request.

(h) The federally negotiated indirect rate, distribution base, and rate type for a non-Federal entity (except for the Indian tribes or tribal organizations, as defined in the Indian Self Determination, Education and Assistance Act, 25 U.S.C. 450b(1) ) must be available publicly on an OMB -designated Federal website.

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Indirect Costs Assignment

Directive statement.

This Directive establishes the proper methods of assigning indirect costs . Uniform Guidance 2 CFR 200 defines indirect costs as those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, and instructional activity or any other institutional activity. These costs are usually classified and accumulated in the following indirect cost categories:

• depreciation/use allowances
• operations and maintenance
• general administration/general expenses
• department administration
• sponsored projects administration, library, and student administration/services

Each category may have several cost pools, costs that are grouped together because they are like in nature and use of the same allocation method for distribution to the various cost objectives will be fair and equitable.

Cost Accounting Standard (CAS) 9905.501 requires consistency estimating, accumulating and reporting costs. Accumulation has already occurred at the object code level. See University of Florida Policy on Charging Costs Directly to Sponsored Projects .

Cost Accounting Standard (CAS) 9905.502 requires consistency in allocating costs incurred for the same purpose. Proper care must be taken in allocating costs that are usually considered indirect. See University of Florida Policy on Charging Costs Directly to Sponsored Projects .

Cost Accounting Standard (CAS) 9905.505 requires identification and correct treatment of unallowable costs. Unallowable costs must be identified and excluded. Unallowable activities must be identified and allocated to Other Institutional activities. See University Policy on Unallowable costs .

Cost Accounting Standard (CAS) 9905.506 requires consistency in the cost accounting period. This is necessary in order for accuracy in rate development and rate application. It requires that the same time period be used for the development of the indirect cost pools and direct cost pools (bases).

Reason for Directive

To provide information about Indirect Costs Assignment / Cost Pool Development in preparation of the Indirect Cost proposal. The University of Florida must comply with the requirements of Uniform Guidance 2 CFR 200 and Cost Accounting Standards (CAS) 48 CFR 9905.501, 9905.502, 9905.505, and 9905.506.

Who must comply?

Responsibility for following these guidelines lies primarily with Cost Analysis, which is responsible for development and review of the indirect cost pools. Cost Analysis is also responsible for the development of the indirect cost proposal

• Principal Investigators, Department Chairs and fiscal personnel with the general guidance and oversight of the colleges, schools and divisions are responsible for recording costs to the correct account code and ChartField string.
• The University of Florida administration is responsible for guidance and training and for ensuring compliance through periodic internal and external audits

Department Responsibilities

Correct accumulation of indirect costs begins at the department level where many of the costs are first incurred and recorded.

In order to comply with Uniform Guidance 2 CFR 200 and 48 CFR CAS 9905.501, 9905.502 and 9905.505 it is imperative that departments understand and correctly record all costs.

• See University of Florida Policy on Charging Costs Directly to Sponsored Projects for guidance regarding the consistency in estimating, accumulating and reporting costs (as required in CAS 9905.501 )
• For information of those costs which are required to be charged indirectly (and examples of when such charges as administrative and clerical salaries may be direct charged (as required in CAS 9905.502 ))

Any questions regarding original coding of charges or cost transfers can be addressed to the Office of Contracts and Grants, (352) 392-1235, which is the central unit designated to carry out oversight.

Cost Analysis Responsibilities

Cost Analysis staff are responsible for developing and reviewing the indirect cost pools. This is done in accordance with Uniform Guidance 2 CFR 200 and the related Cost Accounting Standards (CAS) 48 CFR 9905.501, 9905.502, 9905.505 and 9905.506.

Guideline Issues

In order to correctly and fairly allocate indirect costs for the purposes of the indirect cost proposal, it is necessary to first identify and segregate costs as either direct or indirect in nature (we call these segregated costs, cost pools).

• This requires that costs are correctly recorded in the accounting system (recorded to the correct account code and program) and then carefully assigned to the appropriate cost pool.

Per 2 CFR 200: The overall objective of the indirect cost allocation process is to distribute the indirect costs to the major functions of the university in proportions reasonably consistent with the nature and extent of their use of the university’s resources.

• In order to do this it is necessary to group indirect costs together, so that costs that are like in nature and in terms of their relative contribution to the particular cost objectives to which they can be appropriately distributed can be pooled
• when certain activities should receive only a portion of central indirect costs because they provide their own administrations
• for certain items/categories of expenses which relate to specific areas of the university
• for service facilities where output is measurable and allocable based on organized research, instructional, or other activities at the University

Although much of these guidelines have already been implemented, an effective date of December 26, 2014 is set to allow for University wide training at the department level so as to ensure compliance and consistency.

Last Reviewed

Last reviewed on 06/28/2024

2 CFR 200 Quick Reference Guide

Uniform Guidance 2 CFR 200

48 CFR 9905 – Cost Accounting Standards (CAS) for Education Institutions

UF HR Toolkit – CAS Exemption Process

RSH260: Cost Principles

RSH206: Cost Principles Advanced Topics

RSH282: UFIRST Awards

RSH212: Post Award Overview

Cost Analysis: (352) 392-5778

Contracts and Grants Accounting: (352) 392-1235

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Cost assignment definition

What is cost assignment.

Cost assignment is the allocation of costs to the activities or objects that triggered the incurrence of the costs. The concept is heavily used in activity-based costing , where overhead costs are traced back to the actions causing the overhead to be incurred. The cost assignment is based on one or more cost drivers .

Cost assignments are associated with direct costs and indirect costs. Assignments of costs differ, based on which cost has been incurred. These differences are as follows:

Assignment of direct costs . Direct costs can be traced directly to a cost object. For example, the valve used on a basketball is a direct cost of the basketball, since it is an item that is directly incorporated into the product. These costs are assigned to cost objects based on a bill of materials (in the case of materials) or a time sheet (in the case of labor).

Assignment of indirect costs . Indirect costs cannot be traced directly to a cost object. For example, the cost of the materials manager who schedules production activities for a number of different products cannot be directly assigned to each of the products manufactured. Instead, these costs are assigned to cost objects using a reasonable basis of allocation.

Example of a Cost Assignment

A university operates its own maintenance department; the cost of the department is assigned to the various other departments of the university based on their consumption of the department's maintenance services.

Terms Similar to Cost Assignment

Cost assignment is also known as cost allocation .

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General Guidance on Calculating Indirect Costs 

Published february 1, 2023.

General Guidance on Calculating Indirect Costs (PDF)

Introduction

This document provides introductory guidance to NEH applicant and recipient organizations on calculating indirect costs as part of an NEH grant or cooperative agreement application budget. This guidance does not supersede information and requirements on the development, calculation, and application of indirect costs and indirect cost rates in 2 CFR Part 200, Uniform Administrative Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and the General Terms and Conditions for Awards to Organizations (For grants and cooperative agreements issued January 1, 2022, or later) .

Refer to the Notice of Funding Opportunity (NOFO) for statutory or administrative information regarding the allowability of indirect costs. NEH does not reimburse indirect costs under the following types of awards:

• construction
• general operating support costs to State Humanities Councils (SHC)
• awards to individuals  

What are Indirect Costs?

NEH Project Budget Applicant organizations submit an NEH project budget using the Research and Related budget form , unless otherwise instructed in the NOFO . You should prepare a project budget in coordination with your organization’s Institutional Grant Administrator (IGA) and/or Office of Sponsored Projects.

When preparing your budget, you must treat costs that you classify as direct or indirect consistently. You cannot assign a cost to an NEH award as a direct cost if you have allocated any other cost incurred for the same purpose to the award as an indirect cost ( 2 CFR § 200.403(c) ).

Direct Costs

Direct costs are salaries, services, and goods that are directly related to the project and are accounted for with a high degree of accuracy. Direct costs must align with the cost principles, including allowability ( 2 CFR § 200.403 ), reasonableness ( 2 CFR § 200.404 ), and allocability ( 2 CFR § 200.405 ). Examples include salaries and benefits for staff and consultants working on the project, project-related travel, and supplies and equipment used on the project.

Indirect Costs

Indirect costs represent administrative expenses associated with the cost of doing business that are not readily identified project activities. Indirect costs, also referred to as facilities and administrative costs (F&A) , are incurred for the benefit or joint objectives of a specific project and organizational activities. These costs are allocated equitably across all of your organization’s activities. Examples include costs for clerical and managerial staff, depreciation, office space rental, and utilities.

To recover indirect costs related to an NEH award, your organization must either negotiate an indirect cost rate with its cognizant agency prior to a federal award or elect to use a de minimis rate of 10% of modified total direct costs (MTDC) ( 2 CFR § 200.414(f) ) . In your application, you must include your project budget and the base, rate, and amount of indirect costs you will recover during period of performance.

Negotiated Indirect Cost Rate Agreements

A Negotiated Indirect Cost Rate Agreement (NICRA) is a formal written agreement between your organization and its cognizant federal agency describing how the organization will calculate indirect costs. A NICRA establishes the following to calculate indirect costs:

• applicable period(s)

The rate(s) established in a NICRA are typically effective for a two- to four-year period. If your organization has a NICRA, you may apply to your cognizant agency for a one-time extension of a current agreement for a period of up to four years, in accordance with 2 CFR § 200.414 (g) .

De Minimis Rate

Organizations without a current or provisional NICRA

Per 2 CFR § 200.414 (f) , if you do not have a current or provisional negotiated rate (except for local governments claiming central service costs under 2 CFR § 200, Appendix VII D.1.b ), you may choose to use a de minimis rate of 10% of modified total direct costs (MTDC). If you choose the de minimis, you must use the rate consistently for all federal awards until your organization chooses to negotiate its own indirect cost rate.

Organizations with a NICRA but without an applicable rate

Your organization may also selectively apply the de minimis rate in cases in which it does not have an applicable rate. For example, research rates are not applicable to the scholarly research that NEH funds, except in rare circumstances. In cases in which an organization has only negotiated a research rate (see below for an explanation of rate types), the organization may apply the de minimis rate.

The de minimis uses a Modified Total Direct Costs (MTDC) base, which consists of:

“All direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs ( 2 CFR § 200.1 ) .”

Acceptance of Indirect Cost Rates

NEH must accept valid and applicable indirect cost rates ( 2 CFR § 200.414 (c)(1) ), or if no current or provisional negotiated rate exist, accept the de minimis rate, if requested in the application budget. NEH must use the negotiated rates in effect at the time of the initial award throughout the life of the award, except as provided in 2 CFR § 200.414  (c)(1 ) . If the rate agreement in effect at the beginning of the period does not cover the entire period of performance, then NEH will use the rate in effect for the last year of the negotiated rate agreement to determine indirect costs for the duration of the period of performance ( 2 CFR Appendix III (c)(7)(a) ).

Once NEH issues an award, it is not obligated to make adjustments due to increases in your organization’s indirect cost rate agreement. 

Likewise, recipient organizations that issue subawards (referred to as pass-through entities) must accept subrecipients’ applicable federally negotiated indirect cost rates. If no approved rate exists, the pass-through entity may negotiate an indirect cost rate with the subrecipient or accept the de minimis rate ( 2 CFR § 200.332 (a)(4) ).

Negotiating New Indirect Cost Rates

If your organization does not have a current negotiated (including provisional) rate or has an expired rate, your organization may choose to negotiate a rate with its cognizant agency. If your organization wants to negotiate a NICRA and NEH is its c ognizant a gency , see Guidance for Negotiating an Indirect Cost Rate Agreement with NEH .

Reviewing and Calculating Indirect Costs using a NICRA

NICRA Structure

Applying the correct indirect cost rate requires an understanding of the structure of your NICRA. A NICRA generally includes the following information:

Effective date of the agreement EIN (Employer Identification Number) of the organization Organization name and address Indirect Cost Rate type(s) Common indirect cost rate types include: Provisional – an interim rate applicable to a specified period time pending the establishment of a final rate for that period. Final – a permanent rate determined after an organization’s actual costs for a current year are known. A final rate is used to adjust indirect costs claimed based on a provisional rate. Predetermined – a permanent rate, applicable to a specified current or future period based on a review of actual costs incurred during a prior period. A predetermined rate is typically not subject to adjustment. Fixed rate with carry-forward – a rate with 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 a rate adjustment in future years. Effective Period (“From” and “To”) The period during which the indirect cost rate is applicable. Applicable Rate Location Locations for where the organization will perform most of the substantive work of the project. Common locations include: On-Site/Campus (organizations conduct activities in a space they either own or lease) Off-Site/Campus (organizations conduct activities in a space for which they do not own or lease) Type of programs that rates are applicable to Common program types include: Other Sponsored Activities – programs and projects that involve the performance of work other than instruction and organized research. Instruction – teaching and training activities of an institution except for research training. All Programs Organized Research – research and development activities of an institution that are separately budgeted and accounted for as scientific research and generally not scholarly inquiry of the type most often supported by NEH. Indirect Cost Rate (Allocation) Base Defined The cost base describes the direct cost pool (types of costs and cost caps) to which the indirect cost rate is applied. Common bases for indirect costs include: modified total direct costs (MTDC) direct salaries and wages including (or excluding) fringe benefits direct salaries and wages including vacation, holiday, sick pay, and other paid absences total direct costs (TDC) Fringe Benefit Rates Provides the separate rates for allocating employee benefits (e.g., payroll taxes, vacation, sick, retirement, health care, bonus, deferred compensation, insurance). General Terms and Conditions Identifies any limitations on the use of the rates, the basis of accounting, rate specific information (such as fixed or provisional rates), the use of the NICRA by other federal agencies, and other information. Special remarks (composition of the indirect cost pool) Defines the costs that compose the indirect cost pool.

Calculating Indirect Costs

When calculating indirect costs, select the appropriate cost base, as established in the NICRA, to determine the direct costs to be multiplied by the applicable negotiated indirect cost rate. The result of this calculation represents the allowable indirect costs for the project.

This section provides two examples of calculating indirect costs.

Example 1: Applying a 34% Indirect Cost Rate using a MTDC base

  Salaries $100,000.00 Fringe @ 28%  $28,000.00 Equipment $50,000.00 Subawards $30,000.00 Contracts $-   Supplies $5,000.00 Travel $-   Other $10,000.00 Total Direct Costs $223,000.00 Total Indirect Costs (34%) $57,120.00 Total Project Costs $280,120.00

Base MTDC Rate Indirect Costs Modified Total Direct Costs, excludes equipment, capital expenditures, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. $168,000.00 X 34% = $57,120.00

Example 2: Applying a 34% Indirect Cost Rate using direct salaries and wages, excluding fringe benefits, base

Salaries $100,000.00 Fringe @28%  $28,000.00 Equipment $50,000.00 Subawards $30,000.00 Contracts $-   Supplies $5,000.00 Travel $-   Other $10,000.00 Total Direct Costs $223,000.00 Total Indirect Costs (34%) $34,000.00 Total Project Costs $257,000.00 Base Direct Costs Rate Indirect Costs Salaries excluding fringe $100,000.00 X 34% = $34,000.00

Definitions

Indirect costs – costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, your organization may need to establish a number of pools of indirect costs. Indirect cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived ( 2 CFR § 200.1 ).

Cognizant agency for indirect costs – The cognizant agency for indirect costs is the federal agency that is responsible for establishing cost allocation plans or indirect cost proposals on behalf of all federal agencies ( 2 CFR § 200.1 ). The cognizant agency is typically the federal  awarding agency that provides the largest amount of direct funding (as listed on the schedule of expenditures of Federal awards, see § 200.510(b) ) to a non-Federal entity unless OMB designates a specific cognizant agency for audit.

Facilities and administrative costs – Facilities costs are the overall costs of operating and maintaining facilities owned or leased by the organization in which activities that may directly or indirectly support your project are taking place. Examples include depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses.

Administration costs include general administrative expenses that are not specific to the project but serve the entire organization. Examples include general administration and general expenses such as the director's office, legal, accounting, and administrative personnel.

• 2 CFR § 200.332 – Requirements for pass-through entities
• 2 CFR 200 Subpart E, Cost Principles
• 2 CFR § 200.414 – Indirect (F&A) Costs
• 2 CFR Part 200, Appendix III – Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions for Higher Education (IHEs)
• 2 CFR Part 200, Appendix IV – Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations

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Indirect Cost Rate Guide for Non-Profit Organizations

This Indirect Cost Rate Guide (Guide) has been prepared to assist non-profit organizations to understand the requirements for the determination of indirect cost rates for application on cost reimbursable grants and other agreements awarded by the United States Agency for International Development (USAID).

The Office of Management and Budget (OMB) published Title 2 of the Code of Federal Regulations Part 200 (2 CFR 200), titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” to streamline the Government-wide guidance on Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards.  The administrative requirements and cost principles apply to new awards authorized on or after December 26, 2014.

As of November 1, 2016 the following changes have been made to the OCC Guide for Non-Profit Organizations.

General Information

Overhead, special cost and closeout branch.

When the U.S. Agency for International Development (USAID) provides the majority of a non-profit organization’s Federal funding, it is the cognizant Federal agency for negotiating the organization’s indirect cost rates. All Federal agencies are required to use the rates and methodology negotiated by USAID and the related organization.

The Overhead, Special Cost, and Closeout Branch (M/OAA/CAS/OCC), within the Cost Audit Support Division, Office of Acquisition and Assistance, within the Bureau for Management is the central unit authorized to negotiate indirect cost rates with concerns awarded contracts, grants or cooperative agreements by USAID. M/OAA/CAS/OCC establishes Negotiated Indirect Cost Rate Agreements (NICRA) for U.S. and foreign organizations with awards issued by the Bureau for Management’s, Office of Acquisition and Assistance (M/OAA) in Washington, DC.

Indirect Cost Rates Issued to Foreign NGOs

Responsibility for the negotiation and issuance of NICRAs for foreign organizations, with no awards issued by USAID/Washington’s M/OAA, rests with the Mission (and handled by the Agreement Officer) providing the majority of the entities’ funding. A foreign organization is an organization located in a country other than the United States that is a non-profit and tax exempt under the laws of its country of domicile and operation. The cognizant Mission initially negotiates, and subsequently updates, the NICRA on a company-wide basis; not per grant/award. M/OAA/CAS/OCC provides support and guidance to Agreement Officers (AO) and Agreement Officer’s Representatives (AOR) at Missions regarding the negotiation of NICRAs as requested. If the foreign entity has an award issued from Washington, M/OAA/CAS/OCC will negotiate and issue the issuance of a NICRA. Once a NICRA is issued, either by a Mission or M/OAA/CAS/OCC, this NICRA will apply to all Federal awards.

Definition of Indirect Costs and Indirect Cost Rate

Indirect Costs

According to 2 CFR 200, Subpart F, Appendix IV, Section A.1:

“Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective.”

2 CFR 200, Subpart A, Section 200.56 defines Indirect (facilities & administrative (F&A)) costs for “Major nonprofit organizations”:

“Indirect (F&A) costs means those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect (F&A) costs. Indirect (F&A) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.”

• “Facilities” is defined as general administration and general expenses such as the director's office, accounting, personnel and all other types of expenditures not listed specifically un
• “Administration” is defined as general administration and general expenses such as the director's office, accounting, personnel and all other types of expenditures not listed specifically under one of the subcategories of “Facilities” (including cross allocations from other pools, where applicable).

“Major nonprofit organizations” are defined in 2 CFR 200, Subpart E, Section 200.414(a) as those which receive more than $10 million dollars in direct federal funding.

Indirect costs are applied equitably across all of the business activities of the organization according to the benefits each gains from them. Some examples of indirect costs are office space rental, utilities, and clerical and managerial staff salaries. To the extent that indirect costs are reasonable, allowable and allocable, they are a legitimate cost of doing business payable under a U.S. Government contract or grant.

Indirect Cost Rate:

An indirect cost rate is simply a device for determining fairly and conveniently within the boundaries of sound administrative principles, what proportion of indirect cost each program should bear. The indirect cost rate is designed to provide a method for full cost recovery, and it is an equitable, logical and consistent process for allocating costs not directly associated with a single grant/contract, project or cost objective.

An indirect cost rate is calculated as a percentage by dividing the total allowable indirect costs by an equitable distribution base, as an example:

Indirect pool    $150,000 Distribution base    $776,700 Indirect cost rate       19.31%

Please refer to Section 1.F below titled “ Determination of Indirect Cost Rates and Cost Allocation ” for information on the base of application.

Types of Indirect Cost Rates

2 CFR 200, Subpart F, Appendix IV, Section C.1.b., c., d., and e identifies and defines the following indirect cost rates:

Provisional A provisional rate or billing rate is a temporary indirect cost rate applicable to a specified period and is used for interim billings pending the establishment of a final rate for the period.

USAID predominantly uses the provisional and final indirect cost rate methodology when negotiating rate agreements.

2 CFR 200, Subpart F, Appendix 4, Section C.2.f. states that provisional and final rates must be negotiated where neither predetermined nor fixed rates are appropriate. Predetermined or fixed rates may replace provisional rates at any time prior to the close of the organization's fiscal year. If that event does not occur, a final rate will be established and upward or downward adjustments will be made based on the actual allowable costs incurred for the period involved.

To prevent substantial overpayment or underpayment of indirect cost during the fiscal year, a revised provisional rate may be requested by the organization.

After USAID issues a final indirect cost rate, M/OAA/CAS/OCC will establish a provisional rate for the next fiscal year. When an organization considers the final indirect cost rate to be a reasonable estimate of its rate for coming year, it will be established as the new provisional rate. If this is not the case, an organization provides a detailed forecast to support the rate they consider more accurate.

Final A final indirect cost rate is applicable to a specified past period based on the actual costs of the period. A final indirect cost rate is not subject to adjustment.

Note that a final indirect cost rate is established after an organization's actual costs are known, typically a fiscal year. Once established, a final indirect cost rate is used to adjust the indirect costs claimed.

Predetermined A predetermined indirect cost rate is applicable to a specified current or future period, usually the organization's fiscal year. The rate is based on an estimate of the costs to be incurred during the period. A predetermined rate is not subject to adjustment.

A predetermined rate may be negotiated for use on Federal awards where there is reasonable assurance, based on past experience and reliable projection of the organization's costs, that the rate is not likely to exceed a rate based on the organization's actual costs.

Fixed A fixed rate is an indirect cost rate with 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.

Fixed rates may be negotiated where predetermined rates are not considered appropriate. A fixed rate, however, must not be negotiated if (i) all or a substantial portion of the organization's Federal awards are expected to expire before the carry-forward adjustment can be made; (ii) the mix of Federal and non-Federal work at the organization is too erratic to permit an equitable carry-forward adjustment; or (iii) the organization's operations fluctuate significantly from year to year.

10% De minimis The 10% De minimis rate may be elected by an organization that has never received a negotiated indirect cost rate.

2 CFR 200, Subpart E, Section 200.414 (f) specifies that any non-Federal entity that has never received a negotiated indirect cost rate may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC) which may be used indefinitely.

As described in 2 CFR 200, Subpart E, Section 200.403, Factors affecting allowability of costs, costs must be consistently charged as either indirect or direct costs, but may not be double charged or inconsistently charged as both. If chosen, this methodology once elected must be used consistently for all Federal awards until such time as a non-Federal entity chooses to negotiate for a rate, which the non-Federal entity may apply to do at any time.

See Appendix II of this guide titled, “Frequently Asked Questions,” for additional information on the 10% De minimis rate.

One-Time Extension

A one-time extension of a currently negotiated rate may be approved for up to a 4-year period.

2 CFR 200, Subpart E, Section 200.414 (g) states that any non-Federal entity that has a federally negotiated indirect cost rate may apply for a one-time extension of a current negotiated indirect cost rate for a period of up to four years.

This extension will be subject to the review and approval of the cognizant agency for indirect costs. If an extension is granted the non-Federal entity may not request a rate review until the extension period ends. At the end of the 4-year extension, the non-Federal entity must re-apply to negotiate a rate.

Determination of Indirect Cost Rates and Cost Allocation

2 CFR 200, Subpart F, Appendix IV, Section B. identifies the following specific methods for allocating indirect costs.

2 CFR 200, Subpart F, Appendix IV, Section B.2.a., states that where an organization's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (i) separating the organization's total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual Federal awards. The rate should be expressed as the percentage which the total amount of allowable indirect costs bears to the base selected.

This method should also be used where an organization’s major functions benefit from its indirect costs to approximately the same degree, and may be used where the level of Federal awards to an organization is relatively small.

2 CFR 200, Subpart F, Appendix IV, Section B.3.a, states that where an organization's indirect costs benefit its major functions in varying degrees, indirect costs must be accumulated into separate cost groupings. Each grouping must then be allocated individually to benefitting functions by means of a base which best measures the relative benefits.

The indirect costs allocated to each function are then distributed to individual Federal awards and other activities included in that function by means of an indirect cost rate(s).

2 CFR 200, Subpart F, Appendix IV, Section B.4.a, states that some nonprofit organizations treat all costs as direct costs except general administration and general expenses. These organizations generally separate their costs into three basic categories: (i) General administration and general expenses, (ii) fundraising, and (iii) other direct functions (including projects performed under Federal awards).

Joint costs, such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are prorated individually as direct costs to each category and to each Federal award or other activity using a base most appropriate to the particular cost being prorated.

Specific instructions on the computation of indirect cost rates with the conditions on when to use each method are contained in 2 CFR 200, Subpart F, Appendix IV, Section B.

2 CFR 200, Subpart F, Appendix IV, Section B.5 also provides for the use of Special Indirect Cost Rates. In some instances, a single indirect cost rate for all activities of an organization or for each major function of the organization may not be appropriate, since it would not take into account those different factors which may substantially affect the indirect costs applicable to a particular segment of work.

The rate methodology selected by an organization needs to match a business’ operations. The allocation base should best represent the causal relationship between costs being allocated and the final cost objectives (awards, fundraising, lobbying, etc.).

The allocation base selected by the non-profit organization must be:

• reasonable and consistently applied to direct costs,
• supported by accurate and current data,
• appropriate to the particular cost being distributed, and
• one which results in an accurate measure of the benefits provided to each activity of the organization.

Submission of Indirect Cost Proposal

First Time NICRA Submissions

Per 2 CFR 200, Subpart F, Appendix IV, Section C.2.b., organizations that do not have a NICRA with the Federal government are required to provide their initial indirect cost proposal immediately but no later than 3 months after the effective date of the Federal award which first incorporates indirect cost rates. Note that Section 2 of the Guide identifies steps to prepare an indirect cost rate proposal. Grantees should send their submission to NON- [email protected] .

Prior to the preparation of an indirect cost rate proposal and supporting documentation, the cost principles in 2 CFR 200, Subpart E should be reviewed to determine if the costs proposed are reasonable, allowable and allocable. In addition, 2 CFR 200, Subpart A, Section 200.57 defines an indirect cost rate proposal as the documentation prepared by a non-Federal entity to substantiate its request for the establishment of an indirect cost rate.

Refer to Section 2.E. “Indirect cost Proposal Checklist for First Time NICRA” of this guide for the required documentation.

Subsequent NICRA Submissions

Grantees that already have a NICRA are required to submit their audited financial statements and single audit in accordance with 2 CFR 200, Subpart F, Section 512(a)(1) and certified indirect cost rate proposal to USAID within the earlier of 30 days after receipt of the auditor’s report, or nine months after the close of each fiscal year. Grantees should send their submission to NON- [email protected] .

A grantee that expends less than $750,000 during the entity's fiscal year in federal awards is exempt from the single audit required by 2 CFR 200, Subpart F, Section 501(d). Nonetheless, 2 CFR 200, Subpart F, Appendix IV, Section C.2.c. requires organizations to submit audited financial statements and the certified indirect cost rate proposal within six months after the close of the fiscal year.

Refer to Section 2. F. “Indirect Cost Proposal Checklist for Subsequent NICRAs” of this guide for the required documentation.

Approval of Indirect Cost Proposal

The Federal agency with the largest dollar value of Federal awards with an organization will be designated as the cognizant agency for indirect costs for the negotiation and approval of the indirect cost rates unless different arrangements are agreed to by the Federal agencies concerned. Once an agency is assigned cognizance for a particular nonprofit organization, the assignment will not be changed unless there is a shift in the dollar volume of the Federal awards to the organization for at least five years.

Procedures for Establishing the NICRA

These procedures are broken down into two sections. The first set of procedures is for an organization seeking its first NICRA and the second set is related to the issuance of subsequent NICRAs.

An organization which does not yet have a NICRA but wishes to propose indirect cost should follow the steps below and explain in response to any award applications that no NICRA yet exists because this will be its first prime USG award. The indirect cost rates will then be reviewed for propriety by M/OAA/CAS/OCC and the Contracting/Awarding officer will be advised of approved rates after negotiation with the organization. If the organization subsequently wins the award a NICRA will then be issued. Conversely, if the organization is not successful in securing the award, no NICRA will be issued.

After receiving the indirect cost proposal M/OAA/CAS/OCC will perform the following steps:

• Confirm that the organization has a USAID prime award that includes indirect cost rates.
• Determine if USAID is the federal cognizant agency, i.e. USAID provides the majority of the organization’s funding from the Federal government. If not, USAID does not have the authority to negotiate the organization’s rates.
• Follow up, after reviewing the indirect cost proposal, with questions, and/or concerns – and may request additional documentation, and/or narrative responses, in support of the proposal (for more detailed steps see Section 2.G., “Indirect Cost Proposal – M/OAA/CAS/OCC’s Review Procedures,” of this guide.)
• Special attention will be given to the choice of the individual indirect cost rate allocation bases to ensure they result in an equitable allocation of indirect costs to final cost objectives.
• Document meetings, telephone conversations, and e-mails.
• Make any agreed upon changes, and request any revised, and/or supporting documentation.
• Submit a draft NICRA to the organization for their review of the indirect cost rate methodologies, and obtain their concurrence.
• Issue the NICRA.

Note that NICRAs are not issued to sub-awardees since there is no legal relationship between USAID and the sub-awardee. Responsibility for the negotiation of indirect cost rates for sub-awardee’s rests with the prime recipient

M/OAA/CAS/OCC will be the federal cognizant agency for the issuance of the NICRA until the organization no longer has USAID prime awards, or the preponderance of funds shifts to another U.S. federal agency and cognizance has been transferred.

This section of the guidance applies to organizations that are requesting new provisional rates for future periods and/or the finalization of provisional rates for past periods.

• Grantees that already have a NICRA and wish to finalize indirect cost rates for a prior period are required to submit their audited financial statements and single audit in accordance with 2 CFR 200, Subpart F, Section 512(a)(1) and certified indirect cost rate proposal to USAID within the earlier of 30 days after receipt of the auditor’s report, or nine months after the close of each fiscal year. This audit and certified indirect cost proposal will serve as the primary basis for the negotiation of final rates for the audited period.
• After USAID issues a final indirect cost rate, M/OAA/CAS/OCC will establish a provisional rate for the next fiscal year. When an organization considers the final indirect cost rate to be a reasonable estimate of its rate for coming year, it will be established as the new provisional rate. If this is not the case, an organization must provide a detailed forecast supporting the desired rate(s). Further, if at any time during the fiscal year an organization determines that its current provisional rate is no longer accurate and materially misstated it should advise M/OAA/CAS/OCC accordingly. If adequately supported, a revised provisional rate will be issued.
• Follow up, after reviewing the indirect cost proposal, with questions, and/or concerns – and may request additional documentation, and/or narrative responses, in support of the proposal (for more detailed steps see Section 2.G., “Indirect Cost Proposal – M/OAA/CAS/ OCC’s Review Procedures,” of this guide.)
• Review changes in the indirect cost rate allocation bases for propriety, if applicable. Note - changes in allocation bases need to be approved on a prospective basis.
• Document meeting, telephone conversations, and e-mails.
• Submit a draft NICRA to the organization for their review of the indirect cost rates methodology, and obtain their concurrence.

Negotiated Indirect Cost Rate Agreement (NICRA)

2 CFR 200, Subpart F, Appendix IV, Section C.2.g states that the result of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the nonprofit organization. The Negotiated Indirect Cost Rate Agreement shall specify: (a) the final rate(s), (b) the base(s) to which the rate(s) apply, and (c) the period(s) for which the rate(s) apply. The Negotiated Indirect Cost Rate Agreement shall not change any monetary ceiling, obligation, or specific cost allowance or disallowance provided for in each grant or contract between the parties.

2 CFR 200, Subpart E, Section 200.414 (c) (1) states that the negotiated rates must be accepted by all Federal awarding agencies. Appendix I of this Guide contains a sample of the NICRA used by USAID.

Changes to the Established Indirect Cost Rate Methodology

An organization is required to provide written notification to the indirect cost negotiator prior to implementing any changes which could affect the applicability of the approved rates. Any changes in accounting practice to include changes in the method of charging a particular type of cost as direct or indirect and changes in the indirect cost allocation base or allocation methodology requires the prior approval of the M/OAA/CAS/OCC. Failure to obtain such prior written approval may result in cost disallowance.

Failure by the parties to agree on any final rate(s) under this provision is considered a dispute within the meaning of the Standard Provision, “Disputes.” If a dispute arises in a negotiation of an indirect cost rate between the cognizant agency for indirect costs and the nonprofit organization, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs. A sample is as follows:

The Agreement Officer (AO) decides any dispute between the organization as defined in 2 CFR 200.86, and USAID arising under an assistance award. The AO’s decision is final unless the recipient appeals the decision.

As outlined in 2 CFR 700.15, if the organization disagrees with the AO’s final decision, the organization may appeal the AO’s decision to the USAID’s Deputy Assistant Administrator, Bureau for Management, or designee. Send the appeal to the Deputy Assistant Administrator, Bureau for Management, U.S. Agency for International Development, Management Bureau, 1300 Pennsylvania Ave, NW, Washington, D.C. 20523. A copy of the appeal must be concurrently furnished to the AO. No hearing will be provided.

The appeal must be in writing and must be postmarked within thirty (30) calendar days of receipt of the AO’s final decision. The organization must include all relevant and material evidence to support its position and must provide a copy of the appeal to the AO.

Immediately upon receiving an appeal, the Deputy Assistant Administrator, Bureau for Management, or designee, and the AO must forward the appeal to the Bureau for Management, Office of Acquisition and Assistance, Compliance Division (M/OAA/C) at [email protected] . M/OAA/C will:

• consult with other divisions within M/OAA as needed before preparing a recommendation for the deciding official; and
• coordinate a review by General Counsel

Within sixty (60) calendar days of receiving the appeal, M/OAA/C must notify the recipient of the status (i.e., denied, approved, or more time is needed). The AO must place a copy of the final decision in the award files.

A decision under this provision by the Deputy Assistant Administrator, Bureau for Management is final.

Limitations Effecting Reimbursement of Indirect Costs

Reimbursement of indirect costs are subject to the submission of an indirect cost rate proposal, availability of funds, statutory and administrative restrictions, and the approval of the USAID Grant Officer or authorized representative.

It is USAID’s policy that grantees that agree to an indirect cost rate ceiling that is less than the government-wide NICRA rate in a contract or grant for cost sharing or other reasons shall not recoup the amounts occasioned by the reduction in the rates on other agreements with the U.S. Government.

Therefore, the organization must agree in writing not to recoup the reduction in the rates on other awards with the U.S. Government - the reduction must be taken from other non-governmental sources of revenues. In any instance where an indirect cost rate other than that specified in the NICRA is used in an award, the grantee is required to acknowledge the above stipulations by providing a written acknowledgement to USAID. Refer to Appendix V for a sample of a deviation letter from the NICRA.

Ceiling Indirect Cost Rates

Grants providing for ceilings as to the indirect cost rates or amounts will be subject to the ceilings stipulated in the grants or other agreements. The ceiling indirect cost rates or the indirect cost rates cited in grants or agreements, whichever is lower, will be used to determine the maximum allowable indirect costs on the grants or agreements.

Be aware that the NICRA does not change any monetary ceiling, obligation or specific cost allowance or disallowance provided for in each award between the parties. Therefore, care needs to be taken to ensure that amounts claimed do not exceed award limitations or indirect cost rate ceilings.

Adjusting Indirect Cost Billings

Indirect cost rates identified in the NICRA apply to all cost reimbursable awards that incorporate provisional indirect rates. For awards that incorporate these indirect cost rates, the organization needs to promptly submit adjustment billings/vouchers or final vouchers for all cost reimbursement grants, contracts or other agreements.

Audit adjustments need to be clearly delineated to be readily identifiable for verification by this office. Care needs to be taken to ensure that amounts claimed do not exceed award limitations or indirect cost rate ceilings. The final indirect cost rates are negotiated based on the audited actual indirect cost rates

Retention of Records

2 CFR 200, Subpart D, Section 200.333(f)(1) and (2), “Retention requirement for records” states the following:

(f) Indirect cost rate proposals and cost allocations plans. This paragraph applies to the following types of documents and their supporting records: indirect cost rate computations or proposals, cost allocation plans, and any similar accounting computations of the rate at which a particular group of costs is chargeable (such as computer usage chargeback rates or composite fringe benefit rates).

• If submitted for negotiation . If the proposal, plan, or other computation is required to be submitted to the Federal Government (or to the pass-through entity) to form the basis for negotiation of the rate, then the 3-year retention period for its supporting records starts from the date of such submission.
• If not submitted for negotiation . If the proposal, plan, or other computation is not required to be submitted to the Federal Government (or to the pass-through entity) for negotiation purposes, then the 3-year retention period for the proposal, plan, or computation and its supporting records starts from the end of the fiscal year (or other accounting period) covered by the proposal, plan, or other computation.

If any litigation, claim or audit is started before the expiration of the 3-year period, the records shall be retained until all litigations, claims or audit findings involving the records have been resolved.

OCC Workload Distribution

Below are the names, email addresses and telephone numbers of the Contract Specialist responsible to negotiate each organization’s indirect cost rate agreement (NICRA). Note that responsibility for each specific organization is based on the first letter of its name, i.e. ABC, Inc. is handled by Lynn Brown and Help the Poor, Inc. is handled by Judith Almodovar, etc.

Title & Location, Name & Responsibility, Email Address, Telephone number

Supervisory Contract Specialist : UA 10.3.OC, Ramon E. Santos, [email protected]   202-916-2557

Contract Specialist : UA 10.3.2F, Catrina Burgess, B,M,N,U, [email protected]   202-916-2563

Contract Specialist : UA 10.3.1C, Devon Rodriguez, G,L,P,Q,R, [email protected] ,202-916-2558

Contract Specialist : UA 10.3.2D, Guli Hall, A,E,F, [email protected] , 202-916-2562

Contract Specialist : UA 10.3.2C, Heartwill Doughan, C,J,O, [email protected] , 202-916-2561

Contract Specialist : UA 10.3.1D, Natasha Young, S,T,V,Y,Z, [email protected] , 202-916-2559

Contract Specialist : UA 10.3.1C, Rami Khyami, I, [email protected] , 202-916-2557

Contract Specialist : UA 10.3.1F, LaToya Dorsey, D,G,H,K,W, [email protected] , 2020-916-2560

Management Analyst : UA 10.4.4A, Tanya Broadnax, Closeout Management Analyst, [email protected] , 202-916-2597

Administrative Assistance : Offisite, Alexis Johnson, Closeout Contract Specialist, [email protected] , 202-907-1175

Administrative Assistance: UA 10.4.1D, Angelina Ball, Sr. Administrative Assistant, [email protected] , 2020-916-2576

PREPARING AN INDIRECT COST RATE PROPOSAL

Overview of Submission Requirements

Federal award recipients that recover administrative overhead costs through the use of an indirect cost rate (ICR) must submit an annual ICR proposal to:

• Establish a provisional rate to charge estimated indirect costs to an award for future periods and
• Establish a final ICR for a prior fiscal year.

Note on accounting system:

The organization must have an established accounting system prior to being awarded a grant or contract with a federal government agency. The accounting system must provide adequate internal controls to safeguard assets, insure fund accountability by cost category, assure accounting data accuracy and reliability, promote operating efficiency, and comply with Government requirements and accounting procedures.

For reference purposes, see 2 CFR 200, Subpart D, Section 200.302, Financial Management.

Preliminary Steps for First Time NICRA Submission

Prior to the preparation of an indirect cost rate proposal and supporting documentation, the cost principles established by 2 CFR 200, Subpart E, Cost Principles, should be thoroughly reviewed. If indirect costs are allowed under the terms of the award, the entity will then be ready to prepare an indirect cost rate proposal beginning with the following steps:

• Organization Review: If one does not already exist, prepare a formal organizational chart(s), or a rough draft version, and provide any information or material explaining the various services and/or functions for each unit. Determine which units are indirect (administrative) functions of the organization. Determine the services that are allowable and allocable to Federal grants and contracts per the applicable cost principles.
• Review federal and non-federal funding: Review the federal and non-federal expenditures to determine the amount associated with federal programs being funded.
• Review the Accounting Structure: Obtain a chart of accounts, or some other list of accounts for your organization, which identifies the specific direct and indirect accounts.
• Prepare a Cost Policy Statement: Develop a written policy that outlines the costs considered as direct, the costs considered to be indirect, and the rationale to support those costs. Please refer to sample Cost Policy Statement included in Section 3.G of this guide.

a. Organizational structure b. Level of Federal fundingvalue= c. Reports generated from their accounting system d. Availability of data on square footage, number of transactions, employees, purchase orders, etc. e. Additional effort and cost required to achieve a greater degree of accuracy.

• Reconcile to Financial Statements: Reconcile the indirect cost rate proposal to the audited financial statements.
• Submission and Review of Rate Proposal: Submit the indirect cost proposal to M/OAA/CAS/OCC at the e-mail referenced in section 1.G. of this guide. The Contract Specialist within M/OAA/CAS/OCC will follow up, after reviewing the indirect cost proposal, with questions, and/or concerns – and may request additional documentation, and/or narrative responses, in support of the indirect cost proposal. The Contract Specialist will document any meeting and/or telephone conversations, and e-mails during the review process. The entity provides any changes, and submits any revised and/or supporting documentation as requested by M/OAA/CAS/OCC. Once the review is completed, USAID will then issue and provide the Negotiated Indirect Cost Rate Agreement (NICRA).
• Implementation: An organization must utilize the NICRA approved provisional indirect cost rates when preparing proposals once a NICRA is signed by both parties. The final indirect cost rates negotiated in the NICRA are used for administratively closing federal awards and adjusting billings for prior periods. Maintain documentation for audit purposes – refer to Section 1.P entitled, “Retention of Records,” of the guide.

Preparation of Indirect Cost Rate Proposal

First Time Provisional NICRA Submission Prepare the indirect cost rate proposal by using the Indirect Cost Rate (ICR) Proposal Checklist for First Time NICRAs included in Section 2.E. of this guide and included as a stand-alone document in Appendix III.

Prepare the following documents, and have them signed by the Executive Director, or other designated official with the organization’s signature authority (examples of each of these can be found in Section 3 of this guide.)

a. Statement of Treatment of Paid Absences b. Lobbying Cost Certificate in accordance with 2 CFR 200, Subpart E, Section 200.450(c) 2 (vi) c. Certificate of Indirect Costs in accordance with 2 CFR 200, Subpart F, Appendix IV, Section D

Compile all remaining documentation identified in the indirect cost proposal checklist.

Reconcile the indirect cost rate proposal to the audited financial statements.

Subsequent NICRA Submissions to Establish Final and Provisional Indirect Cost Rates

Documentation and steps needed to revise provisional indirect cost rates:

Prepare the indirect cost rate proposal using the Indirect Cost Rate (ICR) Proposal Checklist for Subsequent NICRAs included in Section 2.F. of this guide.

Generally, an organization uses the prior year’s final indirect cost rates as the new provisional (until amended) rates when an organization believes the final rates represent a reasonable estimate of the next years expected actual rates. If an organization believes the future rates will be materially different than the previous finalized rates, it should propose the more accurate provisional rates with adequate supporting documentation and rationale.

Provide detailed indirect cost rate calculations based on estimated costs for the applicable fiscal year.

Provide any input related to any anticipated changes in business volume, organizational structure, and/or indirect rate structure for the new fiscal year.

Provide a comparison, by major cost element, of the proposed provisional rates to prior year final and year-end actual rates. Explain significant variances for all cost elements.

Provide a Certificate of Indirect Costs in accordance with 2 CFR 200, Subpart F, Appendix IV, Section D.

Documentation and steps needed to finalize indirect cost rates:

a. Lobbying Cost Certificate in accordance with 2 CFR 200, Subpart E, Section 200.450(c) 2 (vi) b. Certificate of Indirect Costs in accordance with 2 CFR 200, Subpart F, Appendix IV, Section D

Compile all remaining documentation identified in the indirect cost proposal checklist, such as:

• Applicable audited financial statements including any affiliated organizations, and 2 CFR 200, Subpart F, Section 200.500, Audit Requirements. Financial statements must be reconciled to the indirect cost rate calculations. Include the level of transaction testing performed by the independent auditor on direct and indirect costs claimed.
• A reconciliation schedule for each indirect cost pool and allocation base showing each reclassification and adjustment to the financial statements to arrive at the cost pools and allocation bases. Each reclassification and adjustment must be explained in notes to the reconciliation schedule.

Indirect Cost Rate Allocation Bases

The following allocation bases are acceptable examples for use when indirect costs are allocated to benefiting cost objectives by means of an indirect cost rate.

• Fringe benefits rate. This indirect cost rate allocates employee benefits such as payroll taxes, vacation, sick, retirement, health care, bonus, deferred compensation, insurance, etc.). The following are samples of fringe benefits bases of application: ✓ Total direct and indirect labor dollars excluding leave (vacation, sick, and holidays) ✓ Total direct and indirect labor dollars including leave (vacation, sick, and holidays)  
• Overhead rate. This indirect cost rate allocates expenses related to the management or supervision of activities or cost that benefit more than one final cost objective (e.g., division middle management, supervisors, project leadership benefiting multiple awards, site rent, etc.). Typically these are costs that would not be incurred if it was not for the awarded contract or grant. The following are samples of overhead bases of application: ✓ Direct salaries and wages including (or excluding) all fringe benefits. ✓ Direct salaries and wages including vacation, holiday, sick pay, and other paid absences excluding all other fringe benefits.  
• General & Administrative (G&A) rate. This indirect cost rate allocates expenses associated with the management and administration costs that benefit the organization as a whole (e.g., accounting department, chief executive officer). The following are samples of G&A bases of application: Simplified Allocation Base: The simplified allocation base includes all direct costs (labor, travel, ODC, subaward, etc.) fundraising, and exclude G&A expenses. Modified Total Direct Cost (MTDC): Modified Total Direct Cost (MTDC) excludes equipment, capital expenditures, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs.

The proposed allocation base(s) is subject to negotiation and approval by USAID. The grantee is required to provide written notification to the indirect cost negotiator prior to implementing any changes which could affect the applicability of the approved rates.

Ensure All Appropriate Costs Are Included in the Base of Allocation(s)

2 CFR 200, Subpart E, Section 200.413 (f), states that the costs of activities performed by the non-Federal entity primarily as a service to members, clients, or the general public when significant and necessary to the non-Federal entity's mission must be treated as direct costs whether or not allowable, and be allocated an equitable share of indirect (F&A) costs. Some examples of these types of activities include:

• Maintenance of membership rolls, subscriptions, publications, and related functions,
• Providing services and information to members, legislative or administrative bodies, or the public,
• Promotion, lobbying, and other forms of public relations,
• Conferences except those held to conduct the general administration of the non-Federal entity,
• Maintenance, protection, and investment of special funds not used in operation of the non-Federal entity. See also 2 CFR 200, Subpart E, Section 200.442, Fundraising and investment management costs, and
• Administration of group benefits on behalf of members or clients, including life and hospital insurance, annuity or retirement plans, and financial aid.

Indirect Cost Proposal Checklist for First Time NICRA

The checklist below addresses the documentation to provide and steps needed when an organization is seeking a NICRA for the first time. This checklist is also included in Appendix III, “Indirect Cost Rate Proposal Checklist for First Time NICRA,” and includes the basic instructions to complete and submit an indirect cost rate proposal.

Indirect Cost Rate Proposal (ICR) Checklist for First Time NICRA

• Entity name and mailing address
• Employer identification number (EIN)
• Point of contact name and position title
• Email address
• Office telephone number
• Entity’s internet website address, if any
• For each type of rate proposed provide a detailed rate calculation to include the pool of expenses, the base of application, and all unallowable costs.
• Provide a comparative analysis of indirect cost pools and bases by detailed account to prior fiscal year actual costs.
• Entity’s written policy for allocating and identifying direct and indirect costs, i.e. cost allocation methodology.
• Written policies and procedures for screening unallowable costs.
• Description of the allocation base used in each rate calculation.
• Prior year audited financial statements including any affiliated organizations, and the single audit in accordance with 2 CFR 200, Subpart F, Section 200.512(a)(1).  For small businesses, supporting documentation can include “reviewed” financial statements with the associated indirect cost calculations.  If a small business has clearly established indirect cost rates, pools and bases that an external CPA firm has validated, this should be sufficient for the recognition of indirect cost rates under the award.  The statements must be reconciled to the indirect cost rate(s) calculation.  Include the level of transaction testing performed by the independent auditor on direct and indirect costs claimed.
• Reconciliation schedule for each indirect cost pool and allocation base showing each reclassification and adjustment to the financial statements to arrive at the cost pools and allocation bases. Each reclassification and adjustment must be explained in notes to the reconciliation schedule.
• Copy of IRS Form 990.
• Compensation Committee
• Independent compensation consultant
• Written employment contract
• Compensation survey or study
• Approval by the board or compensation committee

Provide the amount of executive compensation paid to the top 5 executives.

• Description of accounting system.
• Breakdown of indirect salaries by position title, amount and indirect percentage.
• B reakdown of fringe benefits.
• Description of non-profit's timekeeping system and a copy of a completed time sheet, if applicable, when an employee works on multiple activities or cost objectives.
• Treatment of paid absences and signed statement of treatment of paid absences.
• Total expenditures (reconcilable to the audit if using actual numbers)
• Exclusion with footnote explanation
• Direct and indirect costs
• Indirect cost rate calculation and federal percentage
• A list of subawards under your prime awards (required for Modified Total Direct Cost (MTDC) base only). Please provide a schedule showing the amount excluded under each subaward.
• Schedule of all awards grouped by funding agency with majority federal funding listed on top.

______ Yes. 2 CFR 200, Subpart F, Appendix IV, Section B.2.e. states “…a breakout of the indirect cost component into two broad categories, Facilities and Administration as defined in subparagraph A.3 of this appendix is required. The rate in each case must be stated as a percentage which the amount of the particular indirect category (i.e., Facilities or Administration) is of the distribution base identified with that category”. ______ No. The breakdown is not required.

• Organization chart.
• Signed certificate of indirect costs.
• Signed lobbying certificate.
• A copy of the IRS letter granting nonprofit status.
• A copy of the organization’s severance policy.
• A copy of the organization’s bonus policy.
• Submit ICR to NON- [email protected]

Indirect Cost Proposal Checklist for Subsequent NICRAs

The checklist below addresses the documentation to provide and steps needed when seeking a revised provisional rate and/or final rates. This checklist is also included in Appendix IV, “Indirect Cost Rate Proposal Checklist for Subsequent NICRAs,” and includes the basic instructions to complete and send your revised provisional or final indirect cost rate proposal.

Indirect Cost Rate Proposal (ICR) Checklist for Subsequent NICRAs

• Description of the allocation base used in each rate calculation if it has changed.
• Applicable audited financial statements including any affiliated organizations, and the single audit in accordance with 2 CFR 200, Subpart F, Section 200.512(a)(1). The statements must be reconciled to the indirect cost rate(s) calculation. Include the level of transaction testing performed by the independent auditor on direct and indirect costs claimed.
• Description of changes in accounting or cost allocation methods made since that last submission.
• Breakdown of fringe benefits.
• Treatment of paid absences and signed statement of treatment of paid absences if it has changed.
• Depreciation schedule if depreciation is included as indirect costs.

As a reminder, the indirect cost rate proposal must not include expressly unallowable costs identified in 2 CFR 200, Subpart E, Sections 200.420 through 200.475.

Title 2 of the Code of Federal Regulation Part 200 (2 CFR 200), titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” establishes the federal requirements for the determination of allowable and unallowable direct and indirect costs, and is available at the following website: http://www.ecfr.gov

Indirect Cost Proposal – M/OAA/CAS/OCC’s Review Procedures

Personnel Cost Worksheet

Some issues that may be raised by an M/OAA/CAS/OCC indirect cost rate negotiator during, or after, the review of an indirect cost rate proposal, usually result from non-profit organizations not following the required procedures. Knowing these procedures while preparing an indirect cost rate proposal, may make the review process more efficient and timely.

• Determine that the applicable cost principles stated in 2 CFR 200 were followed.
• Review the organization chart for a visual picture of the flow of responsibility, identification of areas of common costs, and the location of those areas in which federally-funded activity exists.
• Perform a mathematical verification of each indirect cost rate calculation provided by the organization. Assure that the indirect cost rate calculation is in accordance with the accepted rate methodology.
• Determine that the proposal reconciles with the supporting audit, official budget and financial statements.
• Review the financial statements and audit report for any indication of activities which may have been omitted from the indirect cost proposal, i.e., the omission of restricted fund costs or the existence of an affiliated organization receiving supportive service from the parent organization.
• Determine that the itemized costs in the indirect cost pool pertain to functions that are supportive of all direct activity.
• Determine that costs that are statutorily unallowable, or for reasons of non-allocability, have been eliminated from the indirect cost pool. Determine whether these unallowable or non-allocable items should be added to the distribution/allocation base.
• Determine that "pass-through" funds have been excluded from the base.
• Review executive compensation of the top five executives for reasonableness.
• Review severance payments for reasonableness.

a. Consistency in charging specific items of cost. b. The selection of an appropriate base for allocating indirect costs.

a. The direct funding of indirect costs. b. Any limitations placed upon the full recovery of indirect costs, i.e. ceiling rates or amounts. c. Total Federal funds involved.

• Check with the appropriate Agreement Officer for any problems he/she may be aware of relating to the charging of costs

EXAMPLES OF EXHIBITS TO SUPPORT AN INDIRECT COST PROPOSAL

A. Example - Personnel Cost Worksheet

Leave absence such as vacation, holiday, sick leave, and other paid absences were included in salaries.

Note: Salaries and fringes included in this exhibit are for illustrative purposes only.

Labor is the most significant cost incurred by an organization.  Therefore, the organization should have internal controls in place regarding labor costs incurred that are evident, well defined, regularly maintained and updated as necessary, and verify effectiveness.

Note that 2 CFR 200, Subpart E, Section 430(i)(1),  Standards for Documentation of Personnel Expenses,  indicates that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records, among other conditions disclosed in this section, must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; and are incorporated into the official records of the non-Federal entity.  They should also support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.

Also, 2 CFR 200, Subpart E, Section 430(i)(3) states that in accordance with Department of Labor regulations implementing the Fair Labor Standards Act (FLSA) (29 CFR part 516), charges for the salaries and wages of nonexempt employees, in addition to the supporting documentation described in this section, must also be supported by records indicating the total number of hours worked each day.

Download Example - Personnel Cost Worksheet [PDF 52 KB]

Time Distribution Report

B. Example - Personnel Activity Report

The organization must maintain a time distribution system for use by employees whose time is charged to more than one cost objective. Payroll documentation should be maintained to support the charging of salaries as direct or indirect (download example below).

Reliability and accuracy of an organization’s labor charging system is essential.  Whether an organization has an automated or manual personnel activity reporting system there must be procedures, controls and an audit trail of documentation to support the labor costs.

The following is a list of some of the elements that must be provided for in the labor charging system:

• Employees have sole access for entering own time.
• Employee signature and Supervisor approval of labor hours (verifiable whether your timekeeping is electronic or manual) are evident.
• Labor hour changes are initialed, dated, authorized, and documented.
• Timekeeping is performed in accordance with company policies and procedures
• The hours recorded in the timesheet are reconciled to payroll and job cost system.

The direct labor amount must be supported by the organization’s labor distribution report, and internal accounting system. These amounts should also tie to the general ledger labor accounts and the financial statements. If applicable, a reconciliation spreadsheet should be provided to support the organization’s claimed labor cost.

The 2 CFR 200.430(i), “Standards for Documentation of Personnel Expenses”, states that charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed.  These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated, and be incorporated into the official records of the non-Federal entity.  These records must support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.  Examples of unallowable activities include: services to members, maintenance of membership rolls, public relations, lobbying, and fund raising.

Download Example - Time Distribution Report [PDF 48 KB]

Statement of Total Cost

Example – Statement of Total Costs

The sample table identifies the actual direct costs, fringe benefits, overhead, and General and Administrative (G&A) expenses on the organization’s fiscal year, and should reconcile to the organization’s financial statements. The information herein is used by the organization for the development of the indirect cost rates as shown on the subsequent sections of the guide

Download Example - Statement of Total Cost Table [PDF 84 KB]

Simplified Allocation Method

Example - Simplified Allocation Method

Where an organization's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (i) separating the organization's total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual Federal awards. The rate should be expressed as the percentage of allowable indirect costs to the allocation base costs selected. This method should also be used where an organization has only one major function encompassing a number of individual projects or activities, and may be used where the level of Federal awards to an organization is relatively small.

The base of allocation for this example is total costs excluding indirect expenses.

Download Example - Simplified Allocation Method [PDF 42 KB]

Multiple Allocation Method

Example - Multiple Allocation Method

Where an organization's indirect costs benefit its major functions in varying degrees, indirect costs must be accumulated into separate indirect cost pools. Each indirect cost pool must then be allocated individually to benefitting functions by means of a base which best measures the relative benefits. Often an entity will have a fringe rate, overhead rate and G&A rate or just a fringe rate and another single indirect cost rate (overhead/G&A).

The fringe benefits base of application is total direct and indirect labor dollars. There are instances when the allocation base will include annual, sick, and holiday leave as part of the base of application. The decision to use either method will depend on the grantee's accounting system.

The G&A expenses are those that have been incurred for the overall general executive and administrative offices of the organization and other expenses of a general nature which do not relate solely to any major function of the organization. This category must also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation, and interest costs. Some examples of this category include central offices, such as the director's office, the office of finance, business services, budget and planning, personnel, safety and risk management, general counsel, and management information systems costs.

The base of application for this example is total costs excluding G&A expenses.

Download Example - Multiple Allocation Method : Fringe benefits indirect cost rate, Overhead indirect cost rate and General and Administrative (G&A) expense rate. [PDF 259 KB]

Direct Allocation Method

Example - Direct Allocation Method

Some nonprofit organizations treat all costs as direct costs except general administration and general expenses. Under this method, common costs such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are pro-rated individually as direct costs to each category and to each award or other activity using a base which accurately measures the benefits provided to each award or other activity. Below are some samples of common allocation bases:

This method is acceptable provided each joint cost is prorated using an acceptable base.

Try to keep the allocation as simple as possible. The measurement selected should be based on relative benefits received, and should be able to replicate the process. The accounting system structure and capabilities should also be considered.

Download Example - Direct Allocation Method [PDF 62 KB]

Model Cost Policy Statement

The purpose of the CPS is to establish a clear understanding between the organization and the federal government as to what costs will be charged directly and what costs will be charged indirectly. It also provides awardee personnel with a record of the awardee’s practices in the event of personnel changes (only changes to accounting practices or allocation methods need be submitted after the first year).

The CPS should be tailored to fit the specific policies of each organization. Although there are different methodologies available for allocating costs, the methodology used should result in an equitable distribution of costs to programs. Organizations must have a system in place to equitable charge costs.

The CPS should include, as a minimum, the following information:

• Organization legal name, address, telephone number ✓ Basis of Accounting ✓ Fiscal Period ✓ Allocation Basis for Individual Cost Elements ✓ Indirect Cost Rate Allocation on each indirect cost rate ✓ Description of the accounting system software
• Description of Cost Allocation Methodology: ✓ Direct and indirect labor ✓ Executive compensation ✓ Severance ✓ Fringe Benefits ✓ Direct and Indirect Travel ✓ Board Expenses ✓ Supplies and Material ✓ Occupancy Expenses ✓ Utilities ✓ Communications ✓ Photocopying and Printing ✓ Outside Services ✓ Depreciation ✓ Unallowable Costs
• Company/Organization Name and Address

Certifications

The Statement of Treatment of Paid Absences certificate recognizes the organization’s treatment of vacation, holiday, sick, and other paid absences. The Lobbying Cost Certificate certifies that the entity has been in compliance with the requirements and standards of 2 CFR 200.450, “Lobbying”. The Certificate of Indirect costs must be accompanied by with each indirect cost rate proposal. No proposal to establish indirect cost rates must be acceptable unless such costs have been certified by the non-profit organization using the Certificate of Indirect Costs.

Download Example - DStatement of Treatment of Paid Absence, Lobbying Cost Certificate, and Certificate of Indirect Cost [PDF 47 KB]

List of Grants with the Period-of-Performance

The purpose of this spreadsheet is to identify effected awards, gauge materiality and identify any indirect cost limitations.

Example - List of Grants with the Period-of-Performance

Organization ABC Federal Listing of Awards Indirect Cost Proposal for the fiscal year ended December 31, XXXX

Grantor Grant/Cooperative Agreement Number Grant/Cooperative Agreement Amount Period of Performance Indirect Cost Limitations or CAP Limitations * Award Type

USAIDAID-612-G-12-00074$5,000,00001/01/10-12/31/13NoneGrant

USAIDAID-HPR-G-14-00002$300,00001/01/11-06/30/12NoneGrant

USAIDAID-342-A-12-00123$3,500,00007/01/11-06/30/145% of Total AwardCooperative Agreement

USAIDAID-GDF-A-15-00030$1,000,00001/01/11-12/31/12NoneCooperative Agreement

* If applicable.

Appendix I Through Appendix V

The Appendix I includes a sample of the USAID Negotiated Indirect Cost Rate Agreement (NICRA). The Appendix II includes a list of some frequently asked questions by organizations on areas such as the OMB Super Circular (2 CFR 200); establishing indirect cost rates and a NICRA; the time period for establishing a NICRA; direct versus indirect costs; and award modification based on the NICRA. The Appendix III includes the indirect cost proposal (ICP) checklist for nonprofit entities which identifies the required documentation to be provided by each non-profit organization. The Appendix IV includes a sample of a deviation letter to be issue when an indirect cost rate other than that specified in the NICRA is used in an award.

Download Appendix I through Appendix V [PDF 238 KB]

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