word indirect on a paper torn between in and direct

A DSE called during an on-site review of a center to clarify what a center was doing with its indirect costs. “They are claiming the 10% di minimus.” Okay, so far so good. “But if they have any costs over that amount they are throwing it into their state grant for payment.”  Oh-oh. Not so good.

The whole purpose of allocation, however your center does it, is to share the indirect costs in a fair, equitable way. Each of your grants, or cost objectives, should bear the costs in proportion to what the grant brings to you. It is sometimes okay to combine funding sources (if they have the same purpose, serve the same people, etc.) and apply the percentage to those sources combined, in the same percentage. It is not, however, okay to give one of your funding sources the excess amounts for something your rate doesn’t cover.

When centers fell under RSA, most of us used a cost allocation plan to allocate shared, administrative and overhead costs. That plan identified those shared costs, and then described the methodology for calculating the amount to go to each cost objective, or funding source.

When Centers moved over to the Independent Living Administration/ACL/HHS they asked us to develop an indirect cost rate. We have some resources on our website about how to do this. We have recommended against the 10% di minimus (meaning you can charge 10% and aren’t required to have an approved rate) because we found that it would not typically meet the needs of a center to pay their indirect costs. While it is somewhat more complicated, actually calculating your indirect costs and then sharing them across your funding sources is the most fair way for shared costs to be shared.

These are costs like your bathrooms, lobby, hallways and conference room and the utilities that go with them. Your administrative staff, especially the executive director, human resources and fiscal staff, do work that benefits all of your programs. You need to figure out how those programs share those costs.

There are a couple of other options for managing these costs. If you only have one funding source you might not need a methodology for sharing indirect costs, since all would be direct to that one source. (This seems short-sighted, though, because as you do your required resource development your funding sources should expand.)

There are a few centers whose fund accounting is very precise and which charge all costs as direct. They are still required to be able to show how the allocation of shared costs if fair, but each expense is shared at the time the expense is incurred, based on their internal policies.

The point is, each grant should pay its fair share of indirect costs and no more.

How consistent does my indirect cost rate need to be?

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