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Key Takeaways on Maximizing Recovery
on Your Grants by Leveraging Indirect Cost
By Nicolie Lettini, MBA,
Cherry Bekaert

 

In January 2024, Nicolie Lettini of Cherry Bekaert led a webinar presentation on leveraging indirect costs to maximize profits. The objectives of the presentation were to define indirect cost; learn how it is determined and how it impacts organizations; and understand how to maximize revenue by leveraging indirect cost. Below are key takeaways from her presentation.

Missed the webinar? View the recording HERE. (Member login required.)
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Key takeaways regarding indirect cost:
1. Understand True Cost. Direct cost and indirect cost should not be considered two separate items.  Cost is cost, no matter how you slice it. A common perception is that recognizing and claiming indirect cost related to a grant will take dollars away from the program. This implies that indirect cost is optional. Indirect cost is a component of True Cost, and therefore exists and is not optional. Too many organizations end up subsidizing the indirect cost component, which creates sustainability risk. If a program becomes too expensive to subsidize, then the program is likely to become short-lived. So remember, just because you don’t recognize indirect cost does not mean it doesn’t exist, you are subsidizing and taking tax payer dollars away from General Fund services such as Public Safety and Parks and Recreation.
2.

A Negotiated Indirect Cost Agreement (NICRA) is almost always a better option than the 10% de minimis. While it takes time and effort to come up with the indirect cost rate calculation, most organizations will find that the indirect cost rate is significantly higher than 10%. Besides knowing you have a higher rate, the additional benefits of having a NICRA far outweigh the up-front work to obtain one:

  • Cost Recovery - As mentioned above, indirect costs are real costs incurred by the organization as a result of the grants it manages. By collecting indirect costs on grants, the organization can recover some of these costs and maintain its financial stability over time.

  • Improved Financial Management - By collecting indirect costs, the organization can gain better visibility into the true cost of managing grants and allocate resources more effectively. This can help the organization make informed decisions about the grants it manages and ensure that it is using its resources efficiently. Sometimes, it can even inform a decision to not go for a grant because the subsidy would be too great and exceed the award (yes, this happens – there is a transportation grant out there with an indirect cost rate of 110%)!

  • Compliance - Many funding agencies require grant recipients to collect indirect costs on grants to ensure that the funds are being used appropriately and that the true cost of the program is understood. In some cases, grant applicants may look more favorable to the grantor when an understanding of indirect cost is demonstrated by having a NICRA.

  • Match Requirement - You have the ability to use your NICRA as your match requirement, which frees up cash AND allows you to access new grants that you would have otherwise passed up due to inability to set aside the cash as match requirement.
3. One of the biggest challenges for recipients, grantors, and cognizant agencies alike is that the Uniform Guidance isn’t perfectly clear in some areas, leaving room for subjective interpretation. One of these areas has to do with admin cost versus indirect cost. These are two separate things.
 
Admin cost is typically related to the cost to service a handful of grants. For example, admin cost is the salary and benefits of the grant administrator/program manager spread over the grants they support. Indirect cost, on the other hand, is not readily identified with a specific project or organizational activity and is related to agency wide indirect cost that support not only grants but all services in an organization regardless of funding source - think of this as the cost of running payroll and IT support services related to the support of the overall grant and all direct staff supporting it. Now, some grant Notification of Funding Awards (contracts) clearly spell out that no indirect cost is allowed, however may still provide for an admin cost, and usually with a cap. In that case, you would not be able to claim anything besides admin cost. But it is critical to note that the grant contract must explicitly state that “indirect” is unallowable not just admin, otherwise indirect is allowable.
Nicolie Lettini, MBA, is a director with Cherry Bekaert. She has more than 23 years of experience providing accounting, advisory and cost allocation services, financial analysis and management consulting services to government contractors, government and public sector, nonprofit organizations and professional services clients.