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A Capacity Building and Revenue Enhancement Training

Agencies spend on average 30%-40% of total program cost in indirect (soft) costs to support federally funded grant programs. These costs often end up subsidized by the already stretched and/or overburdened General Fund. Here’s the good news... grant awards allow for reimbursement of these indirect costs. So, it’s time to stop leaving money on the table and HdL can help! We can recover uncaptured costs and return them to your agency. Revenue - unrestricted - direct to your General Fund. Watch the recording and download the presentation deck to follow along and find out how. 

 

Additional Resource: Stretching Local Government Tax Dollars: Indirect Costs and the Efficient Use of Public Funds

 

Transcript

Introduction

Hello and welcome to today’s webinar “Unleashing your Grant Portfolio to save your General Fund”. Thank you all so much for joining us today. We will spend the next hour together teaching you how you can unleash your grant portfolio and get some dollars back into the general fund.

We have the privilege of Nikki Lettini being on the call with us, to give us the insights that we are looking for. I am Kimberly Konczak and worked closely with Nikki in delivering our indirect cost recovery service. And we also have Jason Port, our manager for indirect cost services, on the call with us today. 

What is Indirect Cost?

Indirect Cost is hard to grasp for many different reasons. It is an unknown thing because there is no clear definition. We all call it something different. Are we talking the same language? Indirect cost is important to our organizations and understanding that process is important, so that we can be sustainable in our organizations.

If we are not identifying it, we are subsidizing it. This is the cost that is incurred in the general fund. Your central support departments, finance, H.R., I.T., all those services, their primary focus is to support all the departments and funds in your agency and not to support the outside.

On average, agencies spend anywhere from 30-40%, sometimes 50-60% in indirect costs and without knowing that it can really put a burden on that general fund.

Seek True Cost

Indirect cost exists whether we identify it. Understand that indirect cost would not be there if it did not have direct costs to support. In turn, direct cost cannot function without indirect cost supporting them. Look at things as a true cost. What does it really costing us to do this service? Separating it out implies that you can do one without the other and you cannot.

Understanding that the true cost of a service is what it is really costing. You can make the decision to subsidize but do it with the information of knowing what that subsidy is so you can make a more conscious and educated decision. 

We need to be fully reimbursed or recovering the cost for this program that we are choosing to do, because if not, we are taking it away from another program. If you are a city and county, you have taxpayers and they are putting taxpayers in there and it is for the public safety, the parks and rec. If you take the indirect cost and you do not get reimbursed from the federal programs, you are having to take it away from these public services. 

Direct vs. Indirect Cost

The indirect cost is the harder one to identify, and that is due to different factors that are involved in understanding what it is costing to support these services. It cannot be easily assigned to a particular program. We might need to use an allocation statistic. It is incurred for a common purpose. It includes all types of administrative costs. And then we have administrative and overhead and that is one step above a program or a function. Indirect is supporting everyone, the finance, the HR, regardless of the funding source.

Then it steps down to administration or overhead and maybe a handful of programs. So, you can identify those more specifically, but still administrative in nature, but you can identify that as a direct cost under the guidelines. In the end, the task of it is more of a supporting role rather than the direct role.

The Cost Allocation Plan (CAP)

Some people think that a cost allocation plan is the same as an indirect cost rate because it is calculating indirect cost. The cost allocation plan is a part of the indirect cost rate, but it is not a whole cost rate.

A cost allocation plan is that 30,000-foot view of your organization, it is that one report that you can see what it is really costing to do everything directly in the agency. Looking at finance costs, H.R. cost, facilities cost. All of this results in an annual dollar amount of indirect cost supporting all the programs and funds within your organization. It does not matter about the funding source. This really helps to inform an organization of where our costs going. 

When was the last time you calculated a Cost Allocation Plan?

When was the last time you calculated a Cost Allocation Plan

 

 

 

 

 Why a CAP?

There are two different types of cost allocation plans. They follow the same methodology, but you use them slightly differently. A full Cost Allocation Plan is typically used to charge the other funds and services within your organization, so they can then in turn charge the public for the services they are performing. 

The 2 CFR Part 200 cost plan is used for the federal and state grant reimbursements. Any programs that you want to charge an element of indirect cost, it must follow these guidelines. It is going to use this for actuals of your last fiscal year for use two years later as an estimate, there will be a true up.

Within a full cost plan, it is allowed to include more items and it is more representative of what it is costing to do these services. It excludes costs like marketing or publications or membership and dues and exclude anything council related. But those are very important indirect costs that are necessary and supporting these programs. 

Uses for a CAP

The two CFR plan is focused on federal and state reimbursements. The guidelines recommend a full cost plan. 

What is an Indirect Cost Rate Proposal (ICRP)? 

ICRP is indirect cost rate proposal. It follows the cost allocation plan, and it is calculating the percentage you apply to every dollar spent on a program.

You do not even bother to negotiate this rate. You have it for your uses internally or to charge the public. So, you create an ICRP, but if you want to use it on federal and state grants, you then must take it that next step to create the night graph. 

What is the Negotiated Indirect Cost Rate Agreement (NICRA)?

The NICRA is that negotiated indirect cost rate agreement.  Your cognizant agency goes through a process of reviewing and proving that rate, so you now have after that what that what that results in is a graph and that NICRA is a certification of your ICRP to say that it can now be used on federal and state grants.

U.S. Department of Justice

An extreme example was body cams when they came out. A lot of grants came out for body cams and what they were supplying the equipment for agencies to be able to get up and running with their body cams. What they did not understand is what it takes to maintain. 

They did not think about all those things that can put an organization in jeopardy of not really knowing where these funds are going to come from. For example, with the body cam you must think about the enormous amount’s internet storage required. All these recordings, those must go somewhere.

It increased the public records requests. This additional work for the IT departments as well. It increased the attorneys’ times for additional lawsuits. The cost goes on and on in terms of the indirect support of simply putting on these body cams on our police officers. It costs an additional $2.6 million to support this program. 

Where does this $2.6 million come from now? What you could say is at this point, if we knew this going into it before we applied for this grant, we could have taken it to the public should there be a vote, should we increase our sales tax to be able to cover the indirect cost?

Understanding the Indirect Costs are critical for an agency in in planning and being sustainable.

Who within your agency handles grants? 

Who within your agency handles your grants

 

 

 

 

 

 Indirect Recovery and Sustainability

Are you a finance person that is sitting here watching this finding out more about indirect cost? Can you answer the question of whether you directly work side by side with your grants administrators or are you feeling like the grants are kind of out there and you do not have a full grasp on where all of them are coming from or don't really have the conversations prior to going into applying for those grants? 

Do you know if there is an indirect cost rate, do you understand what that means for your organization? 

Indirect Cost Recovery

There are opportunities out there to capture as much available funding by leveraging that indirect cost rate. Looking at an average indirect cost rate, if we were just looking at this 600 billion on average, there is about $180 billion. 

What is typically unspent on these dollars? For many agencies out there, I have never come across one that has spent every single dollar. We have opportunities now to leverage that indirect cost rate and go back two years to say; Were there any unspent dollars? Did we have any dollars left over in these awards that we could take our indirect cost rate?

Get those dollars back in because you did subsidize, you supported every one of those programs with your general funds and did not get it reimbursed. Those dollars are representative reimbursing the general fund. So now it becomes unrestricted funding. Are there dollars that you guys can access by simply leveraging that indirect cost rate? Because as I said at the beginning? Remembering that you are subsidizing.

Match Requirement

You can now use your indirect cost rate if it is negotiated as your match component. This was the federal government's acknowledgement that indirect cost exists. 

If you submit, you must get prior approval. Every dollar you spend the match is your indirect cost. That is a big deal, because it allows agencies not only to free up some of those dollars that were set aside for cash, but it also allows you to go after additional grants that you might have passed up because you did not have the cash to apply for the grant. 

Using Indirect Cost to Meet Match Requirements

Workforce innovations grant your match requirement was 25% on $1,000,000 grant. So, it requires 250,000. You set aside those dollars but let us say you had a 22% indirect cost rate. That would cover 220,000 of that match. You would only have to come up with 30,000. So, 30,000 would be the cash that needs to be set aside. You should represent your indirect cost rate exactly as it is.

You calculate it based on the guidelines. Let us say your rates 54%. But you also have a chance at that point in time to say, “I do not want to charge the full 54% to the grant”. You can make that policy decision internally and it does not have to be consistent across all programs. You simply say, “I want to on this program, I am going to charge 30%”. If you do not charge more than you can charge up to anywhere along the line, so keep that in mind as well. 

Indirect Cost & Administrative Cap

We have a $5 million grant that was awarded with an administration cap. Many grants have caps. Here is what we need to do. You have $500,000 that is allowable for indirect cost, but you only spent $2.5 million on the grant, and the grant was last year, and you only spent $2.5 million on your direct funds and 250,000 on your indirect funds. You collected the 2.75 and your rate was 37.5%. You spent and subsidized on that 2.5 million. You spent $937,000 supporting your direct dollars of this program. 

Because of the administrative cap of 10%, there is still $250,000 available to you for indirect cost. And with the negotiated agreement you could maximize that. So, you could still get that additional 250 that you had not spent. Those dollars were already done as far as you cannot spend any direct dollars on it anymore. 

Indirect Cost and Fiscal Recovery Funds

ARPA funding is a very big topic of conversation right now. Indirect cost is allowable on your ARPA.

What you can do is just reduce the number of projects that you are doing so that you can be a net zero with this ARPA funding. If you are not able to fully complete this work by 2026. You lose the dollars, so you want to collect that indirect cost. 

You do not have to be worried about 2026, because if you spent those dollars in indirect, you get those dollars in, then you can later decide as a general fund policy decision what you want to spend that on. But do not lose out on opportunities or the option of them taking dollars back because you did not get it spent by not leveraging your indirect cost rate.

Indirect Cost Rate Options

Does your entity have a negotiated indirect cost rate already? If the answer is no, here are your options. You can accept the 10% of minus, you can negotiate indirect cost rate, or you accept the 10% until you are able to negotiate. If you do have an indirect cost rate, does it meet your needs? Is it something that you have done a long time ago and you just quickly put it together? Are you maximizing and really interpreting and understanding what your real indirect cost rate is?

Make sure that you negotiate a new rate. Make sure that it does not expire. You want to make sure that you always have an up-to-date rate. The year after year of that is a much quicker and easier process once they know what you are what your process is, how you have been applying it. 

You can always request an extension. There are opportunities to be able to increase the amount of time you can use that rate while you are going through the process of reestablishing another rate.

Which of the following are you currently utilizing to capture Indirect Cost Reimbursement?

Which of the following are you currently utilizing to capture indirect cost reimbursement

 

 

 

 

Indirect Cost “MythBusters”

MythBusters, I like to talk about these because there is so many reasons why people just do indirect cost, and they are just perception. 

Myth #1

The ones that are applying for the grant working on grant, they think by collecting indirect cost that they are taking money away from the grant. Whether or not you identify it, it's there. Ask yourself; If you are someone working on this program, are you going to go do your job and do everything and not get a paycheck? Are you going to be able to do your job without a computer? Are you going to be able to do your job if you do not have somewhere to be or sit or access tools and things that you need? Finance, Software, all those things are imperative and critical in performing on this grant. 

Change the way you look at the process as far as saying you are taking it away from the grant because that is simply not the case because the grant cannot be successful without these bits of information or bits of services that are critical to the program success.

Myth #2

People think if we do a cost allocation plan then it is just already covered. We are getting the dollars back. But again, with the cost allocation plan, we might be charging out to other funds and services or to the public, but it is only relative to the services that are being performed for them. There are still the amounts of dollars that are related to these programs or grants that you are supplying that are not being refunded by anyone unless you take this information and get an indirect cost rate using the cost allocation plan and then applying it.

Myth #3

A lot of people think it is done in a box in the finance department, and they just get this, and they have no idea what it is made-up of. If you have a consultant who does this, oftentimes even in the finance department, sometimes it is hard to grasp the total thing. Without a negotiated agreement, you cannot apply this to any of your grants, so you need to have that negotiated agreement going through the guidelines. 

Does your provider do that for you? Do they sit you down and say, OK, this is where we use the cost plan, this is how we maximize this dollar and dollar and this service you got to make sure that all those questions are being answered?

Myth #4

People are also shy about getting their indirect cost rate. Understanding that once you have your rate, you can charge anywhere up to the rate, and you do not have to be consistent across all programs and services. You can make a policy decision to subsidize.

Understand that by doing this negotiated rate, you are not pigeonholed into applying it consistently across the board. You can make those decisions as an organization of what makes sense for you guys and what areas you really want to subsidize and what other areas you do not.

“Don’t Try This at Home”

Indirect cost hit every area whether you are a grantee, whether you are a grantor, whether you are looking at all these things, you really need to look costs. There is help there that you can really find someone to help guide you through this process and make sure that you are maximizing every opportunity that you can.

Call to Action

Everyone should be updating their cost plan. It is important to understand because again, it is that 30,000-foot view across your entire organization. It does not. It is not limited to grants. It is any program regardless of funding source. Do you know what it is costing you?

Negotiate your indirect cost right. And while you are at it, go back to yours so that you can access any unspent dollars that are available to you. Then prioritize your funding. Know what you want to spend it on. 

 The intent is public safety, parks and rec and those services, the intent or those dollars were not to be used for chosen programs that people are wanting to do. Make sure that you look at your organizations as one big collective group. It is not just your department, and you are working in a silo by yourself. You need to be what is the best for the overall organization and what the best for the overall organization is, is to capture every dollar.

Cost Recovery

Why do you want a negotiated rate? The negotiated rate really frees up a lot of opportunities for cost recovery. The real cost that is incurred. There are a lot of programs that get left to the wayside. You know when revenues fell short. Make sure you are recovering wherever you can.

Compliance

It is critical to make sure that you are that fiscally responsible organization when going after grants. If you understand that the funders that you were getting those grantors, you are getting the funding from are responsible for those dollars. They must create risk assessments. You want to make sure that you comply. That helps you also to be that fiscally responsible agent.

Increased Revenues

Increase your revenues, your revenue opportunities. If you are subsidizing, then you are losing you know because again it exists whether you identify it. Making sure if you are putting forth the effort in these programs that you are getting, what you need to support the general fund for those services.

What's the biggest challenge when it comes to leveraging an indirect cost rate?

What is your biggest challenge when it comes to leveraging an indirect cost rate on your grants

 

 

 

 

 

A lack of understanding and a timid intimidated by the process. So that is why we are here. That is why we are doing this webinar. We really want everyone to know about this so that you are educated and can be sustainable going forward.

ARPA Deadlines Got you Down?

The deadline we talked about this a little earlier with ARPA. You must have your all your cost obligated by 2024. End of 2024 and you must spend it by the end of 2026, or you lose it.

Making sure to leverage your indirect cost can really save these dollars and make sure they do not get any of those dollars back and that you can fulfill all the programs that you really intend to with these dollars.

Oh no, not with my tax dollars!

We talked about this in terms of the tax dollars not using our tax dollars to subsidize these grant programs. You are spending the dollars whether you identify them. So where is it coming from? It is obviously being taken away from something else to support this. 

Read Jason Portt's Stretching Local Government Tax Dollars: Indirect Costs and the Efficient Use of Public Funds article for additional insight.

So, how much money are we talking?

Visit www.hdlcompanies.com/services/indirect-cost-recovery to calculate your potential reimbursement. Now obviously there are a lot of moving and/or additional factors, but the calculation will provide a rough estimate. 

 

Q&A

Q: Who is the cognizant agency to obtain approval for 10% de minimums indirect cost for ARPA?

A: There is no cognizant agency for 10% to minimis. If you choose to use the 10% minimis, that is what you apply on your budget. With ARPA on your funding, you can just apply that 10% across the board. Ensuring that it is only on a modified direct cost basis. You can only apply 10% on the 1st $25,000 of that. Say you have $100,000 pass through. You are only going to get $2500 as the administrative component of that. 

Q: We are doing Clean California Grant with Caltrans and they made us get the 10% approval from DOT...

A: For the Dominus, that is incorrect, and so you would simply have to go back to them and quote the guidelines with the 10% of minus that says that it is allowable. It is just it is flatly prized to everyone. So even if you calculated a rate for some reason and I do not know whose rate it would be, but if it were 8 you still could apply a 10%. That is an inaccurate statement from them.

Challenging that is something that we do when we are negotiating, and we certainly encourage you all to do.

Q: If ARPA funding is designated toward a project, is it considered obligated per ARPA and Treasury or do we need a contract/PO to qualify an ARPA amount as obligated.

A: If you have obligated ARPA through Treasury and your Council has approved, then as far as finding the person is not, as necessary. It is necessary for it to be spent by 2026, but it must be assigned and obligated through a formal process of Council to approve that this project is in line, and this set up and set forth through your organization, but not necessarily the PO already associated with it.

Q: How do we apply to use the 2CFR rate? Is approval required to apply the 2CFR rate to ARPA?

A: It is required that you do a 2 CFR Part 200 rate to use for your indirect cost on ARPA. However, the process that sometimes overlooked is the fact that if you do not have $35 million in direct federal funding, then your requirement is simply to do the rate and put it on your shelf. 

Q: In regards to using Indirect Cost to Meet Match requirements... The IDC can be applied to either the Match or as IDC. But can't be used for both. Correct? So, you can't claim IDC for reimbursement and then also use that same IDC for the Match.?

A: It can be used for both. You cannot get more than what your indirect cost rate is, but you split it and it both fully capture what your costs are, so now you can use it on both sides.

Q: Are we able to negotiate a higher indirect cost rate than what is outlined in a grant program guideline?

A: Yes. Let us say they have some type of requirement says 10% admin cap. That means is that is your direct administration. Your program indirect cost has that 10% match, but if you have a NICRA a negotiated agreement that is your agency wide indirect cost and so your agency wide indirect cost can also be applied in addition to that 10% administrative cap.

Q: Do the methods of NICRA result in higher cost rates percentage then a cost allocation rate? My cost allocation plan results in about 10 rate anyways.  

A: The rate is what the rate is... BUT, determining the rate depends on the methodology used to calculate the rate. Many people don't have the experience necessary to maximize their Indirect cost rate. Often times the rate they are using is too low. 

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