(What you need to know about Negotiated Indirect Cost Rate)
An organization's indirect costs are costs that cannot be directly attributable to a specific product, service or, in this case, grant.
These indirect costs also known as overhead or administrative, go beyond project or grant costs. Geographical locations can significantly impact indirect costs. Ensuring these indirect costs are covered is essential for an organization’s sustainability and effectiveness. Funding agencies may reimburse these legitimate expenses, promoting equitable cost allocation.
The OMB Uniform Guidance (Office of Management and Budget) issues guidelines for federal grants. If a negotiated indirect cost rate does not exist, the organization normally uses the current default rate of 10% of MTDC or Modified Total Direct Costs, also known as the de minimis rate. Organizations can submit an application for indirect cost rates exceeding the de minimis 10%, typically to recover indirect costs due to geographical and demographic costs.
A NICRA (Negotiated Indirect Cost Rate Agreement) submission, which is approved for an increased rate, allows the reimbursement of these legitimate expenses. This frees up the nonprofit to focus more on its mission and reduces the pressure of raising additional capital to cover these overhead expenses. In this way, they better serve the community. However, this is also true in ensuring fair reimbursement and sustainability provided to for-profit entities.
Preparing a NICRA submission takes time and requires detailed financial information and expertise. Below are a few key points as background information.
1. What is a NICRA – Negotiated Indirect Cost Rate Agreement
There are very specific indirect cost rate proposal submission procedures for each federal agency, e.g., NSF or the Department of State (handled by the Department of Interior). Each agency governs its own submission of a formal indirect cost rate proposal.
2. Who should be interested in applying?
Nonprofits that receive significant funding from government agencies for their work.
3. What is included in the application?
In addition to general organizational information, extensive accounting information is required that documents indirect costs such as labor costs, travel, and facilities expenses, as well as allocation methods.
4. How often is it reviewed?
A NICRA may be renegotiated yearly to cover the next five fiscal years. It must be renegotiated at least every two years.
If you are a nonprofit with a significant amount of funding from government grants, there may be advantages to filing for a NICRA, Negotiated Indirect Cost Rate Agreement. We can help.
If you would like to discuss how Charles River CFO works with nonprofits to provide financial stability and growth, please call us at (781) 431-0420 x1 or email us.
