NATIONAL INSTITUTES OF HEALTH Division of Financial Advisory Services DFAS

1
NATIONAL INSTITUTES OF HEALTH Division of
Financial Advisory Services (DFAS)

• Indirect Cost Training One Tier Method
• Ruth Bishop, Branch Chief
• Ray Woodruff, Auditor
• Ph [phone] E-mail rw8u_at_nih.gov

2
What You Need To Understand Indirect Cost Rates
(ICR)

• Know 3 reasons why we should be concerned about
  ICRs
• Know 3 definitions relevant to ICRs
• Know 3 steps to calculate an ICR
• Know 3 ways to check the grant budget for errors
  involving ICRs

3
Know 3 Reasons Why We Should Be Concerned About
ICRs

• Grantees will come to us and ask us to pay our
  fair share of indirect costs associated with each
  grant
• The Government benefits from a grantees indirect
  costs so the Govt. should pay its fair share of
  indirect costs
• To have a uniform method of funding indirect
  costs and a fair allocation of indirect costs to
  all projects

4
Know 3 Definitions Relevant to ICRs

• 1. Indirect cost
• 2. Direct cost
• 3. Unallowable cost

5
Know 3 DefinitionsDefinition 1

• Indirect Cost - An expenditure that is not easily
  identified with a specific project.
• Executive salaries
• Admin. personnel (Acct, Payroll, etc.)
• Rent
• Utilities
• Depreciation
• Professional fees (audit, legal)

6
TYPES OF COSTS

• Fringe Benefits
• Overhead
• G A

7
OVERHEAD COSTS

• Indirect costs relating to performance of a
  project
• Overhead Labor
• Fringe on overhead labor
• Facility costs and depreciation
• General lab supplies

8
G A COSTS

• Indirect costs associated with the Overall
  management of the company
• Executive Administration labor
• F/B on GA labor
• Professional fees (CPA)
• Office supplies

9
Types of Rate

• Provisional Rate
• Final rates
• Ceiling rates

10
Know 3 DefinitionsDefinition 2

• Direct Cost - An expenditure that is easily
  identified with a specific project.
• Direct salaries and wages (research personnel)
• Materials and supplies
• Travel
• Consultants
• Subcontracts
• Equipment

11
Know 3 DefinitionsDefinition 3

• Unallowable costs - expenses for which the Govt.
  will not reimburse a grantee
• Advertising
• Bad debts expense
• Entertainment costs
• Interest
• Federal income taxes
• Contributions/donations
• Fines and penalties
• () Unallowable costs for commercial, for-profit
  organizations FAR Part 31.2 http//www.arnet.gov
  /far/loadmainre.html

12
Know 3 Steps to Calculate an ICR

• Obtain expenses from financial statements or
  accounting records.
• Categorize expenses as either indirect, direct,
  or unallowable.
• Divide total allowable indirect costs by total
  allowable direct costs to calculate the indirect
  cost rate.
• Do a sample indirect cost rate
• Check your answers

13
Know 3 Ways to Check the Grant Budget for Errors
Concerning the ICR

• Did the grantee use the correct indirect cost
  rate?
• Did the grantee apply the indirect cost rate to
  the correct base (i.e., direct cost categories)?
• Make any necessary corrections to the proposal
  budget check your answers

14
NATIONAL INSTITUTES OF HEALTH Division of
Financial Advisory Services (DFAS)

• Indirect Cost Training Two Tier Method
• Ruth Bishop, Branch Chief
• Ray Woodruff, Auditor
• Ph [phone] E-mail rw8u_at_nih.gov

15
Similarities to the One Tier Method

• Prepare/calculate a two-tier ICR the same as an
  one-tier ICR
• Same 3 definitions relevant to ICRs fringe
  benefits
• Same 3 steps to calculate an ICR (1obtain
  expenses, 2classify expenses as indirect, direct,
  unallowable fringe benefits, 3calculate ICR
  calculate F/B rate
• Same 3 ways to check the grant budget

16
Differences from the One Tier Method

• Two rates instead of one rate (indirect cost rate
  and a fringe benefit rate)
• Fringe benefits (employee benefits) are not
  included in the ICR, but rather broken out
  separately in their own rate
• Fringe benefits can now appear as a direct cost
  in the grant budget

17
What are Fringe Benefits (F/B)?

• Allowances and services that employers provide to
  employees
• Paid absences (vacation, sick, holiday)
• Payroll taxes
• Pension plan costs
• Group insurance (health, life, disability)

18
How to Calculate a Fringe Benefit Rate

• Pool (numerator) fringe benefits (paid abs,
  payroll taxes, pension and insurance)
• Base (denominator) total labor (direct and
  indirect)
• Do a sample two-tier rate (ICR and fringe benefit
  rate) and check your answer
• Review the grantees proposed budget and check
  your answer

19
SBIR Phase I Awards and Indirect Cost Rates

• PHASE I If Grantee has a current negotiated ICR
  agreement We use the ICR stated in the
  agreement.
• PHASE I If Grantee does not have a current
  negotiated ICR agreement indirect costs funded
  cannot exceed 40 of total direct costs(no
  exclusions).

20
SBIR Phase II Awards and Indirect Cost Rates

• PHASE II If Grantee has a current negotiated
  ICR agreement We use the ICR stated in the
  agreement.
• Phase II- If proposed indirect costs are 25 or
  less of total direct costs (No exclusions),
  Grantee does not need to provide supporting
  documentation.
• PHASE II The 25 should not be used to fund
  Phase II grants unless proposed by grantee. The
  25 is not a temporary ICR.