# Presentation: 733487

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

_**Indirect Cost Training**_** – **_**One Tier Method**_
**Ruth Bishop, Branch Chief**
**Ray Woodruff, Auditor**
**Ph: (301)496-2444; E-mail: **_[rw8u@nih.gov](mailto:rw8u@nih.gov)__ _

## 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

## 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

## Know 3 Definitions Relevant to ICRs

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

## Know 3 DefinitionsDefinition #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)

##     TYPES OF COSTS

- Fringe Benefits
- Overhead
- G &A

## OVERHEAD COSTS

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

## G & A COSTS

- Indirect costs associated with the Overall management of the company
- Executive Administration labor
- F/B on G&A labor
- Professional fees (CPA)
- Office supplies

## Types of Rate

- Provisional Rate
- Final rates
- Ceiling rates

## Know 3 DefinitionsDefinition #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

## Know 3 DefinitionsDefinition #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://](http://www.arnet.gov/far/loadmainre.html)__[www.arnet.gov/far/loadmainre.html](http://www.arnet.gov/far/loadmainre.html)_

## 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 ](file:///../../Local%20Settings/Temporary%20Internet%20Files/OLK30/Copy%20of%20one_tierrate_blank.xls)_
- _[Check your answers](file:///../../Local%20Settings/Temporary%20Internet%20Files/OLK30/Copy%20of%20one_tierrate_answer.xls)_

## 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

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

_**Indirect Cost Training**_** – **_**Two Tier Method**_
**Ruth Bishop, Branch Chief**
**Ray Woodruff, Auditor**
**Ph: (301)496-2444; E-mail: rw8u@nih.gov**

## 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

## 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

## 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)

## 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

## 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).

## 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.