By Kylie Thomas
To start with the basics, a de minimis indirect cost rate is a simplified method used by government agencies and other entities to reimburse indirect costs incurred by recipients of federal funds, particularly in grant programs. Instead of calculating and allocating actual indirect costs, recipients may elect to use a predetermined fixed percentage of their modified direct costs as their indirect cost rate. This predetermined rate by the Office of Management and Budget (OMB), often referred to as the de minimis rate, is currently set at 10%, soon to be 15% as recently approved, of modified costs. It provides a simplified approach for organizations with relatively low indirect costs to receive reimbursement without the need for detailed accounting and negotiation of indirect cost rates.
You’ve Got Options – But Don’t Miss the Fine Print
Does your organization use the current de minimis indirect cost rate for your grant agreements? If so, did you know you could potentially use a higher indirect cost rate? Many funding agencies will allow grantees to utilize a calculated rate for their organization to recapture more of their true administrative costs.
It’s important to note that if your grantors will allow a higher indirect cost rate to be used, this may come with some additional work. Many funding agencies will require a detailed supporting calculation which is audited by an independent CPA firm. While this may require additional administrative work, you may already retain many of the supporting documents that are necessary to implement a calculated rate. For example, your organization likely retains timecards, vendor invoices, contracts and agreements for services and goods.
Despite the additional requirements, your organization could achieve higher indirect cost reimbursements by putting in the work to establish a calculated rate for your organization.
Interested in more information? Tune into our webinar!
Clark, Schaefer, Hackett & Co. is hosting a free webinar on Thursday, May 23, 2024 at 1PM EST. Our presenters will cover this topic in more depth along with topics such as accounting for conditional grants and grant budgeting. Please join us to learn more about these topics and see if calculating an indirect cost rate could be a major win for your organization.
