Indirect Cost Toolkit for
Continuum of Care (CoC)
and Emergency Solutions
Grants (ESG) Programs
Released March 2021
This toolkit is current as of November 2019 and does not include
recent changes to the final Uniform Administrative Requirements
U.S. Department of Housing and Urban Development (HUD)
This resource is prepared by technical assistance providers and intended
only to provide guidance. The contents of this document, except when based
on statutory or regulatory authority or law, do not have the force and effect
of law and are not meant to bind the public in any way. This document is
intended only to provide clarity to the public regarding existing requirements
under the law or agency policies.
Contents
1. Introduction _________________________________________ 1
1.1 About This Toolkit 1
1.2 How to Use This Toolkit 3
2. What are direct and indirect costs? _______________________ 4
2.1 Examples of Costs 6
2.2 Allowability of Costs 10
3. What are the options for the reimbursement of indirect costs? _ 12
3.1 The 10 Percent De Minimis Rate 12
3.1.1 Eligibility Criteria for the 10 Percent De Minimis Rate 13
3.1.2 Modified Total Direct Cost (MTDC) for the 10 Percent De Minimis Rate 14
3.2 Indirect Cost Rate Agreement 22
3.3 Cost Allocation Plan 24
3.4 Allowable Cost Allocation Methods 25
3.4.1 Simplified Allocation Method 26
3.4.2 Multiple Rate Allocation Method 28
3.4.3 Direct Allocation Method 29
4. Which option is best for my organization? _________________ 31
4.1 Considerations for Selecting an Indirect Cost Rate Option 31
4.2 Pros and Cons of Different Indirect Cost Rate Methods 32
4.3 Steps for Choosing an Indirect Rate Methodology 35
5. How are indirect cost reimbursement options calculated? _____ 36
5.1 Calculate and Use the 10 Percent De Minimis Rate 36
5.1.1 ESG De Minimis Rate Indirect Cost Calculation Example 37
5.1.2 CoC De Minimis Rate Indirect Cost Calculation Examples 38
5.2 Negotiate and Use an Indirect Cost Rate 40
5.2.1 Submission of Proposal 41
5.2.2 Approval of Proposal 43
5.2.3 Disputes 43
5.3 Prepare and Use a Cost Allocation Plan 43
6. Frequently asked questions ____________________________ 45
7. Definitions _________________________________________ 50
Indirect Cost Toolkit for CoC and ESG Programs Page 1
1. Introduction
1.1 About This Toolkit
This Toolkit has been developed to assist recipients and subrecipients under
the Continuum of Care (CoC) and Emergency Solutions Grants (ESG)
programs to better understand indirect costs—such as facility or
administrative costs—and how they can be calculated and charged under
these programs. Recipients can use this Toolkit to make an informed
decision concerning the best method for computing and seeking
reimbursement for indirect costs under ESG and CoC program grants. Please
note that CoC program grants include all awards made under the Youth
Homelessness Demonstration Program (YHDP) and can be used relative to
those awards.
In 2014, the United States Office of Management and Budget (OMB)
released final regulations on indirect costs under the Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards
(2 Code of Federal Regulations [CFR] Part 200), also referred to as the
Uniform Administrative Guidance. These regulations explain that a recipient
or subrecipient’s indirect costs are legitimate expenses that may need to be
reimbursed for the organization to be sustainable and effective.
Non-federal entities administering federal funds are not required to seek
recovery and reimbursement for indirect costs related to their federal
awards. However, when non-federal entities decide to seek reimbursement
for indirect costs, the Uniform Administrative Guidance requires pass-
through entities (that is, the direct recipients of federal funds, or
“grantees”—typically states and local governments) and all federal agencies
to reimburse a recipient’s or subrecipient’s indirect costs.
All federal pass-through entities (recipients or grantees) are also required to
ensure that all subrecipients of federal funds document and use one of the
methods allowed under 2 CFR §200 for determining indirect cost rates (2
CFR §200.331(a)(1)(xiii)) as part of the sub-awarding of federal funds.
There are several methods for determining, allocating, and charging indirect
costs. These methods are the subject of this Toolkit. In particular, this
Indirect Cost Toolkit for CoC and ESG Programs Page 2
Toolkit helps ESG and CoC recipients and subrecipients understand the
requirements for the different ways they can charge the grant for indirect
costs for each of their programs.
This Toolkit does not replace the regulations contained in 2 CFR Part §200,
24 CFR §576 (ESG), 24 CFR §578 (CoC), and subsequent amendments,
notices, and any other applicable federal, state, and local laws and
ordinances; it simply details requirements for indirect cost reimbursement
under ESG and CoC programs. It also does not replace guidance and
regulations that govern federal awards and allocations issued prior to the
effective date of 2 CFR §200 (as found in 24 CFR §84 and §85). Recipients
and subrecipients should always refer to applicable regulations and their
grant agreements, and work with their local HUD Field Office to determine
what is allowable under their program and how indirect costs can be
reimbursed.
Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards (“Uniform Administrative Guidance”):
► OMB issued final guidance on December 26, 2013 which became effective
December 26, 2014. Generally, this means that:
• 2014 Grant Year and subsequent grant year ESG Awards and on are
covered by 2 CFR §200.
•
2015 Grant Year and subsequent grant year CoC Awards and on are covered
by 2 CFR §200. (Note: this later effective date for CoC Awards was a result
of the procurement cycle of CoC Awards and their underlying appropriation
dates.)
► Regulations are found at 2 CFR §200
, and resources on the Uniform Administrative
Guidance are found on the Council on Financial Assistance Reform website.
► For more information about effective dates and HUD’s Transition Rules, review
Notice SD-2015-01: Transition to 2 CFR §200, specifically “General Transition
Rules” on page 15, and Notice CPD 16-04: Additional Transition and
Implementation Guidance.
Indirect Cost Toolkit for CoC and ESG Programs Page 3
1.2 How to Use This Toolkit
This Toolkit is organized into the following sections:
1) Introduction
2) What are direct and indirect costs?
3) What are the options for the reimbursement of indirect costs?
4) Which option is best for my organization?
5) How are indirect cost reimbursement options calculated?
6) Frequently Asked Questions
7) Definitions
This document contains general information regarding the treatment of
direct and indirect costs. The determination and allocation of direct and
indirect costs at the program and agency levels is dependent on multiple
factors, such as the size of the organization, the nature of its programs, the
complexity of its structure, and the organization’s overall approach to
financial management. Given this, the Toolkit cannot and does not address
every possible situation or question that the reader might have. In fact, the
document purposely does not include details of how to implement direct and
indirect cost allocation methods in a program or organization. In all cases,
HUD encourages recipients and subrecipients to develop cost allocation
methods, policies, and procedures in consultation with an accountancy
professional familiar with federal cost principles.
Indirect Cost Toolkit for CoC and ESG Programs Page 4
2. What are direct and indirect costs?
Before exploring the methods available through the Uniform Administrative
Guidance for recovering indirect costs, let’s first take a quick look at what
we mean by direct and indirect costs.
The Uniform Administrative
Guidance (2 CFR §200.413)
defines direct costs as
“those costs that can be
identified specifically with a
particular final cost
objective.” For ESG and CoC
programs, most expenses
are direct costs and are
exclusively used for that program (e.g., case manager salary, rental
assistance for clients, purchase of food for shelter meals).
In contrast, indirect costs (2 CFR §200.56) are costs “incurred for a common
or joint purpose benefiting more than one cost objective, and not readily
assignable to the cost objectives specifically benefitted.” These costs are
shared by more than one program.
Understanding the distinction between direct and indirect costs is essential
to this entire resource. In general, most, if not all, costs incurred by an
organization performing activities under the CoC or ESG programs will be
direct program costs. That is, in most or all cases, a dollar spent can directly
be identified as being spent on a program objective or activity. A dollar
spent would only be indirect if it cannot be easily associated with a particular
CoC or ESG activity. For example, if an organization had only one source of
funding, a single ESG grant, then 100 percent of its expenses would be
direct, because all costs are solely and clearly tied to an ESG award and
related activities. On the other hand, if an organization had more than one
funding source and had multiple programs in its portfolio, then some costs—
such as administrative costs and overhead costs like facility rental and
utilities—will be hard to tie to a single funding source and activity, and are
thus shared or indirect costs.
Cost objective means a program,
function, activity, award,
organizational subdivision, contract, or
work unit for which cost data are
desired and for which a provision is
made to accumulate and measure the
cost of processes, products, jobs,
capital projects, etc.
Indirect Cost Toolkit for CoC and ESG Programs Page 5
When costs are shared and thus likely indirect, the Uniform Administrative
Guidance (2 CFR §200.414) further classifies indirect costs as being limited
to administrative and facilities costs (A&F). The Guidance defines facilities as
“depreciation on buildings, equipment and capital improvement, interest on
debt associated with certain buildings, equipment and capital improvements,
and operations and maintenance expenses.” It defines administrative as
“general administration and general expenses such as the director’s office,
accounting, and personnel.” Indirect costs will fall into one of these two
buckets: administrative or facilities. Under the Uniform Administrative
Guidance, all indirect costs are either facilities costs or administrative costs.
It is important to pause here and add some important qualifications to the
broad discussion in this document, especially around the use of the terms
direct and indirect costs and facilities and administrative costs. There is no
one-size-fits-all use of any of these terms. In fact, a key takeaway from the
Uniform Administrative Guidance in 2 CFR §200 regarding these terms is
that the federal government recognizes a wide diversity of organization
types and structures, ranging from the smallest nonprofit to large nonprofit
conglomerates (such as hospital groups or multi-state organizations like the
American Red Cross) and local and state governments. The federal
government allows for a diversity of cost accounting methods in response to
the diversity of organizational types and structures.
Given this, care should be taken with the terminology in this document. For
example, it is the case that a program cost that is charged as a direct
program cost by one organization may be—with complete legitimacy—
charged as an indirect program cost by another organization, based on the
organizations using different, but sanctioned, methods for allocating and
charging costs and depending on how their program funding is structured. It
is also the case that, though 2 CFR §200 discusses cost types such as
facilities and administrative as general categories, particular federal
programs such as the CoC or ESG programs will have their own definitions of
what costs are allowable within these particular cost categories.
Therefore, this Toolkit aims to provide broad information about these
indirect and direct costs, focusing on the various cost accounting methods
available to determine how such costs will be categorized and treated. Our
objective is to broadly present the various methods available for direct and
Indirect Cost Toolkit for CoC and ESG Programs Page 6
indirect cost allocation that allow non-federal entities to recover indirect
costs through their grant awards, with particular attention on the de minimis
method that was new with the issuance of 2 CFR §200.
2.1 Examples of Costs
Administrative costs are typically recovered by non-federal entities as an
eligible activity on their grant. Both the CoC (CoC, 24 CFR §578.59) and the
ESG (ESG, 24 CFR §576.108) programs allow “project administrative costs”
as an eligible activity. Program regulations include specifics for each
program regarding eligible program administrative costs. Any CoC or ESG
program administration costs charged to an award will need to be eligible
under the particular program’s regulations. The CoC program caps project
administrative costs at 10 percent of awarded funds, and the ESG program
caps project administrative costs at 7.5 percent. As long as CoC and ESG
recipients are charging administrative costs under this eligible activity (as
defined by each program), CoC and ESG providers are already recuperating
at least some of their potentially recoverable indirect costs.
Though CoC and ESG regulations define eligible administrative activities and
set caps under each program, it can be challenging sometimes to determine
the line between when a cost is administrative and when it should be directly
charged to a particular activity. For example, a program director’s time and
office overhead (space, supplies, equipment, etc.) may fit in either category.
If a program director spends time compiling annual reports, working on
program budgets, and engaging in similar administrative activities, that time
(and the associated share of overhead facilities costs) would be
administrative and, if the position was responsible for multiple programs,
then such costs would be shared (and, thus, likely treated as indirect). But,
if that same program director also spent time (say, in their office) providing
direct supervision and oversight to program staff or working on program
policies, procedures, and programmatic documentation, then that would not
be an administrative cost but a direct program activity cost.
The costs that fall under facilities can present a similar challenge for non-
federal entities. For example, an organization may own or lease a single
facility where they engage in both administrative and direct program
delivery activities. Furthermore, they may have equipment such as copiers,
Indirect Cost Toolkit for CoC and ESG Programs Page 7
internet and phone systems, and furniture that are shared by both
administrative and direct program functions. Finally, the facility may have
only a single account for services such as electricity, internet and phone
service, and security.
Given the complexity of sorting out direct and indirect costs and determining
how to categorize personnel and overhead costs into administrative and
facilities categories, organizations can easily make common errors of
conflating different types of costs. This may unnecessarily limit their
opportunities to have legitimate program costs reimbursed as part of a CoC
or ESG award. Consider, for example, a program that provides ESG rental
assistance in the form of rent payments to property owners. The
organization rents a single office building for its administration and direct
program staff. There are frontline persons who work with participating
households, determine program eligibility and levels of assistance, and
approve units for rental assistance. There is also a program director who
supervises the staff and manages the budget and reporting, and finance
personnel who handle payroll and manage payments to vendors and
landlords. There are supplies, utilities, and equipment that are purchased or
leased to support the entire operation. Finally, the organization has Housing
Opportunities for Persons With AIDS (HOPWA) funding to perform similar
activities, and the same staff manage that program.
Which expenses are direct? Which are indirect? The organization buys
equipment (e.g., desks, chairs, phones, binders) in bulk and office cleaning
services that are shared by all parts of the organization. According to the
definition of facilities costs above, these would all be facilities costs and thus
likely are indirect costs. They are all not easily assigned to a single function
at the organization (such as administration, HOPWA, or ESG only). Since all
indirect costs are either administrative or facilities costs, does that mean
that the organization must cover these costs under the 7.5 percent ESG
admin cap (or the similar 7 percent HOPWA admin cap)? Similarly, for the
program director, do all of his or her costs fall under administration? How
about the shared cost of leasing the building?
Unfortunately, many organizations conflate all shared or indirect costs with
administrative costs and try to shoehorn costs that may be shared (including
personnel, like the program director, or facilities costs, like office rental and
Indirect Cost Toolkit for CoC and ESG Programs Page 8
equipment) into the single bucket of administrative costs. As we have seen,
the program director performs both administrative tasks (reporting,
budgeting, and signing invoices and mileage sheets) and direct program
tasks (supervising employees, reviewing and discussing client files, and
reviewing client-related documentation); the latter should not be considered
administrative but rather direct program costs. Similarly, a computer
purchased for someone in accounting would be an administrative cost, but a
computer purchased for use by a caseworker in the rental assistance
program would be a direct cost. The same would be true with the renting
and maintenance of the organization’s office space; some portion would be
administrative, but some portion should be charged directly to the ESG and
HOPWA awards, using some proportionate means of determining the
allocation of these costs among different areas and departments.
These examples demonstrate how some costs can fall into the gray area
where they could be classified either as direct or indirect costs. Every
organization will need to determine the method best suited for classifying
and recovering these costs, should codify its method for classifying costs in a
set of written financial policies and procedures, and should consistently apply
this method across all programs. It is crucial that no cost be allocated and
charged more than once, so every expense will need to be clearly classified
as either direct or indirect and booked and charged accordingly.
This brief journey through direct, indirect, administrative, and facilities costs
leads us to the point of this Toolkit and frames the discussions that follow.
Let’s summarize:
► Direct costs can easily be assigned to a cost objective and directly
charged on an award (assuming eligibility of costs).
► Indirect costs are not easily assigned to a single cost objective, usually
because it is paid for by multiple sources (like the program director
above), or it is used to support multiple programs (like the office
building above).
► All indirect costs will either be administrative or facilities costs.
► However, administrative and facilities costs may not necessarily be
indirect (e.g., only the HOPWA caseworker is issued a cellphone and
thus this equipment cost is not a shared cost).
Indirect Cost Toolkit for CoC and ESG Programs Page 9
► Not all shared and indirect costs are administrative, and the
administrative category should not be forced to carry all shared and
indirect costs (like the program director and the ESG-/HOPWA-related
equipment).
► Finally, every organization will need a plan that is tailored to its
structure and activities that explains:
• How it will determine which costs are direct and indirect;
• How it will allocate shared costs among different departments,
including administrative functions and direct programs; and
• How it will charge (recover) all eligible and allowable direct and
indirect costs from the federal government or its awardees and
make sure that it does not short-change itself unnecessarily.
This plan mentioned above is a cost allocation plan. Cost allocation plans are
among the bedrocks for successfully managing an organization, especially
one that spends federal funds. This plan will serve as a roadmap for the
organization and its funders to
understand how it spends and
manages revenue. It will be the
foundation for the organization to
adequately charge its program costs to
HUD and the federal government.
The good news is that, as mentioned above, the federal government
recognizes the diversity of organization types and structures. 2 CFR §200
and its appendices lay out several options or methods for cost allocation.
These methods are the focus of this document. Furthermore, CoC and ESG
recipients and subrecipients are likely already using one of the allowed
methods of calculating and charging indirect costs, as described in Section 3
below, even if not as part of an explicit cost allocation plan or to a full
extent. For example, if a provider prorates a phone bill and charges it to a
direct CoC or ESG activity, or if they charge a portion of their cost of leasing
office space for case managers directly to an activity, then they are already
recovering indirect facilities costs using the “Direct Allocation Method”
described in 3.4.3 below and treating those shared costs as direct costs.
If a cost only exists for
one award, then it should
be treated as a direct
cost.
Indirect Cost Toolkit for CoC and ESG Programs Page 10
2.2 Allowability of Costs
An additional consideration for both direct and indirect costs is their
allowability under 2 CFR 200, Subpart E.
What makes a cost allowable? Generally, for costs to be allowable, they
must be:
► 200.403(a) Reasonable and necessary
► 200.403(b) Conforming to limitations or exclusions
► 200.403(c) Consistent with policies and procedures
► 200.403(d) Accorded consistent treatment
► 200.403(e) Determined in accordance with GAAP
► 200.403(f) Not included as match or cost-share
► 200.403(g) Adequately documented
What makes a cost unallowable? 2 CFR, Part 200 identifies expressly
unallowable costs. Common unallowable costs include:
► 200.421 Advertising and public relations
► 200.423 Alcoholic beverages
► 200.426 Bad debts
► 200.434 Contributions and donations
► 200.438 Entertainment costs
► 200.441 Fines, penalties, damages, and other settlements
► 200.442 Fundraising and investment management costs
► 200.445 Goods or services for personal use
► 200.449 Interest
► 200.450 Lobbying
► 200.451 Losses on other awards or contracts
► 200.455 Organization costs
► 200.467 Selling and marketing costs
► 200.470 Taxes (including Value Added Tax)
Indirect Cost Toolkit for CoC and ESG Programs Page 11
Once a cost has been determined to be allowable, it must be allocable to
federal awards consistent with 2 CFR §200.405(a); that is, it must be a cost
that is allowed under a particular program’s implementing regulations (24
CFR §576 for the ESG program and 24 CFR §578 for the CoC program).
Finally, the cost must also be an eligible cost in the grant award and
agreement under which a recipient or subrecipient operates. A cost may not
be charged to a federal award with the purpose of overcoming shortages or
avoiding restrictions imposed by federal statutes, regulations, or terms and
conditions of the federal awards (see 2 CFR §200.405(c)).
Indirect Cost Toolkit for CoC and ESG Programs Page 12
3. What are the options for the
reimbursement of indirect costs?
There are three options for requesting reimbursement of indirect costs:
► Option 1: The 10 Percent De Minimis Rate
► Option 2: Negotiated Indirect Cost Rate Agreement
► Option 3: Cost Allocation Plan
Option 1 is a new option under the Uniform Administrative Guidance
(authorized in 2 CFR §200.414(f)). Options 2 and 3 have existed for federal
awards for numerous years. Although we will discuss Options 2 and 3, this
Toolkit will primarily focus on providing organizations with information on
the use of, potential benefits of, and requirements of Option 1: the 10
percent de minimis rate. For the CoC program, FY2015 grants and beyond
are eligible for the 10 percent de minimis rate and held to the Uniform
Administrative Guidance outlined under 2 CFR §200; for the ESG program,
FY2014 grants and beyond are eligible and held to this Guidance.
3.1 The 10 Percent De Minimis Rate
The 10 percent de minimis rate is an indirect cost instrument implemented
under the revised 2 CFR §200. This rate was implemented in part to allow
organizations—primarily smaller organizations—to recover some of their
indirect costs on federal awards without having to go through the rigorous
and time-consuming process of negotiating an indirect cost rate with a
federal cognizant agency.
Many small recipients and subrecipients do not
have the financial resources to engage the
necessary accounting and finance personnel to
assist them with preparing an indirect cost rate
proposal for negotiations. They also often do not
have the resources to maintain their financial
management system to track costs consistent
with their proposed indirect rate cost structure,
once in place.
Indirect Cost Toolkit for CoC and ESG Programs Page 13
Under the Uniform Administrative Guidance, eligible organizations can claim
up to 10 percent of their Modified Total Direct Costs (MTDC) as indirect costs
without having to negotiate an indirect cost rate agreement.
For many recipients, this is the first time they will be able to charge any
portion of their indirect costs to federal awards.
Direct award recipients with subrecipients must allow the subrecipient to
elect the 10 percent de minimis rate. These requirements are included in the
subrecipient monitoring and management section of the Uniform Guidance,
section 2 CFR §200.331(a)(4).
3.1.1 Eligibility Criteria for the 10 Percent De Minimis Rate
2 CFR §200.414(f) allows grant
recipients and subrecipients to elect
a 10 percent de minimis rate based
on the MTDC if they meet the
following criteria:
1. The recipient or subrecipient
does not currently have and
has never received a negotiated indirect cost rate;
2. The recipient or subrecipient is not a state, local government, or
Indian tribe receiving more than $35M in direct federal funding (these
entities are not eligible for de minimis because of 2 CFR §200
Appendix VII D(1)b1));
3. The recipient or subrecipient will be using the rate indefinitely and
consistently for all federal awards until such time the entity chooses to
negotiate a rate; and
4. The de minimis will be based on the MTDC and comply with 2 CFR
§200.403 factors affecting allowability of cost.
A more detailed discussion on the calculation of the 10 percent de minimis
rate can be found in Section 5.
You must meet ALL of the
criteria listed here, in order to
be eligible to use the 10
percent de minimis rate.
Indirect Cost Toolkit for CoC and ESG Programs Page 14
3.1.2 Modified Total Direct Cost (MTDC) for the 10 Percent
De Minimis Rate
Recipients and subrecipients electing the 10 percent de minimis rate must
use the MTDC as the base for this rate. According to 2 CFR §200.68, the
MTDC is composed of “[a]ll direct salaries and wages, applicable fringe
benefits, materials and supplies, services, travel, sub-awards and sub-
contracts up to the first $25,000 of each sub-award or sub-contract
(regardless of the period of performances under the award).”
All costs used to comprise an MTDC base (used for calculating de minimis)
must be identified specifically to a funded program or be directly assigned to
such activities easily and accurately. Costs must also be allowable under
program regulations, necessary and reasonable for the performance of the
federal award, and consistent with policies and procedures that apply
uniformly to both federal and non-federal activities of the grantee (2 CFR
§200.403). Once the MTDC base has been determined, the de minimis rate
of 10 percent is applied to that base, deriving total de minimis indirect costs.
The calculation of the de minimis rate is described in more detail below.
The following pages reflect how costs can generally be included or excluded
from the computation of the MTDC base for the 10 percent de minimis rate.
Keep in mind that the actual calculation of the MTDC may vary based on the
unique features of each activity or program.
To aid understanding, the following tables are included in this document:
► Summary List of MTDC Inclusions and Exclusions (page 15)
► Sample Breakout of ESG Expenses for MTDC Inclusions and Exclusions
(page 16)
► Sample Breakout of CoC Expenses for MTDC Inclusions and Exclusions
(page 19)
Recipients and subrecipients are encouraged to reach out to their local HUD
Field Office or use the Ask A Question (AAQ) form on the HUD Exchange with
questions about their specific grant or for more information.
Indirect Cost Toolkit for CoC and ESG Programs Page 15
Table 1: Basis of Modified Total Direct Costs for 10 Percent De Minimis Rate
(2 CFR §200.68)
Included
► All direct salaries and wages, applicable fringe benefits,
materials and supplies, services, travel, and subawards
► Subawards and subcontracts up to the first $25,000 of each
subaward or subcontract (regardless of the period of
performance of the subawards and subcontracts under the
award)
Excluded
► Equipment
► Capital expenditures
► Charges for patient care
► Rental costs
► Tuition remission
► Scholarships and fellowships
► Participant support costs
► Portion of each subaward and subcontract in excess of
$25,000
► Other items may only be excluded when necessary to avoid a
serious inequity in the distribution of indirect costs, and with
the approval of the cognizant agency for indirect costs
Indirect Cost Toolkit for CoC and ESG Programs Page 16
Table 2: Sample Breakout of Emergency Solutions Grants (ESG)
Components for Modified Total Direct Costs for 10 Percent De Minimis Rate
Included in MTDC Base
Excluded from MTDC Base
Overview
Included are all direct salaries and
wages, applicable fringe benefits,
materials and supplies, services, and
travel associated with eligible activities
under the ESG program, except where
excluded, and the first $25,000 of each
subawards and subcontracts
(regardless of the period of
performance of the subawards and
subcontracts under the award).
Overview
Excluded are all equipment, capital
expenditures, charges for patient care,
rental costs, tuition remission,
scholarships and fellowships,
participant support costs, and the
portion of each subaward in excess of
$25,000.
Other items may only be excluded
when necessary to avoid a serious
inequity in the distribution of indirect
costs, and with the approval of the
cognizant agency for indirect costs.
Emergency Shelter Essential
Services
► Case management
► Childcare
► Education services
► Employment assistance and job
training
► Legal services
► Life skills training
► Transportation
Emergency Shelter Essential
Services
► Education, employment assistance,
job training, tuition, scholarships,
and fellowships
► Outpatient health services
► Mental health services
► Substance abuse treatment
services
► Motor vehicle transportation
Emergency Shelter Operations
► Maintenance
► Security
► Food
Emergency Shelter Operations
► Rent
► Insurance
► Utilities
► Fuel
► Equipment
► Furnishings
► Hotel/motel vouchers
Indirect Cost Toolkit for CoC and ESG Programs Page 17
Included in MTDC Base
Excluded from MTDC Base
Emergency Shelter Renovation
► No costs included
Emergency Shelter Renovation
► All costs excluded for renovation or
conversion of a building
Uniform Relocation Assistance and
Real Property Acquisition Policies
Act (URA)
► No costs included
Uniform Relocation Assistance and
Real Property Acquisition Policies
Act (URA)
► All costs excluded (e.g., financial
and rental assistance associated
with relocation assistance through
the URA)
Street Outreach Essential Services
► Engagement
► Case management
► Transportation
Street Outreach Essential Services
► Emergency health services
► Emergency mental health services
► Motor vehicle transportation
Rapid Rehousing & Homelessness
Prevention Financial Assistance
Costs
► Service delivery (e.g., processing
payments)
Rapid Rehousing & Homelessness
Prevention Financial Assistance
Costs
► Rental application fees
► Security deposits
► Last month’s rent
► Utility deposits
► Utility payments
► Moving costs
Rapid Rehousing & Homelessness
Prevention Services Costs
► Housing search and placement
► Housing stability case management
► Legal services
► Mediation
► Credit repair (e.g., credit
counseling)
Rapid Rehousing & Homelessness
Prevention Services Costs
► Rent, utilities, and equipment
Rapid Rehousing & Homelessness
Prevention Rental Assistance
► Service delivery (e.g., processing
payments)
Rapid Rehousing & Homelessness
Prevention Rental Assistance
► Short-term rental assistance
► Medium-term rental assistance
► Rental arrears
Indirect Cost Toolkit for CoC and ESG Programs Page 18
Included in MTDC Base
Excluded from MTDC Base
Homeless Management
Information System (HMIS) or
comparable database if
subrecipient is a victim service
provider
► HMIS data collection and
contribution activities (e.g., staff
operations, training, conducting
intake)
► HMIS Lead agency activities
► Victim service provider or legal
service provider activities
Homeless Management
Information System (HMIS) or
comparable database if
subrecipient is a victim service
provider
► All HMIS equipment (e.g.,
hardware, software licenses, office
equipment, office space)
► Participant fees
Administration
► General management, oversight,
and coordination
► Training
► Preparing and amending ESG and
homelessness-related sections of
the Consolidated Plan
► Environmental review
Administration
► Rent, utilities, and equipment
Indirect Cost Toolkit for CoC and ESG Programs Page 19
Table 3: Sample Breakout of Continuum of Care (CoC) Components for
Modified Total Direct Costs for 10 Percent De Minimis Rate
Included in MTDC Base
Excluded from MTDC Base
Overview
Included are all direct salaries and
wages, applicable fringe benefits,
materials and supplies, services, and
travel associated with eligible activities
under the CoC program, except where
excluded, and the first $25,000 of each
subaward and subcontract (regardless
of the period of performance of the
subawards and subcontracts under the
award).
Overview
Excluded are all equipment, capital
expenditures, charges for patient care,
rental costs, tuition remission,
scholarships and fellowships,
participant support costs, and the
portion of each subaward in excess of
$25,000.
Other items may only be excluded
when necessary to avoid a serious
inequity in the distribution of indirect
costs and with the approval of the
cognizant agency for indirect costs.
Acquisition, Rehabilitation, New
Construction
► No costs included
Acquisition, Rehabilitation, New
Construction
► All costs excluded (e.g., capital
expenditures, building, land,
equipment)
Leasing
► Service delivery (e.g., processing
payments)
► Inspections for rental assistance
and leasing (HQS, lead, etc.)
Leasing
► Rent
► Utilities
► Security deposits
► Property damage
Indirect Cost Toolkit for CoC and ESG Programs Page 20
Included in MTDC Base
Excluded from MTDC Base
Rental Assistance
► Service delivery (e.g., processing
payments)
► Inspections for rental assistance
and leasing (HQS, lead, etc.)
Rental Assistance
► Short-term rental assistance
► Medium-term rental assistance
► Long-term rental assistance
► Security deposits
► Property damage
► Other rental costs associated with
tenant-, sponsor-, and project-
based rental assistance such as
rental application fees, late
charges, and releasing fees
Supportive Services
► Annual assessment of service
needs
► Case management
► Education services
► Employment assistance and job
training
► Housing search and counseling
services
► Legal services
► Life skills training
► Outreach services
► Transportation
► Other costs associated with the
direct provision of services
Supportive Services
► Childcare
► Moving costs
► Education, employment assistance,
job training, tuition, scholarships,
and fellowships
► Food
► Mental health services
► Outpatient health services
► Substance abuse treatment
services
► Motor vehicle transportation
► Utility deposits
Operating
► Maintenance and repair of housing
► Building security personnel
Operating
► Property tax and insurance
► Replacement reserve account
► Utilities
► Furniture
► Equipment
► Property damage
Indirect Cost Toolkit for CoC and ESG Programs Page 21
Included in MTDC Base
Excluded from MTDC Base
Homeless Management
Information System (HMIS) or
comparable database if
subrecipient is a victim service
provider
► HMIS data collection and
contribution activities (e.g., staff
operations, training, conducting
intake)
► HMIS Lead agency activities
► Victim service provider or legal
service provider activities
Homeless Management
Information System (HMIS) or
comparable database if
subrecipient is a victim service
provider
► All HMIS equipment (e.g.,
hardware, software licenses, office
equipment, office space, utilities)
► Participant fees
Administrative Costs
► General management, oversight,
and coordination
► Trainings
► Environmental reviews
Administrative Costs
► Rent, utilities, and equipment
Relocation: Uniform Relocation
Assistance and Real Property
Acquisition Policies Act (URA)
► No costs included
Relocation: Uniform Relocation
Assistance and Real Property
Acquisition Policies Act (URA)
► All costs excluded (e.g., financial
and rental assistance associated
with relocation assistance through
the URA)
In order to include eligible direct activity costs in the MTDC base, recipients
and subrecipients must maintain detailed accounting records clearly
separating salaries, wages, fringe benefits, and service and consultant costs.
Furthermore, recipients and
subrecipients must track costs by
element for each eligible component
activity. For example, organizations
must maintain detailed accounting
records clearly separating salaries,
wages, fringe benefits, and service
and consultant costs for each eligible activity (e.g., supportive services,
Document individual costs
such as staff salaries, wages,
fringe benefits, service costs,
etc. for each eligible activity
to include them in the MTDC
base.
Indirect Cost Toolkit for CoC and ESG Programs Page 22
operating costs, project administrative costs). If costs are grouped (totaled)
under eligible activities, they cannot be included in the MTDC base. When
costs are grouped as total costs for eligible activities, there is not adequate
information to identify the allowable and excludable costs for the purpose of
determining the MTDC base and calculating the de minimis rate.
Recipients and subrecipients must maintain adequate documentation to
support the costs included in the MTDC base consistent with the 2 CFR
§200.333 retention requirements, which state:
Financial records, supporting documents, statistical records, and all
other non-federal entity records pertinent to a federal award must be
retained for a period of three years from the date of submission of the
final expenditure report or, for federal awards that are renewed
quarterly or annually, from the date of the submission of the quarterly
or annual financial report, respectively, as reported to the federal
awarding agency or pass-through entity in the case of a subrecipient.
(2 CFR §200.333).
3.2 Indirect Cost Rate Agreement
Recipients and subrecipients that expend federal
funds and allocate and claim indirect costs may
negotiate their own unique indirect cost rate with
their cognizant federal agency (2 CFR §200.19).
In this Toolkit, a basic overview of this approach
is provided. However, negotiated indirect cost
rates are unique to each agency; organizations
are encouraged to work with an accounting
professional knowledgeable about federal cost
principles to develop an indirect cost rate proposal.
A negotiated indirect cost rate is a ratio, expressed as a percentage, used
for allocating a fair share of the general, administration, and facility
expenses that are shared between programs (i.e., not charged as direct
expenses to any given program) to each individual program. Specifically,
this negotiated rate will be the ratio of the indirect costs to a direct cost base
(MTDC).
Indirect Cost Toolkit for CoC and ESG Programs Page 23
The cognizant agency is generally defined as the federal agency that
provides the largest amount of direct federal funds to the organization.
When the cognizant agency approves an indirect cost rate, the rate becomes
applicable to other federal funds to determine the amount of indirect costs
that apply to other grants and contracts awarded to the recipient. Nonprofit
recipients and subrecipients are required to follow the regulations contained
in 2 CFR §200, Appendix IV-Indirect (F&A), Cost Identification and
Assignment and Rate Determination for Nonprofit Organizations (in
particular, Section B.5 and Section C).
It is the recipient or subrecipient’s responsibility to make sure it has a valid
final negotiated rate for each year that indirect costs are claimed, and that it
renews its negotiated rate every three years as required.
Recipients or subrecipients would submit an indirect cost rate proposal in
order to:
1. Establish a provisional rate to charge estimated indirect costs to an
award; and
2. Establish a final indirect cost rate based on a prior fiscal year.
An indirect cost rate negotiation agreement is a document that formalizes
the indirect cost rate negotiation process. This document typically contains:
► The type of rate negotiated;
► The effective period(s) of the rate;
► The location to which the rate is applicable; and
► The program(s) to which the rate(s) are applicable.
An indirect cost rate negotiation agreement also provides information on the
base used to distribute indirect costs and the treatment of fringe benefits
and paid absences. The negotiation agreement must be signed by both the
organization’s authorized representative and the agency’s indirect cost
coordinator or authorized representative.
Indirect Cost Toolkit for CoC and ESG Programs Page 24
3.3 Cost Allocation Plan
Cost allocation plans (2 CFR §200.27) are used by non-federal entities to
determine the method by which the entity or organization will allocate direct
and indirect costs, and when program activities are sponsored by federal
funds either directly from a cognizant agency or a pass-through entity.
Cost allocation plans:
► Are often the only way to determine the total cost of operating
programs;
► Allow an organization to
ensure that it is
recovering all allowable
costs incurred by the
organization; and
► Can provide valuable
management data to an
organization regarding funding levels and time spent on activities
(when time and effort reporting is also employed).
In a cost allocation plan, direct and indirect costs are allocated to each cost
objective.
There are three acceptable methods to calculate the indirect cost rate in a
cost allocation plan:
► Simplified allocation method
► Multiple rate allocation method
► Direct allocation method
See section 3.4 for more information on the implementation of these
methods. See also 2 CFR §200 Appendix V (state and local governments)
and Appendix IV, B.2-4 (nonprofits) for guidance regarding cost allocation
plans.
The purpose of a cost allocation
plan is to summarize, in writing,
the methods and procedures that
an organization will use to allocate
costs to various programs, grants,
contracts, and agreements.
Indirect Cost Toolkit for CoC and ESG Programs Page 25
Table 4: What is the Difference Between Cost Allocation and Cost
Reimbursement?
Cost Allocation
Cost Reimbursement
Cost allocation is the measurement of
allowable costs that are then allocated
based on benefits received by each
program or agency.
The cost principles provide the
methods for determining a federal
program’s share of both direct and
indirect costs. They have no authority
over the actual payment of the costs.
The payment is governed by the terms
of the grant document or the
legislation authorizing the program.
Cost reimbursement is the process
where federal dollars are used to
reimburse grantee organizations for
allowable costs.
Use grant language, cost limitations,
and legislative constraints as
guidelines in the payment process.
3.4 Allowable Cost Allocation Methods
Organizations that choose to develop either an indirect cost rate agreement
or a cost allocation plan have several allowable methods for allocating costs.
Because organizations vary in structure, purpose, and complexity, particular
methods may be more appropriate for particular entities or organizations.
There are three acceptable methods to calculate the indirect cost rate:
► Simplified Allocation Method
► Multiple Rate Allocation Method
► Direct Allocation Method
Indirect Cost Toolkit for CoC and ESG Programs Page 26
Table 5: Overview of Allowable Cost Allocation Methods
Simplified Allocation
Method
Multiple Rate
Allocation Method
Direct Allocation
Method
The organization has
only a single function.
All programs benefit
about equally from
shared costs. The
payment is governed by
the terms of the grant
document or the
legislation authorizing
the program.
Federal awards are not
material.
All programs do not
benefit equally from
shared costs.
Preferred method for
state and local
government agencies.
Indirect costs are pooled
and allocated to direct
cost objectives based on
various distribution
bases.
All costs are charged
directly to programs,
except for general
administration.
Preferred method used
by most nonprofit
organizations.
Various bases are
selected to “directly
allocate” costs to
programs (for example,
space allocated based on
square footage
occupied).
The following sections provide a more detailed analysis of each method.
3.4.1 Simplified Allocation Method
For small recipients or subrecipients (including some nonprofits) where
indirect costs are related to one primary activity such as administration, it
may be necessary to have only one indirect cost rate. In this case, the
simplified allocation method is used.
As indicated in 2 CFR §200 Appendix IV, B.2, the simplified method is
applied when an organization’s major functions all benefit from its indirect
costs to approximately the same degree. In this method, all indirect costs
are grouped together in one pool and then allocated to each grant or
program by applying the derived rate to all direct program costs. Capital
expenditures and other distorting costs, such as subawards for $25,000 or
more, are excluded from both the indirect and direct cost pools.
The simplified allocation method may be accomplished by:
► Separating the organization’s total costs for the base period as either
direct or indirect (less excluded costs); and
Indirect Cost Toolkit for CoC and ESG Programs Page 27
► Dividing the total allowable indirect costs (net of applicable credits) by
an equitable distribution base.
Figure 1: Simplified Allocation Method
Facilities +
Administrative
Costs (less
excluded items)
Total Direct
Costs (less
excluded
items)
Simplified
Indirect
Cost Rate
When separating the organization’s total costs into direct cost and indirect
cost categories, the organization must exclude capital expenditures and
unallowable costs (as defined in the Uniform Administrative Guidance).
Organizations may incur costs that are unallowable and pay for those costs
through non-federal funds.
The CoC program interim rule identifies eligible costs that may be
reimbursed as direct costs to the program; even though they are eligible
under the CoC program, 2 CFR §200 identifies some costs that are referred
to as direct costs in 24 CFR §200.413(e) that are nonetheless unallowable as
CoC costs.
Indirect Cost Toolkit for CoC and ESG Programs Page 28
3.4.2 Multiple Rate Allocation Method
When a recipient or subrecipient’s indirect costs benefit different functions to
different degrees, then indirect costs are grouped into pools based on
functional groups (e.g., “Housing Services” and “Health Care Services”) that
best reflect the differing relative benefit of each group from shared costs.
This method essentially calculates different indirect rates for significantly
different functional centers within an organization. It is most suitable for
very large organizations with separate divisions that perform substantially
different functions.
This allocation methodology must consider:
► A base best suited for assigning the pool of costs to programs in
accordance with benefits derived;
► If a traceable cause-and-effect relationship exists between the cost
pool being allocated and the programs to which it is applied; and
► If the allocation is logical and reasonable.
As illustrated in Figure 2: Multiple Rate Allocation Method, total indirect costs
are grouped into separate pools for facilities and administrative (F&A) costs.
Then, based on the separate benefits of these costs to the functional groups,
indirect cost rates are derived for each functional group, dividing the F&A
costs for each functional area by that area’s MTDC base.
Total
Indirect
Costs
Administrative Indirect
Costs
(determined and pooled
separately for each
functional group)
Rate for
Functional
Group A
Rate for
Functional
Group B
Facilities Indirect Costs
(determined and pooled
separately for each
functional group)
Rate for
Functional
Group C
Figure 2: Multiple Rate Allocation Method
Indirect Cost Toolkit for CoC and ESG Programs Page 29
Per 2 CFR §200 B.3.b of Appendix IV, each functional cost group must
constitute a pool of expenses that are of like character in terms of functions,
and in terms of the allocation base which best measures the relative benefits
provided to each function. The costs in the common pool are distributed to
individual programs included in that function by use of a single indirect cost
rate. Indirect costs must be distributed to applicable federal awards and
other benefiting activities within each major function using the MTDC base
allocation method. A separate indirect cost rate is determined for each
separate functional area.
3.4.3 Direct Allocation Method
2 CFR §200 Appendix IV, B.4 describes the Direct Allocation Method. In this
method, all costs are treated as direct costs, except for general
administrative and other general costs.
Organizations applying this method generally separate their costs into three
basic categories: (i) general administration, (ii) fundraising, and (iii) other
direct functions (including projects performed under federal awards). Joint
costs—such as depreciation, rental costs, operation and maintenance of
facilities, telephone expenses, and the like—are prorated individually as
direct costs to each category and to each federal award or other activity
using a base most appropriate to the cost being prorated.
Total Direct Costs,
Charged to Eligible
Grant Activities
Administrative
(Charged as
“Administration”)
Fundraising Costs
(not reimbursable)
Direct
Grant/Program
Costs
Facilities Costs
(prorated and
charged to grant
activities)
Figure 3: Illustration of Direct Allocation Method
Indirect Cost Toolkit for CoC and ESG Programs Page 30
The Direct Allocation Method is acceptable, provided that each shared
facilities cost is prorated using a base that accurately measures the benefits
provided to each federal award or other activity. The bases must be
established in accordance with reasonable criteria, supported by current
data, and approved by the cognizant agency.
Administrative costs are charged as “Administration” costs, as allowed and
defined under the particular federal program. Facilities costs (including
equipment and supplies) are prorated using a rational basis (such as percent
of organizational budget or percent of square footage used by the program),
and then are applied to the relevant eligible grant activity.
Indirect Cost Toolkit for CoC and ESG Programs Page 31
4. Which option is best for my
organization?
To review, we have discussed three primary methods for computing and
charging indirect costs:
► 10 Percent De Minimis Rate
► Indirect Cost Rate Agreement
► Cost Allocation Plan
Both the indirect cost rate agreement and cost allocation plan approaches
use one of three different methods to determine and allocate indirect costs:
► Simplified Allocation Method
► Multiple Allocation Base Method
► Direct Allocation Method
These options are established in order to offer organizations flexibility in
identifying and implementing the method that best suits their organization’s
structure and activities.
4.1 Considerations for Selecting an Indirect Cost
Rate Option
Indirect cost allocation methods can be complicated to understand and
implement but can ultimately provide an organization with a more effective
and efficient cost allocation approach.
Consider the following organizational factors in selecting a rate
methodology:
► Amount of federal funding
► Variety of federal funding sources
► Size of the organization and diversity of its major functions
► Types of shared (indirect) costs
► Types and variety of programs
► Degree of programmatic and functional variation
► Availability of allocation statistics in organization’s accounting system
► Capacity of organization’s accounting system to track degree of detail
Indirect Cost Toolkit for CoC and ESG Programs Page 32
No matter which approach is selected, it is important to remember these key
considerations:
► Always clearly and thoroughly document your process and
justifications for decisions made.
► Ensure that you store all records received from HUD and your
cognizant federal agency for the appropriate number of years required
under the applicable recordkeeping requirements.
► Review organizational policy and procedure documents to confirm that
your organization’s indirect cost and cost allocation policies are spelled
out and accurate.
► Ensure that whatever approach is taken, it is applied uniformly across
all grants and programs and with all funders.
A local certified public accountant (CPA) can help organizations determine
which rate methodology is best suited for their organization and can support
the organization through the whole process of rate determination.
Organizations typically cannot select and implement a negotiated indirect
cost rate without the assistance of a CPA or accountant, particularly one who
is familiar with federal cost principles and the Uniform Administrative
Guidance. Recipients and subrecipients are ultimately responsible for
ensuring compliance with applicable regulations and policies.
4.2 Pros and Cons of Different Indirect Cost Rate
Methods
Table 6 reflects the potential pros and cons for each of the options for
consideration.
Indirect Cost Toolkit for CoC and ESG Programs Page 33
Table 6: Pros and Cons of Different Indirect Cost Rate Methods
Option
Pros
Cons
Option 1:
10 Percent
De Minimis Rate
► Allows eligible
recipients and
subrecipients that
historically could not
charge any indirect
costs to now recover
some indirect costs.
► Does not require
submission of a detailed
indirect cost proposal.
► Immediately eligible, no
time delays.
► No pre-negotiation.
► Easy computation using
the MTDC.
► Does not require an in-
depth knowledge of
cost accounting.
► Must meet the eligibility requirements (see
section 3.1.1).
► Indirect costs are limited to 10 percent.
► Certain eligible activity component costs are
unallowable for computation of the MTDC
(see Table 1).
► Must track salaries, wages, fringe benefits,
service contracts, and consultants
separately and not as an aggregated
program activity cost.
Option 2:
Indirect Cost Rate Agreement
► Allows recipients and
subrecipients to charge
for more indirect costs
based on the actual
indirect cost rate.
► All federal agencies
must accept the
negotiated rates if
indirect costs can be
charged to grant.
► Recipients can request
an increase in the rate
based on submission
and approval of an
updated incurred cost
approval.
► Must prepare and submit an indirect cost
plan.
► Appropriate federal cognizant agency must
be identified.
► Review and negotiation of the indirect rate
agreement usually takes an extended
amount of time.
► Requires experienced and knowledgeable
staff to prepare proposal.
► Must maintain an accounting system to
properly accumulate cost by pool.
► Rates must be renegotiated every three
years.
Indirect Cost Toolkit for CoC and ESG Programs Page 34
Option
Pros
Cons
Option 3:
Cost Allocation Plan
► Ensures that all costs
are charged and paid
for all grants and
agencies.
► Recognizes the actual
costs for each program
or grant.
► Must prepare and submit a cost allocation
plan and cost policy.
► Can be complex.
► Requires experienced and knowledgeable
staff to prepare cost plan and policy
statement.
► Must maintain an accounting system to
properly accumulate all costs and the
corresponding cost allocation methodology.
► Time-consuming for review and approval by
the federal cognizant agency or pass-
through entity.
Indirect Cost Toolkit for CoC and ESG Programs Page 35
4.3 Steps for Choosing an Indirect Rate
Methodology
To determine the best method for computing and charging indirect costs, a
recipient entity should consider using the following steps:
Conduct an
Organizational
Review
•Prepare a formal organizational chart providing relevant
information explaining the various parts of the organization.
•Highlight where there are direct, indirect (administrative and
facilities), and unallowable federal costs.
Review
Federal and
Non-Federal
Funding
•Prepare a list of all funded programs in detail and identify the
specific direct costs by program.
•Clearly delineate between federal and non-federal funding
sources.
Review the
Accounting
Structure
•Review agency administrative and fiscal policies, including
internal controls.
•Review the materials collected in the previous steps and
determine if costs are charged as direct or indirect. Are they
charged by funding source (program or grant) and are they
consistent with the approved program budgets?
•If necessary, determine changes to ensure the accounting
structure is consistent with the selected indirect cost method.
Indirect Cost Toolkit for CoC and ESG Programs Page 36
5. How are indirect cost reimbursement
options calculated?
Having laid out the various acceptable methods
for determining indirect costs, let’s conclude with
a brief primer on how these methods may be
applied in practice. All federal award recipients
claiming indirect costs under federal awards
should prepare an indirect cost rate proposal and
related documentation to support those costs,
regardless of the method used.
For all methods, recipients and subrecipients must maintain and operate
financial management systems that meet or exceed the federal requirements
for funds control and accountability, as established by the applicable
regulations in 2 CFR 200, Subpart D.
5.1 Calculate and Use the 10 Percent De Minimis
Rate
First, determine the MTDC base by taking the total direct costs and
subtracting out any excluded items (see Section 3.1.2 Modified Total Direct
Cost).
200,000 (Total Direct Costs)
– 20,000 (Equipment)
– 10,000 (Subaward in Excess of $25,000)
= 170,000 Modified Total Direct Cost (MTDC)
Then, we can calculate the indirect rate, as described below.
170,000 Modified Total Direct Cost (MTDC)
x 10 Percent De Minimis Rate
= 17,000 Indirect Cost Rate
For additional examples of indirect cost calculations using the 10 percent de
minimis rate under the ESG and CoC programs, please review the following
pages.
Indirect Cost Toolkit for CoC and ESG Programs Page 37
5.1.1 ESG De Minimis Rate Indirect Cost Calculation Example
Proposed Grant Amounts
Calculations for Indirect Cost
Adjusted Budget Details
Item
Total
Expense
Of these
expenses,
what is
excluded
from MTDC?
Of these
expenses,
what is
included in
MTDC?
Rate
(de
minimis)
Indirect
Cost by
Budget
Line
Adjusted
Direct Cost
by Budget
Line
Total
Expense
Shelter Staff
Salaries and
Fringe
$100,000
$0
$100,000
x 10% =
$10,000
$90,000
$100,000
Shelter
Renovation
Costs
$35,000
$35,000
$0
$0
$35,000
$35,000
Street Outreach
Salaries and
Fringe
$25,000
$0
$25,000
$2,500
$22,500
$25,000
Purchase of
Outreach Van
$15,000
$15,000
$0
$0
$15,000
$15,000
Total:
$175,000
$50,000
$125,000
Total:
$12,500
$162,500
$175,000
Indirect Cost Toolkit for CoC and ESG Programs Page 38
5.1.2 CoC De Minimis Rate Indirect Cost Calculation Examples
Example 1
Proposed Grant Amounts
Calculations for Indirect Cost
Adjusted Budget Details
Item
Total
Expense
Of these
expenses, what
is excluded from
MTDC?
Of these
expenses, what
is included in
MTDC?
Rate
(de
minimis)
Indirect
Cost by
Budget
Line
Adjusted
Direct Cost
by Budget
Line
Total
Expense
Rapid
Rehousing
Supportive
Service Staff
Salaries and
Fringe
$50,000
$0
$50,000
x 10% =
$5,000
$45,000
$50,000
Rapid
Rehousing
Rental
Assistance
$85,000
$85,000
$0
$0
$85,000
$85,000
Subaward for
Legal Services
$50,000
$25,000
$25,000
$2,500
$47,500
$50,000
Administration
Staff Salaries
(e.g. fiscal and
HR personnel)
$15,000
$0
$15,000
$1,500
$13,500
$15,000
Total:
$200,000
$110,000
$90,000
Total:
$9,000
$191,000
$200,000
Indirect Cost Toolkit for CoC and ESG Programs Page 39
Example 2
Proposed Grant Amounts
Calculations for Indirect Cost
Adjusted Budget Details
Item
Total
Expense
Of these
expenses, what
is excluded from
MTDC?
Of these
expenses, what
is included in
MTDC?
Rate
(de
minimis)
Indirect
Cost by
Budget
Line
Adjusted
Direct Cost
by Budget
Line
Total
Expense
Case
Management
Salaries and
Fringe
$25,000
$0
$25,000
x 10% =
$10,000
$15,000
$25,000
Leasing Costs
(Building Rent
and Utilities)
$50,000
$50,000
$0
$0
$50,000
$50,000
Total:
$75,000
$50,000
$25,000
Total:
$10,000
$65,000
$75,000
Indirect Cost Toolkit for CoC and ESG Programs Page 40
5.2 Negotiate and Use an Indirect Cost Rate
Both governmental and nonprofit entities that are recipients of federal
awards can negotiate indirect cost rates with their cognizant agency for use
across all federal awards and agencies. The “cognizant agency” is the
federal agency that provides the highest dollar value annually in awards to
an organization. It is important to note, however, that there is separate
guidance for state and local (non-federal) governmental entities and for
nonprofits regarding negotiated indirect cost rates. For non-federal
government entities, relevant guidance is found in 2 CFR §200 Appendix
VII.D. For nonprofits, it is found in 2 CFR §200 Appendix IV.C.
A key difference is that, for non-federal governmental entities with annual
federal income over $35 million, a negotiated indirect cost rate is required.
For nonprofit entities, there is no threshold requirement for negotiated rates.
The following applies to federal recipients
negotiating an indirect cost rate proposal:
► Non-federal governmental recipients
receiving less than $35 million in direct
federal funding are not required to negotiate
an indirect cost rate with their cognizant
federal agency, though they can do so. They
must, nonetheless, develop and maintain an
indirect cost proposal and related
documentation for audit requirements using one of the allowable
allocation methodologies specified in 2 CFR §200. The proposal and
documentation should be provided to the cognizant agency when
specifically requested.
► Non-federal governmental recipients receiving more than $35 million
in direct federal funding must submit an indirect cost proposal to their
cognizant agency for their indirect cost rate.
► Nonprofit entities, regardless of the size of federal awards, may (but
are not required to) apply for a negotiated indirect cost rate with their
cognizant agency.
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Unless different arrangements are made by the agencies concerned, the
federal agency with the largest dollar value of awards will be designated as
the cognizant agency for the negotiation and approval of indirect cost rates.
Recipients electing to negotiate and use an indirect cost rate can charge
indirect costs to a grant or contract based only on a Negotiated Indirect Cost
Rate Agreement (NICRA) approved by the cognizant federal agency.
However, the approval of indirect costs by the cognizant agency is not
intended to identify the circumstances or dictate the extent of federal
participation in the financing of grants or contracts. Please note, the
Department of Health and Human Services (HHS) reviews and approves
negotiated indirect cost rate proposals on behalf of HUD. To request a new
rate or to have an existing rate extended, contact
HUDCPDIndirectCostRate[email protected].
5.2.1 Submission of Proposal
Each organization seeking to negotiate an indirect cost rate must submit an
indirect cost rate proposal with the following required information:
► Organization profile: The purpose is to gain an understanding of the
basic structure of the organization.
► Cost policy statement: The purpose is to establish a clear
understanding between the recipient organization and the federal
government as to what costs will be charged directly and what costs
will be charged indirectly. The cost policy statement includes the
following:
• Statement on general accounting policies
• Statements on each general ledger expense account (or cost
element) indicating which account is used to record direct or
indirect expenses
• Statement regarding which general ledger accounts include costs
allocated for more than one activity. As part of this statement,
describe the method used to allocate the cost (actual usage,
square feet, cost of space, volume, etc.)
• Statement on unallowable costs:
Accounting treatment of unallowable costs
Indirect Cost Toolkit for CoC and ESG Programs Page 42
Methods and controls in place to segregate unallowable
costs
Expense accounts the unallowable costs are charged to
► Indirect cost proposal preparation policies and procedures: Written
policies and procedures describing how the agency prepares the
annual indirect cost rate proposal.
► Financial reports for the year under review, including:
• A complete copy of audited financial statements
• Single audit report
► Indirect cost rate proposal, including:
• Indirect expenses by function and cost category
• Fund distribution of the direct cost base by function and cost
category
• Reconciliation between the proposal and financial reports for the
applicable years, with any differences explained
► Allocation of salaries and wages: Schedule of positions, functions, and
annual salaries of personnel charging time to an indirect function
(employees who charge 100 percent of their time to an indirect task
and who split time between direct and indirect tasks).
► Statement on employee benefits: Schedule showing the actual cost of
applicable fringe benefits.
► Identification and description of unusual factors that may affect the
proposed rates, or any memoranda of understanding or notice
agreements that may affect the proposed rates.
► Listing of federal awards that were active during the fiscal year.
► Completed lobbying certificate that verifies that the organization does
not include lobbying costs in indirect costs.
► A completed certificate of indirect cost: Negotiated agreement and
certifications signed by an organization representative who has the
ability to contractually bind the organization.
Indirect Cost Toolkit for CoC and ESG Programs Page 43
5.2.2 Approval of Proposal
The approval will be formalized by a rate agreement (NICRA) that includes
the following:
► The approved rate(s) and information
directly related to the use of the rates (e.g.,
type of rate, effective period, and
distribution base).
► The treatment of fringe benefits as either
direct or indirect costs, or an approved
fringe benefit rate.
► General terms and conditions.
► Special remarks (e.g., the composition of
the indirect cost pool).
5.2.3 Disputes
When HHS (acting on behalf of HUD for purposes of approving a rate) and a
recipient or subrecipient cannot reach an agreement on an acceptable
indirect cost rate, HUD will make a unilateral determination of the rate(s)
and will notify the organization. HHS or the grant/contract officer will advise
the organization of its right to appeal the determination and will provide,
upon request, information about the appeal procedures.
5.3 Prepare and Use a Cost Allocation Plan
The cost allocation plan is an accounting report that calculates and allocates
agency-wide indirect costs to the applicable base. The plan summarizes, in
writing, the methods and procedures that the non-federal recipient will use
to allocate costs to various programs, grants, and agreements.
The cost allocation plan should be tailored to fit the specific policy of the
agency. The allocation should be based on a methodology approved by the
cognizant or awarding federal agency, and only costs that are allowable in
accordance with the cost principles should be allocated to the benefiting
programs. There are different methodologies available for allocating costs;
the methodology used should result in the equitable distribution of costs to
programs. See section 3.4 for information on the different allocation
methods.
Indirect Cost Toolkit for CoC and ESG Programs Page 44
Most documentation requirements for submitting and negotiating indirect
cost rate proposals are also applicable to the cost allocation plan (see
below).
Below are the steps generally taken to prepare a cost allocation plan or an
indirect cost rate proposal:
1. Review the Uniform Administrative Guidance.
2. Review the organization.
3. Identify programs.
4. Prepare a cost policy statement.
5. Review and reconcile financial statements.
6. Prepare the cost allocation plan or indirect cost rate proposal.
7. Prepare an indirect cost rate calculation worksheet and determine the
type of rates.
8. Obtain cognizant agency approval.
Indirect Cost Toolkit for CoC and ESG Programs Page 45
6. Frequently Asked Questions
1. Is my organization required to charge indirect costs to cost-
reimbursable grants?
No. An organization is not required to charge and recover indirect
costs.
2. If I have subrecipients or subawards, can I prevent them from
using an indirect cost rate?
No. You cannot prevent subrecipients or subawardees from using an
indirect cost rate that they are otherwise eligible to use. Furthermore,
the recipient is responsible for ensuring that any subrecipient or sub-
awardee charging indirect costs has documented that they are using
one of the allowed methods for allocating indirect and direct costs, as
laid out in 2 CFR §200.
3. I am a recipient with several subrecipients. If one of my
subrecipients uses an indirect rate, do all of my other
subrecipients need to use an indirect cost rate?
No. Each subrecipient will make its own decision as to whether it would
like to use an indirect cost rate.
4. Does the use of indirect costs (either the de minimis rate or
negotiated rate), bring additional funds to my ESG or CoC
program?
No. Indirect costs are calculated within existing awards and are merely
an option for reimbursement.
5. Is there a cap for indirect cost rates?
Under the ESG and CoC interim rules, there is no established cap on
indirect rates and the recipient cannot cap indirect rates for a
Indirect Cost Toolkit for CoC and ESG Programs Page 46
subrecipient. There are, of course, statutory caps on administrative
costs (as a type of indirect cost) for both the ESG and CoC programs.
6. If we choose to use the de minimis rate to receive
reimbursement for indirect costs associated with our ESG or
CoC grant, do we need to use the de minimis rate for all other
federal awards that pass through our agency?
Yes. Once elected, the 10 percent de minimis rate must be used
consistently for all federal awards. The de minimis rate may be used
indefinitely. At any time, a recipient may choose to apply for a
negotiated indirect cost rate.
7. Given the length of time required to have an indirect cost rate
approved directly by HUD, is there another option we can
pursue at this time?
Recipients have three options for the reimbursement of indirect costs:
de minimis rate, cost allocation plan, and negotiated indirect cost rate.
While waiting for a negotiated indirect cost rate agreement to be
approved, a recipient must use one of the other allowable methods for
cost allocation and determining indirect cost rates. These alternative
methods were reviewed in this document.
8. How do we apply for a negotiated indirect cost rate?
Organizations that choose to develop an indirect cost rate proposal
with HUD as the cognizant agency must submit the proposal to
HUDCPDIndirectCostRate[email protected] for review and approval. The
organization must copy the respective CPD field office director and
CPD representative in the email. There is not a mandated form or
template for the proposal. Guidance regarding the negotiated indirect
cost rate process can be found in 2 CFR 200, Appendix IV (for
nonprofits) and Appendix VII (for non-federal governmental entities).
Indirect Cost Toolkit for CoC and ESG Programs Page 47
9. What allocation base is acceptable for computing the facilities
and administration (F&A) indirect cost rates and indirect costs?
For recipients with an approved negotiated indirect cost rate
agreement (NICRA) with a cognizant agency, the acceptable base is
defined in the NICRA. For recipients that do not have an approved
NICRA and elect to use the 10 percent de minimis rate, the modified
total direct cost (MTDC) must be used.
10. How long can the 10 percent de minimis rate be used under the
Uniform Administrative Guidance?
Indefinitely, or until the organization enters a NICRA agreement or
obtains an approved cost allocation plan.
11. If my organization already has an indirect cost rate under a
different cognizant federal agency, am I required to use that
rate for my CoC or ESG programs?
Yes, the rate of the cognizant federal agency will apply to both ESG
and CoC programs, as well as all other federal awards held by an
organization. Except under special circumstances for particularly large
and complex organizations (and as approved), an organization must
use a single allocation method across its operations.
12. If there are limits on the amount of administrative funds one
can spend under ESG (7.5 percent) and CoC (10 percent)
programs, does the use of the de minimis rate (10 percent)
exceed the administrative cap, or does the use of a negotiated
rate over 7.5 percent exceed the administrative cap?
Eligible project administrative costs, which are capped in each
program, are different from indirect costs. Eligible project
administrative costs are direct costs identified in the CoC and ESG
program interim rules and can be charged directly to the grant.
Indirect costs, according to the ESG and CoC interim rules, may be
allocated to each eligible activity, so long as that allocation is
Indirect Cost Toolkit for CoC and ESG Programs Page 48
consistent with an indirect cost rate proposal developed in accordance
with the regulations set forth in the Uniform Guidance (2 CFR §200).
Indirect costs are calculated within existing awards and the activities
to which they are applied. The use of an indirect cost rate will not
result in the recipient exceeding an activity’s budget, including the
administrative budget. Therefore, applying the indirect rate to the
project administrative budget line item will not result in the recipient
exceeding the administrative spending caps.
13. Is there a defined list of indirect costs? If so, can HUD provide
a list or description?
There is not a comprehensive list of indirect costs, as they will vary by
organization. The United States Office of Management and Budget
(OMB) defines indirect cost as “those [costs] that have been incurred
for common or joint objectives and cannot be readily identified with a
particular final cost objective…” Such costs are generally categorized
as facilities and administrative (F&A) costs. Contact your local HUD
Field Office or submit an Ask a Question (AAQ) through HUD Exchange
if you have questions about a specific cost for your organization.
14. Can recipients charge insurance or similar costs as a direct
cost?
There are several factors that must be considered to determine if
these types of costs can be treated as a direct expense. Generally,
insurance or similar costs are treated as an indirect expense because
they benefit more than one cost objective (grant or contract).
However, 24 CFR §200.412 Classification of Costs states:
There is no universal rule for classifying certain costs as either
direct or indirect (F&A) under every accounting system. A cost
may be direct with respect to some specific service or function,
but indirect with respect to the federal award or other final cost
objective. Therefore, it is essential that each item of cost
incurred for the same purpose be treated consistently in like
Indirect Cost Toolkit for CoC and ESG Programs Page 49
circumstances either as a direct or an indirect (F&A) cost in
order to avoid possible double charging of federal awards.
Guidelines for determining direct and indirect (F&A) costs
charged to federal awards are provided in this subpart.
In addition, 24 CFR §200.413 Direct Costs states:
Direct costs are those costs that can be identified specifically
with a particular final cost objective, such as a federal award, or
other internally or externally funded activity, or that can be
directly assigned to such activities relatively easily with a high
degree of accuracy.
Accordingly, the recipient or subrecipient would have to demonstrate
either through their cost policy, a previously negotiated rate, or cost
plan that insurance is always treated as a direct cost and provide the
methodology they used to calculate the direct costs of the insurance to
each of its cost objectives (grants). In other words, only the amount
of insurance directly related to HUD should be included as direct, not
the total insurance cost. An organization must be able to provide their
methodology for allocating insurance to all of the cost objectives.
Indirect Cost Toolkit for CoC and ESG Programs Page 50
7. Definitions
Project administrative costs (under ESG and CoC program
requirements):
Costs for planning and executing ESG and CoC activities. These costs
are considered direct costs to the grant (to which you can apply an
indirect cost rate). Refer to 24 CFR §576.108 for ESG and §578.59 for
CoC for a listing of eligible project administrative activities and
requirements. Note the following caps on project administrative costs:
► ESG administrative activities cannot exceed 7.5 percent of a
recipient’s fiscal year grant.
► CoC project administrative costs cannot exceed 10 percent of a
recipient’s fiscal year grant.
Project administrative costs do not include staff and costs directly
related to carrying out activities eligible under 24 CFR §576.101
through §576.107 in the ESG program, and under §578.43 through
§578.57 in the CoC program, because those costs are eligible as
program costs of those activities. Additionally, these costs can be
eligible as indirect costs, depending on how recipients categorize them
in their accounting system; in this case, the indirect cost rates applied
to program and operations costs (excluding project administrative
costs) are not subject to HUD’s administrative caps in the ESG and
CoC programs.
Administration (under the Uniform Administrative Guidance):
One of the two broad categories for grouping indirect costs as defined
in 2 CFR §200.414. Also referred to as facilities and administrative
(F&A) or general and administrative (G&A) expenses. These costs
include general administration expenses such as the director’s office,
accounting, personnel, and all other types of expenditures not listed
specifically under the other broad category of “facilities” (including
cross-allocations from other pools, where applicable). These costs
cannot be tied back directly to an eligible cost category in the grant.
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Allocable:
Per 2 CFR §200.405, a cost is allocable to a federal award or other
cost objective if the goods or services involved are chargeable or
assignable to that federal award or cost objective in accordance with
relative benefits received.
Allocation bases:
The methodology or statistical measure by which indirect costs are
distributed to other benefiting services and/or cost objectives.
Examples of measures may include: number of active employees,
number of transactions processed, square footage occupied, salaries
and wages of units supervised, and direct assignment.
Allowable:
Per 2 CFR §200.403, except where otherwise authorized by statute,
costs must meet the following general criteria to be allowable under
federal awards:
a) Be necessary and reasonable for the performance of the federal
award and be allocable to the award under these principles.
b) Conform to any limitations or exclusions set forth in these
principles or in the federal award as to types or amount of cost
items.
c) Be consistent with policies and procedures that apply uniformly
to both federally financed and other activities of the non-federal
entity.
d) Be accorded consistent treatment. A cost may not be assigned
to a federal award as a direct cost if any other cost incurred for
the same purpose in like circumstances has been allocated to
the federal award as an indirect cost.
e) Be determined in accordance with generally accepted accounting
principles (GAAP), except as otherwise provided for in this part
(for state and local governments and Indian tribes only).
f) Not be included as a cost or used to meet cost-sharing or cost-
matching requirements of any other federally financed program
in either the current or a prior period. See also 2 CFR §200.306
Cost Sharing or Matching, paragraph (b).
Indirect Cost Toolkit for CoC and ESG Programs Page 52
g) Be adequately documented. See also 2 CFR §200.300 Statutory
and National Policy Requirements through 2 CFR §200.309
Period of Performance of this part.
Cost allocation:
The process of identifying, aggregating (direct vs. indirect), and
assigning costs to cost objects (programs and grants).
Cost allocation plan:
A document that identifies and explains the distribution of allowable
direct and indirect costs, and declares the allocation methods used for
distribution.
Cost classification:
Placing of costs into some category such as administration, program,
or another category, as prescribed by statute.
Cost objective:
A particular award, contract, grant, project, service, or other activity of
an organization for which cost data is desired and for which provision
is made to accumulate and measure the costs.
Cost policy statement:
Documentation on how a recipient treats costs within its financial
system.
Cost reimbursement:
The process where federal funds are used to reimburse recipient
organizations for allowable costs.
Facilities:
One of the two broad categories for grouping indirect costs as defined
in 2 CFR §200.414. These costs are defined as depreciation on
buildings, equipment, and capital improvement; interest on debt
associated with certain buildings, equipment, and capital
improvements; and operations and maintenance expenses.
Indirect Cost Toolkit for CoC and ESG Programs Page 53
Indirect costs:
These costs are not directly associated with a particular grant or
program, benefit more than one grant or program, and are incurred
for joint or common purposes. Indirect cost may also be what some
call “overhead” costs. This guide avoids using the term “overhead” to
describe indirect administrative costs.
Indirect cost rate:
The ratio between an indirect cost pool and some direct cost base,
which is then expressed as a percentage.
Modified total direct costs:
Referred to as the MTDC and as defined in 2 CFR §200.68, this is the
base to which the indirect cost rate (10 percent de minimis or the
federally negotiated rate) is applied. It typically includes all direct
salaries and wages, applicable fringe benefits, materials and supplies,
services, and travel for the award. If there are subawards, then it
includes those costs up to the first $25,000 of each subaward
(regardless of the period of performance of the subawards under the
award). MTDC excludes equipment, capital expenditures, charges for
patient care, rental costs, tuition remission, scholarships and
fellowships, participant support costs, and the portion of each
subaward in excess of $25,000.
Non-federal entity:
A state, local government, Indian tribe, institution of higher education,
or nonprofit organization that carries out a federal award as a recipient
or subrecipient.
Pass-through entity:
Primarily state and local government agencies that receive funds from
HUD that they then pass through to a nonprofit or another unit of local
government.
Reasonable Cost:
A cost that meets the “Prudent Person” standard (2 CFR §200.404
(a)). The “Prudent Person” standard refers to “a reasonable decision
made by a person with the best knowledge available.”
Indirect Cost Toolkit for CoC and ESG Programs Page 54
Recipient:
A non-federal entity that receives a federal award directly from a
federal awarding agency to carry out an activity under a federal
program. The term recipient does not include subrecipients. See also 2
CFR §200.69 Non-Federal Entity.
Subrecipient:
A non-federal entity that receives a subaward from a pass-through
entity to carry out part of a federal program; this does not include an
individual that is a beneficiary of such program. A subrecipient may
also be a recipient of other federal awards directly from a federal
awarding agency.
Total costs:
Composed of the sum of the allowable direct costs and allowable,
allocable indirect costs, less any applicable credits.
Training and education costs:
Direct costs for items such as training costs, travel allowances, and
registration fees paid to or on behalf of participants or trainees (but
not employees) in connection with conferences or training projects.