Nonprofits providing services on behalf of governments pursuant to federally funded grants should be reimbursed for their indirect costs and governments at all levels have a responsibility for learning and following the federal grants reforms, according to a newly released video training series from the federal Office of Management and Budget (OMB). At issue in the eight-segment series entitled Uniform Guidance: Promising Practices in Implementation, is the OMB Uniform Guidance that went into effect at the end of December 2014, but is still causing confusion among government and nonprofit officials. The training program was designed to clarify recurring questions and highlight solutions developed in some regions. As discussed below, the segment of greatest interest to nonprofits is the one that focuses on payment of indirect costs. Other topics covered by the video segments include risk assessments, contract vs. subaward determination, subrecipient monitoring, personnel tracking, and single audits and cooperative audit resolution.

 

The Indirect Costs Rates panel provides important clarifications about indirect costs and other terms under the Uniform Guidance. The federal grants reforms mandate that pass-through entities, (typically state, tribal, local governments and some nonprofits) using federal money to hire nonprofits to provide services must pay some or all of the nonprofits’ indirect (sometimes inaccurately called administrative or overhead) costs. Generally, nonprofits should be paid their federally negotiated indirect cost rate, if they have one; but in many instances, nonprofits are entitled to at least 10 percent of their modified total direct costs. During the panel discussion, Gil Tran, Policy Analyst at OMB explains that the 10 percent de minimis rate in the Uniform Guidance is available to new grantees/subgrantees and those that have never negotiated an approved rate with the federal government. Contrary to misinterpretations by some government officials, Mr. Tran states very directly that it is not a de facto rate for pass-through entities to apply across the board, but is a minimum rate.

 

During the same panel discussion, Carol Kraus, Director of the Grants Accountability and Transparency Unit (GATU) for the State of Illinois shared that Illinois has centralized implementation of the indirect cost requirement in her unit. Rather than each state agency negotiating a rate for each of Illinois’ 28,000 subawards, the 5,000 nonprofits that have agreements with the State and don’t have a federally approved indirect cost rate can negotiate a single rate with GATU that each state agency must honor. This is expected to significantly reduce the time and effort expended for both nonprofits and state agencies, making the implementation of indirect cost requirement much more cost effective. Ms. Kraus stressed that states, as pass-through entities, need to pay their fair share. “Nonprofits are our partners and we need to treat them as partners,” she stressed. “If they’re not successful, neither are we.” 

 

The panelists also provided important clarifications about subrecipient/contractor determinations, a topic that has generated conflicting interpretations across the country. The determination of whether an organization is considered a ”subrecipient” or a “contractor” is important because the reporting and auditing requirements differ depending on the type of award. The determination, however, does not have any impact on the requirement to reimburse nonprofits for indirect costs required by the Uniform Guidance. Panelists also noted that the terms contract or contractor follow federal definitions. As such, contracts are only used for governments to purchase goods and services for their own internal use. Therefore, despite the fact that many state and local governments use “contracts” to purchase services from nonprofits, in applying the Uniform Guidance, these awards are still technically grants and therefore the nonprofit is a subrecipient. 

 

In concluding remarks, Beth Bowsky, Policy Specialist for the National Council of Nonprofits, recapped three key points raised during the panel discussion. First, administrative costs and indirect costs are not the same thing. This point is important when reviewing federal statutes that place caps on “administrative” costs that can apply to both direct and indirect expenses. Second, nonprofits need to understand what their costs are – both to take advantage of the benefits of the Uniform Guidance and to better manage costs. Third, the indirect cost mandate in the Uniform Guidance is “about being fair” and isn’t a tool to keep government costs down.