Indirect Costs in grant applications

I was recently invited to be a guest on Nonprofit Everything, a podcast co-hosted by the amazing and wonderful experts from the Alliance for Nevada Nonprofits - Andy Schuricht and Stacey Wedding. We discussed a listener question they recently received on the topic of indirect costs in grant applications. The podcast is available here, but below I’ve summarized some of the thoughts I shared with Stacey on this topic.

“What type of buzz words or language can you include in a grant to cover General & Administrative costs, or is it best to just include a line item in the budget? Is 10% G&A a reasonable request for coverage per grant?”

  • General & Administrative Costs, General Operating Costs, Indirect Costs, Overhead, and Operating Costs are all interchangeable terms in the grant world that essentially mean the same thing, which is your organization’s costs of doing business. These are the items that cannot be directly attributed to the project or program for which you are requesting funding, but are necessary for the organization to operate. The types of items that can be included in this category include things such as: facility rent, utilities, general office supplies, salaries for executives, accounting and legal expenses, insurance, and human resources and payroll costs, among other costs that are specific to your organization.

  • The language you use in your proposal narrative and/or your budget narrative should reflect the specific expenses your organization has that are included in your overhead calculation. Your fiscal manager should be able to help you identify what those costs are. They do vary among different organizations, so it can be helpful for funders to understand exactly what categories of expenses are included in your indirect. Use general terms when describing this in your grant proposal or budget narrative—“Human Resources/payroll expense” is an example of a good descriptor.

  • The indirect rate that is reasonable to request is one of two things:

    • The maximum allowed by the funder—if the funder allows for 20% indirect, you should include the full amount allowable. This is because indirects are unrestricted dollars, meaning the organization can invest them where they are most needed. As this type of funding is the most difficult to raise in the grant world, it is best to maximize this wherever allowable.

    • The maximum your organization already operates with. To calculate this figure, refer to your organization’s audited financial statements. Add your Management & General Expenses total to your Fundraising total, then divide by your total expenses. This should be converted into a percentage. That’s your organization’s overhead rate. If you’re required by the funder to request no more than the maximum you are currently spending on your overhead, use this number. If your overhead rate exceeds the amount allowable by the funder, you will need to follow the funder’s maximum allowable guidelines, rather than your organization’s effective rate.

  •  The indirect cost line should be included in your line-item budget and budget narrative, but should be a distinct line item on it’s own. Ideally, a full program budget includes columns for both revenue and expenses and line items for salaries, benefits, program costs (whatever those may be), subtotaled, then a line showing the indirect percentage and the dollar amount, followed by a sum total at the end.

  • Remember that the indirect calculation is included in the maximum request amount. For instance, if a funder is offering a $100,000 grant, and indirects are allowed up to 20%, you may allocate $80,000 to direct program expenses and $20,000 to indirect costs. You may not tack on an additional $20,000 to a $100,000 request.

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