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How to Maximize Revenue Through Indirect Costs

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This blog is a recap of our latest webinar on indirect costs and cost allocation planning. Access the full recording here. 

Traditionally, cost allocation and indirect cost planning seem like an ancillary matter in the scheme of all that leaders in state, local, and tribal governments have to do. However, reporting on agency-wide true costs is hard to produce in one report. Departments such as utilities, public works, planning, public safety, etc. are often set up to operate in silos, with a tendency to focus on individual financial information. All of this can lead to a significant disconnect about the true cost of services agency-wide. 

Additionally, while most of us would not normally consider indirect costs when it comes to managing our grant funding, indirect costs could not be more fundamental to grants management and optimizing the little revenue available in the current economy. 

At a time when sales and tax revenue are in flux, knowing your true costs of services and maximizing the funding opportunities available to you is more important than ever before. For example, a recent survey from the National League of Cities and U.S. Conference of Mayors reveals that at least 96 percent of all cities report that budget shortfalls are the result of unanticipated revenue declines. The Center for Budget and Policy Priorities estimates that states will have a budget shortfall of $650 billion over three years which is significantly more than budget shortfall created during the Great Recession. 

In short, failure to capture your true costs of services can result in:

  • Missing revenue opportunities by not capturing reimbursements
  • Unknowingly subsidizing funding with grants
  • Lack of transparency to the public as to how their taxpayer dollars are being spent

The good news is while governments will have to be especially strategic in this unpredictable economy, having the right knowledge and plan in place can help you save on costs and even find new funding opportunities. In fact, grants are becoming a critical source of revenue across the board for many governments of all sizes. By maximizing grant funding with a comprehensive cost allocation plan and indirect cost rates, governments can still thrive and come out on the other side of this pandemic stronger.

The Ins and Outs of Indirect Costs

For many grants managers, this may be your first time being in charge of grants administration. As all grants professionals know, grants management can be a highly complex and tedious process on its own. Navigating during a global crisis can add even more pressure to the job. 

Here are some of the most important terms to know when it comes to applying cost allocation and indirect cost planning:

Indirect Costs

Costs that have been incurred for common or joint objectives and cannot be identified with a particular final cost objective, such as facilities and administration. 

Cost Allocation Plan

A tool used to calculate the indirect costs of departments like finance, Human Resources, IT, facilities, or other central support departments that distribute services to receiving departments. A cost allocation plan can be used for:

  • Reimbursement for services from non-General fund operations (those that are covered by taxpayer dollars) within an agency. 
  • Calculating the indirect cost for user fees related to services so this can be included in front-facing reports to the public. 
  • Federal and state grant reimbursement. 

Central Support Departments

Departments whose primary purpose is to support other departments and funds in a state, county, and city. They provide internal services. 

Receiving Departments

Front-facing departments that directly serve citizens, i.e. police, fire safety, parks, and recreation. These departments receive costs for services performed for their benefit.

Indirect Cost Rate Proposal (ICRP)

Calculate the rate of overhead costs to add on to a service, project, or grant to charge to outside individuals or agencies for using or performing that service.

Negotiated Indirect Cost Rate Agreement (NICRA)

A document published to reflect the indirect cost rate negotiated between the Federal Government and a grantee’s organization that reflects the indirect costs of services performed. 

To delve deeper into how you can leverage indirect costs and cost allocation plans to maximize funding and grant revenue, download the full report, “Your Guide to Indirect Costs.” 

Ready to automate your grants management and cost allocation? Reach out to one of our grants management experts at info@ecivis.com.