Administration

Where do I submit a federal indirect cost rate proposal?

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I have a question about Indirect Cost Rate Proposals. My college has never negotiated one with a federal agency and we need to do so. Can you tell me if there is a central location where such indirect rate proposals are forwarded OR if indirect rate proposals go through individual federal agencies?

Generally, you will negotiate the indirect cost rate with the federal agency to which you are submitting the grant proposal. Once negotiated, that rate will be accepted by all federal agencies. That said, some federal grant programs cap the amount of indirect funding that can be requested regardless of your negotiated indirect cost rate.

For more information: Henry Flood's article on Indirect Costs under Publications for Purchase in the RESOURCES section.

How can I recover indirect costs for a federal grant my organization has been awarded?

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My organization received a federal grant to provide specific assistance to individuals. All the grant funding goes directly to assist those individuals with payments to prevent eviction from their homes. There is no funding to support staff, supplies, paper clips or other costs of implementing the program. I understand indirect vs. direct costs, and I understand how to put together a budget that delineates direct vs. indirect costs. But, who do I propose this to?

You should communicate with the funding agency's grants management staff about your desire to negotiate an indirect cost rate. Even if you can negotiate that rate now, it may, or may not, be possible to use it for this particular grant since it has already been awarded. IF it is possible, its likely that the total amount of the grant would not change, but rather the direct costs would be decreased in order to cover the indirect costs.

It is strange that there was no allowance in the grant budget to cover staff and other direct program operations. Did the Federal agency not allow other costs? Were the program management costs committed as a required “match” for the government funding? Or did the applicant not think about those costs?

As a matter of course, costs for things such as program staff, supplies, and paper clips would be direct program expenses and not indirect costs. Indirect costs are really those related to operating the entire agency that cannot be directly attributed to any one program. In preparation for future federal grant applications, your organization should proceed with negotiating an indirect cost rate. Then, it can be included in grant proposal budgets if the funding agency allows indirect cost rate reimbursements (within the maximum allowed for a particular grant program).

Your organization should talk to the federal agency from which it now receives funding about negotiating the rate. Also, review the Office of Management and Budget (OMB) circulars relevant to the organization. They can be found on the OMB website http://www.whitehouse.gov/OMB/circulars/.

What type of 501(c)(3) should our new organization become?

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My organization is new and our founder wants to have nonprofit 501(c)(3) status. But she would rather not have a board of directors because she wants to maintain control. We realize that in the nonprofit 501(c)(3) status there are two distinct categories charitable organization and private operating foundation. She would rather be set up as a private operating foundation. Is it more difficult for a private operating foundation with a nonprofit 501(c)(3) status to obtain funding from larger foundations? Is there a source that I can go to find out what foundations may provide funding for private operating foundations?

First, this is not legal advice. We encourage you to consult with an attorney who has expertise in this area prior to making any decisions about the organizations structure or desired tax exempt status.

There are two subgroups of 501(c)(3) organizations: private foundations and public charities. Private foundations generally receive their money from one source, such as a business, individual, or family. With their income tax exempt status comes certain responsibilities, including minimum distributions each year.

Within the subgroup of a private foundation is another subgroup of “private operating foundations”. The word “private” does not mean that the control is vested in one person. It means that it is a private foundation that operates its own programs or services. So, rather than distributing grants as a private foundation does, a private operating foundation may meet its required distribution amount by using its money to support its own programs–although it might also award some grants to outside organizations.

All 501(c)(3) organizations have governing Boards of Directors that are responsible for the organization. If your organization becomes a 501(c)(3), it would no longer “belong” to the founder. The organization would also have certain responsibilities in return for its tax exempt status regardless of whether it is a private foundation or a public charity, and governance would lie with the Board of Directors in any case.

Private foundations are generally interested in seeing broad community support, involvement, and investment in the organizations they fund. Public charities that have only the minimal number of Board members, or where the Board members are related to each other and/or the staff, are generally viewed with at least a bit of skepticism.

This IRS website offers more information about private operating foundations (as well as other types of 501(c)(3) organizations): http://www.irs.gov/charities/foundations/article/0,,id=136358,00.html The organization may also wish to check out the following resources regarding various standards that many nonprofit organizations work to meet: Standards for Charity Accountability: http://www.bbb.org/us/Charity-Standards/ Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector: http://www.standardsforexcellenceinstitute.org/public/html/explore_b.html Independent Sector has some very helpful information available as well: http://www.independentsector.org/issues/accountability/standards2.html#