Maximize the impact of ARPA funding with an indirect cost rate study

INSIGHTS

Want to avoid subsidizing federal awards, or locking your organization into a suboptimal de minimis indirect cost rate? Calculating indirect cost rates that can be applied to ARPA funding can do just that, allowing your organization to most efficiently handle the government grant. This is what you need to know.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed during the Trump administration in March of 2020. This stimulus bill allotted $2.2 trillion to aid government agencies in providing for and protecting local communities in response to the economic decline caused by COVID-19. ARPA, or the American Rescue Plan Act, was signed into law by President Biden nearly a year after the CARES Act, and provides $1.9 trillion in funding for cities, counties, and state agencies.

Although both bills are intended to speed the United States’ rehabilitation from the pandemic, a major difference between these funding streams is in the recovery of indirect costs. ARPA allows for indirect cost recovery, while the CARES Act does not. In addition, the timeline to spend ARPA funds is much longer than the deadline for the CARES Act-ARPA funds must be obligated by December 31st of 2024 and then fully expended two years later. CARES Act funds must be expended by December 31st of this year.

What does this mean for your entity?

With any new funding an organization acquires, there are administrative costs associated with spending and allocating it, like accounting, human resources, or legal support. Unlike CARES Act funding, entities are allowed to claim indirect costs from ARPA funding in certain circumstances. The ability to claim indirect costs means that organizations don’t have to subsidize ARPA spending with their own general fund dollars.

This is what your organization must know:

  • You need indirect cost rates where you don’t currently have them
  • Without an indirect cost rate, you must use the de minimis rate to recover the administrative costs from ARPA funding
  • The de minimis rate may not be the best possible rate for your entity

Until your entity has an indirect cost rate – either approved, calculated or de minimis – you cannot recover those indirect costs. The de minimis is a reasonable option for entities that have not traditionally had material amounts of federal awards, but it is likely not the best option for many organizations.

How can I decide between an indirect cost rate and de minimis rate?

Our Financial Solutions Group at MGT calculates indirect cost rates for more than one hundred local governments, non-profit entities, and state agencies every year. We have extensive experience with rates that need to be submitted to and approved by federal cognizant agencies, and with rates that don’t require approval prior to use.  The only way to determine whether a calculated indirect cost rate or a de minimis rate is best for your organization is to analyze your federal awards, your administrative costs, and calculate an indirect rate.  Our process to establish an indirect rate for an organization takes approximately 60 days, at which point we can determine which rate is best for you. For some entities, the de minimis rate might result in the most cost recovery, but for most entities, a calculated rate will be more desirable.

We can help your organization avoid unintentional subsidization and maximize your benefit from government funding.  Our familiarity with federal guidelines, experience with federal claiming, and negotiating indirect cost rates with federal agencies provides our clients with the information required for optimal use of funds received through ARPA and other federal awards.