Effective December 26, 2014 new rules from the federal Office of Management and Budget (OMB) requires pass-through entities receiving federal funding and all federal agencies to reimburse nonprofits for some or all of their indirect costs. Courtesy of CalNonprofits, here are six simple steps you can follow to take advantage of the new rules:
1. Determine whether the source of some or all of your government funding is federal (rather than state or local). In many cases federal funds are granted through state, county, and city departments. If you aren't sure, ask your contract officer in government. You have a right to know. If some of your funding has federal origins, the new Office of Management and Budget Uniform Guidance (OMB UG) probably applies to you.
2. Check on the expiration dates of your contracts that involve federal money. The OMB UG applies to new contracts signed after December 26, 2014. The OMB UG does not require contract renewals to use the new standards for overhead if nothing substantial has been changed in the new contract. We hear from some nonprofits that their government funders are trying to characterize all new contracts as basic renewals so that the higher overhead rules don't apply.
3. Review the overhead rate in your government contract. If the rate is less than 10%, or if you have a fee-for-service contract based on costs that assumes less than 10% overhead, the new OMB Guidance is crucial for you to understand and act on.
4. Review your current overhead assumptions – under the new guidance, some items you may have assumed as part of your overhead rate will actually be treated as direct costs.
5. Develop your strategy now for getting better overhead rates in your new contracts: talk to other nonprofits with similar contracts and consider a joint educational approach with your funder. Talk with your auditor and enlist his or her help in making the case to the government agency. Document your discussions with your government contract officer so that even if you are pressured into a contract with less than 10% overhead, you'll have material for making the case retroactively.
6. Let us know this is an issue for your organization. As we work with legislators, state administrators and county officials, bringing together as many nonprofits as possible on this issue empowers all of us.
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