Indirect Rates

Indirect Rate Management

Managing your indirect rates is an important aspect of doing business with the government. For reimbursement-type contracts, your indirect rates are normally provided on a provisional basis. The challenge is that you need to reconcile your actual indirect rates, typically through a final rate proposal and subsequent audit or review of your rates, on a cumulative, contract-by-contract basis. Since your contract periods are typically different than your fiscal year, and your rates are computed on a fiscal year basis, you may find yourself overrunning your rates (thereby burning through your profit and cash flow), or under-running your rates (thereby owing money back to the government) to the extent these variances are not balanced with adjustments to direct costs. Given that government audits or reviews of your rates can occur after your contracts have closed, you run the risk of creating an indirect rate imbalance by not managing your indirect rates.

Visit Moker CPA for additional indirect rate management information.

 

Indirect Rate Proposals

Too often, small business government contractors do not understand their indirect rate structure and therefore, determine their direct costs and use their indirect costs as a balance between direct costs and award limitations. Unfortunately, this lack of understanding can lead to a lack of flexibility in business operations since indirect rates are typically understated, and in many cases are omitted or applied at safe-harbor levels. While safe-harbor rates may be an attractive and adequate approach, preparing your proposal that includes an understanding of your true indirect cost rate structure will allow you to manage the balance of your direct and indirect activities, and therefore, your business operations.

Visit Moker CPA for additional indirect rate proposals information.

 

Indirect Rate Audits

Indirect rate audits depend on your primary government agency. For example, the Department of Defense and its multiple branches, use DCAA for their audits which typically result in annual audits and a cumulative cost accounting of each contract on an annual basis until such time as the contracts may be closed. DCAA audits can be field or desk audits depending on your organizational risk. On the other hand, NIH has two audit requirements: a) to settle on final indirect rates depending on the need as determined by NIH and b) compliance audits such as OMB A-133 audits required by DHHS. The bottom line is that your accounting system needs to adequately compute indirect rates to support reimbursements claimed by your firm, as well as, show compliance with the requirements of your federal awards.

Visit Newman Associates for additional indirect rate audits information.