This page provides guidance on how to properly account for indirect cost recovery charges on U.S. National Science Foundation awards.
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Requirements for NSF awardees
Refer to 2 CFR 200.302 "Financial management" for the regulatory basis of these requirements:
- Awardee organizations must record all award-related financial activities in their accounting systems, including both direct and indirect expenses.
- Transactions must be appropriately segregated in the organization's accounting records, with separate accounts/object codes for direct, indirect and unallowable costs.
- Indirect cost recovery charges should be posted regularly, no less frequently than quarterly. Most organizations post them monthly.
- Cost-recovery charges must be posted in project-related general ledger accounts/cost centers, not in off-accounting system shadow ledgers. Although spreadsheets and other shadow ledgers may be useful in calculating indirect cost recovery charges, they are not a substitute for properly posting the indirect cost recovery charges in the accounting system.
- Project cost ledgers should be able to provide summary reports of total costs incurred (both direct and indirect) and reconcile to submitted financial reports.
Example of a compliant approach
Below is a compliant approach that an organization can use to properly account for indirect cost recovery charges. This approach is not a requirement: there may be other acceptable approaches. Organizations should consult with their accountants before making any changes to their accounting practices.
With this approach, an organization:
- Records award-related direct costs in program cost centers (or equivalent).
- Accumulates indirect costs in administrative cost centers (or equivalent).
- Periodically calculates its indirect cost recovery (ICR) charges. Typically, this is done at the end of a monthly or quarterly reporting period. These calculations use the organization's negotiated indirect cost rate, project-specific rate or de minimis rate, as applicable.
- Records its ICR charges in an expense account called "Indirect Cost Recovery Charges" and posts an equal credit to the General & Administrative (G&A) cost center's ICR charges line. This ensures the organization's ICR charges line equals zero, avoiding double-counting by redistributing indirect costs from the G&A cost center to the projects.
An example of this scenario is illustrated in the table below.
| Direct programs | G&A | Total | |||
|---|---|---|---|---|---|---|
Project A | Project B | Project C | Non-federal |
|
| |
| Labor and fringe | $70,000 | $13,000 | $82,000 | $5,000 | $15,000 | $185,000 |
| Travel | $6,000 | -- | -- | $1,000 | -- | $7,000 |
| Supplies | $7,000 | $5,000 | $4,000 | $1,000 | $1,000 | $18,000 |
| Rent | -- | -- | -- | -- | $20,000 | $20,000 |
| Utilities | -- | -- | -- | -- | $5,000 | $5,000 |
| Other ODCs | $7,000 | $8,000 | $19,000 | $1,000 | $2,000 | $37,000 |
| Total (before IDC recovery allocation) | $90,000 | $26,000 | $105,000 | $8,000 | $43,000 | $272,000 |
| Posted IDC recovery charges | $14,400 | $4,160 | $16,800 | $1,280 | $(36,640) | -- |
| Total accounting system | $104,400 | $30,160 | $121,800 | $9,280 | $6,360 | $272,000 |
| Total award charges | $104,400 | $30,160 | $121,800 | $9,280 | ||
Benefits of this approach:
- It is compliant because all program charges, direct and ICR recovery charges are captured in the organization's accounting system.
- Total award reimbursement requests equal related Total Accounting System transactions.
- All current/cumulative ICR charges are recorded in the accounting system.
- Organization managers can manage the award financial status directly from the accounting system. (For managers who prefer using a spreadsheet as a separate tracking system, accounting information can be directly exported into the spreadsheet.)
- Organizations can assess the effectiveness of their Negotiated Indirect Cost Rate Agreement (NICRA) in recovering their indirect costs. In the example in the table above, the $6,360 balance in the G&A cost center shows that their current rate negotiated rate of 16% is not fully covering all indirect costs. In future years, the organization may want to either cut indirect expenses or negotiate a higher rate that more fully recovers those costs.
Example of a non-compliant approach
With this non-compliant approach to accounting for indirect cost recovery charges, an organization:
- Records award-related direct costs in program cost centers (or equivalent).
- Accumulates indirect costs in administrative cost centers (or equivalent).
- Periodically calculates its indirect cost recovery (ICR) charges. Typically, this is done at the end of a monthly or quarterly reporting period. These calculations use the organization's negotiated indirect cost rate, project-specific rate or de minimis rate, as applicable.
- Manually adds the ICR charges to the amounts in its project-related accounting records to calculate total amounts when preparing financial reports or cash draw down requests.
This non-compliant scenario is illustrated in the table below for an organization with a NICRA that establishes their IDC rate at 16%.
Direct programs | G&A | Total | ||||
|---|---|---|---|---|---|---|
Project A | Project B | Project C | Non-federal |
|
| |
| Labor and fringe | $70,000 | $13,000 | $82,000 | $5,000 | $15,000 | $185,000 |
| Travel | $6,000 | -- | -- | $1,000 | -- | $7,000 |
| Supplies | $7,000 | $5,000 | $4,000 | $1,000 | $1,000 | $18,000 |
| Rent | -- | -- | -- | -- | $20,000 | $20,000 |
| Utilities | -- | -- | -- | -- | $5,000 | $5,000 |
| Other ODCs | $7,000 | $8,000 | $19,000 | $1,000 | $2,000 | $37,000 |
| Total accounting system | $90,000 | $26,000 | $105,000 | $8,000 | $43,000 | $272,000 |
| Calculated IDC recovery charges | $14,400 | $4,160 | $16,800 | $1,280 | -- | -- |
| Total award charges | $104,400 | $30,160 | $121,800 | $9,280 | ||
Issues with this approach:
- It is non-compliant because all program charges are not captured in the organization's accounting system (i.e., ICR charges are not captured in the accounting system).
- Total award reimbursement requests do not equal related Total Accounting System transactions. This would concern reviewers.
- The organization must track current/cumulative ICR charges in an "off accounting system" tracking system. This approach results in no official record in the accounting system.
- Organization managers cannot manage the award financial status directly from the accounting system but must instead use a separate tracking system, such as a spreadsheet, to aggregate direct and indirect charges to the Total Award Charges.
Questions?
If you are unsure how to properly post indirect costs to your awards or in your organization's accounting system, you should seek guidance from your single auditor, certified public accountant (CPA) or other accounting professional. It is the awardee organization's responsibility to maintain accurate financial records, per 2 CFR 200.
For questions about recording project-related indirect cost recover charges, please contact Meghan Benson at mbenson@nsf.gov or (703) 292-4884.