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A Changing Federal Funding Landscape
Since 2020, the federal grants and contracts world has had, perhaps, the most erratic environment in recent history. The last few years have proven to be full of challenges and opportunities for tribal financial operations. The challenge and opportunity of spending grants that are well above the average annual operational budgets is now tapering off. As these Covid-related awards are phasing out, there are significant impacts to tribal government programs and their operations that require planning and forethought to minimize potential negative impacts. Additionally, the new federal administration’s direction means there is a potential for increased scrutiny on federal expenditures and possibly longer response times from the federal agencies.
Tribal government operations now need to analyze the resources needed to finish out ARPA related projects while balancing the dwindling ARPA funds. They must consider how to cover salaries for positions created with ARPA monies as that funding source is ending and what the potential impacts will be on all tribal programs’ needs. Meanwhile, the indirect cost rate agreements (IRA) can be a forgotten piece during this process. Indirect cost agreements and billings are often misunderstood and, if not maintained properly, can result in underfunding the tribe’s administrative costs.
The Importance of Indirect Costs
Indirect cost billings are a necessary fuel to help keep tribal government operations moving forward. Each program requires that someone process payroll checks to pay employees and process payments to vendors. Each program needs telephones, IT networks and utilities. These are examples of indirect costs and each of them cost money. A question that I often ask during an indirect cost training class is, who pays for those indirect costs if the program’s grant doesn’t pay for them?
The answer, of course, is the tribe’s general funds will have to pay for them. Therefore, it makes sense that each federal award should include money to help cover the administrative costs that each program is dependent on to continue its operations.
There are many factors that come into play to keep the indirect cost billings current. Primarily, there are the requirements provided in the OMB guidance regulating how tribes are able to recoup their administrative costs from each federal-funded program. The OMB also provides for how tribes have to submit an indirect cost proposal for negotiation. The indirect cost proposal process is not overly complicated, however, it does require a completed audit and several other documents such as the current year budget, organizational chart and a detailed list of the indirect cost pool expenditures. Maybe the more difficult obstacle with this process is the wait time. Currently, a tribe can expect 4-6 months or longer from the time of submission to the time a negotiator is able to review the proposal. This waiting period may increase as the potential for the reduction of federal staffing seems likely.
New and Ongoing Challenges
Other than the negotiation process, tribes can expect a couple of new items related to indirect cost recovery. One such challenge is that some federal agencies are trending toward not funding indirect cost at all in their new awards. Or, they may require a current indirect cost agreement before allowing indirect costs to be charged to the grant. Tribes need to review the special conditions section on each new award. This will inform the program recipient if the awarding agency allows for indirect cost expense or if there is a budget limitation on how much indirect cost can be billed against the award. Tribal leaders should understand the cost of administering any new awards as that cost could very well be paid solely by the tribe.
Unfortunately, a tribe can get behind on submitting their indirect cost proposals. This typically happens when the tribe falls behind on completing their audits timely. Some federal agencies don’t allow tribes to bill for indirect costs if the IRA is not current. Others don’t allow for drawdowns to be done on the indirect cost expenses until the IRA is current.
Looking Ahead
These examples stress the importance for tribal financial leaders to be informed of their indirect cost rates and what the federal awards will be providing. At the end of the day, if the federal awards are not funding your indirect cost pool, then the tribe’s general funds will have to. This results in less tribal dollars available for the tribe’s general fund needs. The challenges tribal governments face will certainly continue over the next few years. The tribal financial leaders that can identify and plan how their indirect cost expenditures will be funded will be able to find opportunities through the storm.
