What describes how indirect costs are treated in federal grants?

• A. Indirect costs are charged directly to each project at its own rate.
• B. Indirect costs are shared overhead costs allocated via an approved indirect cost rate; must be applied consistently.
• C. Indirect costs are not allowed on federal grants.
• D. Indirect costs are reimbursed only after project completion.

Answer: (B)

Indirect costs are the shared overhead that supports all activities, not a single project. In federal grants, these costs are recovered through an approved indirect cost rate that the organization negotiates with the grant agency. The rate is applied to eligible direct costs to distribute the overhead fairly across all funded work. Once set, this rate must be applied consistently to all applicable awards and cost objectives, ensuring fair treatment and compliance with the grant terms. This approach avoids charging overhead as if it were a direct cost to each project, which would misrepresent how the costs support multiple efforts. Grants do allow indirect costs when there is an approved rate, and the timing of reimbursement is governed by the grant terms rather than a fixed rule like reimbursement only after project completion.