Unlocking the Power of Indirect Cost Rate Proposals: Maximizing Reimbursement Without Adding Burdens

Unlocking the Power of Indirect Cost Rate Proposals: Maximizing Reimbursement Without Adding New Burdens

Author: Nicolie (Nicky) Cass Lettini, MBA, President, Aptemiz, Inc.

In an era where public agencies are tasked with doing more with less, the ability to recover every eligible dollar from all funding sources has become a fiscal imperative. While most finance directors focus rightly on grant acquisition and reporting compliance, a quieter (but equally powerful) opportunity often goes underutilized: the Indirect Cost Rate Proposal (ICRP).

We tend to identify cost as either Direct or Indirect without understanding what that really means. Direct cost cannot exist without the support of Indirect cost such as payroll and IT services and indirect cost do not exist if there are no direct cost to support. Public perception is indirect cost is “fluff” and is unnecessary, but it really is the backbone of programmatic cost. No one is going to do the job if they are not going to get a paycheck and there is a cost to payroll services which makes these cost critical in the total cost of the program.

An ICRP is more than a technical requirement, it’s a strategic financial tool that allows government agencies to recapture real costs tied to admin function. These funds, often overlooked or misunderstood, can help offset staff salaries, IT systems, compliance support, and other shared resources that keep grant and other programs operational. In this new ERA of government funding the General Fund is being pulled in many different directions and you need to know what it is costing you to provide these services in order to be sustainable.

Why Indirect Cost Recovery Matters Now More Than Ever

Many governmental agencies are grappling with reduced discretionary funds, increased community demand, and the lingering fiscal impacts. Against this backdrop, indirect cost recovery offers a rare win-win: it strengthens the General Fund without introducing new taxes or cutting services.

Without knowing what it is really costing you to perform these services, the General Fund is subsidizing these costs.

ICRPs, when strategically prepared, help:

• Offset general fund reliance
• Provide sustainable funding for administrative functions
• Reduce audit exposure through documentation and consistency
• Empower departments to fully fund their grant operations and fee driven services
• Demonstrate transparency in how costs are allocated and recovered

Common Challenges and Misconceptions

Despite the benefits, ICRPs are often underused or misunderstood. From our work with agencies across the country, we’ve identified several common reasons:

1. Lack of Awareness: Some agencies are unaware they’re eligible to claim indirect costs or assume they must stick with a capped or de minimis rate.
2. Disconnection Between Finance and Program Staff: Program teams often track outcomes and expenditures, while finance teams prepare budgets and claims. Without coordination, indirect costs go unclaimed or misallocated.
3. Fear of Complexity: The process can seem overwhelming but with the right partner or internal investment, it becomes a manageable and high-ROI activity.

These barriers are not insurmountable. In fact, many agencies are surprised by how quickly a defensible ICRP can be developed, especially when guided by current cost structures and real operational data.

Structuring a Strong ICRP

The most effective ICRPs are not simply compliance tools, they are forward-looking documents designed to match your agency’s cost structure, program needs, and funding mix. A modern ICRP should:

• Use current financial and operational data, not outdated spreadsheets
• Include defensible allocation methods, such as square footage, FTE counts, or usage logs
• Be supported by a full cost allocation plan, particularly if your agency receives blended funding
• Assure that your fee driven services are reflecting Full Cost in ensure cost being charged to the public are being fully reimbursed and not subsidized by the General Fund.

Strategic Impacts Beyond Compliance

While the technical requirements of an ICRP are important, its true value lies in the operational and strategic benefits it can bring:

• Multi-Year Budget Planning: A stable and approved indirect rate allows departments to forecast more accurately and avoid relying on general fund subsidies.
• Internal Equity: By applying consistent cost allocation rules across departments, an ICRP prevents larger or grant-rich programs from bearing a disproportionate share of shared costs.
• Staff Retention and Capacity: Being able to fund programs and services, reporting, and evaluation functions through recovered indirect costs means less burnout and turnover in administrative roles.
• Transparency with Stakeholders: Clear documentation of how indirect costs are determined and applied fosters trust among elected officials, auditors, and the public.

How to Get Started or Reevaluate

Whether you’ve never submitted an ICRP or haven’t updated yours in years, here are key steps to take:

1. Inventory Cost Centers: Identify support departments or administrative functions that serve multiple programs, such as HR, IT, finance, legal, and executive leadership.
2. Assess Your Allocation Basis: Review your current method whether by FTEs, usage logs, or space, and evaluate whether it still accurately reflects service delivery.
3. Gather Documentation: Build the paper trail (timesheets, allocation logs, space studies, org charts) that will support your methodology under audit.
4. Engage the Right Expertise: Whether in-house or via a consultant, ensure your ICRP is grounded in financial best practices and tailored to your operations.
5. Educate Program Staff: Ensure those who manage and report on grants understand how indirect costs are tracked and claimed.
6. Budget Proactively: Don’t wait for the rate to be approved begin building indirect cost recovery into your grant proposals and fees today, based on your preliminary model.

Final Thoughts

The landscape of federal funding is becoming more competitive, more compliance-driven, and more outcome-oriented. Agencies are asked to demonstrate fiscal responsibility while absorbing greater administrative burdens and often, with fewer unrestricted dollars to support that work. In this context, indirect cost recovery is not just a technical compliance issue, it’s a strategic necessity.

A well-prepared Indirect Cost Rate Proposal (ICRP) does more than plug budget holes. It creates a sustainable financial mechanism to support the backbone of public service delivery: Finance, HR, IT systems, and executive leadership that make programmatic outcomes possible. These shared costs are real and eligible, yet many agencies continue to absorb them silently or leave them unclaimed due to outdated processes, misconceptions about eligibility, or fear of complexity.

This doesn’t have to be the case. With the right tools, indirect cost recovery can transform from an afterthought to a central part of your agency’s financial strategy. It can unlock hundreds of thousands or even millions of dollars in recoverable costs that can be reinvested into community-facing services, staff retention, and infrastructure.

In today’s financial environment, where every budget cycle brings new constraints and every federal dollar is under scrutiny, reclaiming your rightful share of indirect costs isn’t just good management. It’s leadership. It’s equity. It’s essential.

About the Author

Nicolie (Nicki) Cass Lettini, MBA, is the founder and President of Aptemiz, a woman-owned firm that provides cost allocation, indirect cost recovery, and grant compliance solutions to public agencies across the country. With more than 25 years of experience in public-sector finance, Nicolie is recognized nationally as a leading expert in federal reimbursement strategies and financial optimization for local and state governments.

Throughout her career, Nicolie has partnered with hundreds of cities, counties, special districts, and state departments to help them unlock millions in previously unrecovered federal and state funds—often without adding new operational burdens. Her work has supported post-disaster recovery efforts, built long-term fiscal resilience for struggling municipalities, and empowered finance teams to create audit-ready, defensible indirect cost plans that withstand federal scrutiny.

Nicolie brings a rare combination of technical expertise, practical implementation experience, and deep knowledge of agency operations. She is known for translating complex federal guidance, including 2 CFR Part 200, into actionable strategies that drive real results. Prior to founding Aptemiz, she spent over a decade leading similar initiatives within government and consulting environments, giving her unique insight into both sides of the funding and compliance equation.

As a frequent speaker at public finance associations, a trainer for agency staff, and a trusted advisor to finance directors nationwide, Nicolie is passionate about helping public agencies claim what they’ve earned and use those dollars to build stronger, more equitable communities.

Nicolie (Nicki) Cass Lettini, MBA, is the founder and President of Aptemiz, a woman-owned firm that provides cost allocation, indirect cost recovery, and grant compliance solutions to public agencies across the country. With more than 25 years of experience in public-sector finance, Nicolie is recognized nationally as a leading expert in federal reimbursement strategies and financial optimization for local and state governments. Throughout her career, Nicolie has partnered with hundreds of cities, counties, special districts, and state departments to help them unlock millions in previously unrecovered federal and state funds—often without adding new operational burdens. Her work has supported post-disaster recovery efforts, built long-term fiscal resilience for struggling municipalities, and empowered finance teams to create audit-ready, defensible indirect cost plans that withstand federal scrutiny. Nicolie brings a rare combination of technical expertise, practical implementation experience, and deep knowledge of agency operations. She is known for translating complex federal guidance, including 2 CFR Part 200, into actionable strategies that drive real results. Prior to founding Aptemiz, she spent over a decade leading similar initiatives within government and consulting environments, giving her unique insight into both sides of the funding and compliance equation. As a frequent speaker at public finance associations, a trainer for agency staff, and a trusted advisor to finance directors nationwide, Nicolie is passionate about helping public agencies claim what they’ve earned and use those dollars to build stronger, more equitable communities.