Learn Finance · Fund & Financial Accounting · Task B4. Recharge a fair, donor-agreed share of your organisation's overhead to a grant — and understand the contra that stops you counting it twice.

What it is

A project has direct costs (the field staff, the supplies — clearly for that grant) and the organisation has indirect costs (head-office rent, the finance and HR teams, the audit) that keep everything running but belong to no single project. Donors accept that their grant should carry a fair share of that overhead — at an agreed indirect-cost recovery rate.

In the US federal world that rate is a NICRA (Negotiated Indirect Cost Rate Agreement); other donors negotiate their own cap. The rate is applied to a defined base (usually direct eligible spend), often with a ceiling.

Why it matters

Without recovery, core funds subsidise every grant. If grants only ever pay direct costs, your unrestricted reserves quietly bleed to cover the overhead those grants caused. Recovery is how the organisation stays solvent.
Over-recovery is a compliance breach. Charge more overhead than the agreed rate or above the cap, and you've over-claimed from the donor — a finding waiting to happen.
It must not double-count. The overhead was already recorded as a real cost in the core books. Recharging it to a grant can't make total admin cost look bigger than it is — hence the contra.

Where you do it in VanillaPM

Everything below is in Finance → Accounting. A step-by-step:

Set the rate. Create an IndirectCostRate for the grant — the donor-negotiated rate_pct applied to eligible direct spend, with an optional cap_amount ceiling so recovery can never exceed what the donor agreed.
It recovers automatically as direct costs accrue. You don't post overhead by hand — as eligible direct expenditure lands, the recharge posts: Dr 5900 Indirect overhead (→ grant) / Cr 5990 Overhead recovered — contra (→ core).
Understand the contra — the key control. The 5990 contra offsets the overhead already sitting in the core books, so total admin cost across the organisation is unchanged — the recharge only re-attributes a fair share of it to the grant. Without the contra you'd double-count the overhead (once in core, once on the grant).
It then becomes grant income. The recharged overhead recognises as grant income by the same matching rule as a direct cost (B3) — fully traceable, capped, and audit-ready.

Walked example — Hilsa Health Initiative

The donor agreed a 10% indirect-cost rate on eligible direct spend, capped at $25,000. In year 1 the grant incurs $90,000 of direct eligible cost.

Step	Posting	Amount
Direct spend to date	(already posted, B2)	90,000
Overhead recharge @ 10%	`Dr 5900 overhead (→HHI-2026) / Cr 5990 recovered (→core)`	9,000
Recognise as grant income	`Dr 2300 deferred income / Cr 4xxx grant income (→donor, grant)`	9,000

The grant now carries $9,000 of overhead; the core books show a $9,000 credit in 5990 offsetting the same overhead they already held — net organisation admin cost: unchanged.

The numbers

Recovery = min(rate_pct × eligible direct base, cap).

At 10% on $90,000 → $9,000 — below the $25,000 cap, so the full $9,000 recovers. If direct spend reached $300,000, 10% = $30,000, but the cap bites: recovery is held to $25,000, and the extra $5,000 of overhead stays on core funds. The cap is the control that keeps you compliant.

Controls & evidence

The signed rate agreement (NICRA or donor equivalent) stating the rate, the base, and the cap.
Recovery calculated on the defined base only (eligible direct spend) — not on everything.
The 5990 contra visible, proving no double-count of admin cost.
Recovery never exceeds the cap — the system enforces it.

Best practices & pitfalls

Do apply the rate to the agreed base. Different donors define the base differently (some exclude equipment or sub-grants); use each grant's definition.
Do watch the cap as spend grows — recovery should taper, not keep climbing.
Pitfall: treating overhead recovery as "extra income." It reimburses costs you already bore; it isn't a margin.
Pitfall: recharging without the contra. That inflates total admin cost and misstates the core books — the double-count the 5990 exists to prevent.

Practise question

Q1. A grant has a 12% indirect rate capped at $18,000. Direct eligible spend reaches $200,000. How much overhead is recovered to the grant, and where does the rest go?

Answer: 12% × 200,000 = $24,000, but the $18,000 cap applies, so $18,000 recovers to the grant. The remaining $6,000 of overhead stays on core (unrestricted) funds — the donor won't fund above the agreed ceiling.

Terms used here

Direct vs indirect cost — clearly-for-this-grant vs shared organisation overhead.
NICRA / indirect-cost rate — the donor-negotiated recovery percentage.
Recovery base — the spend the rate is applied to (usually direct eligible cost).
Contra account (5990) — offsets the overhead already in the core books, preventing a double-count.
Related: Book a grant with deferral & matching — the matching rule the recharge also follows.

How an auditor / donor expects this

They check the rate matches the agreement, the base is the agreed one, the cap was respected, and the contra proves no double-counting. A recovery schedule per grant — base, rate, cap, recovered, with the 5990 offset — is the artefact. Over-recovery is one of the most common grant-audit findings; the cap enforcement is what keeps you on the right side of it.

Recover indirect costs / NICRA overhead