What are direct and indirect costs? 
Research proposal budgets include direct and indirect costs. Direct costs are easily attributable to individual grants and include salary support for faculty, research staff, and postdocs working on the project, stipends for graduate students assigned to the grant, laboratory supplies, certain research equipment including computers, and travel and publication costs.

Indirect costs (IDC), aka the F&A (facilities and administrative) rate or overhead, represent genuine costs of performing research that are not easily attributable to individual grants. Think of these charges as applying to things that wouldn’t need to exist or be used as extensively if USC didn’t conduct research. Examples include depreciation of research equipment and buildings, laboratory utilities (light, heat/cooling, power), hazardous chemical and biological agent management, libraries, internet, data transmission and storage, radiation safety, insurance, administrative services, human resources, accounting and other compliance and oversight activities, and compliance with federal, state, and local regulations, e.g., Institutional Review Boards (IRBs) for human subject or animal research. Note that only resources utilized for research are counted.

Resources allowed as indirect costs:

Advertising costs (for personnel)	Department administration	Purchasing office
Affirmative action monitoring	Environmental health and safety	Risk management
Animal care review	General accounting	Security (campus police)
Bond interest	Grant and contract accounting	Selected publications
Building depreciation	Grant and contract services	Selected subscriptions
Central administration	Human subjects review	Seminar costs
College administration	Library services	Transportation costs
Communication costs	Maintenance/operations	Utilities
Computer facilities and services	Payroll office
Custodial services	Personnel office

How is USC’s indirect cost rate calculated?
USC’s current on-campus research indirect cost rate is listed here. These rates are set through Uniform Guidance 2 CFR 200, whereby universities calculate their actual overhead expenditures based on previous years and apportion them to various activities – research, instruction, or other. USC’s rates are negotiated and audited each year and rates are applied only to those direct costs that are subject to overhead, which excludes tuition, equipment, major renovation, and repair and subcontract awards over $25K.

A proposal seeking funds for a fairly small project, and the subsequent award, may require as much administrative work to process as a grant with a million-dollar budget. Since a number of indirect cost elements that support a grant represent fixed costs, it is sometimes argued that smaller projects should pay higher rates. Such a variable rate structure would be quite cumbersome to apply and inconsistent with the government's Circular A-21 guidelines.

Not all awards receive IDC.  Some sponsors deny or reduce IDC.  Full or partial reductions of IDC must have pre-approval from the Dean's Office.

Faculty salary support
Since most faculty are paid in full by the Institute during the academic year, their participation in research during this time is supported by USC.

Indirect cost return policy
The college will return 20% of the IDC to the PI. Each month, Terri will transfer 20% of the IDC generated from the previous month's research grants and notify the PIs.

Are there any restrictions on how the funds can be used/spent?
The IDC that the departments and units receive can be used to offset overhead expenses associated with the sponsored research conducted in academic departments and organized research units. The following are examples of valid uses of returned IDC by a department or unit:

• Matching funds commitments for grants and sponsored projects 
• Laboratory renovations (e.g., modifications needed for new instruments)
• Support for common or shared administrative structures in the units
• Support of broad-use core facilities and shared instrumentation
• Research administration staff support
• Seed money for new research projects and bridge funding
• Other appropriate items related to the administration of research
• Graduate student recruitment efforts
• Graduate student stipend support
• Support supplements to cover tuition and benefits for graduate students on external fellowships

Are there any restrictions on how the funds can be used/spent? Can PIs use the funds to supplement their salary? Support students?

• The funds must be spent in accordance with standard University policies and procedures.
• The funds are categorized as “Overhead Receipts (F&A)” in the University chart of fund types.
• As a result, their “use is limited to scholarly development of faculty/staff/ students, support of campus infrastructure, or expansion of research.” Common uses of the funds include graduate student stipends, research-related travel, purchase of computers or equipment, and purchase of research materials and supplies. Funds may also be used for faculty summer salary, with the appropriate justification. Supplementing faculty salary during the academic year is not permitted.

What happens to the funds if the PI retires or leaves the University?

• Once the PI indicates that he/she is resigning, the account will go into conservatorship (i.e., all expenditures require dean’s office approval). When the PI leaves or retires from the University, any unexpended funds remaining in their indirect cost fund will be returned to the college.