What is a necessary process for nonfederal entities to claim indirect costs under federal awards?

To claim indirect costs under federal awards, nonfederal entities must undergo the indirect cost rate determination process. This process involves establishing a rate that reflects the relationship between indirect costs and the direct costs incurred by an organization. By determining an indirect cost rate, entities can fairly allocate indirect costs to various projects and programs for which they are receiving federal funding. This allocation ensures that the federal government is compensating the entity appropriately for the indirect costs associated with the performance of a federal award, in accordance with the federal regulations.

The other options do not directly address the specific requirement for claiming indirect costs. While determining a direct cost basis and calculating total expenditures are essential aspects of financial management and budgeting, they do not specifically enable an entity to claim indirect costs. Preparing a federal budget plan is also critical but focuses on outlining proposed costs rather than establishing an indirect cost recovery mechanism. Therefore, the indirect cost rate determination process is the key step that allows nonfederal entities to recover indirect costs associated with federal awards.