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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
I. General Information
Office of Management and Budget (OMB) Circular A-87 was published in the Federal Register on
May 17, 1995 with current revisions. It provides that federal programs shall bear their fair share of
indirect costs except when legislation explicitly restricts reimbursement of such costs. Local
education agencies (LEAs) are required to have an approved indirect cost allocation plan and indirect
cost rate in effect in order to recover any indirect costs related to federal grants and contracts.
If a LEA does not wish to recover indirect costs for federal grants and contracts, it is not required to
do so.
OMB Circular A-87 establishes uniform principles for determining and distributing costs of federal
grants and contracts. Department of Education publication, “Indirect Cost Determination Guidance
for State and Local Government Agencies”, is used by state education agencies as the guide for the
cost principles and procedures for establishing cost allocation plans and indirect cost rates for grants
and contracts issued by the federal government.
II. Definitions
a. Indirect cost rate is simply a device for determining in a reasonable manner, the proportion of
indirect costs each program should bear. It is the ratio of the total indirect costs to a direct
cost base, exclusive of specific extraordinary or unallowable expenses due to legislation or
administrative restriction, such as capital outlay. The cost of the office of the superintendent
of schools and board of education are unallowable costs as applied to a federal grant but are
included as direct costs when computing indirect cost rates. The costs are the actual
expenditures of the LEA recorded and reported in accordance with the Oregon Program
Budgeting and Accounting Manual (PBAM).
b. Indirect costs are those costs that are not readily identified with the activities funded by the
federal grant or contract but are never the less incurred for the joint benefit of all activities of
the organization. Accounting, auditing, payroll, personnel, budgeting, purchasing, and
operation and maintenance of plant are examples of services that typically benefit several
activities and programs. Appropriate costs of these services may be attributed to the federal
program by means of an indirect cost allocation plan. In theory, all costs should be charged
as direct costs, but where practical limitations and considerations of efficiency preclude such
an approach, an indirect cost allocation plan is an acceptable alternative.
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
Using OMB Circular A-87 and the 2008 PBAM as a guide, the following functions are identified as
indirect with certain adjustments noted later
Indirect Functions
Expenditures in Funds:
100 General Fund
200 Special Revenue Funds
500 Enterprise Funds Categorized by object:
700 Trust and Agency Funds
1%% Salaries
Categorized in Functions: 117 Unused Leave
2310 Board of Education Services 2%% Associated Payroll Costs
2320 Executive Administration Services 270 Post Retirement Health
2510 Direction of Business Support Services* 3%% Purchased Services
2520 Fiscal Services 380 Non-instructional Prof. & Tech. Services
2570 Internal Services 410 Consumable Supplies and Materials
2610 Direction of Central Support Services 420 Textbooks
2630 Information Services 440 Periodicals
2640 Staff Services 460 Non-consumable Supplies
2660 Technology Services 470 Computer Software
2670 Records Management Services 480 Computer hardware
2690 Other Support Services - Central 640 Dues and Fees
660 Depreciation
* Direction of = The Director, Head of the section, and/or support for these positions
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
c. Direct costs are those that can be identified specifically with a particular cost objective. Using
OMB Circular A-87 and the 2008 PBAM as a guide, the following funds and functions are
identified as direct costs with certain adjustments noted later:
Direct Functions
Expenditures by Fund
Categorized in Functions: 100 200 500 700
1000 Instruction Y Y Y Y
2100 Support Services - Students Y Y Y Y
2200 Support Services - Instructional Staff Y Y Y Y
2310 Board of Education Services N Y Y Y
2320 Executive Administration Services N Y Y Y
2400 School Administration Y Y Y Y
2510 Direction of Business Support Services N Y Y Y
2520 Fiscal Services Y Y Y Y
2540 Operation and Maintenance of Plant Services Y Y Y Y
2550 Student Transportation Services Y Y Y Y
2570 Internal Services Y Y Y Y
2610 Direction of Central Support Services Y Y Y Y
2620 Planning; Research; Dev.; Evaluation Services Y Y Y Y
2630 Information Services Y Y Y Y
2640 Staff Services Y Y Y Y
2660 Technology Services Y Y Y Y
2670 Records Management Services Y Y Y Y
2690 Other Support Services - Central Y Y Y Y
2700 Supplemental Retirement Program Y Y Y Y
3100 Food Services Y Y Y Y
3200 Other Enterprise Services Y Y Y Y
3300 Community Services Y Y Y Y
3500 Custody and Care of Children Services Y Y Y Y
* Direction of = The Director, Head of the section, and/or support for these positions
In addition to Objects:
1%% Salaries
2%% Associated Payroll Costs
3%% Purchased Services
410 Consumable Supplies and Materials
420 Textbooks
440 Periodicals
460 Non-consumable Supplies
470 Computer Software
480 Computer hardware
640 Dues and Fees
660 Depreciation
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
d. Excluded costs are those that generally are one-time in nature or tend to distort normal annual
operating expenses. Also excludable are funds that are passed through to another governmental
agency which provides educational programming and inter-fund operating transfers. Using OMB
A-87 and the 2008 PBAM as a guide, the following funds, objects and functions are excluded
costs with certain exceptions noted later.
Excluded Costs
All expenditures in Funds: That are categorized in Functions:
300 Debt Service Funds 5200 Transfers of Funds
5300 Apportionment of Funds by ESD
400 Capital Projects Funds 5400 PERS UAL Payment
600 Internal Service Funds
and/or Objects:
In addition, expenditures in Funds: 450 Food Services
100 General Fund 610 Redemption of Principal
200 Special Revenue Funds 620 Interest
500 Enterprise Funds 680 PERS UAL Payment
700 Trust and Agency Funds 690 Grant Indirect Charges
700 Transfers
800 Other Uses of Funds
e. Unallowable costs are those costs that are unacceptable as applied to federal grants and
contracts whether applied directly to a grant or indirectly through the indirect cost rate.
Unallowable costs include the following.
i. Bad Debts
ii. Contingencies
iii. Contributions and donations
iv. Entertainment
v. Fines and Penalties
vi. The office of the chief executive of the LEA
vii. Interest and other financial costs
viii. Lobbying.
ix. Under recovery of cost under grant agreements
Using OMB A-87 Attachment A3.B and the 2008 PBAM as a guide, the following funds, objects
and functions are unallowed costs with certain exceptions noted later.
Unallowed Costs
Expenditures in Funds:
100 General Fund Categorized in Functions:
200 Special Revenue Funds 2310 Board of Education Services
500 Enterprise Funds 2320 Executive Administration Services
700 Trust and Agency Funds 4000 Facilities Acquisition & Construction
5100 Debt Service
6%%% Contingencies
and/or Objects 7%%% Unappropriated Ending Fund Balances
430 Library Books
500 Capital Outlay
650 Insurance and Judgments
670 Taxes and Licenses
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
f. A restricted indirect cost rate is used for federal programs that limit full recovery of indirect costs
and that allow supplementing, but in no case supplanting, of state and local funds. This has been
interpreted to mean that only selective administration costs, not maintenance and operation of
plant costs or the costs associated with the Superintendent, Deputy Superintendent and heads of
sections, are eligible to be included as indirect costs. These items are included as direct cost
when calculating this type of rate.
III. Limitation of Recovery of Indirect Cost
a. Some of the major federal educational programs that are administered through the Oregon
Department of Education limit full recovery of indirect cost. All have legislation that allows
supplementing but not supplanting of state and local funds. The restricted rate applies to these
programs.
b. Recovery of indirect costs is subject to the availability of funds. If a combination of direct and
indirect costs exceeds the funds available, the LEA will not be able to recover the total cost.
c. Costs must be treated consistently. Normally, administrative/support types of costs (indirect) are
reimbursed through the development and application of an approved restricted indirect cost rate.
The federal cost principles in OMB A-87 followed in rate development identify the allowable costs
that may be included, require that these costs meet the test of reasonableness and stipulate that
they be accorded consistent treatment in this calculation. The principle of consistency basically
requires that a type of cost and all other comparable types of cost or services be treated either as
indirect costs and reimbursed through the application of the rate, or charged as a direct cost to
benefiting programs. Therefore, if any of the indirect cost that have been included in the rate
development have been approved and allowed as a direct charge against a federal award, these
costs and those for comparable-type services cannot be treated as indirect costs. They must
instead be included in the direct cost base.
If any cost or groups of costs are treated inconsistently, the rate developed cannot be applied nor
indirect costs reimbursed unless appropriate adjustment is made to the indirect cost pool and
base to achieve consistency. For example, if a federal project provided that the cost of
accounting/bookkeeping were to be reimbursed as a direct charge to the award and the indirect
cost rate included other LEA accounting/bookkeeping costs in the indirect cost pool, the rate
cannot be applied, because costs were not accorded consistent treatment. A certification must
be provided that all costs meet the requirements. It is to be submitted along with any adjustments
to the preliminary indirect cost rate.
d. The indirect cost rate can only be applied against direct cost. Capital objects, pass through funds
and other costs that are excluded from the rate computations must be subtracted from the grant
base before applying the rate.
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
IV. Time Period
Expenditures from the second preceding fiscal year are to be used for the indirect cost allocation
plan. For example, expenditures for school year 2007-08 (fiscal year 2008).are used to compute the
indirect cost rate for school year 2009-10.
ICRS Yearly Table
LEA Data used to
school year Fiscal Year DBI Data calculated Indirect
2002-03 FY03 begin 7-1-2002 FY2001
2003-04 FY04 begin 7-1-2003 FY2002
2004-05 FY05 begin 7-1-2004 FY2003
2005-06 FY06 begin 7-1-2005 FY2004
2006-07 FY07 begin 7-1-2006 FY2005
2007-08 FY08 begin 7-1-2007 FY2006
2008-09 FY09 begin 7-1-2008 FY2007
2009-10 FY10 begin 7-1-2009 FY2008
2010-11 FY11 begin 7-1-2010 FY2009
2011-12 FY12 begin 7-1-2011 FY2010
2012-13 FY13 begin 7-1-2012 FY2011
2013-14 FY14 begin 7-1-2013 FY2012
2014-15 FY15 begin 7-1-2014 FY2013
2015-16 FY16 begin 7-1-2015 FY2014
2016-17 FY17 begin 7-1-2016 FY2015
2017-18 FY18 begin 7-1-2017 FY2016
2018-19 FY19 begin 7-1-2018 FY2017
2019-20 FY20 begin 7-1-2019 FY2018
2020-21 FY21 begin 7-1-2020 FY2019
2021-22 FY22 begin 7-1-2021 FY2020
2022-23 FY23 begin 7-1-2022 FY2021
2023-24 FY24 begin 7-1-2023 FY2022
2024-25 FY25 begin 7-1-2024 FY2023
2025-26 FY26 begin 7-1-2025 FY2024
2026-27 FY27 begin 7-1-2026 FY2025
2027-28 FY28 begin 7-1-2027 FY2026
2028-29 FY29 begin 7-1-2028 FY2027
2029-30 FY30 begin 7-1-2029 FY2028
2030-31 FY31 begin 7-1-2030 FY2029
2031-32 FY32 begin 7-1-2031 FY2030
2032-33 FY33 begin 7-1-2032 FY2031
2033-34 FY34 begin 7-1-2033 FY2032
2034-35 FY35 begin 7-1-2034 FY2033
2035-36 FY36 begin 7-1-2035 FY2034
2036-37 FY37 begin 7-1-2036 FY2035
2037-38 FY38 begin 7-1-2037 FY2036
NOTE: FY data goes back two years previous.
For 2009-2010 school year should be using the even years for carry
forward calculation, using FY2004, FY2006, FY2008.
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
V. Indirect Cost Rate Formula
Oregon has not been using the fixed with carry-forward rate for indirect costs appropriately, per the
U.S. Education Department site visit in August 2008. Therefore, ODE implemented new Indirect Rate
templates (provided by USED) to begin using as of May 1, 2009 for the 2009-2010 school year
indirect rates. ODE will only be calculating a restricted rate for LEAs in the state. This is the type of
rate used for supplementing (non-supplanting) grants.
The formula for computing restricted indirect cost rates is as follows:
Restricted Indirect Cost Rate = Indirect Cost Pool
Direct Costs + Unallowed Costs
Excluded costs are removed from the computation totals. However, they are listed on the preliminary
rate detail sheet sent to LEAs in April/May of each year.
VI. Budgeting Indirect Cost Funds in Federal Program Applications
When budgeting indirect costs, LEAs should use the most recently approved rate at the time the
project is submitted for federal program approval. The rate(s) applied later to the final claim must be
the approved rates for the fiscal year in which the expenditure was actually made. A budget
correction may be necessary in some cases. Contact the appropriate ODE grant manager with any
questions regarding budgetary items.
Example 1: School District A was awarded a $200,000 Part B IDEA subgrant for the period July 1,
2007 to June 30, 2008. The district’s approved restricted indirect rate for FY 2007-08 is 4.5 percent.
Indirect costs would be budgeted as shown below in Example 1.
Example 1
Grant Award $ 200,000
Capital Outlay $ (5,000)
Net Amount of Subgrant $ 195,000
Indirect cost rate 4.5%
Direct Costs
($195,000 / (1+.045) $ 186,603
Indirect Costs
(Direct costs * 4.5%) $ 8,397
Check:
Capital Outlay $ 5,000
Direct Costs $ 186,603
Indirect Costs $ 8,397
Total Amount of Grant $ 200,000
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
VII. Applying Indirect Cost Rate to Federal Grants
The indirect cost should be applied to the final claim. The approved rate(s) should be multiplied by
the amount of direct cost expense. The rate cannot be applied to the type of costs that were
excluded in the rate computation.
If the expenditure on the federal grant covers more than one fiscal year (July 1 through June 30), it
will be necessary to apply more than one rate.
Example 2: A school district was awarded a discretionary subgrant of $34,848 for the period October
1, 2003 through September 30, 2004. The district’s approved restricted indirect rate for FY 2003-04
is 4.0 percent and for FY 2004-05 is 4.6 percent. A final claim of expenditures for the project is
illustrated as follows below:
Example 2
Expenditures for Period Unspent
10/1/03 1/1/04 to 4/1/04 to 7/1/04 to Total Balance at
Budget to 3/30/04 6/30/04 9/30/04 Expenditures 9/30/04
Direct Costs
Instructional Salaries 15,500 4,000 5,000 3,000 3,000 15,000 500
Fringe Benefits 6,200 1,600 2,000 1,200 1,200 6,000 200
Supplies 6,000 2,000 2,000 1,000 1,000 6,000 -
Travel 1,000 50 200 500 200 950 50
Equipment 5,000 4,000 1,000 - - 5,000 -
Total Costs $ 33,700 $ 11,650 $ 10,200 $ 5,700 $ 5,400 $ 32,950 $ 750
Direct Cost Base 28,700 7,650 9,200 5,700 5,400 27,950 750
Approved Rate 4.0% 4.0% 4.0% 4.0% 4.6%
Indirect Costs 1,148 306 368 228 248 1,150 (2)
Total Subgrant $ 34,848 $ 11,956 $ 10,568 $ 5,928 $ 5,648 $ 34,100 $ 748
VIII. Indirect Cost Rate Adjustments
Indirect cost rates were computed based on information taken from the annual expenditure data
included in the Database for Education submittals. The PBAM classifications allow expenditures to
be classified as indirect, direct, unallowed or excluded, with the exceptions noted below. All reported
amounts in the categories listed below have been considered direct in the rate computation, but could
be considered indirect cost depending on the type of expenditure. LEAs will need to use the website
for the Indirect Rate Certification System for submitting adjustments to ODE. There are two
categories of adjustments – mandatory and optional. The use of optional adjustments should be
weighed against the cost benefit of time spent preparing them.
Annually the adjustments that are categorized as mandatory and/or optional may change. Therefore,
it is the responsibility of the institutions (LEAs and ESDs) in Oregon to verify the adjustments
necessary for the given year with ODE.
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
Described below are the known areas in which adjustments could be made to the indirect cost plan.
Justification shall be provided on the ICR Certification website regarding what the cost is and why the
LEA is including the adjustment. In the event an additional adjustment is made by the LEA, ODE will
review the justification and either deny or approve the adjustment based on the LEA Indirect Cost Plan
and other federal resources pertaining to indirect rate calculations.
Some Standard Adjustments are listed below in no particular order or category:
Food Service: The cost of food is excluded from the indirect cost pool. The cost of food is included by
some LEAs in Function 3100, Object 410 – along with other consumables in the food service
program. The portion of these expenditures that are not food can be reclassified as a direct expense
if a LEA submits the breakout between food and non food for this expenditure Function/Object code.
Starting with the 2005-06 fiscal year, the cost of food will have its own Object code #450 and thus
starting with rates for 2007-08 no adjustments to the indirect cost rate calculations will be needed,
unless the LEA does not use the 450 object code for food services.
Terminal Leave: Terminal leave – any expenditures associated with the departure of an employee such
as the payoff of sick or vacation leave - is considered an indirect cost with the exception of terminal
leave for the Superintendent, Deputy Superintendent and heads of sections and support staff that
report to these staff. In these cases, it should be placed in the base.
Contract Amounts in Excess of $25,000: Only the first $25,000 of any given contract is allowable as a
direct or indirect cost. Any amounts above $25,000 on a per-contract basis must be excluded from
the indirect cost rate calculations.
General Administration:
The principles of OMB Circular A-87 exclude the Superintendent, Deputy Superintendent, Head of
Sections (includes support for these positions) and Board of Education costs from indirect
consideration. However, a revised interpretation was received that allows some leniency for small
school district administrators who, on a day to day basis, perform such functions identified in the plan
as indirect, provided the time and effort documented for these activities are sufficient to pass an audit.
Superintendents of small school districts who wish to recover indirect cost on the business
administration part of their job function will have to categorize part of their salary under Function 2510
to be eligible for indirect cost consideration. However, since it takes two years for changes in
accounting to show up in indirect calculations automatically, documentation is necessary for the
amounts to be manually shifted to Function 2510.
Insurance and Judgments
District liability insurance, district property insurance and fidelity bond premiums and worker’s
compensation may be classified as indirect cost. Adjustments may also be made for unemployment
compensation for employees or former employees whose costs were associated with the functions
identified as indirect in this plan. You may not include judgments against the district as indirect cost
pools.
IX. Certification by Agency Official
The federal government requires this certification before rates can be approved/finalized for any local
education agency. LEAs will certify electronically through the District Web Page after they submit the
mandatory adjustments and complete the sub award list. The authorized agency, ODE, then reviews
and finalizes the annual rate. An electronic email sends back to the LEA business manager, through
the generic business manager email system, with a full listing of approved and/or denied adjustments
and includes finalized approved rate by the ODE.
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Oregon Department of Education
Local Education Agency
2009-2010 Indirect Cost Plan
X. Retention of Records and Documentation for Audit
The provisions of 34 CFR part 74, Subpart D, require that financial records, supporting documents,
statistical data and other pertinent records be kept for a period of three years beginning with the last
day of the fiscal year covered by the plan.
XI. Deadline
All Indirect Rate Certifications shall be completed prior to two years after the beginning of a school
year in which the rate is applied. For example, the due date for submission of indirect cost rate
adjustments for school year 2009-2010 is by June 30, 2011. With this example, the data year that is
used would be 2007-2008.
XII. ODE Contact Person
If there are any questions on indirect cost, please contact:
Kristy Hartsell, Fiscal Analyst III
Oregon Department of Education
Office of Finance and Administration
255 Capitol Street NE
Salem, OR 97310-0203
Telephone: (503) 947-5619
Email: kristy.hartsell@state.or.us.
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