Cost Allocation Guide 

for 

State and Local Governments 

 

U.S. DEPARTMENT OF EDUCATION

Indirect Cost Group

Financial Improvement and Post Audit Operations 

Office of the Chief Financial Officer 

September 2009 
 

U.S. Department of Education 

Arne Duncan 

Secretary 

Office of the Chief Financial Officer 

Thomas P. Skelly 

Delegated to perform the functions of the 

 Chief Financial Officer 

Financial Improvement and Post Audit Operations 

Linda A. Stracke 

Director 

Indirect Cost Group 

Mary G. Gougisha 

Director 

September 2009 

This publication is in the public domain. Authorization to reproduce it in whole or in part is granted. 

While permission to reprint this publication is not necessary, the citation should be: U.S. Department of 

Education, Office of the Chief Financial Officer, Cost Allocation Guide for State and Local Governments, 

Washington, D.C. 

This publication is available on the Department’s Website at: 

http://www.ed.gov/about/offices/list/ocfo/fipao/icgindex.html 

On request, this publication is available in alternate formats, such as Braille, large print, audiotape, or 

computer diskette. For more information, please contact the Department’s Alternate Format Center at 

(202) 260-0852 or (202) 260-0818. 
 CONTENTS 

 Page(s)

 

FOREWORD....................................................................................... 3 

ACKNOWLEDGEMENTS.................................................................... 5 

SECTION I: General Information........................................................... 7-9

A. Authority 

B. Definitions 

C. Types of Indirect Cost Rates 

D. Approval and Negotiation of Indirect Cost Rates 

E. Disputes and Records Retention 

SECTION II: Guidelines for Preparing Indirect Cost Rate Proposals................ 11-16

A. Basic Steps 

B. Determination of Indirect Cost Rates 

C. Detailed Steps 

D. Submission of Proposals 

E. Cost Allocation Plans 

SECTION III: Reimbursement of Indirect Costs........................................ 17-21 

A. Requirements for Reimbursement 

B. Application of Indirect Cost Rates 

C. Indirect Cost Limitations 

D. Administrative Cost Limitations 

 

SECTION IV: Indirect Cost Rate Methods............................................... 23-27

A. General Information 

B. Simplified Method 

C. Multiple Allocation Base Method 

D. Special and Restricted Indirect Cost Rates 

E. Restricted Indirect Cost Rates – Questions & Answers 

 

SECTION V: State and Local Agencies Responsibilities.............................. 29

A. General 

B. State Educational Agency Procedures 

C. Subrecipients 

1 
SECTION VI: Time Reporting Requirements.............................................. 31-32 

A. General Information 

B. Time and Attendance Reporting 

C. Semi-Annual Certifications 

D. Personnel Activity Reports 

E. Substitute Systems 

F. Policies and Procedures 

SECTION VII: Common Indirect Cost Issues............................................... 33-36 

A. Compensation 

B. Unallowable Costs

C. Credits 

D. Interest 

E. Depreciation/Use Allowance 

F. Subawards 

G. Unsupported Costs 

SECTION VIII: Questions and Answers..................................................... 37-40 

 

A. Application of Principles 

B. Federal Cognizance

C. Allocation of Costs 

D. Subawards 

E. Other Items 

APPENDICES: MODELS, EXAMPLES AND REFERENCES........................ 41-101 

 

I. State Educational Agency Model Indirect Cost Rate Proposal 

II. Indirect Cost Rate Agreement 

III. Local Educational Agency Model Indirect Cost Plan 

IV. Local Educational Agency Delegation Agreement 

V. Model Cost Policy Statement 

VI. Certificate of Indirect Costs 

VII. Website References 

VIII. Semi-Annual Certification Form and Personnel Activity Report 

IX. Documentation Checklist 

2 
3 
4 
ACKNOWLEDGEMENTS 

The Cost Allocation Guide for State and Local Governments represents a major initiative to 

provide key standards and practices in the cost determination area. 

State and local educational agencies provided valuable input for the contents of this Guide. 

U.S. Department of Education program offices provided important details to assist grantees. 

Nicholas Jougras, a retired federal employee and consultant, provided significant assistance in 

organizing and assembling the materials. Over the last two years, the Indirect Cost Group has 

worked extensively to ensure the Guide contains current information and addresses the needs of 

grantees. The current Indirect Cost Group members are Nelda Barnes; Paul Brickman; David 

Gause, Jr.; Hanan Hardy; Brandi Jefferson; Richard Koris; Phillip Luster; John Masaitis, Katrina 

McDonald and Mary Gougisha. 

The Office of the Chief Financial Officer expresses gratitude and appreciation to all who 

contributed to the completion of the Guide. 

 

5 
6 
SECTION I 

GENERAL INFORMATION 

A. Authority 

This Cost Allocation Guide for State and Local Governments is based on the authority included in 

the Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and 

Indian Tribal Governments and Education Department General Administrative Regulations 

(EDGAR). 

OMB Circular A-87 (available at 2 Code of Federal Regulations (CFR) 225) establishes the 

standard that one federal agency is responsible for the review, negotiation and approval of indirect 

cost rate proposals. As provided in EDGAR at 34 CFR 76.561, the Secretary approves an indirect 

cost rate for a state agency and subgrantee other than a local educational agency. Each state 

educational agency, on the basis of a plan approved by the Secretary, shall approve an indirect cost 

rate for each local educational agency that makes such a request. In the U.S. Department of 

Education (ED), the Secretary has delegated cost allocation responsibilities to the Chief Financial 

Officer. 

B. Definitions

For purposes of this Guide, the following definitions of key terms apply: 

Central Service Cost Allocation Plan - the documentation identifying, accumulating, and 

allocating or developing billing rates based on the allowable costs of services provided by a 

governmental unit on a centralized basis to its departments and agencies. 

Cognizant Agency - federal agency with the largest dollar value of awards to an organization and 

that is responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost 

proposals on behalf of all federal agencies. 

Cost Allocation Plan – document that identifies, accumulates, and distributes allowable direct and 

indirect costs to cost objectives. The plan also identifies the allocation methods used for 

distribution to cost objectives, on the basis of relative benefits received. 

Governmental Unit – the entire State, local or federally recognized Indian tribal government, 

including components. 

Grantee - the organization to which a grant is awarded and which is accountable for the use of 

the funds provided. The grantee is the entire legal entity even if only a particular component of 

the entity is designated in the grant award document. 

Indirect Costs - costs that have been incurred for common or joint purposes. Indirect costs benefit 

more than one cost objective and cannot be readily identified with a particular final cost objective. 

7 
Indirect Cost Rate - device for determining, in a reasonable manner, the proportion of indirect 

costs each program should bear. The indirect costs are included in the numerator (pool) and the 

direct costs are included in the base (denominator). The result is expressed as a percentage (rate) 

of the indirect costs to direct costs. 

Indirect Cost Rate Proposal - documentation prepared by a governmental unit or component 

thereof to substantiate its request for the establishment of an indirect cost rate. 

Local Educational Agency (LEA) - A public board of education or other public authority 

legally constituted within a state for either administrative control or direction, of public 

elementary or secondary schools in a city, county, township, school district, or other political 

subdivision of a state; or such combination of school districts or counties a state recognizes as an 

administrative agency for its public elementary or secondary schools. 

Local Government - a county, municipality, city, town, township, local public authority, school 

district, special district, intrastate district, council of governments (whether or not incorporated as a 

non-profit corporation under state law), any other regional or interstate government entity, or any 

agency or instrumentality of a local government. 

State - any of the several States of the United States, District of Columbia, Commonwealth of 

Puerto Rico, any territory or possession of the United States, or any agency or instrumentality of 

a State exclusive of local governments. 

State Educational Agency (SEA) - the state board of education or other agency or office primarily 

responsible for the supervision of public elementary and secondary schools in a state. In the 

absence of this office or agency, it is an office or agency designated by the Governor or state law. 

Subaward – an award made by a recipient to an eligible subrecipient. The term includes financial 

assistance provided by any legal agreement (including contracts) but does not include the 

procurement of goods and services. 

Subgrantee - the organization to which a subgrant is awarded and is accountable to the prime 

grantee for the use of the funds provided. 

C. Types of Indirect Cost Rates 

Provisional Rate - a temporary indirect cost rate applicable to a specified period which is used 

for funding, interim reimbursement and reporting indirect costs on federal awards pending the 

establishment of a “final rate” for that period. 

Final Rate - an indirect cost rate applicable to a specified past period, which is based on the 

actual allowable costs of the period. A final rate is not subject to adjustment. 

8 
Fixed Rate – an indirect cost rate calculated similarly to a predetermined rate, except the 

difference between the estimated costs and the actual costs of the period is carried forward as an 

adjustment to the rate computation of a subsequent period. 

Predetermined Rate – an indirect cost rate applicable to a specified current or future period, 

usually the governmental unit’s fiscal year. This rate is based on an estimate of the costs to be 

incurred during the period. Except under very unusual circumstances, a predetermined rate is not 

subject to adjustment. Because of legal constraints, predetermined rates are not permitted for 

federal contracts; they may, however, be used for grants or cooperative agreements 

Unrestricted vs. Restricted Rates – Unrestricted indirect cost rates are those calculated for use 

on programs without limitations on indirect costs. Certain ED grant programs have a statutory 

requirement prohibiting the use of federal funds to supplant non-federal funds. These programs 

require the use of a restricted indirect cost rate, computed in accordance with 34 CFR 76.564-

76.569. Generally, adjustments to the unrestricted rate calculation are made and result in a lower 

rate to claim indirect cost reimbursement on restricted rate programs. 

D. Approval and Negotiation of Indirect Cost Rates 

The Indirect Cost Group will negotiate and approve indirect cost rates submitted by entities for 

which ED is the cognizant federal agency. Local Educational Agencies shall submit their 

indirect cost rate proposals to State Educational Agencies for approval (refer to Section V for 

procedures). In situations where a local government receives funds only as a subrecipient, the 

prime recipient will be responsible for approval of the subrecipient's indirect cost rate proposal. 

The indirect cost rate approval will be formalized by an agreement signed by ED's Director of 

the Indirect Cost Group and an authorized representative of the governmental unit. The rate 

agreements are distributed to grantees and the U.S. Department of Health and Human Services 

for publication on its website. An example of the agreement is shown in Appendix II of this 

Guide. 

E. Disputes and Records Retention

If a dispute arises during the negotiation, the concern may be addressed to ED’s Chief Financial 

Officer. ED’s Appeals Board has authority to review disputes involving funds recovery actions 

under specific programs only. 

In accordance with the provisions of 34 CFR Part 74, Subpart D - Retention and Access 

Requirements for Records, records shall be retained for 3 years. For required submissions, the 

retention period starts from the date of such submission. For submissions that are not required, 

the retention period starts from the end of the fiscal year covered by proposal. 

9 
10 
SECTION II 

GUIDELINES FOR PREPARING INDIRECT COST RATE PROPOSALS 

A. Basic Steps 

Indirect Cost Rate Proposals require supporting schedules and documentation. The following 

steps are suggested in preparing an indirect cost rate proposal. An indirect cost rate proposal 

model for an SEA is included in Appendix I. An LEA Plan model is included in Appendix III. 

The models should be tailored to the organization’s structure. 

In beginning the process of calculating an indirect cost rate, the governmental unit should 

consider and review the following: 

• Organizational structure 

• Level of federal funding 

• Requirements of OMB Circular A-87 and EDGAR 

• Reports generated from the accounting system 

• Cost policies related to direct and indirect cost charging 

• Availability of data on square footage, number of transactions, number of employees, etc. 

• Additional effort and cost required to achieve a certain degree of accuracy 

• Need for a restricted indirect cost rate (see Section IV) 

B. Determination of Indirect Cost Rates 

The two basic methods for calculating indirect cost rates include the Simplified and the Multiple 

Allocation Base Methods. These two methods and special (or restricted) indirect cost rates are 

discussed in further details in Section IV. 

OMB Circular A-87 stresses the need for federal agencies to work with state agencies on; (1) 

streamlining accounting processes; (2) reducing the burden of maintaining systems for charging 

administrative costs to federal programs; and (3) simplifying the preparation and approval of cost 

allocation plans. Organizations are encouraged to use the simplified method whenever possible 

and to avoid exceeding the complexity of the multiple allocation base method. ED considers 

double iterative variations of the simplified and multiple allocation base methods as burdened 

with extraneous detail that encumbers the review and approval process. 

In order to prepare an indirect cost rate proposal, total costs, regardless of funding source, must 

be classified into one of the following categories: direct, indirect, excluded or unallowable. The 

following detailed steps will guide preparation of the proposal.

11 
C. Detailed Steps 

1. Determine Total Expenditures 

Information from the grantee’s accounting system should be used to determine total 

expenditures. Total costs, regardless of the funding source should be identified for each function 

and object class (expenditure type). Federal and non-federal outlays should be determined. 

2. Identify Unallowable and Excluded Costs 

Before calculating an indirect cost rate, the organization should review OMB Circular A-87 to 

determine which costs are unallowable or to be excluded from the indirect cost pool and/or 

distribution base. OMB Circular A-87 requires all activities which benefit from the governmental 

unit’s indirect costs, including unallowable activities and donated services, to receive an 

appropriate allocation of indirect costs. All direct costs that are supported by indirect activities, 

including unallowable costs (e.g., fund raising and lobbying) and the value of donated services 

will be included in the base when calculating indirect cost rates. Examples of excluded costs are 

equipment and subawards. 

Unallowable costs include debt service, fines and penalties, contingencies, and election 

expenses. The indirect cost rate calculation and application should remove all unallowable costs. 

The indirect cost rate calculation should exclude pass-through funds (funds provided to the prime 

for specific secondary recipients), subaward expenditures exceeding $25,000 and food 

purchases. Other distorting items should also be excluded. The same costs should be excluded 

when calculating the indirect cost reimbursement. Such costs are excluded when calculating the 

rate and indirect cost reimbursement because the activities require minimal administrative 

support. 

Below are two examples of funds awarded to a state agency. The examples explain when costs 

should be included in the direct cost base (denominator) or excluded. 

Example 1 

1. The SEA receives a $1,000,000 award from a federal agency. The purpose of the award is to 

have specific school districts conduct seminars on a new federal program. The SEA awards 

$100,000 to each of 10 school districts. Each of the school districts is responsible for payroll, 

issuing contracts and purchase orders, acquiring and paying for supplies, reimbursement for 

travel, and other similar administrative costs. The only efforts the SEA spends on these awards 

are providing electronic payments and reviewing end-of-year financial reports. The $1,000,000 

award is a “pass-through” and therefore excluded. There is minimal benefit these funds 

received from the SEA. For each school district, the expenditures are part of the base for 

calculating the indirect cost rate. 

12 
Example 2 

2. A state agency receives a $500,000 grant from a corporate endowment to improve 

mathematics instruction. The endowment does not allow indirect cost reimbursement under its 

grants. The agency hires five full-time staff with the funds. The state agency pays the salaries, 

fringe benefits, local travel, supplies, and other staff expenses. All expenses incurred under this 

endowment grant are included in the state agency’s base (except distorting items such as 

equipment purchases). It does not matter whether the endowment allows indirect costs or not. 

These costs benefit from the state agency’s allowable indirect costs (payroll, personnel, 

procurement, data processing, etc.). Therefore, in accordance with OMB Circular A-87 the 

costs are included in the base. If not, the state agency’s other programs absorb an unfair 

portion of the costs of administering the endowment grant. 

3. Determine Direct Costs 

Direct costs are those that can be identified specifically with a particular cost objective. The 

direct costs of a federal award can be specifically identified to the program and may be charged 

directly to the program. Examples of direct costs that may be charged to a federal program 

include the following: 

• Compensation of the employees who works on the program; 

• Supplies and materials used for the program; 

• Equipment purchased and used for the program; and 

• Travel expenses incurred specifically to carry out the program. 

4. Determine Indirect Costs 

OMB Circular A-87 defines indirect costs as those that are incurred for a common or joint 

purpose benefiting more than one cost objective. In addition, indirect costs cannot be readily 

identified as benefiting a particular cost objective. Examples of indirect costs include the 

salaries and expenses for the following: 

• Data Processing 

• Accounting 

• Personnel 

• Purchasing 

Indirect costs are normally charged to federal programs through the indirect cost rate. Grantees 

must be consistent in treating costs as direct or indirect under federal awards. Once a cost is 

treated as direct or indirect, it should be treated that way for all projects and activities, regardless 

of the source of funding. 

13 
5. Reconcile Proposal to Financial Statements/Expenditure Reports 

Reconcile amounts in the indirect cost rate proposal to the audited financial statements or final 

expenditure reports. The organization is expected to provide support or explanation for any 

material variances. 

6. Select the Distribution Base 

The direct cost base (distribution base) selected should be the one best suited for assigning 

indirect costs to all cost objectives in accordance with the relative benefits received. The 

distribution bases commonly used are listed below. A restricted rate must be calculated using a 

modified total direct cost base. Organizations preferring to apply the indirect cost rate to a 

salaries and wages base, may use a conversion calculation. The conversion calculation allows a 

restricted indirect cost rate to be based on and applied to salaries and wages. 

Commonly used distribution bases include the following: 

• Direct salaries and wages including applicable fringe benefits 

• Direct salaries and wages excluding fringe benefits 

• Total direct costs excluding distorting items such as equipment purchases, the portion of 

each subaward in excess of $25,000, alterations/renovation, pass-through funds, or any 

other cost which may distort the distribution of indirect costs to benefiting activities. 

This base is referred to as a modified total direct costs (MTDC) base. 

7. Computation of Indirect Cost Rate 

Using the results of Steps 1 - 6 above and the indirect cost proposal formats shown in the 

Appendices, compute the appropriate indirect cost rate. For programs requiring the use of a 

restricted indirect cost rate, the grantee must calculate the restricted rate in accordance with the 

guidance provided in Section IV. 

8. Complete Indirect Cost Rate Proposal Documentation Checklist 

The following information is required to be submitted, on an annual basis, with the indirect cost 

rate proposal: 

• Indirect cost rate calculation detailing total direct and indirect expenses by function and 

cost category, subsidiary worksheets and carry-forward calculations. 

14 
• Reconciliation of indirect cost rate proposal to audited financial statements, expenditure 

reports or approved budgets. 

• The amount of direct costs incurred on federal awards. The costs should be detailed 

reflecting salaries, wages, fringe benefits and other direct costs. 

• A schedule of fringe benefits and payroll taxes by type and amount with an explanation 

of the allocation to benefiting activities. 

• Certificate of Indirect Costs signed on behalf of the state or local government 

agency/department by an agency official at the Chief Financial Officer level or above. 

• Cost Policy Statement that provides background information and identifies cost charging 

policies and practices. 

• Organization chart showing the structure of the agency during the proposal period. 

 

• Capitalization policy, along with equipment use allowance or depreciation schedules. 

• Financial data (audited financial statements, formal budgets, accounting reports, etc.) 

upon which the rate is based. Adjustments resulting from the use of unaudited data will 

be recognized, where appropriate, in a subsequent proposal. 

• Approved Statewide Cost Allocation Plan schedule, if state central service costs are 

included in the indirect cost rate proposal. 

• A listing of grants and contracts identified by Catalog of Federal Domestic Assistance 

(CFDA) number, and by federal agency, total dollar amount, and the period of 

performance. If applicable, any indirect cost limitations, such as restricted or ceiling 

rates or amounts restricted by administrative or statutory regulations, should be identified 

for each grant or contract. 

• Details on any significant accounting changes that are planned and may impact the 

proposed rate. 

• Schedule of unused leave payments to separating employees. 

• Schedule showing the details of adjustments to the unrestricted rate in order to calculate 

the restricted rate. 

• Schedule of all subawards, including names and amounts. The schedule should reflect 

the amounts over $25,000 that are excluded from the base calculation. 

15 
D. Submission of Proposals 

An indirect cost rate proposal, with supporting documentation (see Appendix IX for checklist), 

must be developed (and when required) submitted on an annual basis to ED. The proposal 

should be submitted no later than six months after the close of the governmental unit's fiscal 

year, unless an exception is approved by ED. One hard copy of the indirect cost rate proposal 

should be submitted to the following address: 

U.S. Department of Education 

OCFO/ FIPAO/ ICG 

400 Maryland Avenue, SW 

Washington, D.C. 20202-4450 

ED accepts electronic submissions of indirect cost rate proposals and supporting documentation. 

Electronic submissions should be in a format compatible with the software used by the Indirect 

Cost Group and spreadsheets should be formatted for printing on a single “81⁄2 by 11” page. 

Prior to providing the submission electronically, grantees should contact the Indirect Cost Group. 

Situations may exist whereby grantees are required to submit a restricted indirect cost rate 

proposal and ED is not the cognizant federal agency. Grantees must submit the unrestricted and 

restricted indirect cost rate proposals to the cognizant federal agency. The cognizant federal 

agency will coordinate the review and approval process with the Indirect Cost Group. 

E. Cost Allocation Plans 

Cost Allocation Plans (CAPs) are generally submitted in lieu of an indirect cost rate proposal. A 

CAP may be necessary when substantial direct costs of programs consist of joint or common cost 

distributions and/or when the nature of the grantee’s activities is such that direct costs cannot be 

adequately determined with reasonable precision. In such situations, use of a CAP may be more 

suitable than an indirect cost rate. A CAP (if required) should be submitted to the cognizant 

federal agency. Supporting documentation (described above in C.8.) should accompany the 

CAP.

16 
SECTION III 

REIMBURSEMENT OF INDIRECT COSTS

A. Requirements for Reimbursement

OMB Circular A-87 outlines the factors to consider in determining the allowability of costs. In 

order to be reimbursed on federal awards, costs must meet the following criteria: 

1. Be necessary and reasonable for proper and efficient performance and administration of 

federal awards. 

2. Be allocable to federal awards. 

3. Be authorized or not prohibited under state or local laws or regulations. 

4. Conform to any limitations or exclusions set forth in these principles, federal laws, 

terms and conditions of the federal award, or other governing regulations as to types or 

amounts of cost items (e.g., use of restricted rates as defined by 34 CFR 75.563 and 

76.563). 

5. Be consistent with policies, regulations, and procedures that apply uniformly to both 

federal awards and other activities of the governmental unit. 

6. Be accorded consistent treatment. A cost may not be assigned to a federal award as a 

direct cost if any other cost incurred for the same purpose in like circumstances has 

been allocated to the federal award as an indirect cost. 

7. Be determined in accordance with generally accepted accounting principles. 

8. Not be included as a cost or used to meet cost sharing or matching requirements of any 

other federal award in either the current or a prior period, except as specifically provided 

by federal law or regulation. 

9. Be the net of all applicable credits. 

10. Be adequately documented. 

17 
B. Application of Indirect Cost Rates

The dollar amount of indirect costs allocable to a federal award will be determined by applying 

the approved indirect cost rate to the direct cost base. For purposes of illustrating the application 

of indirect cost rates, assume an ED grantee has approved indirect cost rates as follows: 

Type From To Rate Base Location Coverage

Fixed 07/01/07 06/30/08 17.0% (1) All Unrestricted 

Fixed 07/01/07 06/30/08 9.0% (1) All Restricted (2) 

(1) Total direct costs less equipment purchases, alterations and renovations, pass-through funds, 

and the portion of each subaward exceeding $25,000. 

(2) All federal programs which require the use of a restricted rate as defined in 34 CFR 75.563 

and 34 CFR 76.563. 

From July 1, 2007 through December 31, 2007, the grantee has incurred the following costs on 

ED grants: 

 Unrestricted Restricted 

 Grants Grants Totals Notes

Personnel $198,000 $267,300 $465,300 1 

Other Direct 126,000 187,200 313,200 2 

Equipment 26,100 15,300 41,400 3 

Subcontracts 65,700 89,100 154,800 4 

Pass-through 1,276,200 2,349,000 3,625,200 5 

Total Direct $1,692,000 $2,907,900 $4,599,900

 

Notes:

1. Includes fringe benefits. 

2. Includes travel, supplies, equipment with a unit cost of less than $5,000, and other 

costs that generate or benefit from the organization's indirect costs. 

3. Equipment purchases with unit costs of $5,000 or more. 

4. Subaward under "Unrestricted" grant - total $65,700. The first $25,000 is included in 

the base. The remaining $40,700 is excluded from the base. 

5. Pass-through amounts represent funds provided to the prime grantee for specific 

secondary recipients. 

Subaward expenses under restricted awards: 

 Included in 

 Expenses Base 

Subaward A $24,300 $24,300 

Subaward B 64,800 25,000

Total $89,100 $49,300

18 
The amounts subject to the indirect cost rate are shown below. These are amounts to which the 

indirect cost rate is applied. The rate must be applied consistently with the calculation 

methodology. The following illustration reflects how indirect costs should be billed using the 

rates calculated on the previous page: 

 Unrestricted Grants: Restricted Grants:

 

 Subject Subject 

 to to 

 Total Costs Indirect Total Costs Indirect 

Personnel $198,000 $198,000 $267,300 $267,300 

Other Direct 126,000 126,000 187,200 187,200 

Equipment 26,100 0 15,300 0 

Subcontracts 65,700 25,000 89,100 49,300 

Pass-through 1,276,200 0 2,349,000 0

Totals $1,692,000 $349,000 $2,907,900 $503,800

Indirect Cost Rate 17.0% 9.0%

Indirect Cost Billings $59,330 $45,342

C. Indirect Cost Limitations

Reimbursement of indirect costs is subject to the availability of funds and statutory or 

administrative restrictions. Such restrictions include the supplement-not-supplant provision 

(restricted rates) and the 8% indirect cost rate limitation on training grants. 

When the amount allowable under a limitation is less than the amount otherwise allowable as 

indirect costs per OMB Circular A-87, the amount unrecoverable as indirect costs may not be 

shifted to another federal award. ED regulations further state the unrecovered indirect costs 

cannot be used for matching or cost sharing purposes or charged as direct costs to other awards.

19 
D. Administrative Cost Limitations

Some ED awards have statutory or regulatory limitations on the costs of administration. The 

costs of administration are those portions of reasonable, necessary and allowable costs associated 

with the overall project management and administration. These costs can be both personnel and 

non-personnel, and both direct and indirect. Therefore, the limitation applies to the combined 

claims for indirect costs and direct administration costs. Generally, direct administration costs 

differ from indirect charges in that the latter are considered organization-wide costs. 

Examples of direct administration are salaries, benefits, and other expenses of the recipient's staff 

that perform the following functions: 

• overall program management, program coordination, and office management functions 

including the salaries and related costs of the executive director, project director and/or 

project evaluator 

• preparing program plans, budgets schedules, and related amendments 

• monitoring of programs, projects, subrecipients and related systems and processes 

• developing systems and procedures, including management information systems, for 

assuring compliance with program requirements 

• preparing reports and other documents related to the program requirements 

• evaluating program results against stated objectives 

• divisional level administrative services such as program specific accounting, auditing or 

legal activities 

Examples of non-labor costs for direct administration include: 

• costs for goods and services required for administration of the program, including the 

rental or purchase of equipment, utilities, office supplies, postage, and rental and 

maintenance of office space 

• travel costs incurred for official business in carrying out program management 

20 
The following illustration reflects how administrative cost limitations may affect an award. In 

the illustration, assume a 15% administrative cost limitation. The limitation is applied to the 

total award. The effect on the indirect cost reimbursement is shown below: 

 

Grant/Contract Funds Available $1,000,000

 

Administrative Cost Limitation at 15% $ 150,000 (1) 

 

Direct Program Administrative Cost Incurred $ 112,500 

Allowable Indirect Cost Reimbursement 37,500 (2) 

 

 Total Administrative Cost Reimbursement $ 150,000

 

 

Indirect Costs: 

 

 Modified Direct Total Costs (MTDC) 

 Incurred on Grant/Contract (including costs 

for Direct Administration) $ 450,000

 

 

 Indirect Costs Calculation 

 (Rate of 10% of MTDC) $ 45,000 (2) 

 

(1) Grantees must note the administrative cost limitation of $150,000 applies to both 

(combined) direct administration and indirect costs. 

 (2) Although indirect costs are calculated at $45,000 as a result of applying the 

negotiated rate to MTDC, the indirect costs reimbursement is limited to $37,500. 

The overall administrative cost limitation of $150,000 minus the $112,500 in direct 

program administrative costs leaves a balance of $37,500 for indirect cost 

reimbursement. The allowable amount of direct program administrative cost is 

determined first and secondly, the allowable amount of indirect cost reimbursement 

is determined. 

21 
22 
SECTION IV 

INDIRECT COST RATE METHODS 

A. General Information 

OMB Circular A-87 prescribes certain methods of allocating indirect costs and determining 

indirect cost rates. The methods to be used depend upon the governmental unit’s number of 

major functions and how the functions benefit from the indirect costs. In this section, the 

Simplified Method, Multiple Allocation Base Method and Special/Restricted Indirect Cost Rates 

are discussed. 

B. Simplified Method 

The Simplified Method is used when a grantee has only one major function encompassing a 

number of individual projects or activities and the level of federal awards is relatively small. It is 

applicable whenever a grantee's major functions benefit from its indirect costs to approximately 

the same degree. The allocation of indirect costs may be accomplished by (1) classifying the 

grantee total costs for the base period as either direct or indirect; and (2) dividing the total 

allowable indirect costs (net of applicable credits) by an equitable distribution base. 

Both the direct costs and the indirect costs shall generally exclude distorting items and 

unallowable costs. However, unallowable costs must be included in the distribution base if such 

costs represent activities benefiting from the indirect expenses. 

The indirect cost rate is used to distribute indirect costs to individual programs, functions or 

activities. The distribution base may be (1) total direct costs (excluding capital expenditures and 

other distorting items, such as pass-through funds, the portion of each subaward in excess of 

$25,000, etc.); (2) direct salaries and wages; or (3) another base which results in an equitable 

distribution. 

C. Multiple Allocation Base Method 

The Multiple Allocation Base Method is used whenever a grantee’s indirect costs benefit its 

major functions in varying degrees. Such costs are accumulated into separate cost groupings. 

Each grouping constitutes a pool of expenses that are of like character in terms of the functions 

benefited and in terms of the allocation base which best measures the relative benefits received. 

The number of separate groupings should be held within practical limits, taking into 

consideration the materiality of the amounts involved and the degree of precision needed. 

23 
Actual conditions must be taken into account in selecting the base to be used in allocating the 

expenses in each grouping. When an allocation can be made by assignment of a cost grouping 

directly to the function benefited, the allocation shall be made in that manner. When the 

expenses in a grouping are more general in nature, the allocation should be made through the use 

of a selected base which produces results that are equitable to both the federal government and 

the grantee. In general, any cost element or related factor associated with the grantee’s activities 

is potentially adaptable for use as an allocation base if, (1) it can readily be expressed in terms of 

dollars or other quantitative measures (total direct costs, direct salaries and wages, staff hours 

applied, square feet used, hours of usage, number of documents processed, population served, 

and the like); and (2) it is common to the benefited functions during the base period. 

Except where a special (or restricted in accordance with 34 CFR 76.564 - 76.569) indirect cost 

rate is required, the separate groupings of indirect costs allocated to each major function shall be 

aggregated and treated as a common pool for that function. The costs in the common pool shall 

then be distributed to individual programs included in that function by use of a single indirect 

cost rate. 

The distribution base used in computing the indirect cost rate for each function may be (1) total 

direct costs (excluding capital expenditures and other distorting items, such as pass-through 

funds, the portion of each subaward in excess of $25,000, etc.); (2) direct salaries and wages; or 

(3) another base which results in an equitable distribution. An indirect cost rate should be 

computed for each separate cost pool. 

D. Special and Restricted Indirect Cost Rates 

Special indirect cost rates may be required when a regular indirect cost rate for all activities of a 

grantee, or for each major function of the agency, may not be appropriate. Regular indirect cost 

rates may not take into account different factors which substantially affect the indirect costs 

applicable to a particular program or group of programs. Such factors may include the physical 

location of the work, the level of administrative support required, the nature of the facilities or 

other resources employed, the organizational arrangements used, etc. When a particular program 

is performed in an environment that generates a significantly different level of indirect costs, 

provisions should be made for a separate indirect cost pool applicable to that program. The 

separate indirect cost pool should be developed during the course of the regular allocation 

process. The special indirect cost rate may be used if, (1) the rate differs significantly from the 

rate which would have been developed under the simplified or multiple allocation base method; 

and (2) the programs to which the rate will apply are material in amount. 

One example is a major activity or function that is performed at a site other than the grantee’s 

main office. An off-site rate, where occupancy costs are removed from the pool, may be more 

appropriate. 

24 
Restricted indirect cost rates must be calculated for ED grant programs that have a statutory 

requirement prohibiting the use of federal funds to supplant non-federal funds. These programs 

use a restricted indirect cost rate, computed in accordance with 34 CFR 76.564 – 76.569. The 

governmental unit should review the list of restricted programs (provided by ED) in order to 

determine whether a restricted rate is required. When a restricted rate is required, the 

unrestricted rate is calculated first. Adjustments are made to the unrestricted indirect cost pool, 

removing certain unallowable expenses from the indirect cost pool and adding those expenses to 

the direct cost base. 

E. Restricted Indirect Cost Rates – Questions & Answers 

The following questions and answers provide additional details on the restricted rate calculation: 

1. What is the background on the restricted indirect cost rate? 

Many of the large educational entitlement programs that provide funds to state and local 

jurisdictions were created by legislative statute which require that the federal funds be used to 

"supplement and not supplant" on-going educational services. This means that state and local 

agencies have tax revenue or other financial resources of their own to finance the education. 

Without the "supplement not supplant" provision, states could simply reduce its support of 

educational service to the extent of the newly available federal funding or could substitute 

federal money for tax revenue already generated to fund schools. 

2. What are Restricted Rates? 

Restricted rates are established to incorporate the provisions of program legislation that bar 

supplanting. The restricted indirect cost rate formula is described at 34 CFR 75.564 and 76.565. 

The formula limits the general management costs that can be included in the indirect cost pool 

(numerator) and requires adjustments to the MTDC base (denominator). 

3. What is the practical effect of the restricted indirect cost rate formula? 

The formula results in a marginal distribution of administrative costs required to implement 

federal assistance. The calculation of the restricted indirect cost rate is viewed as a funneling 

process. The first step requires the state and local unit of government to segregate the 

accounting of costs between indirect and direct with full cost reimbursement in mind. The 

restricted indirect cost rate determination further filters costs that are be incurred by the state or 

local unit of government. Rules at 34 CFR 76.565 allow only costs for the "direction and 

control" of the grantee to be considered general management costs. 

25 
 Costs associated with activities under organizational units that are not for department level 

management also are not considered general management costs. Therefore, in a restricted rate 

setting, indirect costs are purged to include only "organization-wide" general management costs 

at the grantee level (e.g., bookkeeping, accounting, payroll, auditing, procurement, and 

personnel). The general management costs are refined again to exclude costs of the Chief 

Executive Officers, their immediate officers, component officers and related costs. Related costs 

include applicable fringe benefits, travel, space costs and other associated costs. These costs are 

then reclassified from indirect to the MTDC base. 

4. Who are the Chief Executive Officers? 

 The Chief Executive Officer exercises overall responsibility for the operation and management 

of the organization. The Chief Executive Officer's immediate office includes any Deputies or 

similar office, along with the immediate support staff. It is important to emphasize that the Chief 

Executive Officer of the grantee is not the Governor or member of an elected or appointed 

Board. Expenses for these positions are already unallowable as general government expenses. 

5. What are Component Costs? 

Generally, components are organizational units for both indirect and direct functions existing one 

level below the Chief Executive Officer unit. Depending on the organization, there may be 

circumstances where component costs would properly be accounted for in the indirect cost pool. 

The grantee’s organizational structure is considered in determining adjustments for components. 

6. What does the term organization-wide mean in the restricted indirect cost rate 

 determination?

The term organization-wide means those departmental level direction and control function costs 

that all grantees have in common. The regulations describe accounting, payroll, and personnel 

management as examples of organizational disciplines. Often cross cutting educational activities 

(e.g., Curriculum Development, Pupil Data, Library Services, Evaluation Services, and School 

Services) are mistaken for indirect cost functions. They are not for direction and control of the 

organization, but rather provide services to schools or students. Those cost centers are program 

service functions, even if they have system-wide impact. 

 The restricted indirect costs includes activities related to maintaining operations as a business 

concern, but not the delivery of services that the state or local government provides as part of its 

specific mission. 

26 
7. May costs for divisional administration be billed directly to federal programs? 

Generally, such costs are the obligation of the state and local government. An exception would 

be granted if the program official makes a determination that the costs are specifically required 

for the award. 

8. Space type costs are accepted in a usual indirect cost environment. How are they accounted 

for in the restricted indirect cost formula? 

 Occupancy and space maintenance costs as described at 34 CFR 76.568 are included in the direct 

cost base (denominator) for the restricted indirect cost rate determination. However, if the state 

and local government can identify the portion of space that supports allowable indirect cost 

personnel, then the costs may be included with allowable general management costs. 

9. May the space costs that are reclassified to the other direct cost base be recovered through 

direct billings? 

 No. These space costs are the financial responsibility of the organization. 

10. When occupancy costs are part of the approved statewide costs, how are they treated for 

Restricted Rate purposes? 

 Occupancy costs are disallowed, except where allowable under 34 CFR 76.568 (b). The 

disallowed amount is not included in the base, because these costs are not incurred by the 

grantee.

27 
28 
SECTION V 

STATE AND LOCAL AGENCIES RESPONSIBILITIES 

A. General

State and local agencies that are receiving federal funds from ED are required to comply with 

OMB Circular A-87 and EDGAR in order to be reimbursed for indirect costs. In addition, 

recipients of direct grant awards must ensure that subrecipients also comply with the appropriate 

OMB Circulars and federal regulations. Where local governments only receive funds as a 

subrecipient, the primary recipient will be responsible for negotiating the indirect cost rate or 

cost allocation plan. 

B. State Educational Agency Procedures

The majority of ED funding provided to LEAs are passed-through from the SEAs. Although 

LEAs may also receive awards directly from a federal agency, ED delegates authority for LEAs’ 

indirect cost rate determination to the SEA (34 CFR 561 (b)). 

SEAs must submit an LEA indirect cost plan to ED. The plan details the methodology LEAs 

will use to calculate indirect cost rates (see rate preparation procedures in Section II and the 

model LEA plan in Appendix III). ED must first approve the LEA indirect cost methodology to 

ensure that the SEA’s procedures for indirect cost rate oversight are acceptable. The LEA 

methodology is submitted by the SEA and reviewed by ED every five years (earlier if changes to 

the plan are made). Once approved, a Delegation Agreement is signed by ED and an SEA 

official (see Delegation Agreement example in Appendix IV). 

C. Subrecipients

The flow of responsibilities is from the federal agency making the award, to the primary (direct 

recipient), and from the primary recipient to the subrecipient. Entities receiving federal funds 

only as subrecipients will obtain indirect cost rate approval from the primary recipient, before 

claiming indirect cost reimbursement. The primary recipient is also responsible for monitoring 

and oversight at the subrecipient level. 

Both primary (direct) and subrecipients are subject to the cost principles issued by OMB. 

However, cost principles are determined based on type of entity. For example, if the direct 

award is made to a state or local government, all costs incurred by that entity are governed by 

OMB Circular A-87. On the other hand, if that grantee makes a sub-award to a non-profit 

agency, costs incurred by the non-profit agency are subject to OMB Circular A-122. 

29 
30 
 SECTION VI 

 TIME REPORTING REQUIREMENTS 

A. General Information 

OMB Circular A-87 provides the standards on time reporting and labor charges to federal 

awards. Grantees are responsible for compliance with the standards. 

B. Time and Attendance Reporting

Time and attendance reporting systems are used to document whether an employee was on the 

job or absent on leave. No further documentation is required for the salaries and wages of 

employees who work on a single indirect cost activity. If an employee works on two indirect cost 

activities that are allocated using different bases, then a personnel activity report is required (see 

Item D. below). 

Time and Attendance reporting systems will be based on payrolls documented in accordance 

with the generally accepted practice of the governmental unit and approved by a responsible 

official of the governmental unit. 

C. Semi-Annual Certifications

If an employee works solely on a single federal award or cost objective, the activity must be 

supported with a periodic certification. The certification documents the employee worked solely 

on an activity for the period covered. The certification must be prepared at least semi-annually 

(every six months), signed and dated by the employee or supervisor having firsthand knowledge 

of the work performed by the employees. 

In some circumstances, the requirement for a semi-annual certification may be achieved through 

certain payroll coding and time and attendance certifications. For example, if (1) employees 

work in a dedicated function (i.e., on a single cost objective); (2) their potential assignment to 

multiple programs/activities is not within the authority, function, or purview of the supervisor 

responsible for certifying payroll time and attendance; and (3) the employee is coded to one 

dedicated function; then the payroll certification shall be accepted in lieu of the semi-annual 

certification of time and effort. 

An example of a semi-annual certification is shown in Appendix VIII. 

31 
D. Personnel Activity Reports (PARs) 

The PAR supplements the time and attendance reporting system by identifying the amount of 

time an employee works on multiple cost objectives. An employee is considered to work on 

multiple cost objectives, if they work on: 

 

• More than one federal award;

• A federal award and a non-federal award;

• An indirect cost activity and a direct cost activity;

• Two or more indirect cost activities which are allocated using different allocation 

bases; or

• An unallowable activity and a direct or indirect cost activity. 

PARs must meet the following standards: 

• After-The-Fact Record: must reflect an after the fact distribution of the actual activity 

of the employee; 

• Total Activity: must account for the total activity for which the employee is 

compensated; 

• Monthly: must be prepared at least monthly and must coincide with one or more pay 

periods; and 

• Signed and dated: must be signed and dated by the employee. A signature of the 

supervisor alone is not sufficient. 

Budget estimates determined before the services are performed do not qualify as support for 

charges to federal awards. However, estimates may be used for interim accounting purposes if 

certain criteria required by OMB Circular A-87 are met. An example of a PAR is shown in 

Appendix VIII. 

E. Substitute Systems 

A substitute system for allocating salary and wages is allowed with written prior approval. OMB 

Circular A-87 provides that substitute systems may include random moment sampling, case 

counts or other formats that accurately measure employee effort. 

F. Policies and Procedures 

Written policies and procedures are essential to implementing an effective time reporting system. 

The state and local unit of government should develop instructions for (1) the completion of 

PARs; (2) the approval cycle that is required; (3) the processing of completed forms; and (4) the 

internal review process that will be established to ensure compliance. Generally, the information 

should be in sufficient detail to permit an understanding of how the system will operate from the 

point the time is expended, to the point the time is recorded in the accounting records and 

charged to federal awards. 

32 
SECTION VII 

COMMON INDIRECT COST ISSUES 

This section presents examples of some common issues disclosed in ED reviews. The issues are 

summarized below under the following categories: 

A. Compensation 

B. Unallowable Costs 

C. Credits 

D. Interest 

E. Depreciation/Use Allowance 

F. Subawards 

G. Unsupported Costs 

Examples of Common Issues 

A. Compensation 

The following issues and items of cost are addressed in OMB Circular A-87 in the paragraph 

titled, “Compensation for personal services”. 

1. Support for Salaries and Wages 

Allowable labor costs, whether charged directly or indirectly to federal awards, must 

be based on records reflecting the actual activities of employees. PARs must account 

for the “total activity” for which employees are compensated. In many cases where 

issues were found, an adequate time reporting system was not in place. Instead a 

reporting system was used for time and attendance only, and not for time distribution 

purposes. Salaries and wages constitute the majority of all costs associated with ED 

awards. OMB Circular A-87 provides specific criteria as to acceptable 

documentation for salaries and wages, including requirements for periodic time 

certifications and PARs. 

2. Unused Leave Payments 

Payments for unused leave are made to employees who retire or terminate 

employment in the current year. Some grantees incorrectly claimed unused leave 

payments as an expense to the funding source an employee was working on at the 

time of retirement. Thus, a federal award could be charged the full amount even 

though the employee may not have worked on the program during the entire leave 

accumulation period. 

33 
OMB Circular A-87 states, “Payments for unused leave when an employee retires or 

terminates employment are allowable in the year as a general administrative expense 

to all activities of the governmental unit or component.” For purposes of calculating 

the unrestricted rate, all unused leave costs of terminating employees are included in 

the indirect cost pool. For the restricted rate calculation, unused leave costs 

associated with unallowable labor costs will be removed from the pool and added to 

the distribution base. 

 

3. Severance Pay 

Severance payment (incurred under law, employer/employee agreement or under a 

written policy) associated with normal turnover is an allowable cost in the year of 

separation. The payments must be allocated to all activities of the governmental unit 

as an indirect cost. Some grantees charged severance pay directly instead of 

indirectly. 

The cost of mass severance pay will be decided on a case-by-case basis by the 

cognizant federal agency. Mass severance costs include retirement incentives, 

buyouts, lump sum payments, increased pension benefits and all expenses associated 

with such an event. Grantees must request prior approval in writing. The criteria, to 

be used in considering whether abnormal severance pay is allowable, are included in 

the Implementation Guide for OMB Circular A-87 (see Appendix VII for the 

website). LEAs must request approval of mass severance costs through the SEA and 

SEAs will coordinate the approval process with ED. 

4. Post Retirement Health Benefits (PRHBs) 

PRHBs refer to costs of health insurance or health services not included in a pension 

plan for retirees, their spouses, dependents, and survivors. Traditionally PRHBs have 

been determined on a “cash basis” or “pay-as-you-go” basis and are treated as a 

fringe benefit cost of the current period. OMB Circular A-87 limits reimbursement on 

the “pay-as-you-go” method to the actual payments made during the year or limits 

reimbursement to an amount calculated using an actuarial cost method recognized by 

generally accepted accounting principles and only if funded within six months after 

the end of the year 

The Governmental Accounting Standards Board requires each unit of government to 

identify the full cost of PRHBs on its financial statements and also have a plan for 

meeting those obligations. Until a unit of government converts to an actuarial based 

methodology, the “pay-as-you-go” approach is acceptable. For those units of 

government that convert to an actuarial based calculation, and until OMB states 

otherwise, the basic requirements associated with the calculation and documentation 

of actuarial based pension costs will be followed. 

34 
B. Unallowable Costs 

Concerns related to unallowable activities are generally categorized in the following two areas: 

1. All costs associated with unallowable activities were not properly charged to the final 

cost objectives. 

2. Since all such costs were not directly charged to unallowable activities, an 

appropriate share of indirect costs was not allocated to these activities. As a result, 

federal awards were allocated a disproportionate share of the organization’s indirect 

costs. 

For the purpose of determining an indirect cost rate, grantees must add unallowable costs to the 

distribution base (denominator), if those costs are supported by indirect activities. The base 

should result in each award bearing a fair share of the indirect costs in reasonable proportion to 

benefits received. 

C. Credits 

Some grantees did not reduce total costs claimed under ED awards by the amount of credits 

applicable to costs charged either directly or indirectly. These credits were generated through 

various transactions, including fees for conferences held for the benefit of ED programs, building 

rental operations, insurance credits or adjustments, data processing and office services performed 

for others, etc. All receipts, refunds and adjustments applicable to direct costs charged to ED 

awards must be credited to those awards. Credits applicable to indirect costs must be made to 

the appropriate indirect cost pools. 

D. Interest 

Some grantees charged financing costs to federal awards. Costs on borrowed capital are 

unallowable. Effective October 1, 1980, interest on facilities (including acquisition or 

remodeling) is allowable if the conditions in OMB Circular A-87 are met. Interest related to 

equipment is allowable, if the conditions in the Circular are met for costs incurred on or after 

September 1, 1995. 

E. Depreciation/Use Allowance 

OMB Circular A-87 allows depreciation costs or use allowance associated with facilities and 

equipment. A combination of the two methods cannot be used on the same class of assets. In 

order to be reimbursed for the cost associated with facilities or equipment, the amount must be 

based on the depreciation included in the Comprehensive Annual Financial Report or other 

formal document. A governmental unit will normally identify the classes of assets and the 

expected lives related to those classes of assets. In addition, an inventory of assets by component 

within the unit of government will usually be developed. Depreciation will then be computed by 

class of asset, by expected remaining life and by component within the unit of government. 

35 
F. Subawards 

Subawards generally include subgrants and subcontracts. Major subawards do not incur (or 

benefit from) indirect costs to the same degree as other activities. The generally accepted 

definition of a major subaward is one that exceeds $25,000 in expenditures per year. ED, as well 

as other federal agencies, adopted this policy for consistency purposes. 

ED’s policy on subaward treatment applies on a yearly basis. Grantees must exclude the amount 

of subaward costs exceeding $25,000 per subaward, per year. As such, the indirect cost rate will 

be applied only to the first $25,000 of each subaward, each year. 

G. Unsupported Costs 

In order to be allowable, all direct costs and indirect costs must be adequately supported by 

source documentation which clearly shows the purposes and circumstances of the cost incurred. 

For example, canceled checks, credit card invoices and travel agents’ invoices alone are not 

sufficient to determine whether the costs are chargeable as direct costs or indirect costs, and 

whether ED awards received the benefit of the cost incurred. In order to determine whether a 

cost is allowable or allocable, the purpose of the cost incurrence must be established. ED 

reviews have disclosed that a large number of grantees did not have adequate documentation to 

support the allowability/allocability of the costs claimed or proposed. 

Also, verbal approval from a program official is insufficient documentation for supporting costs 

under a grant. Prior approvals and changes to awards must be in writing. 

36 
SECTION VIII 

QUESTIONS AND ANSWERS 

The following questions to the Indirect Cost Group are frequently asked by state and local 

governments. Also, indirect cost guides issued by the U.S. Department of Health and Human 

Services and the U.S. Department of Labor contain questions and answers. The website 

references for these agencies are listed in Appendix VII of this Guide. 

The questions are grouped according to the subject, as follows: 

A. Application of Principles 

B. Federal Cognizance 

C. Allocation of Costs 

D. Subawards 

E. Other Items 

A. Application of Principles 

 1. Is OMB Circular A-87 mandatory to determine allowable costs for state and local 

governments? 

Yes. The Circular states that these principles will be applied by all federal agencies in 

determining costs incurred by governmental units under federal grants, cost reimbursement 

type contracts, and cooperative agreements (including subgrants and subcontracts) except those 

with (1) publicly-financed educational institutions subject to OMB Circular A-21, and (2) 

programs administered by publicly-owned hospitals and other providers of medical care that 

are subject to requirements promulgated by the sponsoring federal agencies. 

2. Are public school systems under the same guidelines as state and local governments and 

subject to OMB Circular A-87? 

 The standards for public schools are included in OMB Circular A-87. 

3. Will the indirect costs, determined by applying the indirect cost rate to federal programs, be 

reimbursed to state and local governments? 

 The indirect costs will be recognized as part of the total cost of the federal programs, except 

where restricted or prohibited by law. The reimbursement of indirect costs is determined by the 

federal awarding agency. 

37 
B. Federal Cognizance 

1. Can another federal agency question the costs included in a central service cost allocation 

plan submitted to and approved by the cognizant agency? 

Approved central service costs are set in a negotiation agreement, signed by the representatives 

of the state or local government and the cognizant federal agency. However, in restricted 

indirect cost rate calculations, occupancy and maintenance costs and other statewide costs 

unallowable per 34 CFR 76.565-569, are adjusted from the approved central services costs. 

Other similar adjustments include, but are not limited to: 

• Legal costs related to tort cases, tort settlements, and legal proceedings related to the 

organization’s mission, rather than its internal management. For example, legal costs for 

a school district boundary dispute, or for advice on educational activities, are 

unallowable. Legal costs related to the organization’s personnel system or related 

procurement activities are allowable. 

• State auditor costs related to non-federal activities are unallowable.

2. Where can states and local governments receive additional information or clarification on the 

implementation of OMB Circular A-87? 

Federal agencies assigned cognizance for central service cost allocation plans or indirect cost 

rate proposals can provide guidance. Additionally, guidance is included in the Implementation 

Guide for OMB Circular A-87 (see Appendix VII for the website). 

3. Is there is a form called a “Federally negotiated rate agreement"? 

The Indirect Cost Rate Agreement provides indirect cost rates a state or local department/agency 

may use to claim indirect costs under federal programs. The Agreement covers specific periods 

and must be re-negotiated as required. The Agreement is issued by the cognizant federal agency. 

The Agreement is signed by both the recipient organization and the cognizant federal agency.

 

4. Who is responsible for the approval of state and local central service cost allocation plans 

and indirect cost proposals? 

The U.S. Department of Health and Human Services approves state and local government’s 

central service cost allocation plans. 

5. How will a central service plan be used? 

 The central service plan is used to distribute allowable central service costs to each of the 

individual government departments. The costs are allocated and included in the appropriate state 

agency’s indirect cost proposal. 

 

38 
6. Our public school district receives direct federal grant funds. Who approves the indirect cost 

rate? 

LEA indirect cost oversight is delegated to the SEAs. Contact the business office at the SEA to 

obtain information about the approved rate. 

C. Allocation of Costs 

1. How can a grantee distinguish between a direct cost and an indirect cost? 

 Generally, a direct cost is one that is incurred specifically for one activity. Indirect costs are of a 

more general nature and are incurred for the benefit of several activities. Once a grantee makes 

an election and treats a given cost as direct or indirect, that treatment must be applied 

consistently and may not change during the fiscal year. 

2. Is it permissible to allocate costs (either directly or indirectly) on the basis of revenue or on 

the basis of funds available under federal grants or contracts? 

No. The allocation of costs by either of these methods is unacceptable. Cost must be allocated 

on the basis of costs/expenditures incurred. 

3. Do we need to follow the time reporting requirements of OMB Circular A-87 for the salaries 

and wages of employees that are used for matching requirements on federal awards? 

 

 Salaries and wages of employees used in meeting cost sharing or matching requirements must be 

supported in the same manner as those claimed as allowable costs on federal awards. 

D. Subawards 

1. If a grantee hires an individual to perform speech pathology services to students in the 

school, is the service considered a subaward? 

 

 No, this is a professional service providing an auxiliary expertise normally provided in-house. 

The costs would not be treated as a subaward and are not subject to the exclusion of amounts 

over $25,000. 

2. If a grantee contracts with a software vendor to provide technical support and enhancement 

of existing business software, would this be considered a subaward? 

No, if this cost is for organization-wide support, then it is an indirect cost.

39 
3. Would a school nurse that only provides medication (not an instructor) to students in the 

classroom be considered a subaward? 

No, this is a professional service providing an auxiliary expertise normally provided in-house. 

The costs would not be treated as a subaward and are not subject to the “exclusion of amounts 

over $25,000”. 

E. Other Items 

1. Are the costs of significant software projects allowable as charges to federal awards? 

 Federal programs benefitting from such projects should be charged only for amortization of the 

capitalized costs once the projects are implemented and in use by federal programs. The costs 

should be amortized over the useful life of the intangible asset. 

2. May estimates be used when calculating provisional or fixed rates? 

 Provisional and fixed indirect cost rates should be based on the most currently available actual 

cost data or estimates supported by appropriate documentation. Supportable estimates may be 

more appropriate than a prior year’s cost in circumstances where expected changes are not 

reflected in the actual cost data. Regarding the fixed rate, estimates may be included in the part 

of a fixed rate calculation reflecting the current proposed rate (not the part of the calculation with 

the comparison of the previous year’s recovery to the actual rate). 

3. Must a grantee have an approved indirect cost rate to charge indirect costs to programs? 

 ED requires grantees charging indirect costs to programs to obtain a federally approved indirect 

cost rate. LEAs obtain approve indirect cost rates from the SEA via a Delegation Agreement 

with ED. ED grant officers may approve a temporary indirect cost rate of 10% of direct salaries 

and wages, for grantees receiving ED awards and who do not have a federally approved rate. 

However, a grantee must submit an indirect cost rate proposal to its cognizant agency within 90 

days of the grant award notice. 

4. May a grantee apply an approved restricted rate to unrestricted programs? 

 Grantees have the option to use the restricted rate for indirect cost claims under all federal 

programs that permit reimbursement. The rate must be current, however, meaning it is approved 

and covers the period coincident with grant activities. 

40 
APPENDICES 

MODELS, EXAMPLES and 

REFERENCES* 

*The models and examples are for guidance purposes only. 

41 
42 
APPENDIX I 

STATE EDUCATIONAL AGENCY 

MODEL INDIRECT COST RATE 

PROPOSAL 

43 
 

 

 

44 
STATE EDUCATIONAL AGENCY 

MODEL INDIRECT COST RATE PROPOSAL* 

 Organization: XYZ State Department of Education 

 Address: 

 Contact Name: 

 Phone Number: 

 Effective Date: 

*Note: This is an example only and should be tailored 

 to the organization’s structure.

45 
Contents* 

 Page / Exhibit / Schedule

 

Profile 

 

Certificate of Indirect Costs (see Appendix VI) 

Statement of Total Expenditures & 

 Indirect Cost Rate Calculation (Restricted & Unrestricted) 

 

Schedule of Restricted Rate Adjustments 

Fixed Rate with Carry-Forward Adjustment 

 

Approved State-Wide Cost Allocation Plan 

 (not included in model; obtain from DHHS) 

Glossary of Functions and Objects 

Organization Chart 

Cost Policy Statement (see Appendix V) 

*Include additional schedules, for unrestricted and restricted rate 

 calculations, and other supporting documentation, as necessary. 

46 
 XYZ State Department of Education 

Profile 

 

1. Which basis of accounting is used? 

a. Cash 

b. Accrual 

2. Number of employees 

3. Describe Rates calculated (Unrestricted / Restricted / Other) 

4. Type of Rate calculated (Fixed or Predetermined) 

5. If Predetermined, is the rate discounted? Discount % = 

6. Frequency of indirect cost rates calculated 

7. Are unused leave payments in the indirect cost pool for calculation of the unrestricted 

indirect cost rate? 

8. Are the salaries and related costs of Superintendents, Deputy Superintendents, and 

Heads of components, adjusted in the Restricted Rate calculation? 

9. Are unused leave payments charged directly to federal awards? 

10. Are all building related expenditures in the direct cost base for calculation of the 

restricted indirect cost rate? 

11. Does the base include only the first $25,000 of subaward expenditures? 

12. If the answer in #11 is “no”, describe the treatment of subawards in the base? 

13. Are any types of retirement incentives included in the proposal or planned in the next 

 fiscal year? If yes, describe the expenditures. 

47 
(a) (b) (c)

Total Costs Excluded 

Costs

Unallowable 

Costs

Salaries & 

Benefits

Other Total Salaries & 

Benefits

Other Total

988,200 65,700 765,200 157,300 922,500

180,900,000 171,990,000 55,000 7,887,800 967,200 8,855,000

201,900,000 180,490,000 1,500,000 14,004,700 5,905,300 19,910,000

11,614,600 1,400,000 10,500 7,806,000 2,398,100 10,204,100

Food Services 4,977,900 3,000,000 200,000 983,700 794,200 1,777,900

1,338,100 20,000 891,900 426,200 1,318,100

Unallowable Costs (1,851,200) 1,851,200 1,851,200

----------------- ----------------- -------------- ------------------------------- -------------- 

401,718,800 356,880,000 0 32,339,300 12,499,500 44,838,800

369,900 209,500 160,400 369,900

Legal Counsel 486,000 365,700 120,300 486,000

Comptroller 356,300 246,000 110,300 356,300

523,800 463,500 60,300 523,800

487,200 399,700 87,500 487,200

784,800 604,200 180,600 784,800

Occupancy 484,600 484,600 484,600

146,800 146,800 146,800

----------------- -------------- -------------- -------------- 

3,639,400 2,288,600 1,350,800 3,639,400

497,600 497,600 497,600

----------------- ----------------- -------------- ------------------------------- ---------------- -------------- -------------- --------------

Total Costs 405,855,800 356,880,000 0 32,339,300 12,499,500 44,838,800 2,288,600 1,848,400 4,137,000

 209,500 160,400 369,900 (209,500) (160,400) (369,900)

Legal Counsel 150,000 50,000 200,000 (150,000) (50,000) (200,000)

Comptroller 100,000 35,000 135,000 (100,000) (35,000) (135,000)

 90,000 30,000 120,000 (90,000) (30,000) (120,000)

 95,000 30,000 125,000 (95,000) (30,000) (125,000)

 150,000 50,000 200,000 (150,000) (50,000) (200,000)

 350,000 350,000 (350,000) (350,000)

 45,000 45,000 (45,000) (45,000)

Central Services Costs 155,000 (155,000) (155,000)

----------------- ----------------- -------------- ------------------------------- ---------------- -------------- -------------- --------------

 Adjusted Costs 794,500 750,400 1,544,900 (794,500) (905,400) (1,699,900)

Total Restricted Rate Calculations 405,855,800 356,880,000 155,000 33,133,800 13,249,900 46,383,700 1,494,100 943,000 2,437,100

Total Unrestricted Pool 4,137,000

Unrestricted MTDC Base 44,838,800 * MTDC - Modified Total Direct Cost Base

Total Restricted Pool 2,437,100 

Restricted MTDC Base 46,383,700 

DIRECT ACTIVITIES

Indirect Costs (e) 

XYZ State Department of Education

 Year Ending June 30, 200X

Direct Costs (d) 

 Statement of Total Expenditures & Indirect Cost Rate Calculation

Depreciation (e)

Board of Education

Elementary Education

Secondary Education

Adult Education

Pupil Transportation

Subtotal Direct Activities

DEPARTMENTAL INDIRECT

Commissioner of Education

Human Resources

Information Services

Business Management

Subtotal Departmental Indirect

Central Services Cost

Commissioner of Education

5.3%

Human Resources

Information Services

Business Management

Occupancy

Depreciation

Restricted Rate Adjustments: (Add to Base Costs) (Deduct from Pool Costs)

COMPUTATION OF THE UNRESTRICTED RATE**:

9.2%

COMPUTATION OF THE RESTRICTED RATE**:

**Carry-Forward Adjustment, 

although not shown, may be part 

of the calculation.

48 
Department Positions Salary & Benefits Other Costs*

Commissioner

Deputy Commissioner

Secretary

Special Assistant

 Total

Legal Counsel

General Counsel

Secretary

Special Assistant

 Total

Comptroller

Comptroller

Secretary

 Total

Director

Secretary

 Total

Director

Secretary

 Total

Director

 Utilities

 Rent

 Total Costs

 Unallowable Amount*

 Building

 Total Costs

 Unallowable Amount*

Central Services Costs

 Building Use Costs

 * Explain Allocation Method

XYZ State Department of Education

Depreciation

Schedule of Restricted Rate Adjustments

Commissioner of Education

Human Resources

Information Services

Business Management

Occupancy

49 
Initial Year

FY 2003 FY 2005 FY 2007

(C) Fixed Rate (A / B) 7.9% 9.7% 9.9%

(B) Direct Base 44,000,000 50,000,000 59,000,000

Pool:

Departmental 3,200,000 4,280,000 5,775,455

Central Services 280,000 250,000

Carry Forward 0 325,455 46,018

------------- ------------- -------------

(A) Total Pool 3,480,000 4,855,455 5,821,473

Actual Costs:

(D) Direct Base 50,000,000 59,000,000

Departmental 4,000,000 5,200,000

Central Services 280,000 250,000

Carry Forward 0 325,455

------------- -------------

(E) Total Pool 4,280,000 5,775,455

Carry Forward Adjustment:

Recovered = Fixed Rate (C) X

Actual Base (D) = (F)

(F) Recovered Indirect Costs 3,954,545 5,729,436

(E) Actual Indirect Costs 4,280,000 5,775,455

-------------- --------------

(G) (Over)/Under Recovery 325,455 46,018

Fixed Rate with Carry-Forward Adjustment

XYZ State Department of Education

50 
GLOSSARY OF FUNCTIONS AND OBJECTS 

Object Function Description 

100 Instruction Instruction includes the activities involving 

 the interaction between teachers and 

 students. Teaching may be provided for 

 students in a school classroom, in another 

 location such as a home or hospital, and in 

 other learning situations such as those 

 involving co-curricular activities. It may also 

 be provided through some other approved 

 medium such as television, radio, computer, 

 Internet, multimedia telephone, and 

 correspondence, that is delivered inside or 

 outside the classroom, or in other teacher- 

 student settings. 

 Included here are the activities of aides or 

 classroom assistants of any type (clerks, 

 graders, teaching machines, etc.) who assist in 

 the instructional process. 

200 Support Services Support services provide administrative, 

 technical (such as guidance and health), and 

 logistical support to facilitate and enhance 

 instruction. These services exist as adjuncts 

 for fulfilling the objectives of instruction, 

 community services, and enterprise programs, 

 rather than as entities within themselves. 

211 Attendance & Social Work Includes activities designed to improve 

 Services student attendance at school and which 

 attempt to prevent or solve student problems. 

213 Health Services Includes physical and mental health services 

 that are not direct instructional. 

216 Other Support Services- Includes services provided to students as a result 

 Students-Related of an I.E.P. for services such as speech therapy, 

 occupational therapy and additional counseling. 

217 Other Support Services- Includes services other than related services 

 Students-Extraordinary provided to students as a result of an I.E.P. that 

 are unique to individual students. 

218 Other Support Services- Includes guidance services and any other 

 Students-Regular activities, supplemental to the teaching 

 process, that are designed to assess and 

 improve the well-being of students other than 

 functions 211, 213, 216, 217 and 219. 

51 
XYZ STATE DEPARTMENT OF EDUCATION 

ORGANIZATION CHART 

Board of Education 

Office of the 

Deputy Superintendent 

Deputy Superintendent and 

Immediate Staff

Office of the 

Superintendent 

Superintendent and Immediate Staff

Accountability Learning & 

Assessments 

Programs Administrative & 

Business Support 

Services 

52 
 

APPENDIX II

INDIRECT COST RATE AGREEMENT 

53 
54 
INDIRECT COST RATE AGREEMENT 

STATE EDUCATIONAL AGENCY 

ORGANIZATION: DATE: 

XXX State Educational Agency AGREEMENT NO. 

4505 East Boulevard FILING REFERENCE: 

Ark, TX 87778-0000 

The purpose of this Agreement is to establish indirect cost rates for use in awarding and 

managing of Federal contracts, grants, and other assistance arrangements to which Office of 

Management and Budget (OMB) Circular A-87 applies. This agreement is issued by the U.S. 

Department of Education pursuant to the authority cited in OMB Circular A-87. 

This Agreement consists of four parts: Section I - Rates and Bases; Section II - Particulars; 

Section III - Special Remarks; and, Section IV -Approvals. 

 

Section I - Rate(s) and Base(s) 

 Effective Period Coverage 

 

Type From To Rate Base Location Applicability 

Fixed 07-01-09 06-30-10 10.0% 1/ All 2/ 

Fixed 07-01-09 06-30-10 5.0% 1/ All 3/ 

1/ Total direct costs less items of equipment, alterations and renovations, pass-through 

funds, and subaward expenditures in excess of $25,000 per subaward. 

2/ All Federal programs which do not require the use of a restricted rate per 34 CFR 76.563. 

3/ All Federal programs which require the use of a restricted rate per 34 CFR 76.563. 

Treatment of Fringe Benefits 

Fringe Benefits applicable to direct salaries and wages are treated as direct costs. 

55 
ORGANIZATION: XXX State Educational Agency Page 2 

Section II - Particulars 

SCOPE: The indirect cost rate(s) contained herein are for use with grants, contracts, and other 

financial assistance agreements awarded by the Federal Government and subject to OMB 

Circular A-87. 

 

LIMITATIONS: Application of the rate(s) contained in this Agreement is subject to all statutory 

or administrative limitations on the use of funds, and payment of costs hereunder is subject to the 

availability of appropriations applicable to a given grant or contract. Acceptance of the rate(s) 

agreed to herein is predicated on the conditions: (A) that no costs other than those incurred by 

the Organization, were included in the indirect cost pools as finally accepted, and that such costs 

are legal obligations of the Organization and allowable under the governing cost principles; (B) 

that the same costs that have been treated as indirect costs are not claimed as direct costs; (C) 

that similar types of information which are provided by the Organization, and which were used 

as a basis for acceptance of rates agreed to herein, are not subsequently found to be materially 

incomplete or inaccurate; and (D) that similar types of costs have been accorded consistent 

accounting treatment. 

ACCOUNTING CHANGES: Fixed or predetermined rates contained in this Agreement are 

based on the accounting system in effect at the time the Agreement was negotiated. When 

changes to the method of accounting for cost affect the amount of reimbursement resulting from 

the use of these rates, the changes will require the prior approval of the authorized representative 

of the cognizant negotiation agency. Such changes include, but are not limited to, changing a 

particular type of cost from an indirect to a direct charge. Failure to obtain such approval may 

result in subsequent cost disallowances. 

FIXED RATE: The negotiated rate is based on an estimate of the costs which will be incurred 

during the period to which the rate applies. When the actual costs for such period have been 

determined, an adjustment will be made in a subsequent negotiation to compensate for the 

difference between the cost used to establish the fixed rate and the actual costs. 

NOTIFICATION TO OTHER FEDERAL AGENCIES: Copies of this document may be 

provided to other Federal agencies as a means of notifying them of the agreement contained 

herein. 

AUDIT: If a rate in this Agreement contains amounts from a cost allocation plan, future audit 

adjustments which affect this cost allocation plan will be compensated for during the rate approval 

process of a subsequent year. 

56 
ORGANIZATION: XXX State Educational Agency Page 3 

Section III - Special Remarks 

1. This Agreement is effective on the date of approval by the Federal Government. 

2. Questions regarding this Agreement should be directed to the Negotiator. 

3. Approval of the rate(s) contained herein does not establish acceptance of the 

Organization's total methodology for the computation of indirect cost rates for years other 

than the year(s) herein cited. 

Section IV – Approvals

For the State Educational Agency: For the Federal Government: 

 

XXX State Educational Agency U.S. Department of Education 

 4505 East Boulevard OCFO/FIPAO/ICG 

Ark, TX 87778-0000 400 Maryland Avenue, SW 

 Washington, DC 20202-4450 

 

Signature Signature 

 

Name Name 

 Director, Indirect Cost Group 

Title Title 

Date Date 

Negotiator 

Telephone Number

57 
58 
APPENDIX III

LOCAL EDUCATIONAL AGENCY 

MODEL INDIRECT COST PLAN 

59 
60 
LOCAL EDUCATIONAL AGENCY 

MODEL INDIRECT COST PLAN* 

 Organization: XYZ State Department of Education 

 Address: 

 Contact Name: 

 Phone Number: 

 Effective Date: 

*Note: This is an example only and should be tailored 

 to the organization’s structure.

61 
Contents 

 Page / Exhibit / Schedule

 

Introduction 

Indirect Cost Rate Information 

Approval Process 

Classification of Costs 

Rate Types 

Profile of LEAs 

Schedule of Expenditures (Restricted & Unrestricted Rates)* 

 

Calculation of Indirect Cost Rate (Restricted & Unrestricted)* 

Fixed Rate with Carry-Forward Adjustment (Restricted & Unrestricted)* 

 

Restricted Rate Subsidiary Schedule 

Glossary of Functions and Objects 

Organization Chart

* Provide schedules for 3 largest school districts with submission. 

 Include additional schedules/calculations and other supporting 

 documentation, as necessary. 

62 
Introduction

The XYZ Department of Education has, in cooperation with the U.S. Department of Education 

(ED), developed an indirect cost proposal to be used by local educational agencies (LEA’s) in 

the state. The state educational agency (SEA) has been delegated authority by ED to review and 

approve indirect cost rates submitted by LEAs. In order to recover indirect costs on federal 

awards, an LEA must have an approved indirect cost rate. A new indirect cost rate must be 

obtained for every fiscal year beginning ______________. The classification of expenditures 

will conform to the object codes used in the Uniform Chart of Accounts. 

Indirect Cost Rate Information

An indirect cost rate is a means of determining, in a reasonable manner, the percentage of 

allowable general management costs that benefit each federal program or activity. Indirect costs 

are generally administrative costs such as the salaries and expenses for staff engaged in 

organization-wide (general) activities. 

Indirect costs are recovered only to the extent of direct costs incurred. Once a rate is approved, it 

is applied to the net direct costs expended (i.e., total direct costs less equipment purchases, 

alterations and renovations, the portion of individual subawards exceeding $25,000 and passthrough funds). The approved rate is the maximum rate that can be applied, although less than 

the maximum rate may be used. 

Federal law or grant conditions may limit the amount of indirect costs or the indirect cost rate. For 

example, if a district has a restricted rate of five percent and the program legislation allows only a 

three percent rate of recovery, then it can recover only indirect costs equal to three percent of the 

appropriate base. Grant terms and conditions may also exist for some grants that prohibit any 

recovery of indirect costs. Recovery of indirect costs on grants is subject to the availability of 

funds. 

Approval Process

An indirect cost rate approval is issued by the SEA for a specific fiscal year. The rate is valid 

from ________ to __________ of the applicable fiscal year. Indirect costs are recovered only to 

the extent of direct costs incurred. The indirect cost rate is applied to the direct cost amount 

expended, not to the grant award. 

The sources of information utilized to determine indirect cost rates are the LEA's audited 

Comprehensive Annual Financial Report (CAFR) and the detail accounts. Therefore, it is 

essential that LEAs classify expenditures uniformly and consistently. Types of expenditures, 

which are identified as indirect costs, shall not also be included as direct costs. All expenditures 

detailed on the CAFR must have been incurred and records supporting the costs must be 

maintained by the LEA. An approved indirect cost rate is obtained by following the instructions 

provided to LEAs. Those instructions are contained in this Plan. 

63 
Classification of Costs

Direct Costs

Direct costs are those that can be identified specifically with a particular cost objective. These 

costs may be charged directly to grants, contracts, or to other programs against which costs are 

finally assigned. Typical direct costs chargeable to a grant include, but are not limited to: 

(a) Compensation of employees for the time devoted and identified specifically to the 

performance of those programs; 

(b) Cost of materials acquired, consumed, or expended specifically for the purpose of those 

programs; 

(c) Travel expenses incurred specifically to carry out the program; etc. 

Indirect Costs 

Indirect costs are those not readily identifiable with the activities of the grant but incurred for the 

joint benefit of those activities and other activities of the organization. In accordance with OMB 

Circular A-87, indirect costs are: 

• Incurred for a common or joint purpose benefiting more than one cost objective; and 

• Not readily assignable to the cost objectives specifically benefited, without effort 

disproportionate to the results achieved. 

A cost may not be allocated to a federal program as an indirect cost if any other cost incurred for 

the same purpose, in like circumstances, has been assigned to a federal program as a direct cost. 

Typical examples of indirect costs may include: procurement, payroll, personnel functions, 

maintenance and operations of space, data processing, accounting, auditing, budgeting, 

communications (telephone, postage), etc. 

Unallowable Costs

OMB Circular A-87 classifies certain items of cost as unallowable. Unallowable costs cannot be 

charged to federal awards. For rate computation purposes, unallowable costs should be included 

in the allocation base if such costs benefit from allowable indirect activities. Examples of 

unallowable are bad debts; contingencies; entertainment; fines/penalties; general governance; 

and contributions/donations to outside organizations. 

Excluded Costs

 

Certain items of costs are classified as extraordinary or distorting expenditures and are excluded 

from the computation of the indirect cost rate. Excluded costs include capital outlay, debt 

service, judgments against the school district, certain transfers, and internal service fund 

expenditures. Indirect cost recoveries are also categorized as excluded costs. 

64 
Rate Types

Restricted Rates

As defined in the Education Department General and Administrative Regulations (EDGAR) at 

34 CFR 75.563 and 76.563, restricted rates apply to grants that are made under federal programs 

with supplement-not-supplant requirements. This means that the funds are for support in 

addition to state and local funding. Such amounts are intended to supplement, but in no way 

replace local funds. Most of the federal grants that the LEA obtains through the department are 

of have supplement-not-supplant requirements and a restricted indirect cost rate must be used on 

the programs. The restricted indirect cost rate pool (numerator) includes only expenditures of 

general management costs and fixed charges as defined below: 

General Management Costs: Consist of the salaries and expenses for employees performing 

accounting, payroll preparation, or personnel management activities. Those activities that are 

limited to one school, subject, or phase of operation, are not general management costs such 

as the salaries and expenditures related to the direction and supervision of such functions as 

instruction, guidance, attendance, transportation, community services, and student services. 

The costs of these functions are considered direct costs. 

Generally, salaries and expenses for auditing, budgeting, payroll, personnel, purchasing, and 

employee relations are examples of services which typically benefit several activities and 

programs for which costs may be attributed by means of an indirect cost proposal. For LEA’s 

this would include most of the costs recorded in Business and Other Support Services 

(function 290). In theory, all such costs can be charged directly. However, practical limitation 

and consideration of efficiency in accounting preclude such an approach and therefore these 

costs are considered indirect. 

As stated in EDGAR 76.565, “general management costs mean the costs of activities that are for 

the direction and control of the grantee’s affairs that are organization-wide. An activity is not 

organization-wide if it is limited to one activity, one component of the grantee, one subject, one 

phase of operations, or other single responsibility. General management costs include the costs 

of performing a service function, such as accounting, payroll preparation, or personnel 

management, that is normally at the grantee’s level even if the function is physically located 

elsewhere for convenience or better management.” 

When calculating a restricted indirect cost rate, the term “General Management Costs” does 

not include expenditures for: 

1. The governing body (members of the board of education) of the grantee; 

2. Compensation of the chief executive officer (Superintendent of a school district) of 

the grantee and heads of component offices; and 

3. The operation of the immediate offices of these officers. 

65 
The superintendent’s and board of education’s salary, benefits, communications/telephone 

charges and other expenditures related directly to the operation of the Superintendent’s and 

board of education offices, specifically, are not included in indirect costs and are considered, 

for rate computation purposes, to be disallowed costs in the calculation of the restricted 

indirect cost rate. 

Charges for individuals whose time is divided between district-wide management 

responsibilities and specific program or administrative activities will be based on Personal 

Activity Reports prepared at least monthly in compliance with OMB Circular A-87, 

Attachment B, Paragraph (11)(h)(5). If the Superintendent is part-time, both Superintendenttime and non-Superintendent-time must be captured by time distribution records. 

An individual principal’s salary, benefits and expenditures related to the operation of the 

principal’s immediate offices are also not considered indirect costs. These costs are 

unallowable and are considered to be direct costs for the restricted rate computation purposes. 

Fixed charges: Fixed charges classified as indirect costs are limited to those amounts which 

are associated with general management costs. The fixed charges can be viewed as appended 

to those administrative functions, and the classification rules are the same as those applied to 

salaries. 

These expenditures are exclusively identified as: 

 a. Employee retirement 

 b. Social Security 

 c. Pension fund payments 

 d. Premium expenditures for: 

 (1) employee insurance 

 (2) liability insurance 

 e. Unemployment and workers compensation, and 

 f. All similar costs normally considered being employee fringe benefits. 

Note that per OMB Circular A-87, Attachment B (11)(d)(3), payments to separating 

employees for termination benefits and/or unused leave (“terminal leave costs”) are treated 

as indirect costs when computing the Restricted and Unrestricted indirect cost rate with one 

exception. When computing the Restricted indirect cost rate, unused leave costs to 

employees who are indirect for the Unrestricted Rate, but direct for the Restricted Rate (i.e. 

superintendent and their office), are considered direct cost payments for rate calculation 

purposes only. Payments to separating employees for unused leave are NOT charged as 

direct costs to any federal awards. All Post Retirement Health Benefits (“PRHB”) will be 

treated as indirect costs for both the Restricted and Unrestricted rate regardless of where the 

employees’ salary is recorded with one exception. For purposes of calculating the restricted 

rate, PRHB costs associated with Superintendent, Chief Executive Officer (CEO) of 

components (as defined by EDGAR 76.565(d)(2)) and their immediate offices will be 

treated as direct. 

66 
Unrestricted Rates

Unrestricted rates apply to grants not subject to the supplement but not supplant legislative 

restriction. 

1. Indirect Costs - Expenditure for the Office of the Superintendent in addition to operations 

and maintenance of plant are classified as an indirect cost when calculating an unrestricted 

rate. All other costs are classified the same as the restricted rate calculations. 

2. Direct Costs, Unallowable Costs, and Excluded Costs are also classified the same as the 

restricted rate calculations. 

67 
 Profile of LEAs 

 in 

XYZ State Department of Education 

1. Which basis of accounting is used by the LEAs? 

a. Cash 

b. Accrual 

2. Number of LEAs in the State 

3. Number of LEAs requesting indirect cost rates 

4. Describe Rates calculated (Unrestricted / Restricted / Other) 

5. Type of Rate calculated (Fixed or Predetermined) 

6. If Predetermined, is the rate discounted? Discount % = 

7. Frequency of indirect cost rates calculated 

8. Are unused leave payments in the indirect cost pool for calculation of the 

 unrestricted indirect cost rate? 

9. Are the salaries and related costs of Superintendents, Deputy Superintendents, and 

 Heads of components, adjusted in the Restricted Rate calculation? 

10. Are unused leave payments charged directly to federal awards? 

11. Are all building related expenditures in the direct cost base for calculation of the 

 restricted indirect cost rate? 

12. Does the base include only the first $25,000 of subaward expenditures? 

13. If the answer in #12 is “no”, describe the treatment of subawards in the base? 

14. Are any types of retirement incentives included in the proposal or planned in the next 

 fiscal year? If yes, describe the expenditures. 

68 
XYZ Local Educational Agency 

Schedule of Expenditures 

- Restricted Rate - 

Year Ended June 30, 20 _ _ 

1 2 3 4 5 

Total 

Expenditures 

Unallowable 

Costs 

Excluded 

Costs 

Indirect 

Costs 

Direct 

Costs 

GENERAL FUND

Current:

FUNCTION

1000 Instruction 

2100 Support Services- Students 

2212 Instruction-Curriculum Development 

2213 Instructional Staff Training 

2220 Educational Media Services 

2310 Board of Education Services 

2321 Office of Superintendent Services 1

2410 Office of Principal Services 

2510 Fiscal Services 

2600 Operation and Maintenance of Plant 

2690 Other Operation & Maintenance of Plant 

(Occupation & Space Maintenance Costs) 

2700 Student Transportation Service 

2800 Support Services - Central 

3300 Community Services Operations 

 

Capital Outlay: 

FUNCTION

4000 Facilities Acq. and Construction 

OBJECT

700 Property 

Debt Service:

FUNCTION

5100 Debt Service 

TOTAL EXPENDITURES 

SPECIAL REVENUE 

FUNDS 

Food Services: 

FUNCTION

3100 Food Services Operations 

OTHER: 

FUNCTION

All Functions Not Listed Above 

TOTAL EXPENDITURES

GRAND TOTAL

69 
XYZ Local Educational Agency 

Calculation of Indirect Cost Rate 

- Restricted Rate - 

Year Ended June 30, 20 _ _ 

Restricted Indirect Cost Rate 

Calculation 

Indirect Pool $ ______________ 

Adjustments: 

 - Excluded Costs (Functions xxx, xxx, xxx) ______________ 

 - Unallowable Costs (Functions xxx, Object xxx) ______________ 

 - Restricted Rate Adjustments (see Schedule xx) ______________ 

 +/- Carry-Forward Adjustment (or Other Adjustment) ______________ 

Total Allowable Indirect Cost Pool $ ______________ 

Base Costs $ ______________ 

Adjustments: 

 - Excluded Costs (Functions xxx, xxx, xxx) ______________ 

 + Unallowable Costs (Functions xxx, Object xxx) ______________ 

 + Restricted Rate Adjustments (see Schedule xx) ______________ 

 +/- Other Adjustment (explain) ______________ 

Total Allowable Base Costs $ ______________ 

Indirect Cost Rate Calculation 

 Total Allowable Pool Costs $ ______________ 

 Total Allowable Base Costs $ ______________ 

 Calculated Restricted Rate __________% 

70 
XYZ Local Educational Agency 

Fixed Rate with Carry-Forward Adjustment 

- Restricted Rate - 

Year Ended June 30, 20_ _ 

FY 2006 FY 2008 FY 2010

(C) Fixed Rate (A / B) 5.1% 5.8% 4.6%

(B) Direct Base 40,000,000 43,000,000 45,000,000

Pool:

Departmental 2,000,000 2,350,000 2,346,250

Carry Forward 50,000 146,250 (266,105)

------------- ------------- -------------

(A) Total Pool 2,050,000 2,496,250 2,080,145

Actual Costs:

(D) Direct Base 43,000,000 45,000,000

Departmental 2,300,000 2,200,000

Carry Forward 50,000 146,250

------------- -------------

(E) Total Pool 2,350,000 2,346,250

Carry Forward Adjustment:

Recovered = Fixed Rate (C) X

Actual Base (D) = (F)

(F) Recovered Indirect Costs 2,203,750 2,612,355

(E) Actual Indirect Costs 2,350,000 2,346,250

-------------- --------------

(G) (Over)/Under Recovery 146,250 (266,105)

71 
XYZ Local Educational Agency 

Restricted Rate Subsidiary Schedule 

- Restricted Rate - 

Year Ended June 30, 20 _ _ 

RESTRICTED RATE:

Departmental Costs: UNRESTRICTED ADJUSTMENTS RESTRICTED

Chief Executive Officer & Deputy

Legal Services

Fiscal Services

Personnel Services

Public Relations

Policy & Budget

Data Processing

Procurement

Occupancy

Equipment Use

Total, Departmental Costs

Statewide Costs (SWCAP)

Total, Indirect Costs

(1) RESTRICTED BASE ADJUSMENTS:

Chief Executive Officer and Deputy

Legal Services

Fiscal Services

Personnel Services

Occupancy

Total, Base Adjustments

CALCULATION of ADJUSTMENTS TO RESTRICTED INDIRECT COST RATE

72 
GLOSSARY OF FUNCTIONS AND OBJECTS 

Object Function Description 

100 Instruction Instruction includes the activities involving 

 the interaction between teachers and 

 students. Teaching may be provided for 

 students in a school classroom, in another 

 location such as a home or hospital, and in 

 other learning situations such as those 

 involving co-curricular activities. It may also 

 be provided through some other approved 

 medium such as television, radio, computer, 

 Internet, multimedia telephone, and 

 correspondence, that is delivered inside or 

 outside the classroom, or in other teacher- 

 student settings. 

 

200 Support Services Support services provide administrative, 

 technical (such as guidance and health), and 

 logistical support to facilitate and enhance 

 instruction. These services exist as adjuncts 

 for fulfilling the objectives of instruction, 

 community services, and enterprise programs, 

 rather than as entities within themselves. 

211 Attendance & Social Work Includes activities designed to improve 

 Services student attendance at school and which 

 attempt to prevent or solve student problems. 

213 Health Services Includes physical and mental health services 

 that are not direct instructional. 

216 Other Support Services- Includes services provided to students as a result 

 Students-Related of an I.E.P. for services such as speech therapy, 

 occupational therapy and additional counseling. 

217 Other Support Services- Includes services other than related services 

 Students-Extraordinary provided to students as a result of an I.E.P. that 

 are unique to individual students. 

218 Other Support Services- Includes guidance services and any other 

 Students-Regular activities, supplemental to the teaching 

 process, that are designed to assess and 

 improve the well-being of students other than 

 functions 211, 213, 216, 217 and 219. 

73 
LOCAL EDUCATIONAL AGENCY ORGANIZATION CHART 

Board of Education 

Program 010 

Instructional Admin 

Program 030 

Spec Ed Directors, Asst Superintendents, 

Program Administrators

Office of the 

Superintendent 

Program 020 

Superintendent and Immediate Staff

School Admin 

Program 050 

Principals, Assistant Principals 

General Admin 

Support 

Program 105 

Human Resources, Govt. Relations, 

School Elections, other support staff 

not in administrative offices 

Other Admin 

Support 

Program 107 

Asst Superintendent Support, 

Community Relations, Census, 

Research and Evaluation, MARSS 

staff, etc.

Business Support 

Services 

Program 110 

Finance, Data Processing, 

Legal Services, Printing, etc. 

74 
APPENDIX IV

LOCAL EDUCATIONAL AGENCY 

DELEGATION AGREEMENT 

75 
76 
LOCAL EDUCATIONAL AGENCY 

DELEGATION AGREEMENT 

ORGANIZATION: DATE: 

 

XXX State Educational Agency AGREEMENT NO. 

4505 East Boulevard 

Ark, TX 87778-0000 FILING REFERENCE: 

 

This Agreement confirms approval and acceptance of the methodology policy and procedures the 

State Educational Agency (SEA) will use in establishing indirect cost rates for their Local 

Educational Agencies (LEAs). These rates are for use in the award and management of Federal 

contracts, grants and other assistance arrangements governed by Office of Management and 

Budget (OMB) Circular A-87 and Education Department General Administrative Regulations 

(EDGAR) 34 CFR parts 75.561 and 76.561 (b) and (c). 

The State Superintendent of Education or designated representative is delegated authority to 

establish indirect cost rates for LEAs in their State. These LEA rates will serve as the sole basis 

for budgeting and allocating indirect cost reimbursement under Federal programs. The 

application of LEA indirect cost rates is binding on all Federal agencies and subject to periodic 

review pursuant to single audit requirements for State and Local governments. 

The effective period of this agreement is: July 1, 2009 - June 30, 2014

For the State Educational Agency: For the Federal Government:

Signature Signature 

 

Name Name 

 Director, Indirect Cost Group 

Title Title 

 

Date Date 

 

 

 Negotiator 

 

 Telephone Number 

77 
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APPENDIX V

MODEL COST POLICY STATEMENT 

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MODEL COST POLICY STATEMENT 

Use the following model "Cost Policy Statement" as guidance for state and local government 

agencies seeking reimbursement for indirect costs under federal awards. The model should be 

tailored to each organization’s specific structure. 

COST POLICY STATEMENT 

XYZ STATE EDUCATIONAL AGENCY 

I. General Accounting Policies. 

(If policies are different in any of the following categories, please specify.) 

A. Basis of Accounting – Accrual basis 

B. Fiscal Period – July 1 through June 30 

C. Allocation Basis – Simplified Allocation Method 

D. Indirect Cost Allocation Base – Total direct costs less equipment, alterations and 

renovations, flow-through funds, and the portion of each subaward in excess of $25,000. 

E. (If recipient uses a fringe benefit rate, describe fringe benefit allocation base here.) 

F. XYZ maintains adequate internal controls to insure that no costs are charged both directly 

and indirectly to federal awards. 

G. XYZ accumulates all indirect costs and revenues in accounts titled "Indirect Cost Expense" 

and "Indirect Cost Revenue", respectively. 

II. Description of Cost Allocation Methodology 

A. Salaries and Wages 

1. Direct Costs. The majority of XYZ’s employees direct charge their salary costs since their 

work is specifically identifiable to specific federal awards; nonfederal awards; direct 

activities such as instruction, student services, and food services; and unallowable 

activities such as lobbying. 

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2. Indirect Costs – Unrestricted Rate 

Employees in the following offices are charged as 100% indirect: (Please identify by 

object class/code) 

3⁄4 Chief Executive Officer 

3⁄4 Deputy Chief Executive Officers (Please specify) 

3⁄4 Accounting 

3⁄4 Procurement 

3⁄4 Data Processing 

3⁄4 Human Resources 

3⁄4 Payroll Processing 

3. Indirect Costs – Restricted Rate 

The following employee costs, related fringe benefit and related operating costs (e.g., 

travel, supplies, and occupancy), included as indirect for the Unrestricted Rate, are 

removed from the indirect cost pool and included in the base when computing the 

Restricted Rate: 

3⁄4 Chief Executive Officer and immediate staff (secretary; 

admin/executive/confidential assistants; support staff) 

3⁄4 Deputy Chief Executive Officers and immediate staff 

3⁄4 The chief executive officers (and immediate staffs) of all "Unrestricted" indirect 

organizational units reporting to the Chief Executive Officer and/or Deputy Chief 

Executive Officer (Heads of components) 

4. Mixed Charges and Split-Funded Employees 

The following employees may be charged to both direct and indirect activities: 

(Provide a List of Employees) 

When an individual employee works on more than one grant program, or is funded 

partially out of direct costs and partially out of indirect costs, the employees maintain time 

distribution records. XYZ charges employee compensation based on these records. The 

time distribution records coincide with the pay periods, and are signed by the employee 

and the employee's supervisor. 

Release time costs (vacation leave earned, sick leave used, and paid holidays) 

(specify which ones) are considered part of salary costs (if they are treated as 

fringe benefits, please so state). Since such costs are part of salary, the recipient 

does not claim release time costs as separate charges. XYZ's accounting system 

records release time as a direct or indirect cost in the same manner that salary 

costs are recorded. Vacation leave earned but not used during each fiscal year is 

treated as a cost incurred during the period the leave is earned. 

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B. Fringe Benefits 

XYZ contributes the following fringe benefits for its employees: 

3⁄4 Federal Insurance Contributions Act (Social Security). 

3⁄4 Employee state pension. 

3⁄4 Unemployment insurance. 

3⁄4 Health insurance. 

3⁄4 Dental insurance. 

3⁄4 Other (PLEASE SPECIFY). 

Since XYZ's accounting system tracks fringe benefit costs by individual employee and 

charges those costs directly or indirectly in the same manner as salary and wage costs are 

recorded, recipient does not need to have a fringe benefit rate established. (If not, please 

describe how fringe benefit costs are accumulated in the pool for the fringe benefit rate.) 

In accordance with Office of Management and Budget Circular A-87, Attachment B 

(11)(d)(3), payments to separating employees for unused leave are treated as indirect 

costs when computing the Unrestricted indirect cost rate. The Restricted indirect cost 

rate calculation includes such payments to employees considered unallowable in the 

calculation as direct (base) costs. Payments to separating employees for unused leave are 

not charged as direct costs to any federal awards. 

C. Travel 

Travel costs are charged either as direct or indirect depending upon the predominant 

purpose of the trip. Auditable travel vouchers support all claimed travel costs. Travel 

costs are normally limited to those allowable under the Federal Travel Regulations. XYZ 

identifies unallowable travel costs (e.g., most first class airfare, excessive lodging costs, 

and alcoholic beverages) and does not charge them as direct to federal awards or as 

indirect to any indirect cost pool. 

 D. Board of Education Expenses 

All salaries, expenses, fees, and other remuneration costs for the State Board of 

Education are treated as direct (base) costs when computing the indirect cost rates (both 

restricted and unrestricted). None of these expenses are charged as direct costs to federal 

awards. 

 E. Supplies and Materials 

Office supplies and materials are charged as direct costs to the individual awards that use 

the supplies and/or materials. Supplies and materials used by staff engaged in allowable 

indirect activities are treated as indirect costs. 

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F. Statewide Costs 

Costs included in the approved statewide cost allocation plan (SWCAP) are included as 

indirect costs when calculating the Unrestricted Rate. Most SWCAP costs are treated as 

indirect when computing the Restricted Rate. However, as stated in (G) below, occupancy 

costs on the approved SWCAP are excluded from the calculation when computing the 

Restricted Rate. 

G. Occupancy 

Occupancy costs include office and/or facility space rental, depreciation or building use 

allowance, utilities, custodial services, buildings and grounds services, security services, 

and other costs related to occupancy of the space used by the recipient. 

There are several methodologies for charging occupancy costs. Recipient needs to 

specifically establish and identify the one used. Any methodology used should 

provide an equitable distribution. 

3⁄4 One methodology is to place all occupancy costs in the "Unrestricted" indirect 

cost pool. If so, no occupancy costs are charged as direct on any federal awards. 

When converting from an unrestricted to a restricted setting, the only allowable 

indirect occupancy costs for the Restricted Rate are those allocable to employees 

treated as indirect when computing the Restricted Rate. These costs must be 

supported by a space usage study or equivalent documentation per EDGAR 76.568 

(b). The remaining occupancy costs are treated as Direct for Restricted Rate 

computation purposes. In a Restricted Rate setting, none of the "disallowed" 

occupancy costs are charged as direct to federal awards. 

3⁄4 Another methodology charges occupancy costs to direct and indirect activities 

based on a distribution such as square footage occupied by the employees. The 

areas occupied by direct employees are charged as direct costs to the employees' 

respective activities, and are treated as base costs when computing the indirect 

cost rate. The areas occupied by allowable indirect employees are part of the 

indirect cost pool. The exception would be "Restricted Rate" awards in which 

direct occupancy costs are not allowed as direct charges to Federal programs 

unless the recipient needs the additional space to conduct the project. 

3⁄4 For the purpose of calculating the Restricted Rate, SWCAP occupancy is taken out 

of the pool but not added to the base. 

H. Communications 

OMB Circular A-87 requires expenses that can be identified to a specific Federal award to 

be charged directly. Any direct cost of a minor amount may be treated as an indirect cost 

for reasons of practicality where such accounting treatment for that item of cost is 

consistently applied to all cost objectives. (Please specify treatment of fax, telephone, and 

other related costs). 

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Photocopying and Printing - Please specify treatment of fax, telephone, and other related 

costs. In situations where allowable indirect employees cannot be identified to a specific 

activity and the copied material refers to recipient's overall activities, the copies' costs are 

charged to an indirect expense account. Any direct cost of a minor amount may be treated 

as an indirect cost for reasons of practicality where such accounting treatment for that 

item of cost is consistently applied to all cost objectives. 

 

I. Outside Services 

Outside Professional Services costs are charged as follows: 

3⁄4 Annual audit and OMB Circular A-133 compliance costs are charged as indirect. 

3⁄4 Legal fees for specific activities are assigned to the benefiting activities. 

3⁄4 Legal fees pertaining to the management of the recipient (e.g., advice on personnel 

relations issues) are treated as indirect costs. 

3⁄4 Professional (including consulting) services costs are charged to the benefiting 

activities. 

J. Capital Expenditures/Equipment 

XYZ identifies equipment as items with a purchase price at or exceeding $1,000 per item. 

Non-capital expenditures become classified as supplies if the cost is less than $1,000. 

If an indirect cost rate has a modified total direct costs (MTDC) base, the indirect cost rate 

is applied to individual items with an acquisition cost under $1,000. When using an 

MTDC base, capital expenditures are excluded from the base for both rate computation 

and rate application purposes. 

3⁄4 With the prior approval of the awarding agency, the initial acquisition cost of 

capital equipment items may be charged directly. Federal awards may not be 

charged depreciation for equipment paid for with direct Federal funds. 

3⁄4 Capital items that are not charged directly to a Federal award may be recovered 

through depreciation on buildings, capital equipment and capital improvements. 

The cost of such capital items used by allowable indirect activities is recovered 

through depreciation. 

K. Unallowable Costs. 

XYZ recognizes that the following costs are unallowable as indirect and direct 

charges to federal awards. XYZ has internal controls in place to identify these 

costs and charge them to "unallowable cost" accounts. 

3⁄4 Fund Raising 

3⁄4 Alcoholic Beverages 

3⁄4 General Government Activities 

3⁄4 Advertising, except for staff recruitment or property disposal 

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3⁄4 Claims and Judgments (except workers compensation) 

3⁄4 Bad Debts 

3⁄4 Fines, Penalties, and Contributions 

XYZ includes all above unallowable costs that benefit from its indirect cost pool in the 

base (denominator) when computing its indirect cost rates. 

___________________________ ______________________ 

(Signature (Date) 

___________________________ 

(Title) 

(Name and Address of Recipient) 

 

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APPENDIX VI

CERTIFICATE OF INDIRECT COSTS 

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CERTIFICATE OF INDIRECT COSTS 

This is to certify that I have reviewed the indirect cost rate proposal submitted herewith and to 

the best of my knowledge and belief: 

(1) All costs included in this proposal dated ________________ to establish billing or final 

indirect costs rates for the period ending or ended _____________________ are allowable in 

accordance with the requirements of the Federal award(s) to which they apply and OMB Circular 

A 87, Cost Principles for State, Local, and Indian Tribal Governments. Unallowable costs have 

been adjusted for in allocating costs as indicated in the cost allocation plan. 

(2) All costs included in this proposal are properly allocable to Federal awards on the basis of a 

beneficial or causal relationship between the expenses incurred and the agreements to which they 

are allocated in accordance with applicable requirements. Further, the same costs that have been 

treated as indirect costs have not been claimed as direct costs. Similar types of costs have been 

accounted for consistently and the Federal Government will be notified of any accounting 

changes that would affect the predetermined rate. 

I declare that the foregoing is true and correct. 

Governmental Unit: 

Signature: 

Name of Official: 

Title: 

Date of Execution: 

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90 
APPENDIX VII 

WEBSITE REFERENCES 

 

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WEBSITE REFERENCES 

The following websites contain additional indirect cost guidance and materials: 

http://www.ed.gov - Includes information on ED programs and offices, grant information, 

statistical information, publications and other similar data. 

http://www.cfda.gov - The Catalog of Federal Domestic Assistance (CFDA) is located at this 

website. The CFDA is a government-wide list of federal programs, projects, services and 

activities. The list identifies the programs administered by ED. 

http://www.ed.gov/policy/fund/reg/edgar/Reg/edgar.html - The Education Department General 

Administrative Regulations (EDGAR) and is located at this website. 

http://www.whitehouse.gov/omb/circulars - The federal cost principles and other standards for 

various other types of organizations are located at this website. 

http://www.ed.gov/about/offices/list/ocfo/fipao/faq.html - The website includes indirect cost 

guidance provided by ED. 

http://www.dol.gov/oasam/programs/boc/ocd-guide-main.htm - The website includes cost 

allocation guidance provided by the U.S. Department of Labor. 

http://rates.psc.gov/ - The website includes cost allocation guidance provided by the U.S. 

Department of Health and Human Services. The Implementation Guide for OMB Circular A-87

is located at this website. 

http://www.aqd.nbc.gov/indirect/indirect.asp - The website includes guidance provided by the 

U.S. Department of Interior. 

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APPENDIX VIII 

SEMI-ANNUAL CERTIFICATION FORM 

and 

PERSONNEL ACTIVITY REPORT 

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Semi-Annual Certification 

(Staff Working Solely on one Cost Objective)

This is to certify that Jean Smith has worked 100% of his/her time 

for the period March 1, 2009 through August 31, 2009 on 

program number DOE 555.

 ____________________________ 

 Signature of Employee 

 

____________________________ 

 Printed Name of Employee 

 

 ____________________________ 

 Date 

 

____________________________ 

 Signature of Supervisor 

 

____________________________ 

 Printed Name of Supervisor 

 ____________________________ 

 Date 

97 
 Personnel Activity Report

Name___________________________

Department______________________

Account No. 100 200 300 500 600 700 Totals

Account Title Indirect ECIA (Federal) State (be Specific) Annual Leave Sick Leave Holiday Leave

Mon.____________ 0 0 0 0 0 8 8

Tues.____________ 0 7 1 0 0 0 8

Wed.____________ 0 8 0 0 0 0 8

Thurs.___________ 0 6 2 0 0 0 8

Fri._____________ 0 2 2 4 0 0 8

Mon.____________ 2 5 1 0 0 0 8

Tues.____________ 1 6 1 0 0 0 8

Wed.____________ 0 3 5 0 0 0 8

Thurs.___________ 0 6 0 0 0 0 8

Fri._____________ 1 6 1 0 0 0 8

Totals 4 49 13 4 0 8 80

I certify that this report represents a true recording of effort expended for

the period indicated and that I have full knowledge of those activities.

______________________________________ ______________________________________ 

Signature of Employee / Date Responsible Official / Date

Salary Charging:

Totals 4 49 13 4 0 8 80

Percent of Total* 5.00% 61.25% 16.25% 5.00% 0.00% 10.00% 100.00%

Bi-Weekly Salary 1,700.00 1,700.00 1,700.00 1,700.00 1,700.00 1,700.00 

Amount Charged 85.00 1,041.25 276.25 85.00 0.00 170.00 1,700.00

* Total Hours for Activity divided by Total Paid Hours for Account No. 100, 4 Hours worked divided by 80 hours = 5.00% charged.

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APPENDIX IX 

DOCUMENTATION CHECKLIST 

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State & Local Governments 

Indirect Cost Rate Proposal Documentation Checklist 

 

 1. Indirect cost rate calculation detailing total direct and indirect expenses by function and cost 

category, subsidiary worksheets and carry-forward calculations. 

 2. Reconciliation of indirect cost rate proposal to audited financial statements, expenditure 

reports or approved budgets. 

 3. The amount of direct costs incurred on federal awards. The costs should be detailed 

 reflecting salaries, wages, fringe benefits and other direct costs. 

 4. A schedule of fringe benefits and payroll taxes by type and amount with an explanation 

of the allocation to benefiting activities. 

 5. Certificate of Indirect Costs signed on behalf of the state or local government by an 

official at the Chief Financial Officer level or above. 

 6. Cost Policy Statement providing background information and cost charging policies and 

 practices. 

 7. Organization chart showing the structure of the agency during the proposal period. 

 8. Capitalization policy, along with equipment use allowance or depreciation schedules. 

 9. Financial data (audited financial statements, formal budgets, accounting reports, etc.) 

upon which the rate is based. 

 10. Approved Statewide Cost Allocation Plan schedule, if state central service costs are 

included in the indirect cost rate proposal. 

 11. A listing of grants and contracts identified by Catalog of Federal Domestic Assistance 

number, federal agency, total dollar amount, and the period of performance. Any indirect 

cost limitations, such as restricted or ceiling rates or amounts restricted by administrative 

or statutory regulations, should be identified for each grant or contract. 

_____12. Details on any significant accounting changes that are planned and may impact the rate. 

_____13. Schedule of unused leave payments to separating employees. 

 14. Schedule showing the details of adjustments to the unrestricted rate in order to calculate 

the restricted rate. 

 15. Schedule of all subawards, including names and amounts. The schedule should reflect 

the amounts over $25,000 that are excluded from the base calculation.