Proposals may be prepared by each of the government departments performing under federal grants or they may be prepared in a central office. However, while the state or local central service cost allocation plan need not be prepared centrally, it must be prepared as a single document. The central service plan is used to distribute allowable central service costs to each of the individual government departments benefited, in order that they might include them in their indirect cost proposal. There is no universal rule for classifying costs as direct or indirect. Generally speaking, 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.
Consequently, some allocation technique must be used to distribute these indirect costs to the several direct functions benefited. Once a grantee makes an election and treats a given cost as direct or indirect it must apply that treatment consistently and may not change during the fiscal year. Some grant programs are awarded to the Office of the Governor of a state, to the Chief Executive of a political subdivision, the Count Supervisor, City Council, School Board or other similar type of body. The general expenses required to carry out the overall responsibilities of these officers are unallowable. Attachment B, Section 23 of the Circular identifies them as general government expenses, and therefore an unallowable cost.