Office of School Finance - WVDE
INDIRECT COSTS
Indirect Costs - Defined
 Costs not readily identifiable with a specific
federal project
 Costs are incurred for the joint benefit of
more than one project
Direct costs - defined
 Costs that are readily identifiable to a specific
project
 Costs are charged directly to the project
 Cannot be considered indirect if they are
charged directly
Unallowed costs - defined
 Costs that are not allowed to be charged to a
federal project
 OMB Circular A-87 provides a complete listing
of unallowed costs
 Examples include:
 Marketing
 Losses from uncollectible accounts
Indirect Cost Plan - defined
 A simplified means to determine the fair
share of indirect costs that each federal
project must bear
Obtaining an indirect cost rate
 A rate must be determined each year
 Plan developed by WVDE, approved by USDE
 The rate is based on actual expenditures two
years earlier (FY 11 rate based on FY 09 actual)
 Plan includes an adjustment between estimated
and actual indirect costs two years later
 Simplified, the indirect cost rate =
indirect costs
unallowed costs + direct costs
 You receive restricted and unrestricted
indirect cost rates
 Process is web-based
 CSBO is the contact person for determining
the rates
Two rates – which do I use?
 Restricted rate – use for federal projects that
contain the “supplement but not supplant”
provision (that is MOST projects)
 Unrestricted rate – use for all other federal
projects (example: child nutrition)
How do I use the rate?
 For budgeting purposes:
 Total amount of federal award
 Approved indirect cost rate
 Budgeted direct costs
$200,000
2.23%
$195,637
($200,000 / (1.0 + 0.0223))
 Budgeted indirect costs
$ 4,363
($195,637 * 0.0223)
 For actual expenditures:
 Actual direct costs
$185,440
 Approved indirect cost rate
2.23%
 Indirect costs charged to the project $4,135
($185,440 x 0.0223)
Be careful when you apply the
rate
 You may not apply the indirect cost rate to all
actual expenditures:
 You cannot apply the rate to capital outlay
 Equipment, buildings, land, building improvements
which exceed $5,000
 Some grants have a limit
on total indirect cost
 Title III – 2% of the grant
 Carl Perkins – 5% of the
grant
Be careful about the time
period
 The approved rate for FY11 is to be used for
ACTUAL expenditures from July 1, 2010
through June 30, 2011
 Actual expenditures do not include
outstanding encumbrances at year end
How does the federal project
get charged?
 Calculate the actual indirect costs based on
actual expenditures at least quarterly
 The CSBO will make a journal entry to charge
the indirect cost amount to each federal
project as an expenditure
Which projects are charged
indirect costs?
 All Federal projects are charged the
appropriate indirect cost rate, including ARRA
and SFSF
 State projects are not subject to indirect costs
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