DIRECT BENEFITS OF AN
INDIRECT COST RATE
CCIA FALL CONFERENCE 2012
OCTOBER 4, 2012
Heather McGee
Senior Manager, Audit Services Division
Vicenti, Lloyd & Stutzman LLP
Telephone: (626) 857-7300 x292
Email: hmcgee@vlsllp.com
INTRODUCTION
Topics to be covered:
 General information on the nature of indirect
costs and indirect cost rates
 Benefits of having a federally approved indirect
cost rate
 Process of applying for an approved indirect
cost rate
 Guidelines for preparing an indirect cost
proposal
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NATURE OF INDIRECT COSTS
Costs that are incurred for common or joint objectives
Cannot be readily identified with a particular project or
activity
Examples

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Costs of operating and maintaining facilities, equipment
and grounds
Depreciation or use allocation
General and departmental administration
Library expenses
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BENEFIT OF HAVING AN APPROVED
INDIRECT COST RATE
Ability to recover a portion of District’s
administrative costs for grants and mandated cost
programs
Leveraging tool when negotiating a grant
Provides an indication of the District’s indirect
contribution to any grant or special program
Assists in the budget process for a grant
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MANDATED COST REIMBURSEMENT
State of California allows reimbursement for 16 different
programs.
Most common claims for Community Colleges are:
 Collective Bargaining
 Enrollment Fee Collection & Waivers
 Health Elimination Fee
 Mandate Reimbursement Process I & II
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MANDATED COST REIMBURSEMENTS
Types of Reimbursements allowed by the State
Controller’s Office:

Default rate
7%

Indirect cost rate for state
mandates
FAM-29C
calculation

Federally approved rate
Varies
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REIMBURSEMENT OF INDIRECT COSTS
FOR FEDERAL GRANTS
Training Grants
Limit of 8% with or without
approved rate
Research and Development Grants
Varies by grant but typically
will allow reimbursement at
the approved rate
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TYPES OF INDIRECT COST RATES
Provisional Rate
Final Rate
Predetermined Rate
Fixed Rate with Carry-forward Provision
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SELECTING THE TYPE OF RATE THAT IS
RIGHT FOR YOUR DISTRICT
Factors to consider when choosing the type of rate
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Is the rate adjustable?
Will a retroactive adjustment be necessary?
Is the District able to close projects in a timely manner?
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PROPOSAL DOCUMENTS
Certificate of Supplemental American Recovery and
Reinvestment Act (ARRA) Indirect Costs
Indirect Cost Proposal (ICP) Checklist
Indirect Cost Proposal
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SUPPORTING DOCUMENTATION
Independently audited financial statements
District’s financial statements (CCFS-311)
Reconciliation of any differences between expenditures
reported per audit and per CCFS-311
Fringe benefit information
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WHERE TO SUBMIT PROPOSALS
Cognizant agency for reviewing and approving indirect
cost rates:


Department of Health & Human Services
Department of Defense
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DUE DATES AND COVERAGE OF
PROPOSALS
First-time application
 Immediately after notification of award
 No later than 3 months after effective date
Previously established rate
 Within 6 months after the close of each fiscal year
Failure to submit timely proposals
 Time extensions are available
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GUIDELINES FOR PREPARING INDIRECT
COST PROPOSALS
OMB Circular A-21
 Cost Principles for Educational Institutions

Methods of calculating indirect cost rates
◦ Simplified Method: Federal funding* less than $10
million in Federal expenditures.
◦ Long Form Method: Federal funding $10 million or
greater in Federal expenditures.
*Determination excludes Student Financial Aid funding
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SIMPLIFIED METHOD
Segregate total salaries and wages from other current
expenditures (both restricted and unrestricted general fund)
Analyze current expenditures
 Allowable vs. nonallowable
 Make necessary reclassifications and adjustments
 Segregate institution’s allowable indirect costs from its
direct costs
 Establish a direct salary and wage base
 Compute indirect cost rate
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INDIRECT PROPOSAL FORMAT –
SIMPLIFIED METHOD
Classification of expenditures
Reclassifications
Adjustments
Calculation of rate
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FRINGE BENEFITS
Information submitted with indirect cost proposal
Listing of fringe benefits
 Copy of fringe benefit policy
 Description of method(s) used to budget and charge
fringe benefits to sponsored agreements
 Funding practices for a “defined benefit” pension plan
 Institutions computation of a fringe benefit rate

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TREATMENT OF FIXED ASSETS
Exclusion of capital outlay expenditures
Depreciation or use allocation allowance
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RESOURCE DOCUMENTS
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OMB Circular A-21: Cost Principles for Education
Institutions
Indirect Cost Determination, Guidance for State and
Local Government Agencies, U.S. Department of
Education
OMB Circular A-87, Selected Items of Cost
A Guide for Colleges and Universities, Cost Principles
and Procedures for Establishing Indirect Cost and Other
Rates for Grants and Contracts with the Department of
Health and Human Services (Appendix E contains a
sample calculation using the Simplified Method)
Mandated Cost Manual for Schools, State Controller’s
Office
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