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2.  Office of Management and Budget (OMB) – Circular A-87  US Department of Education ◦ Delegates authority for indirect cost rate determination to state education agencies ◦ Delegation agreement renews every five years 2

3.  SEA – state education agency ◦ Example: Kentucky Department of Education  LEA – local education agency ◦ Example ABC School District 3

4.  Costs of a general nature which are not readily identifiable with the activities of the grant but are incurred for the joint benefit of those activities and other activities or programs of the organization. ◦ Finance office  Payroll processing  Purchasing processing ◦ Audit costs ◦ Utilities 4

5.  Costs that are incurred specifically for one activity and can be identified specifically with that activity. ◦ Salaries and benefits for employees in the grant program ◦ Supplies ◦ Travel 5

6.  The indirect cost rate is a device for determining what portion of allowable general administrative expenses each federal grant should bear  The ratio of total direct costs to total indirect costs, less excluded items such as capital outlay  Based on the LEAs actual expenditures 6

7. ◦ Audited AFR is used for the calculations  Expenditures must be classified properly!  Follow the Chart of Accounts ◦ Expenditures for FY 11 are used to calculate FY 13 rates ◦ Calculations are on KDE website ◦ Predetermined Rate methodology is used  Indirect costs are reduced by 10% during the calculation to allow for fluctuations from year to year 7

8.  Use the restricted rate for all grants with a Supplement not Supplant provision ◦ Most grants contain this provision  Restricted rate is the lower of the two rates  Plant Operations and Maintenance is in the “Direct/Unallowed” category for the restricted rate calculation 8

9.  Use for grants without the Supplement not Supplant restriction ◦ Food Service  Non Restricted rate is the higher of the two rates  Plant Operations and Maintenance is included in indirect costs for the non restricted rate calculation 9

10.  Indirect Costs include the following ◦ Funds 1 and 2 (exclude project 16MX), Function 2500 (all objects except 0280 and 0700) ◦ Fund 1, Function 2300, Objects 0342 and 0344  Excluded Costs include: ◦ Funds 1, 2 and 51, Function 5XXX (all objects) ◦ Funds 1 and 2, Function 4XXX (all objects) ◦ Funds 1, 2 and 51, object 0700 ◦ Funds 1 and 51, object 0280, project 16MX ◦ Fund 51, objects 4500 and 4950  Direct/ Unallowed Costs: everything else 10

11.  Indirect Costs include the following ◦ Funds 1 and 2 (exclude project 16MX), Functions 2500 and 2600 (all objects except 0280 and 0700) ◦ Fund 1, Function 2300, Objects 0342 and 0344  Excluded Costs include: ◦ Funds 1, 2 and 51, Function 5XXX (all objects) ◦ Funds 1 and 2, Function 4XXX (all objects) ◦ Funds 1, 2 and 51, object 0700 ◦ Funds 1 and 51, object 0280, project 16MX ◦ Fund 51, objects 4500 and 4950  Direct/ Unallowed Costs: everything else 11

12. ◦ Rates are calculated by KDE using district’s AFR data and placed on KDE website ◦ Each local board must approve the rates prior to October 1 to have the option to claim indirect costs for the October 1 – September 30 federal fiscal year ◦ Approval of the rates does not commit the local board to claim indirect costs 12

13. ◦ In claiming indirect costs, a district may:  Apply the rate, or a lesser rate, to all grants  Apply the rate, or a lesser rate, to only certain grants  Not apply the rate to any grants ◦ Apply the rate to the actual expenditures incurred in the period:  Total direct costs less excluded costs  Examples of excluded costs: capital assets, on-behalf payments ◦ Food service: apply the non restricted rate to actual salaries and benefits (excluding on-behalf payments) 13

14. ◦ Apply the rate approved for the fiscal year in which the actual expenditures are incurred ◦ If the grant spans more than one fiscal year, then two rates will be used in claiming indirect costs ◦ Example:  $50,000 grant award received May 2011  $10,000 allowable direct costs expended in Dec 2011  $30,000 allowable direct costs expended in Oct 2012  Apply the 2011-12 rate to $10,000  Apply the 2012-13 rate to $30,000 14

15. ◦ The amount of indirect costs which may be recovered on a grant can be limited  Federal law may limit the amount recoverable on a specific grant, or allow no recovery at all  Recovery is limited to the amount of available funds; indirect costs are not added to the amount of the grant award  Recovery is limited to direct costs incurred; do not apply the rate to the grant award amount 15

16. ◦ Expenditures identified as indirect costs cannot also be a direct cost  If audit costs are charged to federal grants directly, those costs cannot also be included as an indirect cost for the purpose of indirect cost rate calculation ◦ A cost cannot be an indirect cost to a grant if it is treated as a direct cost to any other grant.  If custodial services are charged to food service as a direct cost, those costs must be a direct cost for all other grants as well 16

17. ◦ The indirect cost rate may not be applied to excluded costs  Capital asset purchases, on-behalf payments ◦ Any excess amount of indirect costs charged must be rebated to the federal funding source 17

18. ◦ Indirect costs should be charged periodically throughout the fiscal year ◦ Debit indirect cost transfers out (special revenue or food service fund) ◦ Debit cash (general fund) ◦ Credit indirect cost transfers in (general fund) ◦ Credit cash (special revenue or food service fund) 18

19. ◦ KDE Website  Calculated rates  Indirect Cost Guidelines  This video ◦ OMB Circular A-87 ◦ Implementation Guide for OMB Circular A-87 ◦ USDE Cost Allocation Guide for State and Local Governments ◦ USDA Indirect Costs: Guidance for State Agencies and School Food Authorities 19

20. Susan Barkley, Assistant Director Division of District Support Kentucky Department of Education Susan.Barkley@education.ky.gov 502-546-3930 20