For reference, the authority for approving the indirect cost rates for all LEAs in the State has been delegated to the WVDE by the U.S. Department of Education, via Agreement Number 2007-246, dated October 15, 2007.
The Federal government recognizes the fact that State and local governments are entitled to recover the cost of administering federal programs by charging the additional costs incurred proportionally to the programs that are being administered. The reason indirect cost plans were developed by the federal government is to create an approved methodology for local governments to recover these incremental costs by charging the appropriate programs a proportional share of the additional costs without having to maintain detailed cost accounting records.
The appropriate restricted or non-restricted indirect cost rates are to be used for allocating indirect costs to each federal program, as authorized under the provisions of OMB Circular A-87, unless a specific federal program restricts the rates that can be charged to the program in a particular year, as follows:
- RESTRICTED RATES are to be used for those federal programs that are subject to the "supplement but not supplant" restriction, such as all of the title programs received through the Elementary and Secondary Education Act (ESEA), and most others federal programs. (This applies to both Title II and Title VI individually)
- NON-RESTRICTED RATES are to be used for those federal programs that are not subject to this restriction, such as the Child Nutrition Program.
Two of the programs that have restrictions as to the amount of indirect costs that can be charged during a particular year are the Title III Program -Language Instruction for Limited English Proficient and Immigrant Students, and the Carl Perkins Vocational Program, but there may be others. According to the Title III program regulations, total administrative expenses can total no more than 2% of the allocation, and since indirect costs make up a part of administrative costs, indirect costs charges to the Title III program cannot exceed this 2% limit. The Carl Perkins program regulations restrict total administrative costs for this program to 5% of the total allocation.
Procedures should be established to ensure that the amounts actually charges to any particular program as indirect costs do not exceed the maximum amounts allowable under such restrictions, if applicable.
LEAs are required to charge indirect costs against all applicable program expenditures for all federal programs at the full approved rates, or at the maximum authorized rates, if the approved rates exceed the program maximum authorized rates.
Indirect costs are not to be charged against any capital expenditures that exceed $5,000 in cost. Indirect costs are also not to be charged against any state grant awards.
Consequently, all federal program directors are required to include in their budgets for the upcoming year the indirect cost charges computed against all applicable budgeted expenditures, using Program Function Code 76191, and Object Code 911. This includes the budgeted expenditure of funds received from any federal program, including those received from the American Recovery and Reinvestment Act (ARRA) funds through the Department, and any competitive grants received directly from the federal government. WVDE program directors will include this requirement in their review procedures to ensure that adequate funds are budgeted for this cost.
The reason for this requirement is that the Office of School Finance is charged with the statutory responsibility, under WVC §18-9B-9, of prescribing the requirements of a uniform system of management accounting. To ensure that the financial condition of each entity can be assessed accurately, all expenditures, including indirect costs, must be charged and reported in an accurate and consistent manner. By not charging indirect costs, an LEA’s program costs are understated and the LEA’s administrative costs are overstated.
This is especially of concern in situations where a county board incurs a deficit unreserved fund balance in its General Current Expense Fund. By not charging indirect costs, the deficit balance is overstated.
Susan Smith, CPA
Office of School Finance
West Virginia Department of Education