Administrative Costs

Indirect Cost Rates (IDCRs) and Cost Allocation Plans (CAPs)

For planning, budgeting, and accounting purposes, it is important to account for the total costs of SVRA projects and programs properly. IDCRs and CAPs are the means by which costs are identified in a logical and systematic manner for reimbursement under Federal awards.

Indirect costs are those costs that are incurred for common or joint purposes and that benefit more than one organizational cost objective. Because indirect costs are not readily assignable to a specific cost objective defined in a grant program, tracking and recovering these indirect costs are an important challenge for organizations in analyzing the total cost picture for operating grant programs. Examples of indirect costs include salaries, and expenses for activities that benefit the entire organization, such as accounting, personnel, and purchasing costs.

An Indirect Cost Rate is an allocation methodology for determining fairly what proportions of an organization's administrative costs each program should bear and represents the ratio between the total indirect costs and direct costs, expressed as a percentage.

Cost Allocation Plans are an allocation methodology that uses various allocation methodologies to distribute allowable direct and indirect costs to benefiting cost objectives.

Reviewing cost classifications is an important part of a program's overall fiscal management. There is not a universal rule for classifying costs as either direct or indirect. Costs are classified based on the benefit received by the entity incurring the expenditure. The definition of the term “cost objective” is important to understand to determine what costs are indirect, versus direct. A cost objective is a program, function, division, activity, award, contract, or other work unit against which costs can be incurred.

IDCRs or CAPS are necessary to ensure SVRA compliance with 2 C.F.R. Part 200, and serves as documentation for auditors, and provides accurate information for management.

If an SVRA is experiencing questions or concerns about this topical area, it is best to contact the RSA Financial Management Specialist assigned to the agency.

Regulatory Citations:

• 2 C.F.R. Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
  • The list below highlights just a few of the many references in this Part:
    • §200.1 Definitions
    • § 200.412 Classification of costs.
    • § 200.414 Indirect costs
    • § 200.416 Cost allocation plans and indirect cost proposals.
    • § 200.420 Considerations for selected items of cost.
  • 34 C.F.R. Part 76 State-Administered Programs
    • §76.560 Indirect Cost Rates

Resources:

• Cost Allocation Department of Education Guide for State and Local Governments
  • Section VII: Common Indirect Cost Issues
• Department of Education Indirect Costs Online Training
  This 45-minute course provides an overview of indirect costs and includes how to define indirect, direct, and direct administrative costs and how to apply the Regulatory and Statutory Framework of these costs.