Adjustments for 05-06 LEA Indirect Cost Rates

Adjustments for 05-06 LEA Indirect Cost Rates

Adjustments for 2011-12 LEA Indirect Cost Rate Certification

FY 2010 data used for the calculation

Mandatory Adjustments

  • Sub Awards/Subcontracts in excess of $25,000 - this rule pertains to instances where an institution is contracting to obtain services, but not where the contract is for a price agreement or salaries. As a result, each entity is required to make an adjustment to remove the remaining contract balance (excess of $25,000) from the Indirect rate calculation. (For example, if you have acontract for $100,000 in Fund 100, Function 2550, Object 300, then the amount decreased from this Fund, Function and Object above should be $-75,000. This will remove the expense from the pertinent Cost Pool.)

USDOE Q&A guidance samples updated 2-12-2010

Question: If a grantee hires an individual to perform speech pathology services to students in the school, is the service considered a subaward?

Answer: NO, this is a professional service providing an auxiliary expertise normally provided in-house. The costs would not be treated as a subaward and are not subject to the exclusion of amounts over $25,000.

Question: If a grantee contracts with a software vendor to provide technical support and enhancement of existing business software, would this be considered a subaward.

Answer: NO, if this is organization-wide support, then it is an indirect cost, rather than direct cost if specific to one program.

Question: Would a school nurse that only provides medication (not an instructor) to students in the classroom be considered a subaward?

Answer: NO, this is a professional service providing an auxiliary expertise normally provided in-house. The costs would not be treated as a subaward and are not subject to the “exclusion of amounts over $25,000”.

*The above Q&A items may be found at: along with various others items regarding the Indirect Rate percentages.

  • General Administration - The principles of OMB Circular A-87 exclude the Superintendent, Deputy Superintendent, Head of Sections and Board of Education costs from indirect consideration. Therefore, only if an expense is coded to a fund, function and object code with an Indirect (I) Pool designation, than an adjustment is necessary. Costs associated with activities under organizational units that are not for department level management also are not considered general management costs. Related costs include applicable fringe benefits, travel, space costs and other associated costs that are reclassified to base as described at 34 CFR 76.568 shall be included in the base (denominator, with a D or U). ODE will use the institution’s organizational charts and may contact the entity to verify function codes with Indirect cost pool expenditures to accurately reflect in the unallowed costs. Other related costs will be reviewed closely on the FY2010 Indirect Rate adjustments.

To reclassify costs from “I” to a “U” (Unallowed cost) for general admin adjustmentit’s a two step process:

Step one: remove expenditure from a given function and object code using a negative entry.

Step two: re-enter expenditure amount with a different (closest) function or object code that has an Unallowed cost (U) designation.

Example:FundFunctionObjectAmt

Step 1: 1002520112($45,658)

Step 2:1002320112 $45,658

  • Charter School Payments – for those districts that pass funds through to the charter school in their district must make an optional adjustment to reduce the direct cost base (D or U designation). This includes entering a negative amount in the fund, function and object code where these costs reside. The negative adjustment will automatically move them into an excluded (E) designation. This is now a mandatory adjustment to assure statewide consistency.
  • Unused/Terminal Leave – The OMB Circular A-87, Attachment B, Paragraph 8.d (3) states “payments for unused leave when an employee retires or terminates employment (executive level employees only) are allowable in the year of the payment provided they are allocated as a general administrative expense to all activities of the governmental unit or component. From 2009-2010 data year forward, this requirement should be captured using the object code #117. These costs should be in the Indirect cost pool.

Optional Adjustments

  • Insurance and Judgments - District liability insurance, district property insurance, fidelity bond premiums and worker’s compensation may be classified as indirect costs. This is a unique adjustment category. In order to reclassify expenditure items from direct (D), unallowed (U) or excluded (E) to indirectcost pool(I) the Function Code has to allow for indirect expenditures.

In this case, to reclassify expenditures from D, U or E to an “I” (Indirect cost) is a two step process.

Step one: remove expenditure from a given function and object code using a negative entry.

Step two: re-enter expenditure amount with a different (closest) function or object code that has an indirect cost pool (I) designation.

Example:FundFunctionObjectClassificationAmt

Step 1: 1002630650U($12,465)

Step 2:1002630640I $12,465

Adjustments may be made for unemployment compensation for employees or former employees whose costs were associated with the functions identified as indirect in this plan. You may not include judgments against the district as indirect cost.

  • Legal costs –Legal costs associated with interpretation of laws and regulations may be adjusted. Legal costs associated with tort cases, tort settlements, and legal proceedings related to the organization’s mission, rather than its internal management.

For example, legal costs for a school district boundary dispute, or for advice on educational activities, are unallowable. Legal costs related to the organization’s personnel system or related procurement activities are allowable in the indirect cost pool. Related time spent on preparing for court cases are not allowable in the indirect cost pool. State auditor costs related to non-federal activities are unallowable in the indirect cost pool.

  • School/Student Body Funds are allowed to be excluded from the indirect rate formula. Therefore, if your entity has student body funds that are in a fund, function and object code that points to the Indirect (I) cost pool, you are allowed to do a negative adjustment to remove these items from the rate calculation.
  • 700 Fund Concerns – If an entity has a separate entity (like a foundation) that runs their books through the component SD or ESD, the expenditures shall be listed in the 700 fund, or all costs must be removed from each fund, function and object code for the purposes of the Indirect rate formula. This creates consistency statewide for the Indirect Rate Calculations.
  • Resolution Services - ESD’s ONLY – Resolution Service expenditures will need to be subtracted from the Indirect cost pool (“I” designation only). All direct activities to school districts from ESD’s shall be in the base account (D or U). This should eliminate distortion of ESD indirect cost rates due to large fiscal and technology expenditures associated with services to districts. When a negative entry is made, it will automatically shift these costs to excluded (E) and remove them from the rate calculation.

Updated March 7, 2011Page | 1

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