Question: Seems to be some confusion on correct indirect cost rates. At an in-service in January 2006 it was stated that the methodology used to determine indirect cost rates for school districts and county offices has recently changed.
Response: The California Department of Education (CDE) issued a bulletin on November 7, 2005, explaining updates to the indirect cost determination methodology. That bulletin can be found at: http://www.cde.ca.gov/fg/ac/co/icr110705plan.asp. The basic information is contained in this response.
Another great resource that CDE has issued is a frequently asked question document related to indirect costs and indirect cost rates. That can be found at: http://www.cde.ca.gov/fg/ac/ic/documents/icrfaq.doc.
The United States Department of Education has approved an updated indirect cost allocation plan for California, which governs the methodology for determining indirect cost rates for local educational agencies (LEAs).
The type of indirect cost rate remains consistent with the previous plan and is a fixed-with-carry-forward restricted rate. The indirect cost rate is computed and "fixed" for a specific period on the basis of an estimate of that period's level of operations. Once the actual costs of that period are known, the difference between the estimated and actual indirect costs is "carried forward" as an adjustment to the new calculation. This puts any adjustments to the rate in a future period and allows LEAs to avoid having to file amended federal reports when actual indirect costs vary from estimated indirect costs.
The rate is valid for both state and federal programs, including federal grant programs that have a statutory requirement prohibiting the use of federal funds to supplant nonfederal funds. Consistent with past practice, all school districts and county offices of education, and those joint powers agencies (JPAs) that request it, will annually be assigned an indirect cost rate based on their unaudited actual data submission. Once approved by the CDE, the rate will be used to recover indirect costs in the second subsequent fiscal year.
There are also certain changes to ensure California's compliance with federal indirect cost guidelines, which are outlined in the CDE bulletin. Some of these include:
· Expenditures for capitalized equipment, specifically objects 6400 and 6500, will be excluded entirely from the indirect cost rate calculation. For purposes of the indirect cost process, these costs are considered one-time or distorting in nature.
· The Foundation Special Revenue Fund (Fund 19) and the Foundation Permanent Fund (Fund 57) will be added to the indirect cost rate calculation. These funds are used to account for LEA resources received from gifts or bequests that may be used for purposes that support the LEA's program(s).
· New to this plan, all charter schools will annually be assigned an indirect cost rate. The methodology used to determine that rate differs based on how the charter schools financial data is or is not included in the LEA’s financial data.
· It is anticipated that the Charter Schools Special Revenue Fund (Fund 09) and the Charter Schools Enterprise Fund (Fund 62) will be added, as appropriate, to the indirect cost rate calculation.
· New to this plan, for indirect cost purposes the CDE may assign an indirect cost rate to a non-LEA that receives funding from the CDE, as long as the non-LEA receives little or no funding directly from any federal agency.
· A number of specific accounting issues were discussed, including how to account for paid unused leave for retiring or terminating employees, post retirement heath benefits, sub award accounting, and the monitoring of time distribution policies and substitute systems for time accounting. At the request of ED, these issues were addressed in a separate Memorandum of Understanding (MOU) on California's indirect cost methodology. The CDE is currently preparing guidelines for the implementation of the MOU and will issue another letter as soon as they are finalized. It is anticipated that the implementation guidelines, which will be in the form of updated procedures for the California School Accounting Manual (CSAM), will be effective with 2006-07 data or later.
06/27/06
