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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Pass-Through Activity

Miscellaneous Topics
Indirect Costs

Indirect costs are costs of administering a state or federally funded program and include the cost of providing statewide support service.

Indirect costs reimbursed with federal funds are federal expenditures and are included in total expenditures for each federal program in SEFA. Indirect costs related to a federal program, but not reimbursed with federal funds, are not federal expenditures and are not reported in SEFA.

With the exception of indirect cost recoveries associated with nonexchange transactions, universities record indirect cost recoveries from federal grants, contracts and agreements as operating revenue (federal grants and contracts). Indirect cost recoveries associated with nonexchange transactions are recorded as nonoperating revenue (federal). Regardless of its revenue classification, the receipt of indirect cost recoveries does not require a reconciling item in the notes to SEFA. (Source: GASB 35 Implementation Guide, Questions 38 and 76.)


Agency X administers federal program ABC. Total direct costs for the program are $100,000 and the indirect costs are $10,000. The contract states the federal government will pay Agency X 80 percent of the indirect cost related to the program. The remaining 20 percent will be paid by the state.

Agency X reports $108,000 total federal expenditures for program ABC. The $2,000 of indirect costs to be paid by the state are not federal expenditures and are not reflected on SEFA.

Glenn Hegar
Texas Comptroller of Public Accounts
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