Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Indirect costs benefit more than one cost objective and are not assignable directly to one program. Indirect costs include the facilities and administrative (F&A) costs of providing statewide support service for a state or federally funded program.
If indirect costs are reimbursed with federal funds, these indirect costs are federal expenditures and therefore must be recorded in SEFA. If indirect costs are related to a federal program but not reimbursed with federal funds, these indirect costs are not federal expenditures and therefore must not be reported in SEFA.
State agencies that incur indirect costs reimbursed with federal funds typically have an approved cost allocation plan or indirect cost rate proposal that states how the agency will calculate and allocate indirect costs to federal programs. According to Title 2 of the Code of Federal Regulations (CFR), Section 200.19, the cognizant agency for indirect costs is the federal agency responsible for reviewing, negotiating and approving these plans and proposals. The cognizant agency for indirect costs approves the agency’s plan or proposal on behalf of all federal agencies.
If the agency never negotiated an indirect cost rate for federal awards, the agency may be able to use the 10% de Minimis Indirect Cost Rate. For more information, see SEFA Note 10.
Except for 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.