Indirect Costs & Administrative Allowance

Indirect Costs & Administrative Allowance

• Administrative Cost Allowance (also known as “Indirect Costs”) – those costs not directly identified

with a particular program or activity, including accounting, purchasing, human resources, facilities,

technical support, general administrative supervision, and other such costs provided by the

institution for the indirect support of a program or activity.

• Indirect costs and Administrative Allowance are calculated as a percentage of expenditures in the

grant, as specified, that covers the cost of administering the grant.

o For budget purposes, the amount of the total grant that should be budgeted for indirect

costs is equal to the grant amount divided by (1 plus the indirect cost percentage). For

example, on a $100,000 grant, where indirect costs are 8%, the direct costs will be

100,000/1.08 = 92,592.60. Note that this yields a different amount from 8% of $100,000.

• Each grant RFP will provide information on the allowable administrative costs. Indirect Cost and

Administrative allowance base on the maximum allowable, according to the Office of Management

and Budget Circular A‐21 and the most recent agreement rate of the college.

• Sometimes, depending on the terms of the grant contract, Administrative Allowance can also be a

fixed dollar amount (ie $500 per quarter). There can also be situations where the AA might be

expressed and accrued as a percentage of expenditures, but ACC is able to keep the full dollar

amount, regardless of whether the full amount of underlying direct costs were expended. In this

case, AA would be accrued on a regular basis at the specified percentage, and any remaining

amounts would be claimed at the end of the grant.

• For Indirect Cost journal entries (backdate to the end of the month)

o DR the grant account, subcode 6592

o For federal/state, CR 10‐0‐05001‐4302‐00

o For gifts, CR 10‐0‐05001‐4503‐00

o Include due to/ from entries

• For Administrative Allowance journal entries (backdate to the end of the month)

o DR the grant account, subcode 6588

o For Federal, CR 10‐0‐05001‐4303‐00

o For State, CR 10‐0‐05001‐4402‐00

o For Local Govt, CR 10‐0‐05001‐4502‐00

o For Private, CR 10‐0‐05001‐4602‐00

o Include due to/from entries

• Lease expense vs. indirect costs/admin allowance: In some grants, ACC is allowed to claim an

expense for the cost of ACC facilities that are used for the grant program. If ACC is claiming this kind

of lease expense, it cannot also claim indirect costs or administrative allowance, because the lease

expense is already considered a type of indirect cost.

o To create a journal entry for lease expense, DR 6553 in the grant, CR 10‐0‐07001‐4851‐

00. Include due to/from entries

o This type of lease expense should not be confused with the costs ACC may incur to

actually rent space for a conference or presentation. If ACC must actually pay to rent

space for a conference or presentation that fulfills a grant deliverable, it is usually

considered a direct cost of the grant.

• On the bottom of the reconciliation spreadsheet, it is a good idea to set up a formula that will

calculate the periodic IDC/AA accrual for the journal entry. On multi‐year grants, periodically double

check the formulas and total expenses accrued, to make sure that they are still in the correct

proportion.