NO: 96-16-OMB

ORIGINATING AGENCY: Office of Mgmt. & Budget

EFF DATE: Immediate

EXP DATE: Indefinite

SUPERSEDES: 95-07 OMB

SUBJECT: Federal and Other Non-State Funding and Central Support Indirect
and Administrative Costs

ATTENTION: Directors of Administration and Chief Fiscal Officers

FOR INFORMATION CONTACT: William G. Shannon
PHONE 292-7008

It is State policy and the responsibility of each agency to maximize the
recovery of indirect cost and administrative cost from all Federal programs
including block grants and other non-State funded programs as well as fee
supported programs. Agencies must ensure that indirect costs are charged and
recovered from block grant programs to the fullest extent allowable.

Department and agency program staff who seek, negotiate, or administer Federal
and other non-State funded programs, including fee supported programs, must
include allowance for indirect costs as part of the total program budget.

In all cases where Federal and other non-State funded programs, including fee
supported programs exist, agencies shall prepare indirect cost rate proposals
or cost allocation plans by applying the concepts set forth in the Federal
Office of Management and Budget Circular A-87. The Office of Management and
Budget will furnish departments with State central support service cost
allocations. To these costs, the departments will add their own department
indirect costs for the purpose of developing the rate. A copy of each
agency's indirect cost rate proposal is to be forwarded to the Director,
Office of Management and Budget, by May 1, immediately preceding the beginning
of the fiscal year in which the rate will be applied. In addition, agencies
that negotiate an indirect cost rate with a Federal cognizant agency shall
forward a copy of the approved Federal negotiation agreement to the Director,
Office of Management and Budget, within ten days of its receipt. Departments
or agencies which fail to furnish this information will not be eligible to
receive any return of excess indirect costs, if, and when a distribution is
permitted.

Effective July 1, 1996, all existing waivers concerning the payment of
indirect cost recoveries are canceled. If a waiver is desired, a new request
must be submitted to the Assistant Director of Budget at the Office of
Management and Budget (OMB) for approval from the Director, Office of
Management and Budget. A waiver request must provide justification for the
exemption, the dollar amount of the exemption and the funding source. All
waivers will be for one fiscal year only.

Agencies are advised that indirect cost may not be used as State "in-kind"
match where a program is financed partially from the State and partially
from Federal and other non-State fund sources including fees. Particular
attention should be given to year-end closing procedures to assure the
timely application of indirect cost revenue to the fiscal year anticipation.