How should districts manage indirect costs on federal grants?

• A. Apply approved indirect cost rates consistently, maintain documentation, and allocate overhead appropriately per grant terms.
• B. Exclude indirect costs and only charge direct costs.
• C. Apply random overhead rates without grant terms.
• D. Refuse to allocate overhead to any grant.

Answer: (A)

Indirect costs are real expenses of running a federal grant, such as facilities, utilities, and general administrative support, and they should be recovered using an approved indirect cost rate. After a district negotiates this rate with the federal government, it must apply it consistently across all applicable awards and base the charge on the appropriate allocation base defined in the agreement. Proper documentation is essential: keep the negotiated rate agreement, show exactly how the rate is calculated, and maintain records of the indirect costs charged to each grant to support audit readiness. Charges must follow the grant terms, including any limits or specified bases, and align with federal guidance. This approach prevents under- or over-recovery of costs and ensures compliance. Excluding indirect costs, using random rates, or refusing to allocate overhead would violate negotiated agreements and grant terms.