Indirect Cost Rate Concepts

In general, indirect costs are identified as those costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity or any other institutional activity. These costs are accounted for in the unrestricted Index (FOPAL).

Indirect Cost Recovery
In order to record an additional grant/contract expense as direct costs are charged to grant and contract Indexes (FOPALs), an entry in object code 798100, which represents the portion of indirect costs allocable to those direct costs, is either calculated automatically by the accounting system or computed manually by Sponsored Projects Accounting (SPA). All expenses charged to this code as indirect costs must be supportable within the grant or contract and billable to the external sponsor.

NMSU separately recognizes income as a part of this transaction. A portion of the indirect costs recovered through this charging mechanism are returned to the unit generating the direct costs as unrestricted income, to be used in support of the unit's research or public service function. The remainder of the indirect cost recovery is retained centrally within the University to help defray the costs associated with the central functions.

Unallowable Indirect Cost Pool Expense
The Federal Government requires the University to certify that no unallowable costs have been included in the calculation of the Facilities and Administrative (F&A) rate. The guidelines in this section should be used in determining whether or not the expense is allowable. Questions regarding the allowability of specific expenses should be forwarded to AFR.

There are many expenses in these categories allowable from other University Indexes (FOPALs), but not allowable components of our indirect cost pool. Special accounts have been established for recording these expenses, and should be used throughout the year for this purpose. In general, these accounts end in 990.Contact the appropriate fiscal monitor regarding the use of these accounts.

Examples of Federal unallowable expenses to Indirect Cost Pools for the F&A rate include:

• Advertising and Public Relations Costs
• Alumni Activities
• Bad Debts
• Compensation for Personal Services
• Defense and Prosecution of Criminal and Civil Proceedings, Claims of, Appeals and Patent Infringements
• Donations and Contributions
• Entertainment Costs
• Fines and Penalties
• Goods and Services for Personal Use
• Housing and Personal Living Expenses
• Interest, Fund Raising and Investment Management Cost
• Lobbying
• Memberships, Subscriptions and Professional Activity Costs
• Selling and Marketing
• Student Activity Costs

The Federal unallowable costs, which are still University allowable expenditures, should be assigned an account that ends in 990. For example, Federally Excluded Professional Services would have an account of 761990. For further details or clarification on any of these items, please refer to OMB Circular A-21 or contact your fiscal monitor.

Please keep in mind that these guidelines are only to be used in determining whether or not the indirect costs are allowable. Direct cost items on grants or contracts may be treated differently. Some costs, which would not be allowed in indirect costs, may be allowable direct cost items if specifically allowed by the grant or contract.

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Internal Service Center Procedures

The University has several internal service center units that charge specific rates for their services to other units on campus. The Internal Service Center Procedure, which defines an internal service center and outlines procedures governing the rate development, is to be referred to when making these decisions. (Appendix 1A-B) All charges are processed on an Interdepartmental Special Charges form. Special form for Catering Services will be used for all changes from the University food service contractors.

Inventory Held for Resale

Departments that hold inventory for resale will be responsible for submitting a 100-percent physical inventory count on June 30th of each fiscal year. Before the end of the current fiscal year, AFR sends a letter to departments requesting this listing and any information regarding changes in the departments' policies and procedures regarding inventory.

AFR is responsible for evaluating and adjusting balances of physical inventories held by departments. Test counts may be conducted as considered necessary.

Upon receipt of the list of physical inventory, AFR will do trend analysis to evaluate changes. AFR will then prepare any necessary journal entries to adjust the balance of the inventory in order for the correct amount to be stated before the books are closed for the current year-end.

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