Indirect Cost Recovery: Paying Back Your General Fund

Federal and state laws allow many grant programs to pay back a school system’s General Fund for costs incurred on their behalf, but most school districts do not take advantage of this, even though it could mean millions in financial benefits to a school system’s General Fund.

Two of the largest grant programs in school systems are the National School Lunch Program (NSLP) and Title I. Like other grant programs, these programs define and limit the types of costs that can be recovered directly or through an “indirect cost rate” approved by the state. Title I limits recoveries to administrative costs, such as accounting and human resources, but the NSLP allows other types of costs to be recovered, such as utilities.

The financial benefits of indirect cost recovery are significant, regardless of the size of a school district. Below are examples for small, medium, and large districts.

EnrollmentFood Service BudgetAnnual Indirect Cost Recovery
1,000 students$525,000$36,750
15,000 students$7,875,000$551,000
60,000 students$31,500,000$2,205,000

The indirect cost recovery amounts above represent an annually recurring recovery, or benefit, to the General Fund. But this maximum level of recovery is rarely achieved. Why not?

There are several reasons school system leaders cite for not maximizing indirect cost recovery for the NSLP, Title I, and other programs:

  1. They are not aware of the maximum that can be taken for that particular program.
  2. For the NSLP, they don’t want the recovery to run the program into the red, so they don’t do it at all or they do less than what is allowed.
  3. For Title I and other academic programs, the perception is that the recovery takes money away from program spending for administrative purposes.

If the General Fund, and the related staffing and other resources that it pays for, didn’t exist, each of these programs would have to incur their own expenditures for the administration and operational support of their programs. They would need their own technology support, human resources support, and business office support.

But since school districts already have these functions, the indirect cost recovery rules essentially allow school districts to invoice grant programs for these services. The General Fund is going to incur the additional cost of supporting these grant programs whether they get reimbursed or not. So why not get fully reimbursed?

If your food service operation goes into the red because of the allocation, then one of several economic variables (e.g., staffing, pricing, food cost, or menu options) in that operation need to be adjusted to support a profit level sufficient to pay for all of its costs.

The Title I program was designed so that a percentage of the allotment could be dedicated to the program’s administration, so instead of budgeting 100 percent for program costs, you budget less than 100 percent, and reimburse the General Fund for the allowable indirect costs. Otherwise, the school system is offering to pay for the administration of this program, and perhaps other programs, for free.

Each state has different rules that fall within federal rules, and some states link indirect cost recovery for one program to those taken by other programs. For example, Texas now allows the food service program to recover the maximum unrestricted rate for indirect costs, but only if the maximum rate allowed by other programs (i.e., perhaps not the same rate, but the maximum for each) is taken.

This is usually one of the first places that Gibson Consulting Group looks for General Fund “savings” for its clients. It’s the easiest money you can find these days when trying to balance your budget.

If you would like to learn more or discuss how Gibson Consulting Group can help you, please contact our president, Mr. Greg Gibson.


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