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NSLP Memo #3-17: Indirect Cost Guidance

Tuesday, January 10, 2017

USDA Food and Nutrition Services (FNS) has recently released Indirect Costs, Guidance for State Agencies & School Food Authorities. An overview of information included in the guidance is outlined below. We have also attached the slides from USDA’s Indirect Cost webinar as a resource for you. Please reach out to your designated Program Specialist with any questions.

Indirect cost guidance provides assistance to SFA business officials to ensure the nonprofit school food service account (NSFSA) funds are limited to those expenses that are reasonable, necessary, and allocable to provide quality meals for the NSLP and SBP. In general, the full cost of the NSLP and SBP includes both direct and indirect costs. Direct costs are incurred specifically for the NSLP and SBP, and can be readily identified to a particular school food service objective. Allocation of indirect cost is necessary because it identifies the portion of the costs benefitting the school food service.

The guidance provides information to State agencies and SFAs on program rules pertaining to:

  • Definitions for both direct and indirect costs, including the proper classification of costs and discussion on the treatment of certain typical costs in the NSLP and SBP. Direct costs are discussed because direct and indirect costs are complementary;
  • An overview of the Federal cost principles and explanation that all costs (direct or indirect) paid with funds from the NSFSA must be allowable. The guidance provides criteria that will aid an SFA in determining allowable costs and includes relevant examples;
  • Information on how a school district’s general fund recovers indirect costs from the NSFSA. This includes appropriate application of the indirect cost rate and the requirements for the SFA to determine the rate;
  • Considerations for the SFA when assessing indirect costs charged to the NSFSA. This information includes how an SFA should address errors and the billing of previous years’ indirect costs; and
  • An overview of how the indirect cost rate is developed as relevant background information for SFAs. The information includes a discussion on appropriate uses of restricted or unrestricted indirect cost rates and adjustment of the rates.

Related Content: NSLP and SBP State Agency Memos