Multifamily Housing Program Financial Management Toolkit

11. Allocating Indirect Costs

As noted above, indirect costs are typically accumulated in the ‘Management and General’ (M&G) cost pool. As most HUD grantees and sub-recipients are either government or nonprofit organizations, there are a few methods for allocating indirect costs that are acceptable under OMB regulations:

  • Direct Allocation Method
  • Simplified Allocation Method
  • Multiple Rate Allocation Method
  • Special Indirect Rate
  • Federally Approved Indirect Cost Rate by cognizant agency

Guidance for State/Local Governments Re: Indirect Cost Allocation (Appendix VII to Part 200)

Allowable indirect costs are defined in Part 200 to include:

  • The indirect costs originating in each department or agency of the governmental unit carrying out Federal awards
  • The costs of central governmental services distributed through the central service cost allocation plan (as described in Appendix V to Part 200 - State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans) and not otherwise treated as direct costs.

State/local governments’ indirect costs are normally charged to Federal awards by the use of an approved indirect cost rate. A separate indirect cost rate(s) is usually necessary for each department or agency of the governmental unit claiming indirect costs under Federal awards.

  • Guidelines and illustrations of indirect cost proposals are provided in a brochure published by the Department of Health and Human Services entitled “A Guide for States and Local Government Agencies: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government.”
  • A copy of this brochure may be obtained from the HHS Cost Allocation Services website.

Guidance for Nonprofit Entities Re: Indirect Cost Allocation (Appendix IV to Part 200)

Indirect costs are those that have been incurred for common or joint objectives. After direct costs have been determined and assigned directly to federal awards, or other work as appropriate, indirect costs are those that remain to be allocated.

  • Please note, however, that a cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost.

In this Section

11a. Direct Allocation Method

11b. Defining Administrative Costs for HUD Purposes

11c. Allocating Shared Personnel Costs

11d. Allocating Shared Non-Personnel Costs

Knowledge Check – Indirect Costs