The State of Arkansas participates in a statewide indirect cost system authorized by federal Office of Management and Budget (OMB) Circular A-87. This system permits the State to determine costs that are contained within the administration of federal programs, and use those costs as a portion of the required matching share of federal grant programs. Consequently, state agencies may receive extra federal funds by claiming indirect costs as matching funds.
Indirect costs are determined in two ways. First, the Office of Intergovernmental Services prepares a Statewide Cost Allocation Plan (SWCAP). This SWCAP is a statistical method of allocating central government costs to the state agencies that receive central government supportive services. Portions of the costs of the following agencies are allocated within the SWCAP.
- State Treasurer
- State Auditor
- Claims Commission
- Arkansas Building Authority (ABA)
- Finance and Administration (DFA)
The following mechanisms are used to allocate operating expenses of the central service agencies to the line agencies of state government.
- State Treasurer: State warrants prepared and processed
- State Auditor: State warrants issued
- Claims Commission: Number of claims processed
- ABA: Square feet of space leased
- Capital construction managed
- DFA: Number of personnel positions
- Funds expended by an agency
- Vouchers examined
- Budget management
- Procurement of commodities and service
For agencies that receive federal grants these costs may be claimed as an indirect cost of managing federal programs.
Agencies receiving federal grants may also use certain portions of their internal central administrative costs as support for managing federal programs. To claim these costs the agency must prepare an Agency Indirect Cost Plan which itemizes the agency’s overall cost and those costs which support federal program efforts.
A formula applied against these cost elements yields an Indirect Cost Rate. This rate may be applied to a federal grant to either:
(a) secure additional federal funds if federal funding is open-ended, or
(b) recover state expenses for federal program management by claiming a portion of the federal grant as a refund to a prior state expenditure. The Office of Intergovernmental Services is available to assist agencies in developing Indirect Cost Rates.