Consolidation of Administrative Funds, Part II

This is the second part of a web page that provides guidance for local educational agencies (LEAs) about consolidating administrative funds for eligible federal grant programs awarded under the No Child Left Behind Act of 2001 (NCLB). The authorizing statute is the Elementary and Secondary Education Act of 1965 (ESEA), Title IX, Part B, Sec. 9201 and Sec. 9203.

Please note that all of the examples on this page are provided by TEA for informational purposes only. You should not interpret the items or amounts as anything other than sample data.

Budgeting

To budget for a consolidation of administrative funds, your LEA must first decide which eligible programs it will include in its administrative cost pool.

Next, your LEA must estimate the total cost (direct and indirect) of administering the programs to be consolidated for the coming school year. The process you use to estimate administrative needs every year should not change simply because you are consolidating administrative funds. Your LEA should estimate its administrative needs while estimating the programmatic needs of all of your consolidated programs. The process should be a part of creating an overall budget for your LEA so that you can strike a balance between your LEA’s administrative needs and its required programmatic activities.

Your estimate must only include administrative activities that are allowable under any one of the programs that you are consolidating, and the costs must be reasonable and necessary.

Your estimate should include all direct and indirect administrative costs. More information about indirect costs (PDF, 495.5 KB) is available online from TEA.

The following example shows a school district’s estimated budget of administrative costs for the federal programs included in its administrative cost pool for a school year.

Marshalsea ISD
Administrative Costs Budget
Administrative Cost Pool
2015–2016 School Year
  Amount
Direct Administrative CostsSalaries (one federal programs director)$75,000
Salaries (one Title I coordinator)$60,000
Salaries (one migrant education coordinator)$60,000
Salaries (two administrative assistants)$80,000
Supplies for administrative staff $25,000
Training for district internal auditor $1,000
 Indirect Administrative CostsIndirect costs$120,000
 Total $421,000

 

This example includes one item, training for the district’s internal auditor, that is only considered an allowable administrative cost because the district is consolidating its administrative funds. This “extra” allowable administrative cost is one of the advantages to consolidating administrative funds. However, the district still followed the “reasonable and necessary” principle to estimate the cost, as described below.

Guidelines for Establishing “Reasonable and Necessary”

To establish “reasonable and necessary” percentages for administrative costs, your LEA must determine that the specific expenses that you plan to charge to the administrative cost pool are reasonable and necessary.

Title 2 of the Code of Regulations (CFR), 200.404 indicates that a cost is reasonable if “in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.” The same section of the CFR also provides the following specific factors your LEA can use to determine if a particular cost is reasonable:

  • Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-federal entity or the proper and efficient performance of the federal award.
  • The restraints or requirements imposed by such factors as: sound business practices; arm's-length bargaining; federal, state, local, tribal, and other laws and regulations; and terms and conditions of the federal award.
  • Market prices for comparable goods or services for the geographic area.
  • Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-federal entity, its employees, where applicable its students or membership, the public at large, and the federal government.
  • Whether the non-federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the federal award's cost.

For auditing and monitoring purposes, you must maintain detailed documentation that demonstrates that the administrative costs included in the your LEA’s administrative cost pool are reasonable and necessary.

Distributing Funds to the Administrative Cost Pool

Next, you must decide how much money from each eligible program you will consolidate in the administrative cost pool to meet your estimated administrative needs. You must make sure that no amount exceeds the maximum percentage for administrative costs given in statute, or exceeds a percentage that is reasonable and necessary.

For those programs that do not have a specific maximum, the percentage you use for administrative costs should not increase significantly simply because you are consolidating your administrative funds. As mentioned above, you must still ensure that your program budgets contain sufficient funds to carry out required programmatic activities. Both TEA monitors and your independent auditor may require your LEA to provide detailed justifications for administrative costs that appear to make the percentages of consolidated funds increase significantly.

Required Documentation

Your LEA must maintain documentation that shows the amount of administrative funds from each program for each grant year that your LEA consolidated for administrative activities, and that the amount consolidated from each program does not exceed any statutory or regulatory maximum percentage on administrative funds. The table below is an example of documentation your LEA should maintain:

Marshalsea ISD
Consolidation of Administrative Funds
2015–2016 School Year
Eligible NCLB ProgramsMaximum Percentage for Administrative CostsTotal District AllocationAmount of Administrative Funds ConsolidatedPercentage of Allocation Consolidated
Title I, Part A—
Improving Basic Programs
Reasonable and necessary$3,000,000$270,0009%
Title I, Part C—
Migrant Education
Reasonable and necessary$2,500,000$125,0005%
Title II, Part A—
Teaching Effectiveness
Reasonable and necessary$400,000$16,0004%
Title III, Part A—
LEP
2%$500,000$10,0002%
  Total$421,000 

 

Please note that your LEA must ensure that this table is updated as necessary throughout the school year. For example, if your allocation of funds for a specific eligible program increases because of carryover funds, or if you need to increase your administrative costs (staying within any statutory or regulatory maximum percentage), your table should reflect the change.

LEAs must also consider any limits of direct and indirect costs. More information about indirect costs (PDF, 495.5 KB) is available online from TEA. You should also consult the program guidelines for each grant for more specific information about direct and indirect costs for that grant.

Please go to the third part of this web page for information about TEA approval and accounting requirements for consolidating administrative funds.

Contact Information

For more information about the consolidation of administrative funds, please contact the TEA Help Desk and enter “consolidation of administrative funds” in the subject field.

For more information about the federal flexibility initiative, please contact Terry Reyes in the Office for Grants and Federal Fiscal Compliance at terry.reyes@tea.texas.gov.