MDH Policy on Indirect and Administrative Costs
MDH recognizes that grantees incur certain costs of doing business that are not easily identified with a particular
grant or activity. These costs are often referred to as indirect and administrative costs.
In order to comply with Minnesota Statutes 16B.98, Subd. 1, MDH is responsible for negotiating appropriate
limits to these costs so that the state derives the optimum benefit for grant funding. MDH requires that grantees
formally agree to minimize indirect costs.
In addition, 2 CFR 200.331 requires that non-federal entities must recognize federally approved indirect cost
rates. Grantees without a federally approved indirect cost rate must provide an indirect cost rate of no more
than 10% of the total grant award. Administrative costs directly attributable to the grant program must be
included as part of the appropriate budget line item and not included as part of an organization’s indirect costs.
Definitions
Administrative Costs: Expenses not directly related to delivering grant objectives, but necessary to support a
particular grant program. Examples may include a portion of the following expenses: Accounting; Human
Resource; IT support; other general office expenses. These items should be included in the grantee budget as
specific budget line items, such as:
 direct expenses for salaries and fringe;
 office expenses and supplies;
 contracts.
To be included as direct costs, these expenses must be attributable and appropriately tracked to specific awards.
Indirect Costs: Expenses of doing business that cannot be directly attributed to a specific grant program or
budget line item. These costs are often allocated across an entire agency and may include:
 Human Resources;
 County or city administration;
 Executive or supervisory salaries and fringe;
 Utilities;
 Rent;
 Fleet vehicles, etc.
 Facilities maintenance costs;
Guidance
What are the MDH limits on indirect costs?
MDH will accept an organization’s federally approved indirect cost rate OR up to 10% of the total grant
award.
What does MDH require for proof of indirect costs?
For grantees with a federally approved indirect rate:
Grantees must submit a copy of their federally approved rate to MDH grant programs.
For grantees without a federally approved indirect cost rate:
Applicants must submit a list of expenses that will be covered by the indirect portion of the budget to
ensure expenses such as rent, administrative salaries, etc. are not already listed in other directly billed
budget line item categories.
What records do grantees have to keep?
Grantees are responsible for maintaining all pertinent records (including, but not limited to time
certifications or time studies, payroll and purchase records) verifying the portion of administrative expenses
that are billed to a specific grant program. These expenses are considered direct expenses of the grant, not
indirect costs, and must be reflected on the appropriate budget line items (salaries and fringe, travel, office
expense and supplies, etc.).
08/2015