FY2027 Non-LEA Indirect Cost Rate Application Guidance

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Purpose

This memorandum provides information and instructions for Non-LEA entities applying for an indirect cost rate with DESE. This process applies to all entities except Local Educational Agencies (LEAs) and Charter Schools, whose rates are determined separately by DESE School Finance and the DESE Charter School Unit.

Authority

The Massachusetts Department of Elementary and Secondary Education (DESE) has been delegated authority by the U.S. Department of Education to establish annual restricted indirect cost rates for grants it awards. DESE's Audit and Compliance Unit reviews, negotiates, and approves restricted indirect cost rate applications submitted by Non-LEA grant recipients.

Under this authority, DESE sets a maximum restricted indirect cost rate of 8% of Modified Total Direct Costs (MTDC). DESE may adjust the approved rate downward to exclude costs that are not consistent with the restricted rate formula or otherwise ineligible under the grant. Any adjusted rate applies only to DESE grants and does not affect rates for grants from other state agencies or funding sources.

For cities and towns without a negotiated indirect cost rate agreement, DESE will assign the same restricted indirect cost rate as their Local Educational Agency (LEA). Approved rates are valid for both state and federal funding issued by DESE and must be renewed through an annual application.

Background

Indirect costs are expenses that support an organization's overall operations and cannot be directly attributed to a specific program. There are two types of indirect cost rates: unrestricted and restricted. Restricted rates apply to grants with a federal "supplement not supplant" requirement, which is the case for most DESE grants.

Under a restricted rate, certain costs (such as executive leadership, rent, and depreciation) must be treated as direct costs rather than indirect costs. This results in a lower rate and ensures that grant funds are used to supplement program services, not replace state or local funding.

For additional guidance, refer to US Department of Education Q&A's: Indirect Cost Determination Guidance (U.S. Department of Education)

Application Process

Step 1 — Required Documents

All Non-LEA entities must submit the following with their application:

• Completed FY2027 Non-LEA Fixed Restricted Indirect Cost Rate Application (Attachment A )
• FY2027 Indirect Cost Certification Statement (Attachment B )
• FY2027 Cost Policy Statement (Attachment C )
• Most recent audited financial statement
• Current organizational chart

Step 2 — Application Options

In addition to the required documents above, applicants must select one of the following options based on their organization's status:

1. Option 1 — Federal Negotiated Rate:
   Required: Submit the current up to date Negotiated Indirect Cost Rate Agreement (NICRA).

2. Option 2 — IRS Form 990:
   Required: Submit the most recent IRS Form 990. DESE will use expenditure data from the Statement of Functional Expenses (Part IX) to calculate a restricted indirect cost rate. This method is approved by the U.S. Department of Education as an alternative to submitting a formal indirect cost rate proposal.

3. Option 3 — Organization-Prepared Proposal:
   Submit an indirect cost rate proposal, including a calculation spreadsheet and supporting documentation, prepared in accordance with the restricted rate formula under 34 CFR Part 76, Subpart F (Indirect Cost Rates). Organizations are encouraged to seek assistance from their accountant or audit firm. eCFR : 34 CFR Part 76 Subpart F - Indirect Cost Rates .

Deadlines

• New grantees: Submit within three (3) months of the grant start date.
• All other entities: Submit by June 30, 2027, to recover indirect costs on FY2027 DESE grants.

Submission Instructions

Email the complete application packet to: audit.compliance@mass.gov Subject line: "FY2027 ICR Application - [Name of Organization]"

Approval Process

The Audit & Compliance Unit will review the application and notify you of your approved restricted rate and the approved rates will be posted on the DESE web site, which will be updated weekly. You may not recover any indirect costs on your grant without an approved rate from the DESE Audit and Compliance Unit. Furthermore, the recovery of indirect costs are based on actual expenditures and all unrecovered budgeted indirect costs at the end of the grant period must be returned to DESE.

Last Updated: April 13, 2026