Policy On Indirect Cost Recovery Excluded (ICRX) Expenditures

Policy On Indirect Cost Recovery Excluded (ICRX) Expenditures

The following information about Indirect Cost Recovery Excluded (ICRX) Expenditures was issued by the Cost Reimbursement Office of Financial Operations.

  • To provide you with the information necessary to comply with the University of Michigan's policy on indirect cost recovery excluded (ICRX) expenditures regarding A-21 compliance
  • To improve your understanding of the importance of tracking salary and non-salary ICRX expenditures
  • To teach you how to recognize and flag ICRX expenditures in the University's accounting system
  • To give you examples of how to apply the policy

Flag all indirect cost recovery excluded (ICRX) expenditures at the University of Michigan with the appropriate Class ending in X. This document establishes practices to recognize, charge, and flag ICRX salary and non-salary expenditures to comply with this policy.

This policy applies to these Funds:

Fund Number Fund Description
10000 General
20000 Federal Sponsored
25000 Non-Federal Sponsored
30000 Expendable Restricted Gifts
40000 Designated
50000-59999 Auxiliaries

Cautions: Individual departmental policies and procedures may be stricter than those of the university.

Sponsored Funds

Do not charge ICRX expenditures to Funds 20000 and 25000 (sponsored awards). When an ICRX expense is included in the budget of a sponsored award the expense becomes a sponsored allowable cost and does not require an "X" Class.

Do not confuse Indirect Cost Recovery Excluded expenditures with Restricted Expenses on Federal Projects. Please refer to the university's policy on Restricted Expenses on Federal Projects.


These definitions are specific to this document.

A-21 Unallowable Costs
See Restricted Expenses on Federal Projects.

A Chartfield in the University of Michigan accounting structure that describes an activity supporting the University's mission. Examples: instruction, research, departmental administration, and student services.

Facilities and Administrative Costs
A-21 term for Indirect Cost. The cost of resources provided by the university for sponsored awards. Examples of indirect costs are utilities, asset depreciation, libraries, central administration, sponsored-project administration, and departmental administration.

Facilities and Administrative (F & A) Proposal
Proposal prepared according to OMB Circular A-21 regulations and submitted to the federal government to determine the university's facilities and administrative rates.

Federal Government Office of Management and Budget Circular A-21
Federal regulation for charging expenses to sponsored awards and preparing the facilities and administrative proposal. The A-21 regulation dictates proper classification of all university expenditures.

Indirect Cost Recovery Excluded (ICRX) Expenditure
A cost that cannot be charged (directly or indirectly) to sponsored awards and must be specifically identified for the Facilities and Administrative Proposal. However, an ICRX cost may be a legitimate university cost.

Restricted Expenses on Federal Projects
Certain expenses required by A-21 to be reviewed for a direct benefit to a federal project, specifically clerical and administrative salaries, supplies (consumable and office supplies), postage, telephone line charges, local calls, memberships and dues, journals and other subscriptions, books, and hosting and food expenses. These expenditures are sometimes referred to as A-21 Unallowable Costs.

Sponsored Allowable Cost
A cost specifically identified in the budget of a sponsor award or permitted based on sponsor regulations.

Compliance and Responsibility

Understanding the importance of complying with this policy at the University of Michigan external sponsors is critical to the vitality of the university's missions of instruction, research, and public service. Sponsors such as the federal government, state government, foundations, and corporations provide direct costs for the university's missions. Sponsors also reimburse the university for a portion of facilities and administrative costs (indirect costs). Indirect costs are real costs to the university. Examples of indirect costs are:

Utilities Depreciation Building maintenance Departmental administration General office supplies Central administration Libraries

Unit Responsibility

If units have authority to use university funds, they must understand this policy and its application. The University's Standard Practice Guide addresses fiscal responsibility:

Standard Practice Guide, 500.01 Fiscal Responsibility of a Project Director

"Because the university is a large and highly decentralized organization, the responsibility for many of the fiscal controls rests principally with project directors (department managers*). Project directors (department managers) must be university employees, any exceptions must have the controller's written approval. The project director must follow the University's central fiscal procedures described in section 500, Business and Financial Services, of the Standard Practice Guide and the written policies and procedures if any, of his/her department. However, merely complying with these written policies and procedures is not enough. The project director (department manager) must exercise reasonable care and judgment in the performance of fiscal duties. The project director must also adhere to the specific sponsor guidelines of projects supported by the Federal government, other government entities, industry, foundations, and the like.

* The department manager is responsible when there is no project director for a Chartfield combination.

Cost Reimbursement Office, Financial Operations Responsibility

Prepare the facilities and administrative cost proposal and analysis. We treat ICRX expenditures as A-21 dictates. Provide training and advice to the university community on ICRX expenditures, cost accounting standards, and proper use of Class. Preview transactions for compliance and consistency of university policies and A-21.

The federal Office of Management and Budget issued Circular A-21, Cost Principles for Educational Institutions (A-21), to regulate cost accounting practices at educational institutions, and the university must comply with these regulations.

A-21 includes the rules for computing the university's Facilities and Administrative rates that are calculated by the Cost Reimbursement Office staff.

A-21 defines certain expenditures as indirect cost recovery excluded (ICRX). Some ICRX expenditures are necessary costs of doing business. However, ICRX expenditures must be segregated in the facilities and administrative rate calculations. For this reason, the Cost Reimbursement Office must be able to tell which expenditures are indirect cost recovery excluded.

This is where departments come in—they must flag all indirect cost recovery excluded (ICRX) expenditures. The Cost Reimbursement Office can easily isolate flagged expenditures, resulting in the university's compliance with A-21 for ICRX expenditures.

This document describes how to recognize and flag indirect cost recovery excluded (ICRX) expenditures as described in this document.

Why must departments comply with this policy?

Federal regulations require the university to identify indirect cost-recovery-excluded (ICRX) expenditures. At the University of Michigan, indirect-cost-recovery excluded expenditures are identified by their use of the appropriate Class ending in X.

When departments flag indirect cost-recovery-excluded expenditures as required by this policy: 1.) The Cost Reimbursement Office can identify ICRX expenditures because the transactions will have Classes that end in X. 2.) The University is in compliance with A-21 regulations when the appropriate Class ending in X is assigned to transactions.

Federal Regulation OMB Circular A-21

The federal government Office of Management and Budget issued Circular A-21 (A-21), Cost Principles for Educational Institutions. A-21 sets cost practices for educational institutions that receive $25 million or more of federally sponsored awards.

OMB Circular A-21, Section J, discusses treatment of certain costs for educational institutions. This document explains how you must handle these costs at the University of Michigan.

OMB Circular A-21 is available at this web site: http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html in html format or http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a021/a21_2004.pdf in pdf format.

Who enforces A-21?

The federal government enforces A-21 at the University of Michigan in three ways:

The university must submit a disclosure statement to the federal government that details the university's policies and practices for complying with A-21. Every federally sponsored award is subject to audit by its funding agency. The Facilities and Admistrative Cost Proposal and supporting documentation is audited by the Department of Health and Human Services, Division of Cost Allocation.

What are the penalties for failure to comply with A-21?

The university is subject to the following penalties for failure to comply with A-21:

Loss of facilities and administrative (indirect) cost reimbursement from sponsoring agencies. The University of Michigan recovers over $100 million annually in facilities and administrative costs. Reduction of facilities and administrative rates. Fines, interest, and penalties.
Identifying Indirect Cost Recovery Excluded Expenditures

Expenditures for these activities are always ICRX

Alumni activities Commencement Entertainment Fund raising Lobbying Public relations

Sometimes Indirect Cost Recovery Excluded Expenditures

Review practices for these expenditures to determine the appropriate Class. Depending on the purpose of the expense, it may be ICRX.

Advertising Hosting Meals and travel Meetings and conferences Memberships Recruiting Selling and marketing

Indirect Cost Recovery Excluded Expenditures

The following expenditures are always ICRX

Alcoholic beverages Bad debts
  • Student extracurricular activities
Flagging Indirect Cost Recovery Excluded Expenditures

Determine the appropriate Class - refer to the Class Code Definitions for definitions of available classes. Replace the final digit of the appropriate Class with an X. CAUTION: Never assign an ICRX expense to a sponsored award, Funds 20000 and 25000. Flag salary expenses for an individual only if he or she spends five percent or more of his or her time during a fiscal year on an ICRX activity. Examples of appropriate use of Class ending in an X:

  • Entertainment that supports instruction in an academic unit is an ICRX expense and must be classified with Class 1100X - Instruction-ICRX.
  • A professor takes his/her research assistants out for dinner as a good will gesture. The hosting expenditure was approved in advance. Expenditures for employee health and morale are ICRX. The transaction must be flagged with an X Class, and might be classified as 2100X - Departmental Research-ICRX.
  • A staff member spends 25 percent of his/her time maintaining an alumni database, and preparing and distributing an annual departmental newsletter for alumni and others. Alumni activity typically generates fundraising revenue. Fund raising and alumni activities are always ICRX. Academic units should also use 4600X for alumni, development, or fundraising expenditures. Therefore, 25 prcent of the staff member's appointment must be charged to Class 4600X -Academic Administration-ICRX.
Practices and Examples

Cost Reimbursement Office, Financial Operations

Dan Horal
Sr. Cost Accountant
(734) 647-3843

Mary Gauthier
Sr. Cost Accountant
(734) 763-0522

Other university resources

Sponsored Programs
(734) 764-8204

Controller's Office
(734) 764-7214

Travel Audit Office
(734) 764-8212

(734) 647-7333

Procurement Services
(734) 647-0729

Class Decision Tree

The Class Decision Tree is the process used for choosing the appropriate Class for an activity or transaction, in flowchart format.

Class Decision Tree.pdf