Facilities and Administrative Costs (Indirect or Overhead)

Michael J. Warnock, Ph.D.Director, Office of Sponsored

Program Administration

What’s in a name?

Facilities and Administrative Costs F&A Costs Indirect Costs Overhead Costs Administrative Costs Direct Costs Allocable Costs Not a “tax” over and above the cost of

project, but an integral part of the project cost

What are F&A Costs?

Costs associated with completing a project that are not directly charged to the project

Includes: Space where work is done Utilities where work is done Equipment used to support work done Administration and oversight of work done Use of library facilities General supplies/materials to support work

Cost recovery mechanism based on historical expenditures

Why not charge F&A costs as a direct charge?

Increased administrative burden (cost) to: Determine what charge at what rate for

each project Accounting for actual and reconciling

differences Allocations between projects (e.g., costs

for a lab used in several projects would need to be allocated and records kept to differentiate between the uses by each project)

Selected Items Excluded From F&A

Animal care costs Service operations Certain building costs Certain utility costs

Is F&A Important to Me?

Where does my paycheck come from? How are my support staff paid? What was the source of funding for the

building I work in? What is the source of funds for the

utilities in my building? How are costs for shared purposes tied

to the benefiting functions (including mine--cost and benefit)?

How is research infrastructure paid for? These are real dollars

Scope of F&A Rates

Research On-campus Off-campus

Instruction On-campus Off-campus

Other Sponsored Activity (any other project sponsored by an external entity that is not research or instruction) On-campus Off-campus

Determination of F&A Rate

Summary of financial information—i.e., how funds were spent in base year

Classification of cost to cost pools Adjustments to identify modified total

direct costs (MTDC) Review and adjustments to cost

classification Allocations of indirect costs Calculation of F&A rates

Summary of Financial Information

Functional classifications in PeopleSoft

PCS (Project Classification System) codes

PCS tree for Chartfields DeptID (some exceptions) is the

key for PCS codes

Classification of Cost to Cost Pools

Based on Chartfield PCS code Depends on accurate decision

making with regard to which Chartfield is used for expenditure

Expenditures for multiple purposes must be split between appropriate Chartfields

Summary of Financial Information

Instruction (28%)

Research (16%)

Service (16%)

Departmental Administration (9%)

Student Services Administration (3%)

General Administration (6%)

Operations & Maintenance (6%)

Scholarships (1%)

Depreciation (4%)

Auxiliary (11%)

Adjustments to Identify MTDC

Move certain costs out of individual Chartfields to other categories Capitalized building expenses Capital equipment costs Scholarships Unallowable costs (including A-21

Exclusions) Etc.

These reclassifications are proscribed by OMB Circular A-21

A-21 Exclusions

Certain costs may not normally be charged to the federal government either as direct charges or through the F&A rate (see separate handout)

Under certain conditions, some of these may be chargeable as direct costs to the federal government (must be specifically approved by sponsor)

There are generally no prohibitions on charging these as direct costs to non-federal projects (be careful of federal flow through—it counts as federal)

Adjustments to Identify MTDC

Instruction (31%)

Research (16%)

Service (16%)

Departmental Administration (10%)

Student Services Administration (3%)

General Administration (6%)

Operations & Maintenance (5%)

Scholarships (0%)

Depreciation (4%)

Auxiliary (9%)

Review and Adjustment

Cleanup process Review expenditures on Chartfield

to identify where expenditures may have been made from Chartfield with one PCS code that should have been another

Initial identification by review of expenses, confirmation by consultation with Chartfield approver

Review and Adjustment

Instruc tion (20%)

Researc h (11%)

Other Sponsored Ac tivity (12%)

Departmental Administration (10%)

Student Servic es Administration (3%)

General Administration (5%)

Operations & Maintenanc e (8%)

Sc holarships (0%)

Deprec iation (4%)

Other Institutional Ac tivity (24%)

Library (3%)

Sponsored Projec ts Administration

Allocations of Indirect Costs

Differing allocation methods for different classes of indirect cost pools Administrative pools Library pool Facilities pools

Allocation of indirect pools are to direct functions

Administrative Allocations

Allocation is based on expenditures within covered direct cost pools

General administration Allocated to all institutional direct functions

Departmental administration Allocated among direct functions within

administrative unit Student services administration

Allocated entirely to instruction function Sponsored projects administration

Allocated among sponsored project direct cost functions

Allocation of Library Cost

Based on user population Allocations differ for each

population Can be based on employee/user

populations or special study Ours done on employee/user FTEs

Faculty Staff Students Other users

Facilities Allocation

Based on space allocations Space allocations can be based

on salary allocation to direct costs or on space study

We use a space study because it more closely ties costs to usage (especially for O&M and equipment)

Calculation of F&A Rates

Divide amount of indirect cost allocated to direct cost pool by MTDC amount of direct cost pool

(A/B)*100% = C where A = allocated indirect cost B = MTDC of direct costs C = indirect cost rate for that indirect

function Thus, if general administrative costs

are $50,000 and direct instruction costs are $1,000,000, then instruction F&A rate for GA is 5%

After Calculation, Then What?

Administrative Cap Utility Cost Adjustment Rate Proposal Negotiation Agreement

Administrative Cap

Administrative indirect costs for research cost pool are capped at 26%

That means any administrative (collectively) costs above 26% are unrecoverable

Administrative cap does not apply to non-research cost pools (we apply it, A-21 does not)

Utility Cost Adjustment

A-21 recognizes that research uses a greater proportion of utilities than other direct cost functions

UCA was designed to reimburse these costs

UCA applies only to certain institutions UM campuses are not among those

institutions OMB was supposed to have issued new

rules for the UCA in July 2002--not yet done

Rate Proposal

Lots of data Calculated rates for each

indirect cost pool supporting each direct cost pool

Additional (beyond the F&A data) institutional data

Lots of tables Lots of paper

Negotiation

Government wants to pay as little as possible University wants reimbursement (we have

already spent this money) for as much of the cost as possible

Research rate is the focus because that is most of what federal government funds at the negotiated rate

Negotiated rate never exceeds proposed rate—the amount that it is less is largely based on strength of proposal

Differentials between proposed rate (cost) and negotiated rate are 2.9%

Agreement

Specifies rates for each direct cost pool except OIA

Specifies MTDC base components by what is excluded from the base

Specifies effective dates of rates Specifies type of rate (normally

“predetermined”)--we were provisional since July

References requirements of A-21

A-21 Referenced in Agreement

What does this mean for us? Cost Accounting Standards No special accounting practices for

sponsored projects (can’t charge them costs not charged elsewhere)

F&A rates apply to all projects funded from outside the institution

Costs charged to a project must be during the term of the agreement and for the benefit of the project

Others, but these are the big ones

Where does that leave us?

The F&A rate is a cost recovery process—if we do not recover F&A from projects, the difference to cover the costs is made up from elsewhere

The cap on the administrative rate means any administrative costs exceeding 26% are unrecoverable

Since we exceed the cap, administrative cap also means the only variables are facilities and library costs

Cost Recovery Assessment

51.0%47.0%

25.0%

0.0%

26.8%

8.3%

0.1%

32.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Instruction Research OtherSponsored

Activity

OtherInstitutional

Activity

Recoverable

Unrecoverable

Strategies for Strength

Reduce non-mandatory reclassifications Have more accurate Asset Management

(buildings and equipment) records Develop a higher degree of confidence in

relationship between activity (and funds to support it) data and space assignment data

Spend funds according to the PCS code assigned to the Chartfield

Conduct a library special study All else being equal, use institutional funds

for facilities and project funds for salaries Next year (FY 2005) is the next base year

Space is Critical to Success

The space data drive almost all the facilities costs

Recoverable building depreciation is based on space allocations

Recoverable equipment depreciation is based on assignment of equipment to rooms and space allocations of those rooms

Recoverable O&M is based on space allocations

What are MU’s F&A rates?

Research-on campus 47% Research-off campus 26% Instruction-on campus 51% Instruction-off campus 26% Other Sponsored Activity-on

campus 25% Other Sponsored Activity-off

campus 19.5%

What about state projects?

Research-on campus 47 36.6% Research-off campus 26 20.2% Instruction-on campus 51 39.7% Instruction-off campus 26 20.2% Other Sponsored Activity-on campus

25 19.5% Other Sponsored Activity-off campus

19.515.2%

What are the components of MU’s research rate?

General Administration-4.5% Departmental Administration-

19.5% Sponsored Projects

Administration-2.0% Building Depreciation-3% Equipment Depreciation-2.2% Operations and Maintenance-

13.9% Library-1.9%

What happens when F&A costs are not recovered?

Costs must be picked up from another source

RIF is reduced Compliance problems Reduced future rate (but with

constant or increasing costs)

Who is affected when F&A is not recovered?

General Administration-4.5% (9.6%) Departmental Administration-19.5% (41.4%) Sponsored Projects Administration-2%

(4.3%) Building Depreciation-3% (6.4%) Equipment Depreciation-2.2% (4.7%) Operations and Maintenance-13.9% (29.6%) Library-1.9% (4%)

Research Rate Components

Departmental Administration (41.4%)

General Administration (9.6%)

Operations & Maintenanc e (29.6%)

Building Deprec iation (6.4%)

Equipment Deprec iation (4.7%)

Library (4%)

Sponsored Projec ts Administration(4.3%)

Who pays when F&A is not recovered?

General Administration 7.2% Departmental Administration 31.1% Sponsored Projects Administration

3.2% Building Depreciation 4.8% Equipment Depreciation 3.5% Operations and Maintenance 22.2% Library 3% RIF 25%

How do our rates compare?

University of Illinois 53% Purdue University 52% Indiana University 50.5 University of Texas 50%* University of Minnesota 48.5% University of Oklahoma 48% University of Colorado 48% University of Iowa 47.5% University of Kentucky 47% Iowa State University 46%* Kansas State University 46% University of Kansas 44% *provisional rate under negotiation

Questions/More Information?

Mike Warnock, OSPA, 882-4329, warnockm@missouri.edu