The University of Texas at Arlington Office of Research and Office of Accounting and Business Services Brown Bag Training Session Two: Indirect Costs

Definition of Indirect Costs “…costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.” “…costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.” These are REAL COSTS These are REAL COSTS More correct terminology is Facilities and Administration (F&A) Costs More correct terminology is Facilities and Administration (F&A) Costs

Components of F&A Costs Facilities Facilities Buildings depreciation or use allowance Buildings depreciation or use allowance Equipment depreciation or use allowance Equipment depreciation or use allowance Operations and maintenance Operations and maintenance Library Library

Components of F&A Costs (cont’d) Administration Administration General administration General administration Departmental administration Departmental administration Sponsored projects administration Sponsored projects administration Student services Student services Capped at 26% (per OMB A-21) Capped at 26% (per OMB A-21)

Determination of F&A Rate Ratio of : F&A Expenses Ratio of : F&A Expenses MTDC BASE MTDC BASE  F&A expenses = actual F&A costs  MTDC base = all sponsored program expenses (funds from sponsor + University cost share) less specific items excluded

Determination of F&A Rate (cont’d) Rate agreement negotiated with cognizant audit agency (DHHS) Rate agreement negotiated with cognizant audit agency (DHHS) We always get less than our actual rate We always get less than our actual rate

How is F&A Rate Applied Percent of Modified Total Direct Cost (MTDC) Percent of Modified Total Direct Cost (MTDC) Direct Costs Direct Costs Identified specifically with a particular sponsored project, instructional activity or other institutional activity, or Identified specifically with a particular sponsored project, instructional activity or other institutional activity, or Can be directly assigned to such activities relatively easily and accurately Can be directly assigned to such activities relatively easily and accurately

How is F&A Rate Applied (cont’d) MTDC = All Direct Costs except MTDC = All Direct Costs except Equipment Equipment Subcontract amounts in excess of $25,000 Subcontract amounts in excess of $25,000 Tuition remission Tuition remission Rental costs Rental costs Scholarships/fellowships Scholarships/fellowships Participant support costs Participant support costs

How is F&A Rate Applied (cont’d) Percentage of MTDC (defined in previous slide) Percentage of MTDC (defined in previous slide) Percentage of MTDC (defined in program guidelines or contract terms and conditions) Percentage of MTDC (defined in program guidelines or contract terms and conditions) Reduced rate applied to Total Direct Cost Reduced rate applied to Total Direct Cost Off-Campus rate of 26% can only be used if the sponsored activity takes place in a facility for which rent is paid as a direct costs Off-Campus rate of 26% can only be used if the sponsored activity takes place in a facility for which rent is paid as a direct costs If the program guidelines do not specify a rate, we use 48% If the program guidelines do not specify a rate, we use 48%

What are the Regulations Office of Management and Budget (OMB) – Executive Office of the President Office of Management and Budget (OMB) – Executive Office of the President OMB Circulars OMB Circulars OMB A-21 Cost Principles for Educational Institutions OMB A-21 Cost Principles for Educational Institutions OMB A-110 Uniform Administrative Requirements for Grant and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profits OMB A-110 Uniform Administrative Requirements for Grant and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profits

OMB Circulars Determine if costs is allowable Determine if costs is allowable Eligible for reimbursement Eligible for reimbursement Permitted by terms of sponsor Permitted by terms of sponsor Examples of unallowable costs are personal items, alcohol, entertainment, promotional items Examples of unallowable costs are personal items, alcohol, entertainment, promotional items

OMB Circulars (cont’d) Determine if costs is allocable Determine if costs is allocable Assigned to one or more cost objective on some reasonable basis Assigned to one or more cost objective on some reasonable basis Cost objective may be sponsored agreement or F&A activity Cost objective may be sponsored agreement or F&A activity

Quiz Can the following be charged directly to a sponsored agreement and, if so, under what circumstances? Can the following be charged directly to a sponsored agreement and, if so, under what circumstances? Telephone service and long distance calls Telephone service and long distance calls Telephone equipment and line charges normally treated as F&A and CANNOT be charged directly to the sponsored agreement Telephone equipment and line charges normally treated as F&A and CANNOT be charged directly to the sponsored agreement Long distance charges should be direct charges if allocable to the sponsored project Long distance charges should be direct charges if allocable to the sponsored project Centers supported in whole by Federal Funds Centers supported in whole by Federal Funds

Quiz (cont’d) Office Supplies Office Supplies Normally treated as F&A and CANNOT be charged directly to the sponsored agreement Normally treated as F&A and CANNOT be charged directly to the sponsored agreement Exceptions: Some items (such as computer disks) may be used specifically for the project and may be allowed as direct costs Exceptions: Some items (such as computer disks) may be used specifically for the project and may be allowed as direct costs

Quiz (cont’d) Copy Charges Copy Charges Ordinarily CANNOT be charged directly to the sponsored program Ordinarily CANNOT be charged directly to the sponsored program Exceptions Exceptions Specific items (such as survey instruments, dissemination costs) are allowed by funding agency Specific items (such as survey instruments, dissemination costs) are allowed by funding agency These items are explicitly indicated in the proposal budget These items are explicitly indicated in the proposal budget

Quiz (cont’d) Memberships and Subscriptions Memberships and Subscriptions Personal memberships and subscriptions are not allowed since they are considered personal costs Personal memberships and subscriptions are not allowed since they are considered personal costs Institutional memberships and subscriptions for professional organizations or publications are allowable Institutional memberships and subscriptions for professional organizations or publications are allowable

Quiz (cont’d) Administrative Salaries Administrative Salaries “The salaries of administrative and clerical staff should normally be treated as F&A costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. "Major project" is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments.” (A-21 Sect F.6.b.2) “The salaries of administrative and clerical staff should normally be treated as F&A costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. "Major project" is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments.” (A-21 Sect F.6.b.2)

Quiz (cont’d) Examples of “Major Projects” Examples of “Major Projects” Large centers that may include managing teams of investigators Large centers that may include managing teams of investigators Projects which involve extensive database management Projects which involve extensive database management Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports) Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports)

Brown Bag Training Session Three December 19 th, 2002 December 19 th, 2002