Presented by Ginger Baker Eileen Campbell

Cost Principles for Educational Institutions found in 2 CFR Part 220  The Federal Government guidelines for calculating the facilities and administrative rate using either Long Form or Short Form methodologies.  Educational institutions that receive federal awards subject to A-21 of less than $10 million are required to calculate their F&A cost rate using a simplified method known as a short form (Section H).  Educational institutions that wish to be reimbursed for institutional wide administrative and facility costs associated with federal contracts and grants need to develop an F&A cost rate.

 Sets uniform standards of allocation  Sets uniform standards of allowability  Allows schools to identify full cost of federal programs  Provides that the federal government bear its fair share of total costs  Simplifies intergovernmental relations  Encourages consistent costing

The six “B’s” for costs:  Be allowable  Be allocable  Be reasonable  Be treated consistently  Be necessary to perform the program  Be permissible under the law

 The documentation prepared by an institution in accordance with the federal cost principles in OMB Circular A-21 to substantiate its claim for the reimbursement of F&A costs.  If you don’t want to be reimbursed for F&A costs, you don’t have to prepare a proposal.  The proposal should to be submitted six months after the fiscal year end.

 The proposal needs to be reconciled to the audited financial statements.  Needs to be clear explanation of adjustments and reclassifications.  Base period normally coincides with fiscal year.  Short form institutions follow Section H of OMB Circular A-21.

 The proposal and supporting documentation becomes the basis for negotiating your institution’s F&A rate.  Remember, this is your proposal and you must defend it.

 Costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, instructional activity or any other institutional activity.  Often referred to as indirect or overhead costs.

Not directly assignable to any one activity. ExecutiveManagement Building and Equipment Depreciation/ Use Allowance Payroll or Purchasing Repair & Maintenance Utilities Human Resources Accounting & FinancialManagement Budgeting

 Advantages  Relatively easy to prepare and negotiate  Uses institutional financial statements  Uses formula approach -1 pool and 1 base (OH)  Does not need a space study  Does not need a library allocation  Does not need a DCE calculation  Does not need sub-pooling for GA or O&M  Administration is not subject to the 26 point cap that is imposed on long-form institutions

 Disadvantages  Does not always result in optimizing F&A cost recovery.  Establishes one rate for all sponsored activity, rather than on and off campus rates and special rates where appropriate.

 Download operating expenses  Functional expenses need to be broken into salaries, fringe, and other expenses  Reconcile  Expenses to the Financial Statements by NACUBO functional category  Decide on Distribution Basis  MTDC  Salaries and Wages  Reclassify financial expenses  Into the function groups and ultimately indirect cost pool and direct cost base

The F&A Calculation Process  Exclude certain costs  MTDC exclusions  Unallowable costs  Make adjustments to ensure consistency  Calculate the rate

 Extract current fund operating expenses  Reconcile to expenditures reported in the notes to the financial statements by NACUBO category  Can take longer than you think

Reclassification  Short form institutions need to reclassify their financial expenses into the F&A function groups and ultimately either the indirect cost pool or direct cost base needed to compute the F&A rate under the simplified method.  This initial review of expenses for F&A classification purposes can be done at the department, object code, or account level.

Reclassification Reclassifications Include:  Scrub Expenses  Unallowable Activities  Sponsored Accounts  Catalogs, Commencement, and Convocations  Department Paid Operations and Maintenance  Library  Department Administration  Specialized Service Facilities

Reclassification  Auxiliary Assessments for Institutional Support and/or Operations and Maintenance  Academic Support  Student Services Administration  Institutional Support

Exclusions Include:  College Work Study  Modified Total Direct Cost Exclusions  Capitalized Equipment  Subcontracts > $25K  Financial Aid  Long Term Facilities Rental  Patient Care Costs  Unallowable Expenses  Bad Debt  Entertainment  Cost of Goods Sold in Auxiliaries

Adjustments Adjustments Include:  Applicable Credits  O&M Expenses  Allowable Building Depreciation  Allowable Equipment Depreciation  Interest Expense  Gain/Loss on Disposal of Depreciable Assets

Financial Statement Functional CategoryF&A Function GroupIndirect or Direct InstructionDepartment Administration Instruction Indirect Direct ResearchDepartment Administration Research Indirect Direct Public ServiceDepartment Administration Public Service Indirect Direct Academic SupportDepartment Administration Library Specialized Service Facilities Other Direct Costs Indirect Direct Student Services AdministrationOther Direct CostsDirect Institutional SupportGeneral AdministrationIndirect Operation and Maintenance of PlantOperations and Maintenance of PlantIndirect Scholarships and FellowshipsEliminated from Proposal Auxiliary Enterprises Direct Building DepreciationIndirect Equipment DepreciationIndirect Interest ExpenseIndirect

 Step 1. Develop the F&A cost pool: - Administrative salaries/wages$350,000 - Associated fringe benefits 75,000 - Finance and accounting costs 25,000 - Supplies, materials and expenses 17,000 - Space related (O&M) 27,000 - Administrative travel 6,000 - Total pool costs $500,000

 Step 2. Develop the base costs: Cost Objectives Direct S&W - Federal NIH grants$300,000 - Federal NASA grants 350,000 - Ford Foundation grants 400,000 - State Contracts 250,000 - Other university subcontracts 300,000 - Endowment funded programs 400,000 - Total base costs $2,000,000

 Step 3. Calculate the rate: F&A cost pool $ 500,000 Direct cost base $2,000,000 = 25%

 Step 4. Apply the rate: Federal NIH grants $300,000 x 25% = $75,000 Federal NASA 350,000 x 25% = 87,500 Foundation grants 400,000 x 25% = 100,000 State contracts 250,000 x 25% = 62,500 Subcontracts 300,000 x 25% = 75,000 Endowment 400,000 x 25% = 100,000 Total reimbursement $500,000

Resources: DCA Short Form Sample: A-21: omb/circulars_a021_ omb/circulars_a021_2004

 Ginger Baker Senior Manager (702)  Eileen Campbell Manager (435)