Dutch universities and the implementation of a Full Cost System Pieter-Jan Aartsen Universiteit van Amsterdam June Tel

Agenda Governance: “Climate change” in The Netherlands Preparation for Full Cost Costing system: differences FP6 – FP7 Principles Full Cost Example Full Cost rate (UvA) Items to discuss

“Climate change” in NL Since 1980’s : “Withdrawing” National Government National funding: based mainly on output parameters Education: # Ba / Ma / PhD degrees / # enrolled students Research: % on Education budget / competition (Public) universities: fully independant economic responsible Personnel (salaries, redundancy payments, facilities) Other costs: asset management, investments, costs of capital, etc. Quality Assurance Education and Research: peer review From 2008 onwards: Obligation to apply General Accounting principles

Preparation for Full Cost Road to implementation FC in a way already prepared by: ­adopting “usual economic principles” in management and reporting system ­the demand to relate costs and performances ­(political) urge to show added “value for money” in society ­obligation to avoid cross-financing private activities ­national initiatives for monitoring / benchmarking, e.g. ­€ and time effort academic staff / student; overhead costs / cost driver ­rationalizing internal budget allocation (fair principles) N.B. National government is also preparing FC-system for all national research funding

Differences FP6 – FP7 Until FP6: Additional Cost: exception for universities FP6 AC was: DC * 100% + Flat rate 20%; FP7 is / will be: FC * 75% or (DC + Flat rate 60 %) * 75% FP6 and Dutch universities – AC: 11 / FC: 2 FP7: Obligation to use FC (or FCF) FCF: only -for the time being- interesting for Organisations with small overhead costs (from 2010: Flat rate will be 40%) Organisations without proper accounting system (yet)

Principles Full Cost Eligible costs Direct costs Indirect costs Differentiation and calculation rates Time recording Project budget versus Cost statement

Eligible costs Not-eligible (FP7): duties, interest owed provisions for possible future losses or charges exchange losses, cost related to return on capital costs declared or incurred, or reimbursed in respect of another Community project, (avoiding double funding ) debt and debt service charges excessive or reckless expenditure Some (scholastic) discussions : with auditors on interpretation some of these notions

Direct costs Required in cost statement: actual costs 1.Personnel costs Actual costs individual / actual hours individual Or optional (to be approved by E.C.): Actual costs individual / average hours Average costs homogenous group personnel / average hours (statistical analysis) 2.Other costs Actual costs, proved by invoice, declaration (measured) use of facilities

Indirect costs Method of calculation “real” indirect costs “in line with the general accounting policy of the beneficiary” (one cost accounting methodology has to be applied to all activities) Basisdata cost pools deriving from financial statements Costing principle for all university costs: justification by the concern for education and research ( sometimes also: medical care)

Calculation methodology Steps in settlement overhead costs: 1.Separation all exclusively education- or research- related costs 2.Allocation remaining overhead costs: a)Collected in cost pools representing separate support tasks / departments; b)via appropriate keys / indicators / cost drivers (sqm / fte / income); c)in one (“simplified model”) or in more steps / eventually reciprocal; d)mainly to available productive time all scientific personnel; e)via time recording finally to individual projects education and reasearch (government funded and contract -i.a. FP7- research)

FC rates: differentiation Full cost rates: two components: I.Differentiation personnel costs (when using averages) Homogenuous salary groups (UvA: 8, from research assistent to full professor) II.Differentiation indirect (overhead) costs Per faculty, department and / or institute (UvA: 20, subdiscipline α, β, γ, medicine, dentistry, law, economics), depending on use of dedicated infrastructure and laboratories Calculation hourly rate from annual costs per fte: Available hours C.L.A. (NL: 1659 hpy) -/- Average sickness leave (human resource system) -/- Average indirect productive hours (figures from time recording last year)

Time recording For reporting direct costs (contract research) Day-to-day (monthly) active time recording Only personnel in externally funded projects Whole work week (even in the case of partial project employment) For overhead calculation (proportion research / education) Data above completed with time schedules all other personnel (academic / non-academic) Timesheets: filled out in background (UvA) Using computerized system integrated with financial and human resource information system Characteristics time allocation Productive hours: research, education, internal (non-academic psnl.) Indirect productive hours (meetings, acquisition, training etc.) Integrated with absence registration (sickness, holidays)

Budget vs. Cost statement Project budget Direct and indirect (overhead) costs: Precalculation (negotiated) (Final) cost statement Direct personnel costs: rate according to verified calculation (when using averages) applying yearly correction salary increase Direct other costs: invoices / personnel declarations Indirect costs: overhead rate according to verified calculation method applying yearly correction inflation

Example FC rate - UvA

Items to discuss Reference for acceptance overhead calculation method instruction for the auditor for “ system verification” Applicability cost drivers and rate differentiation criteria In respect of the notion: a “fair” or “ not subjective” key or driver to distribute costs Use of precalculated rates % tolerance postcalculation / conditions for recalculation rates Eligibility some cost elements, e.g. Redundancy payments (social benefits / provisions?) Full housing costs (incl. Weighted Average Cost of Capital - WACC) Interpretation some notions, e.g. Not “excessive” and “reckless” expenditure

Overhead calculation Non protinus ad censum, de moribus prima quaestio fiet “contra” Iuvenalis (1 st c. A.D.)