1. Function Codes in the General Ledger
University of Arkansas, Fayetteville

2. What is a Function Code
Function codes are the two digit numbers in the cost center number. Most cost center numbers contain function codes, with the exception of Auxiliary Enterprise cost centers and Plant Fund cost centers which have “00” in the function code area.
Cost center numbers have this format:
Company Department Function Project
XXXX XXXXX XX XXXX

3. Purpose of Function Codes
Function codes describe the purpose or type of activity for which a cost center will be used. Our general ledger has many cost centers so that we can collect revenues and expenses that serve a specific purpose or activity. It is the expenditures that define the purpose of the activity. A review of a function code’s expenses can tell us the cost of each major activity of the University.

4. Purpose of Function Codes
Some cost centers have been set-up to collect expenses for a department over time for an ongoing activity such as instruction, research, etc. Other cost centers are set-up to report a very specific instruction, research or other type project. Typically these are sponsored programs where the funding for the specific project comes from an outside source.

5. Purpose of Function Codes
Whether a cost center is used for a department’s ongoing activity or a specific project, it is important to understand the function code of the cost center so that the expenses posted to the cost center are always expenses incurred to support the activity defined by the function code of the cost center.

6. Using Correct Function Codes
Why is it important for us to post expenditures to the correct function code?
FY2016 is a base year for indirect cost rate negotiations with the federal government. To maximize our F&A rate, expenditures must be classified correctly in our general ledger - particularly research expenditures.

7. Indirect Cost Rate
Indirect Costs (Depreciation, Operations & Maintenance, Admin Expense) = Direct Costs of Research, Instruction or other Major Function
Indirect Cost Rate for Function (Shown as a percentage)

8. Effect of Incorrectly Classifying Expenses as Research
Posting expenses to a function code of 2X for expenditures that are not research related, reduces our research rate by increasing the denominator of the rate calculation with no overhead cost to include in the numerator.

9. Effect of Incorrectly Posting Research Expense to Another Function
Not capturing research effort in function 2X can result in not being able to include research overhead such as depreciation expense in the numerator of the rate calculation.

10. OMB Circular A-21 Section A2f
Cognizant Federal agencies involved in negotiating facilities and administrative (F&A) cost rates and auditing should assure that institutions are generally applying these cost accounting principles on a consistent basis.(Uniform Guidance Section (e)).
Note: F&A rates are commonly referred to as indirect cost rates.

11. Instruction Function Codes
Instruction function codes begin with a “1”.
11 – On campus credit Instruction
12 - Departmental administration
13 - Off-campus credit instruction
14 – Non-credit instruction
15 – Instruction cost sharing
16 – Academic advising
17 – Faculty development

12. Instruction Function Codes
The Federal government has defined several of these function codes or activities in OMB Circular A-21 and the new Uniform Guidance. All expenses posted to a cost center with these function codes must be expenses that are directly required for the activity as defined by the federal government.

13. Instruction Function Codes
Cost centers with function codes 11, 13, 14 and 15 have the following definition in the Federal Circular:
Instruction means the teaching and training activities of an institution. Except for research training as provided in subsection b, this term includes all teaching and training activities, whether they are offered for credits toward a degree or certificate or on a non-credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or extension division.
Uniform Guidance – Appendix III to Part 200 Section A.
1.a.

14. Instruction Function Codes
The Federal Circular defines function 12, Departmental Administration expenses:
The expenses under this heading are those that have been incurred for administrative and supporting services that benefit common or joint departmental activities or objectives in academic deans’ offices, academic departments and divisions, and organized research units.
Uniform Guidance – Appendix III to Part
200 Section B. 6. a.

15. Instruction Function Codes
The Federal Circular also defines function 17, Faculty Development or Departmental Research.
Departmental research means research, development and scholarly activities that are not organized research and, consequently, are not separately accounted for. Departmental research, for purposes of this Circular, is not considered as a major function, but as part of the instruction function of the institution.
(Uniform Guidance Appendix III to Part 200 Section A.
1.a.(2).

16. Research Function Codes
Research function codes begin with a “2”.
21 Sponsored Research
22 University Supported Research
23 Sponsored Research – Cost Sharing
24 Agri Experiment Station Research

17. Research Function Codes
The Federal Circular defines function 21, sponsored research.
Sponsored research means all research and development activities that are sponsored by Federal and non-Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
Uniform Guidance Appendix III to Part 200 Section A.1.b.(1)

18. Research Function Codes
The Federal Circular defines function 22, University Research
University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds.
Uniform Guidance – Appendix III to Part
200, Section A.1.b.(2)

19. Research Function Codes
Expenses posted to cost centers with a function code of 22 should be expenses for specific research projects that a college or department has decided to fund. If the expenses are for general faculty development they should be posted to a cost center with a function code of 17.

20. Public Service Function Codes
32 – Public Service – Cost Sharing
33 – University Sponsored Public Service
Public service is non-instructional activities of the University that have direct benefits to the general public. Our transit program, and KUAF radio are examples of public service activities.

21. Academic Support Function Codes
41 – Libraries
42 – Museums and Galleries
43 – Organized Activities
44 – Other Academic Support
45 – Academic Support – Cost Sharing
Academic support includes expenses associated with the Dean’s Office, advisory committees, libraries etc.

22. Other Function Codes
Function codes beginning with “5” are used with Student Services cost centers.
Function codes beginning with “6” are used with Central Administration cost centers.
Function codes beginning with “7” are used with Facilities Management cost centers.
Function codes beginning with “8” are used for Scholarship and Fellowship cost centers.

23. Expense Transfers
If expenses are originally posted to a cost center with the correct function code for the expense, then any transfer of the expense should be to a cost center with the same function code. If expense transfers are made between cost centers with inconsistent function codes, the extended description should contain an explanation of why the function code for the original cost center was not correct for the particular expense being transferred.

24. Faculty and Staff Effort
Payroll distributions for faculty and staff should reflect the actual effort of the employee by posting salaries to cost centers with the proper function codes. Payroll distributions for employees who have a committed level of effort to a sponsored program should reflect that level of effort even if the sponsored program is not paying the salary of the employee.

25. Faculty and Staff Effort
The LCPI screen in DART will list all of the sponsored program cost centers that include a specific faculty member as Principal Investigator. Departmental staff should be informed of the level of effort commitment for each employee working on a sponsored program and make sure the level of effort is properly reflected in the function codes of the employee’s salary distribution.

26. Salary Distribution Example
If a Faculty member had 4 sponsored programs and had committed 10% of his effort to each program, but only one program actually paid 10% of his salary, his research effort would need to be shown in another cost center. His salary distribution should reflect the 30% unreimbursed effort in cost sharing cost centers (function 23) for each specific project.

27. Cost Share Effort
If a cost share cost center is needed for unreimbursed effort, contact Research Support and Sponsored Programs at
or Research Accounting at to have a cost share cost center set-up.

28. Negotiator’s Query Form
EXAMPLE (Any University)
ATTACHMENT: #1
Salary costs and room type classifications for employees in department ???
FUNDING
SALARY
Is salary inc.
ROOM(S)
SQUARE FOOTAGE ALLOCATION PER ROOM BY FUNCTION
NAME
TITLE
SOURCE
FUNDED
in O.R. base?
OCCUPIED
Research
Instruction
OSA DA
Total
John Smith
Faculty
NIH #123456
$50,000
yes
Lab #22
400
100
500
NIH #876543
$30,000
Dept. Funds
$20,000 no -
Office #10
Total Salary
$100,000 =
Mary Jones
NIH #475215
Lab #40
Office #12 40
120
Mike Walker
Grad Student
$15,000
Susan Moore
NIH #767680
Lab #57
600
$10,000
Office #15 75
$25,000
Beth Cooper
Secretary
$28,000
Office #20
125
Negotiator’s Query Form
When negotiating facilities and administration rates with the federal government we have to show consistency between our classification of space and the classification of the salaries of the people who occupy the space. Federal F & A negotiators refer to this as “the space must follow the base”. If a research lab is occupied only by persons paid from an instruction function code then the lab space cannot be classified as research space and all the depreciation associated with that space will be attributed to instruction.

29. Federal Grants News – May 2005
An article entitled “Audit Reports Reveal Trends: Effort Reporting, Cost Sharing, and More” stated the following:
“Cost sharing was a factor in effort certification findings because effort committed to federal awards, but not charged as payroll expenses to those awards, must be tracked for two purposes: (1) verifying that these commitments were met, and (2) inclusion of the cost shared effort in the research base for the computation of the F & A rate.”

30. Correct Function Codes is a Priority
There is some concern that posting expenses to a cost center with the correct function code would require some departments or colleges to double their number of cost centers. If you need to double the number of cost centers for your department to report expenditures in the correct function code, then that is what you should do.

31. Adding cost centers
To add new cost centers so that you can post expenditures to the correct function code, contact:
Larrie or
Rachel or

32. Conclusion
Understanding the function code of the cost centers to which expenses are posted and posting expenses only to cost centers with the proper function code that reflects the activity for which the expense was incurred is an important part of federal compliance for the University of Arkansas.