1. Indirect Costs CALS RESEARCH DIVISION April 24, 2008 Website: http://www.cals.wisc.edu/research/http://www.cals.wisc.edu/research/ Meredith Luschen, mluschen@cals.wisc.edu, 261-1500mluschen@cals.wisc.edu Becky Bound, rbound@cals.wisc.edu, 265-8443rbound@cals.wisc.edu Sandy Fowler, sfowler@cals.wisc.edu, 262-3947sfowler@cals.wisc.edu

2. Outline  Preaward What are indirect costs? How do you calculate indirect costs? Examples  Postaward How is it calculated Post Award? Common Questions and Frequent Pitfalls

3. What are Indirect Costs?  Sometimes called Facilities and Administrative (F&A) Costs or Overhead  Facilities and Administrative (F & A) costs are "those [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." OMB Circular A-21 Section E.1  Negotiated by the University with the Federal Government

4. F&A Cost Components  Facilities Costs: Building Depreciation (or Use Allowance) Equipment Depreciation (or Use Allowance) Operations and Maintenance (utilities, maintenance, custodial costs, non-capital improvements) Interest Expense (paid to external parties) Library (books, library facilities and library administration)

5. F&A Cost Components *Administrative Costs:  Departmental Administration Dean’s Office, Dept Heads, Dept Administrative staff and administrative work of faculty (including bid and proposal preparation)  General Administration & General Expense President of Chancellor, Institution-wide Financial Management and Business Services, Personnel Management, Safety & Risk Mgmt, etc.  Sponsored Projects Administration Grant and Contract Administration, Cost Analysis, Patent Expenses  Student Services Registrar, Bursar, Student Medical  Typically supports and is allocated to Instruction *Administrative components limited to 26% of MTDC

6. Calculation of F&A Rate Facilities Costs + Admin Costs ———————————— = F & A Rate Organized Research Base  Organized Research Base includes: Sponsored project costs University-funded competitive awards Overdrafts Committed cost sharing

7. Indirect Costs Rate Types  Research  Extension/Public Service  Instruction  Clinical Trials  Off Campus  Governmental Agencies within the state of Wisconsin

8. Types of Indirect Cost Base  Modified Total Direct Costs  Total Direct Costs  Salaries and Wages  Other specified in the RFP

9. Modified Total Direct Costs  Definition: Sum of direct costs, less… Capital Equipment (items > $5,000) Tuition Remission Subcontract amounts in excess of $25,000 (the first $25k of each subcontract remains part of the direct cost base and is subject to indirects) Rental/Lease Patient Care SEE EXAMPLE

10. Total Direct Costs  Definition: Sum of direct costs, less… Nothing SEE EXAMPLE

11. Salaries and Wages  Definition: Sum of all Salaries and wages PI salary Other personnel salary Fringe benefits Can only be used with the Simplified Method

12. Other as specified by agency  Total Project costs eg:17.5% of direct costs plus matching costs  Total awarded amount eg: 10% of total awarded amount (DATCP GLCI)  Total federal funds awarded eg: 20% of total federal funds awarded. Another method of calculating the maximum allowable is 25% of TDC (USDA NRI)  NSF REU – 25% of stipend only SEE EXAMPLE

13. Post Award  How is it calculated Post Award? What F&A Base rate is being used on your award? How does F&A relate to your purchases? What direct costs are left to spend on an award? What happens to the remaining F&A balance?  Common Questions and /Frequent Pitfalls

14. What F&A Base rate is being used on your award?

15. How does F&A relate to your purchases?  Previous example had a Base F&A Code (Rate): MTDC (45.5%) All modified total direct costs will generate 45.5% F&A Example, a $100 supply charge will produce $45.50 in F&A. Salary and fringe benefits are included in the MTDC base and therefore do generate F&A F&A posts at end of month  How is it known what expenditure will generate F&A? Based on account code. See handout A charge that is defined as part of the MTDC base will produce indirect costs when expended.  Specific charges may or may not fall under the MTDC base, based on the type of charge it is defined as.  Pay attention to what a charge is coded as to see if it will or will not produce F&A  Example: Support Cost budgeted, coded as travel  Example: Mileage budgeted, changed to vehicle rental

16. What direct costs are left to spend on an award?  WISDM project view now breaks F&A (overhead in WISDM) into a separate section.  There are 4 view levels Summary level 2 shows direct costs as one line item Summary level 3 is the same as level 2 (for now) Summary level 4 is the default view which shows full budget detail Summary level 5 is the view that has all the account codes  In Summary level 4 – look at the SUBTOTAL DIRECT AVAILABLE BALANCE under the Balance column – this is the direct cost balance  Don’t forget the various encumbrances on your account  This number is subject to change based on the coding of future expenditures

17. What happens to the remaining F&A balance?  Read your agreement What does the agency allow? Will they allow you to use remaining F&A balance towards direct purchases?  This is why forecasting is important. Allows time to request budget variation. Can the remaining F&A be carried forward to the successor award?

18. Common Questions and Frequent Pitfalls  Account codes not correctly coded during the purchase process. eg: support cost (5000 series) coded as travel.  Not spending budget on items as proposed (not always an error, but different spending can create a surplus F&A balance)  Assuming all capital expenditures will not be assessed F&A. Remember there are other rate bases that do assess F&A to capital expenditures  No planning or forecasting  Spending down the award without considering F&A costs. This overdrafts the award.  Transfers submitted to clear overdraft without F&A calculated.  Spending unused F&A as a direct cost without agency approval (if needed).

19. Questions?