1. Understanding F&A Rates Caroline Beeman February 28, 2007

2. 2 Understanding F&A Rates Why an F&A Cost Rate? It is federal policy to provide for the reimbursement of F&A costs except when specific limitations and prohibitions exist This is accomplished through use of an F&A rate The cognizant agency negotiates and approves the F&A rates for an educational institution on behalf of all Federal agencies

3. 3 Understanding F&A Rates What is the F&A Cost Rate? A single number that reimburses the institution for the use of: A single number that reimburses the institution for the use of: Buildings Buildings Equipment Equipment Interest on Debt Interest on Debt O&M O&M General Administration General Administration Departmental Administration Departmental Administration Sponsored Projects Administration Sponsored Projects Administration Library Library

4. 4 Understanding F&A Rates Calculation of the Facilities & Administrative Rate (aka = Indirect Cost Rate) F&A COSTS Building Depreciation Building Depreciation Operations & Maintenance Operations & Maintenance General Administration General Administration Sponsored Project Administration Sponsored Project Administration Library Support Library Support Equipment Depreciation Equipment Depreciation Departmental Administration Departmental Administration Interest on Debt Interest on Debt DIRECT COSTS Research Salaries & Fringes Consultant Services Travel Technical Services Research Supplies Subcontracts up to $25,000 Committed Cost Sharing F&A Costs ÷ Direct Costs $1,000,000$515,000 0.515 = 51.5%

5. 5 Understanding F&A Rates How is the F & A Calculation Done? Start with Financial Statements Start with Financial Statements Adjust to Allowable Cost Adjust to Allowable Cost Map to OMB Circular A-21 Pools and Bases Map to OMB Circular A-21 Pools and Bases Allocate Pools Allocate Pools Summarize Pool Allocations to Each Base Summarize Pool Allocations to Each Base Calculate Rates Calculate Rates

6. THE DIRECT COST BASES

7. 7 Understanding F&A Rates The Direct Cost Bases Bases represent an institution’s direct costs activities (A-21, Section B.1): Bases represent an institution’s direct costs activities (A-21, Section B.1): Instruction and departmental research (IDR) Instruction and departmental research (IDR) Sponsored instruction and training Sponsored instruction and training Departmental research Departmental research Organized research (OR) Organized research (OR) Sponsored research Sponsored research University research University research Other sponsored activities (OSA) Other sponsored activities (OSA) Other institutional activities (OIA) Other institutional activities (OIA)

8. 8 Understanding F&A Rates The Direct Cost Bases A-21, Section G.2 discusses the distribution basis for F&A costs and defines it as modified total direct costs (MTDC). A-21, Section G.2 discusses the distribution basis for F&A costs and defines it as modified total direct costs (MTDC). MTDC usually includes MTDC usually includes Salaries and wages & associated fringe benefits Salaries and wages & associated fringe benefits Materials and supplies Materials and supplies Services Services Travel Travel Sub-grants and subcontracts up to the first $25,000 Sub-grants and subcontracts up to the first $25,000

9. 9 Understanding F&A Rates The Direct Cost Bases MTDC excludes (G.2) MTDC excludes (G.2) Equipment (capital equipment only) Equipment (capital equipment only) Patient care Patient care Tuition remission Tuition remission Scholarships and fellowships Scholarships and fellowships Sub-grant and subcontract costs over $25,000 Sub-grant and subcontract costs over $25,000 Space rental costs Space rental costs

10. INDIRECT COSTS

11. 11 Understanding F&A Rates Facilities and Administrative Costs 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. (B.4)

12. 12 Understanding F&A Rates Facilities and Administrative Costs Administrative components Administrative components General administration and general expenses General administration and general expenses Departmental administration Departmental administration Sponsored projects administration Sponsored projects administration Student administration and services Student administration and services Administrative components are capped at 26% of modified total direct costs (G.8) Administrative components are capped at 26% of modified total direct costs (G.8)

13. 13 Understanding F&A Rates Facilities & Administrative Costs Facilities components Facilities components Building depreciation Building depreciation Building interest Building interest Equipment depreciation Equipment depreciation Operations and maintenance Operations and maintenance Library Library

14. 14 Understanding F&A Rates Depreciation Expenses are for the portion of costs related to the institution’s buildings, capital improvements to land and buildings, and equipment which are computed in accordance with J.14, see also F.2.

15. 15 Understanding F&A Rates Interest on Debt Interest associated with certain buildings, equipment and capital improvements are allowable if they support sponsored agreements (F.3) Interest associated with certain buildings, equipment and capital improvements are allowable if they support sponsored agreements (F.3) Buildings acquired or completed after July 1, 1982 Buildings acquired or completed after July 1, 1982 Major reconstruction and remodeling of existing buildings completed on or after July 1, 1982 Major reconstruction and remodeling of existing buildings completed on or after July 1, 1982 Acquisition or fabrication of capital equipment completed on or after July 1, 1982, costing $10,000 or more, if the government agrees Acquisition or fabrication of capital equipment completed on or after July 1, 1982, costing $10,000 or more, if the government agrees

16. 16 Understanding F&A Rates Operations and Maintenance Expenses incurred for administration, supervision, operation, maintenance, preservation and protection of the institution’s physical plant (F.4) Expenses incurred for administration, supervision, operation, maintenance, preservation and protection of the institution’s physical plant (F.4) Normally includes Normally includes Janitorial/housekeeping Janitorial/housekeeping Utilities Utilities Grounds maintenance Grounds maintenance Security Security Environmental safety Environmental safety Hazardous waste disposal Hazardous waste disposal Utility cost adjustment (UCA) of 1.3 points only Exhibit B schools Utility cost adjustment (UCA) of 1.3 points only Exhibit B schools

17. 17 Understanding F&A Rates General Administration and General Expenses Expenses incurred for the general executive and administrative offices and other expense of a general nature which do not relate solely to any major function of the institution (F.5) Expenses incurred for the general executive and administrative offices and other expense of a general nature which do not relate solely to any major function of the institution (F.5) Normally includes Normally includes Allocations from administrative offices that serve an entire university system Allocations from administrative offices that serve an entire university system Institutional administrative executive offices Institutional administrative executive offices Financial planning, budgeting, payroll, accounting Financial planning, budgeting, payroll, accounting Safety and risk management Safety and risk management General counsel General counsel Management information systems Management information systems Cross allocations from depreciation, interest and O&M Cross allocations from depreciation, interest and O&M

18. 18 Understanding F&A Rates Departmental Administration Expenses incurred for administrative and supporting services that benefit common or joint departmental activities or objectives (F.6) Expenses incurred for administrative and supporting services that benefit common or joint departmental activities or objectives (F.6) The most difficult cost pool to develop The most difficult cost pool to develop DA costs are not normally identified on university current fund statements DA costs are not normally identified on university current fund statements

19. 19 Understanding F&A Rates Department Administration Composed of: Composed of: Academic deans’ offices (limited to costs associated with administrative activities) Academic deans’ offices (limited to costs associated with administrative activities) Academic departments and divisions salaries and fringe benefits attributable to administrative work Academic departments and divisions salaries and fringe benefits attributable to administrative work Includes bid and proposal effort Includes bid and proposal effort Limited to 3.6% of department MTDC of salaries & fringe of faculty and professional personnel conducting research and/or instruction Limited to 3.6% of department MTDC of salaries & fringe of faculty and professional personnel conducting research and/or instruction 3.6% limit does not apply to professional business or administrative officers 3.6% limit does not apply to professional business or administrative officers Other administrative and supporting costs are allowable provided they are treated consistently in like circumstances (includes secretarial and clerical salaries, administrative officers and assistants, travel, office supplies etc) Other administrative and supporting costs are allowable provided they are treated consistently in like circumstances (includes secretarial and clerical salaries, administrative officers and assistants, travel, office supplies etc)

20. 20 Understanding F&A Rates Sponsored Projects Administration Expenses are limited to those incurred by a separate organization established primarily to administer sponsored projects. Includes grant and contract administration, special security, purchasing, personnel, etc. (F.7) Expenses are limited to those incurred by a separate organization established primarily to administer sponsored projects. Includes grant and contract administration, special security, purchasing, personnel, etc. (F.7) SPA is allocated to the functions performing sponsored projects based on MTC of the sponsored projects SPA is allocated to the functions performing sponsored projects based on MTC of the sponsored projects Usually includes Usually includes Organized research Organized research Sponsored instruction Sponsored instruction Other sponsored activity Other sponsored activity

21. 21 Understanding F&A Rates Library  Expenses incurred for the operation of the library including the costs of books and library materials purchased for the library less applicable credits (F.8) Standard Allocation based on FTE’s Standard Allocation based on FTE’s

22. 22 Understanding F&A Rates Student Administration and Services Expenses incurred for the administration of student affairs and for services to students including dean’s of students, admissions, registrar, counseling and placement, student advisors, student health and infirmary services, catalogs and commencements and convocations (F.9) Expenses incurred for the administration of student affairs and for services to students including dean’s of students, admissions, registrar, counseling and placement, student advisors, student health and infirmary services, catalogs and commencements and convocations (F.9) Per A-21 - shall normally be allocated 100 percent to instruction function Per A-21 - shall normally be allocated 100 percent to instruction function

23. 23 Understanding F&A Rates What is a Space Survey? A space survey is the process of assigning institutional space into OMB Circular A-21 functional categories based on space use A space survey is the process of assigning institutional space into OMB Circular A-21 functional categories based on space use The results are used to calculate the percentage of space that is used to support organized research and support the subsequent allocation of space related costs to organized research The results are used to calculate the percentage of space that is used to support organized research and support the subsequent allocation of space related costs to organized research Used to allocate Building and Equipment Depreciation, Interest and O&M Used to allocate Building and Equipment Depreciation, Interest and O&M

24. 24 Understanding F&A Rates Applying the F&A Rate – example 1 Total directs = $530,000 Total directs = $530,000 F&A rate = 54% F&A rate = 54% Tuition remission = $5,000; Rent = $4,000; Equipment = $21,000 Tuition remission = $5,000; Rent = $4,000; Equipment = $21,000 How much is F&A? How much is F&A? Total F&A = MTDC x F&A rate Total F&A = (Total directs - exclusions) x F&A rate Total F&A = ($530,000 – ($5,000+$4,000+$21,000)) x 54% Total F&A = $500,000 x 0.54 Total F&A = $270,000

25. 25 Understanding F&A Rates Applying the F&A Rate – example 2 Total grant available = $800,000 Total grant available = $800,000 F&A rate = 54% F&A rate = 54% Tuition remission = $5,000; Rent = $4,000; Equipment = $21,000 Tuition remission = $5,000; Rent = $4,000; Equipment = $21,000 How much is available for direct costs? How much is available for direct costs? Total available = total direct + total F&A Total available = (MTDC + exclusions) + (MTDC x F&A rate) $800,000 = (MTDC + $30,000) + (MTDC x 54%) $800,000 - $30,000 = (MTDC x 1) + (MTDC x 0.54) $770,000 = MTDC x (1 + 0.54) MTDC = $770,000 / 1.54 = $500,000 Total directs = MTDC + exclusions Total directs = $500,000 + 30,000 = $530,000

26. 26 Understanding F&A Rates UVa’s Current F&A Rates Organized Other Sponsored ResearchInstruction Activity ResearchInstruction Activity On Off On Off OnOff On Off On Off OnOff Bldg Depr’n 4.0 1.50.4 Equip Depr’n 4.3 1.90.7 Interest 1.2 1.20.8 O&M 12.7 12.73.1 Utility Cost Adj 1.3 -- -- Library 2.0 14.41.8 Admin Comp 26.0 26.0 26.0 26.0 26.0 26.0 Total 51.5 26.0 50.0 26.0 32.8 26.0

27. 27 Understanding F&A Rates