1. Facilities and Administrative Costs (Indirect or Overhead) Michael J. Warnock, Ph.D. Director, Office of Sponsored Program Administration

2. What’s in a name? p Facilities and Administrative Costs p F&A Costs p Indirect Costs p Overhead Costs p Administrative Costs p Direct Costs p Allocable Costs p Not a “tax” over and above the cost of project, but an integral part of the project cost

3. What are F&A Costs? p Costs associated with completing a project that are not directly charged to the project p Includes: Ô Space where work is done Ô Utilities where work is done Ô Equipment used to support work done Ô Administration and oversight of work done Ô Use of library facilities Ô General supplies/materials to support work p Cost recovery mechanism based on historical expenditures

4. Why not charge F&A costs as a direct charge? p Increased administrative burden (cost) to: Ô Determine what charge at what rate for each project Ô Accounting for actual and reconciling differences Ô Allocations between projects ( e.g., costs for a lab used in several projects would need to be allocated and records kept to differentiate between the uses by each project)

5. Selected Items Excluded From F&A p Animal care costs p Service operations p Certain building costs p Certain utility costs

6. Is F&A Important to Me? p Where does my paycheck come from? p How are my support staff paid? p What was the source of funding for the building I work in? p What is the source of funds for the utilities in my building? p How are costs for shared purposes tied to the benefiting functions (including mine--cost and benefit)? p How is research infrastructure paid for? p These are real dollars

7. Scope of F&A Rates p Research Ô On-campus Ô Off-campus p Instruction Ô On-campus Ô Off-campus p Other Sponsored Activity (any other project sponsored by an external entity that is not research or instruction) Ô On-campus Ô Off-campus

8. Determination of F&A Rate p Summary of financial information—i.e., how funds were spent in base year p Classification of cost to cost pools p Adjustments to identify modified total direct costs (MTDC) p Review and adjustments to cost classification p Allocations of indirect costs p Calculation of F&A rates

9. Summary of Financial Information p Functional classifications in PeopleSoft p PCS (Project Classification System) codes p PCS tree for Chartfields p DeptID (some exceptions) is the key for PCS codes

10. Classification of Cost to Cost Pools p Based on Chartfield PCS code p Depends on accurate decision making with regard to which Chartfield is used for expenditure p Expenditures for multiple purposes must be split between appropriate Chartfields

11. Summary of Financial Information

12. Adjustments to Identify MTDC p Move certain costs out of individual Chartfields to other categories Ô Capitalized building expenses Ô Capital equipment costs Ô Scholarships Ô Unallowable costs (including A-21 Exclusions) Ô Etc. p These reclassifications are proscribed by OMB Circular A-21

13. A-21 Exclusions p Certain costs may not normally be charged to the federal government either as direct charges or through the F&A rate (see separate handout) p Under certain conditions, some of these may be chargeable as direct costs to the federal government (must be specifically approved by sponsor) p There are generally no prohibitions on charging these as direct costs to non-federal projects (be careful of federal flow through—it counts as federal)

14. Adjustments to Identify MTDC

15. Review and Adjustment p Cleanup process p Review expenditures on Chartfield to identify where expenditures may have been made from Chartfield with one PCS code that should have been another p Initial identification by review of expenses, confirmation by consultation with Chartfield approver

16. Review and Adjustment

17. Allocations of Indirect Costs p Differing allocation methods for different classes of indirect cost pools Ô Administrative pools Ô Library pool Ô Facilities pools p Allocation of indirect pools are to direct functions

18. Administrative Allocations p Allocation is based on expenditures within covered direct cost pools p General administration Ô Allocated to all institutional direct functions p Departmental administration Ô Allocated among direct functions within administrative unit p Student services administration Ô Allocated entirely to instruction function p Sponsored projects administration Ô Allocated among sponsored project direct cost functions

19. Allocation of Library Cost p Based on user population p Allocations differ for each population p Can be based on employee/user populations or special study p Ours done on employee/user FTEs Ô Faculty Ô Staff Ô Students Ô Other users

20. Facilities Allocation p Based on space allocations p Space allocations can be based on salary allocation to direct costs or on space study p We use a space study because it more closely ties costs to usage (especially for O&M and equipment)

21. Calculation of F&A Rates p Divide amount of indirect cost allocated to direct cost pool by MTDC amount of direct cost pool p (A/B)*100% = C where Ô A = allocated indirect cost Ô B = MTDC of direct costs Ô C = indirect cost rate for that indirect function p Thus, if general administrative costs are $50,000 and direct instruction costs are $1,000,000, then instruction F&A rate for GA is 5%

22. After Calculation, Then What? p Administrative Cap p Utility Cost Adjustment p Rate Proposal p Negotiation p Agreement

23. Administrative Cap p Administrative indirect costs for research cost pool are capped at 26% p That means any administrative (collectively) costs above 26% are unrecoverable p Administrative cap does not apply to non-research cost pools (we apply it, A-21 does not)

24. Utility Cost Adjustment p A-21 recognizes that research uses a greater proportion of utilities than other direct cost functions p UCA was designed to reimburse these costs p UCA applies only to certain institutions p UM campuses are not among those institutions p OMB was supposed to have issued new rules for the UCA in July 2002--not yet done

25. Rate Proposal p Lots of data p Calculated rates for each indirect cost pool supporting each direct cost pool p Additional (beyond the F&A data) institutional data p Lots of tables p Lots of paper

26. Negotiation p Government wants to pay as little as possible p University wants reimbursement (we have already spent this money) for as much of the cost as possible p Research rate is the focus because that is most of what federal government funds at the negotiated rate p Negotiated rate never exceeds proposed rate—the amount that it is less is largely based on strength of proposal p Differentials between proposed rate (cost) and negotiated rate are 2.9%

27. Agreement p Specifies rates for each direct cost pool except OIA p Specifies MTDC base components by what is excluded from the base p Specifies effective dates of rates p Specifies type of rate (normally “predetermined”)--we were provisional since July p References requirements of A-21

28. A-21 Referenced in Agreement p What does this mean for us? p Cost Accounting Standards p No special accounting practices for sponsored projects (can’t charge them costs not charged elsewhere) p F&A rates apply to all projects funded from outside the institution p Costs charged to a project must be during the term of the agreement and for the benefit of the project p Others, but these are the big ones

29. Where does that leave us? p The F&A rate is a cost recovery process—if we do not recover F&A from projects, the difference to cover the costs is made up from elsewhere p The cap on the administrative rate means any administrative costs exceeding 26% are unrecoverable p Since we exceed the cap, administrative cap also means the only variables are facilities and library costs

30. Cost Recovery Assessment

31. Strategies for Strength p Reduce non-mandatory reclassifications p Have more accurate Asset Management (buildings and equipment) records p Develop a higher degree of confidence in relationship between activity (and funds to support it) data and space assignment data p Spend funds according to the PCS code assigned to the Chartfield p Conduct a library special study p All else being equal, use institutional funds for facilities and project funds for salaries p Next year (FY 2005) is the next base year

32. Space is Critical to Success p The space data drive almost all the facilities costs p Recoverable building depreciation is based on space allocations p Recoverable equipment depreciation is based on assignment of equipment to rooms and space allocations of those rooms p Recoverable O&M is based on space allocations

33. What are MU’s F&A rates? p Research-on campus 47% p Research-off campus 26% p Instruction-on campus 51% p Instruction-off campus 26% p Other Sponsored Activity-on campus 25% p Other Sponsored Activity-off campus 19.5%

34. What about state projects? p Research-on campus 4736.6% p Research-off campus 2620.2% p Instruction-on campus 5139.7% p Instruction-off campus 2620.2% p Other Sponsored Activity-on campus 2519.5% p Other Sponsored Activity-off campus 19.515.2%

35. What are the components of MU’s research rate? p General Administration-4.5% p Departmental Administration-19.5% p Sponsored Projects Administration-2.0% p Building Depreciation-3% p Equipment Depreciation-2.2% p Operations and Maintenance-13.9% p Library-1.9%

36. What happens when F&A costs are not recovered? p Costs must be picked up from another source p RIF is reduced p Compliance problems p Reduced future rate (but with constant or increasing costs)

37. Who is affected when F&A is not recovered? p General Administration-4.5% (9.6%) p Departmental Administration-19.5% (41.4%) p Sponsored Projects Administration-2% (4.3%) p Building Depreciation-3% (6.4%) p Equipment Depreciation-2.2% (4.7%) p Operations and Maintenance-13.9% (29.6%) p Library-1.9% (4%)

38. Research Rate Components

39. Who pays when F&A is not recovered? p General Administration 7.2% p Departmental Administration 31.1% p Sponsored Projects Administration 3.2% p Building Depreciation 4.8% p Equipment Depreciation 3.5% p Operations and Maintenance 22.2% p Library 3% p RIF 25%

40. How do our rates compare? p University of Illinois53% p Purdue University52% p Indiana University50.5 p University of Texas50%* p University of Minnesota48.5% p University of Oklahoma48% p University of Colorado48% p University of Iowa47.5% p University of Kentucky47% p Iowa State University46%* p Kansas State University46% p University of Kansas44% p *provisional rate under negotiation

41. Questions/More Information? p Mike Warnock, OSPA, 882-4329, warnockm@missouri.edu