1. Proactive Preparations for the F&A Proposal * *how to keep your job in a tough economy

2. Faculty John B. States Vice President, Financial Accounting and Reporting University of Texas Medical Branch at Galveston john.states@utmb.edu Paula J. Milano Executive Director of Space and Capital Resources University of California Berkeley pmilano@berkeley.edu Jennifer Wei Director, Cost Studies and Effort Reporting Northwestern University jennifer-wei@northwestern.edu Michael M. Smith Managing Director Huron Consulting Group mmsmith@huronconsultinggroup.com 2

3. The Dreaded Question Just before you left for New Orleans, the CFO and the Provost caught you in the hall. They were on their way to an important meeting with the President, you weren’t invited. In passing, the Provost asked when the F&A rate expired. You explain that the rate expires 6/30/2014 and that you are now in in your base year. The CFO asks “what will the new rate be?” 3

4. You Answer: a.It is almost two years before negotiation, how the *&$%# should I know! b.With all of the changes going on, we won’t know until we complete the proposal preparation in December, 2013. c.What do you want it to be? d.Let me do some modeling and then I can give you a list of the issues 4

5. What are the Factors at Play? Pushing the rate down – Decreased state support – Budget cutting efforts – Decreased spending on pool costs – Pressure to maintain instruction 5

6. What are the Factors at Play? Pushing the rate up – Recent new buildings – Compliance costs – F.6.b / DCE – decrease in funded departmental support – Decreasing base 6

7. What are the issues? In tough economic times, administration wants rates to go up In tough economic times, administration cuts administrative and physical plant costs 1995 to 2005 saw significant increases in funded research – But, now funding is flat Increase in research funding spawned an increase in research facilities 7

8. What are the Issues? The economy collapsed in 2008 and hasn’t improved much since then Things are messed up No one wants to spend money Your staff has been cut They want you to get a much higher rate 8

9. What Pressures Do We Face? Financial Administration – We need more money – get the rate up – We need to cut your budget Faculty – Increased rates make us less competitive and we will lose grants and have to cut staff Cognizant Agency – Preconceived notion of where rates should be – Rates should not move very much – ARRA should decrease rates 9

10. What About The Numbers? Space Survey Depreciation O&M Costs Library Administration 10

11. What Can We Do About the Numbers? Wait until the books close – Bad Choice Plan Now 11

12. Remember the 6 P Rule! Proper Prior Planning Prevents Poor Performance 12

13. Planning 13

14. No Surprises Approach Prior Year Practice Rate Partial Year Rate with Preliminary Space Data Final Rate 14

15. Prior Year Practice Rate Use year before base year Simplify rate – No special studies – S&W, FTE or historic data for space – Estimate difficult data 15

16. Questions to be answered How close are we? What are the critical factors? How should we do space Do we need special studies? 16

17. What to expect If we do x, y & z, we get ? If we don’t do it, we get ? In order to get the rate you want, we have to do: – Space study – Depreciation justification – Utility study – Library study 17

18. Results of prior year rate Ball park estimate Work plan Options Justifications 18

19. If you don’t know where you’re going, you might not get there 19

20. Partial Year Rate Use 6, 8 or 9 month data Begin rate 6 months before you have final data Confirm ball park estimate Work out details before the year ends Do strategic review when there is time for corrections 20

21. Partial Year Rate Secret Weapon – it buys you time Do everything you can with the partial year Build, review and scrub pools and bases Build and perfect DA Building and Equipment Depreciation may not be available Test and confirm space and base 21

22. 22 Understand What Has Changed Has research base gone up faster or slower than other bases? Why? What are the dynamics? Have Administration costs gone up faster or slower than research base? Have you added new buildings? Do you have a new cost? Interest on debt financed buildings?

23. Do Not Wait! “If it twere done when twere done, then twere well” - Lady Macbeth, Macbeth Act 1, Scene 7 “Just do it” – Nike “Git ‘er done” – Larry the Cable Guy Do everything you can before the end of the year 23

24. What Needs to be Done? Depreciation Space Survey Base and Pool Review State interest Special Studies – Library – Utilities 24

25. DEPRECIATION 25

26. Depreciation Building Depreciation – Componentized? – Non-Componentized? – Updated Yearly? Fixed Equipment – Separate from the building cost? Moveable Equipment – Identify equipment by room? – Allocate depreciation to the room? 26

27. Space Survey – Why Is It Important? Crucial for F&A rate calculation as Facility Rate is uncapped in A-21 Cost allocation for Facilities: – Building depreciation – Equipment depreciation – Interest/debt financing – Operations and Maintenance 27

28. Organized Research Cost Allocation F&A = F&A Rate F&A Costs Capped at 26% in A-21Uncapped Allowable Facilities Costs Allowable Facilities Costs Allowable Administrative Costs Allowable Administrative Costs Space Allocations to Research Space Allocations to Research MTC & Other Allocations to Research MTC & Other Allocations to Research Organized Research MTDC

29. Space Survey Where do I start?.....well How much space overall do you have? Ask yourself the following: – How much in new building construction? – Any of it research related? – Deferred Maintenance in research areas? – Are departments familiar with Space Survey? – What training is needed? 29

30. Space Survey Perform some preliminary analyses Perform a S&W calculation for all space – This should be your baseline Using alternative space methodology – Set dollar thresholds to analyze – Feel free to change your dollar threshold Calculate the cost of space by department – Does it make sense? 30

31. Space Survey How much will I need to survey? Space survey involves research departments/centers What’s manageable? Do you have enough staff for training & execution? Do you have enough time for training & execution? If feasible, conduct space survey during practice year to enhance department knowledge and save time for the base year Are consultants an option? Save time w/ Alternate Space Methodology 31

32. Base and Pool – Allocation of Pool Costs to Major Functions 32 Indirect Cost Pool Allocation BasisAllocation Basis Detail Facilities Square Feet Allocation Statistic is equal to Sq. Ft used for each Major Function divided by Total Assignable Sq. Ft AdminModified Total Cost of each major function Major FunctionAllocation General AdministrationUniversity-wide MTC Department Administration School/ Department MTC Sponsored Projects Administration Sponsored project MTC Student ServicesAllocated 100% to Instruction

33. Base and Pool Review Facilities Pools – Building – Equipment – Interest – O&M – Library 33

34. Base and Pool Review Administrative Pools – General Administration – Department Administration – Sponsored Project Administration – Student Services Administration 34

35. Base and Pool Review Bases – Instruction – Organized Research – Other Sponsored Activity – Other Institutional Activity 35

36. Academic Department Inputs How can departments help if utilizing Space Survey? Complete these activities timely & appropriately – Space survey Including effort reporting or payroll confirmation – Equipment inventory Start training early (Practice Year?) 36

37. Academic Department Inputs Ensure that costs are charged to appropriate sources Effort Reporting Is Cost Sharing Properly Reported? Have salaries been distributed consistent with effort? 37

38. General Thoughts Base Scrub for proper coding Cost Sharing Crosswalks Contact people within your organization Model! (Know your software) Salaries & Wages Modeling Space to Base ($/Sq. Ft.) Allocation Methodologies Manage expectations internally 38

39. Discussion and Questions 39