The Facilities and Administrative Rate Calculation Process Simplified Method

1. The Facilities and Administrative Rate Calculation Process � Simplified Method Presented by Ginger Baker Eileen Campbell

2. OMB Circular A-21 Cost Principles for Educational Institutions found in 2 CFR Part 220 The Federal Government guidelines for calculating the facilities and administrative rate using either Long Form or Short Form methodologies. Educational institutions that receive federal awards subject to A-21 of less than $10 million are required to calculate their F&A cost rate using a simplified method known as a short form (Section H). Educational institutions that wish to be reimbursed for institutional wide administrative and facility costs associated with federal contracts and grants need to develop an F&A cost rate. The government has allowed institutions with more than $10M to also use short formThe government has allowed institutions with more than $10M to also use short form

3. Objectives of the A-21 Cost Principles Sets uniform standards of allocation Sets uniform standards of allowability Allows schools to identify full cost of federal programs Provides that the federal government bear its fair share of total costs Simplifies intergovernmental relations Encourages consistent costing

4. What the Cost Principles Require: The six �B�s� for costs: Be allowable Be allocable Be reasonable Be treated consistently Be necessary to perform the program Be permissible under the law

5. What is the F&A Rate Proposal? The documentation prepared by an institution in accordance with the federal cost principles in OMB Circular A-21 to substantiate its claim for the reimbursement of F&A costs. If you don�t want to be reimbursed for F&A costs, you don�t have to prepare a proposal. The proposal should to be submitted six months after the fiscal year end.

6. What is the F&A Rate Proposal? The proposal needs to be reconciled to the audited financial statements. Needs to be clear explanation of adjustments and reclassifications. Base period normally coincides with fiscal year. Short form institutions follow Section H of OMB Circular A-21.

7. What is the F&A Rate Proposal? The proposal and supporting documentation becomes the basis for negotiating your institution�s F&A rate. Remember, this is your proposal and you must defend it.

8. What are Facilities and Administrative (F&A) 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. Often referred to as indirect or overhead costs.

9. What are Facilities and Administrative (F&A) Costs?

10. The Short Form Advantages Relatively easy to prepare and negotiate Uses institutional financial statements Uses formula approach -1 pool and 1 base (OH) Does not need a space study Does not need a library allocation Does not need a DCE calculation Does not need sub-pooling for GA or O&M Administration is not subject to the 26 point cap that is imposed on long-form institutions

11. The Short Form Disadvantages Does not always result in optimizing F&A cost recovery. Establishes one rate for all sponsored activity, rather than on and off campus rates and special rates where appropriate.

12. The F&A Calculation Process Download operating expenses Functional expenses need to be broken into salaries, fringe, and other expenses Reconcile Expenses to the Financial Statements by NACUBO functional category Decide on Distribution Basis MTDC Salaries and Wages Reclassify financial expenses Into the function groups and ultimately indirect cost pool and direct cost base

13. The F&A Calculation Process Exclude certain costs MTDC exclusions Unallowable costs Make adjustments to ensure consistency Calculate the rate

15. Reconcile Extract current fund operating expenses Reconcile to expenditures reported in the notes to the financial statements by NACUBO category Can take longer than you think

16. Reclassification Short form institutions need to reclassify their financial expenses into the F&A function groups and ultimately either the indirect cost pool or direct cost base needed to compute the F&A rate under the simplified method. This initial review of expenses for F&A classification purposes can be done at the department, object code, or account level. Costs are often included in one type of function category for financial statement purposes and a different function group for F&A purposes. Costs are often included in one type of function category for financial statement purposes and a different function group for F&A purposes.

17. Reclassification Reclassifications Include: Scrub Expenses Unallowable Activities Sponsored Accounts Catalogs, Commencement, and Convocations Department Paid Operations and Maintenance Library Department Administration Specialized Service Facilities Look for campus telecommunications and other activities that are normally considered specialized service facilities. Government usually makes adjustments here because they want these charged to users on a unit cost basis. (See A-21, Section J.47) Look for campus telecommunications and other activities that are normally considered specialized service facilities. Government usually makes adjustments here because they want these charged to users on a unit cost basis. (See A-21, Section J.47)

18. Reclassification Auxiliary Assessments for Institutional Support and/or Operations and Maintenance Academic Support Student Services Administration Institutional Support

19. Exclusions Exclusions Include: College Work Study Modified Total Direct Cost Exclusions Capitalized Equipment Subcontracts > $25K Financial Aid Long Term Facilities Rental Patient Care Costs Unallowable Expenses Bad Debt Entertainment Cost of Goods Sold in Auxiliaries

20. Adjustments Adjustments Include: Applicable Credits O&M Expenses Allowable Building Depreciation Allowable Equipment Depreciation Interest Expense Gain/Loss on Disposal of Depreciable Assets

21. The F&A Calculation Process

22. How is the Rate Developed? Step 1. Develop the F&A cost pool: - Administrative salaries/wages $350,000 - Associated fringe benefits 75,000 - Finance and accounting costs 25,000 - Supplies, materials and expenses 17,000 - Space related (O&M) 27,000 - Administrative travel 6,000 - Total pool costs $500,000

23. How is the Rate Developed? Step 2. Develop the base costs: Cost Objectives Direct S&W - Federal NIH grants $300,000 - Federal NASA grants 350,000 - Ford Foundation grants 400,000 - State Contracts 250,000 - Other university subcontracts 300,000 - Endowment funded programs 400,000 - Total base costs $2,000,000

24. How is the Rate Developed? Step 3. Calculate the rate: F&A cost pool $ 500,000 Direct cost base $2,000,000

25. How is the Rate Developed? Step 4. Apply the rate: Federal NIH grants $300,000 x 25% = $75,000 Federal NASA 350,000 x 25% = 87,500 Foundation grants 400,000 x 25% = 100,000 State contracts 250,000 x 25% = 62,500 Subcontracts 300,000 x 25% = 75,000 Endowment 400,000 x 25% = 100,000 Total reimbursement $500,000

26. Questions? Resources: DCA Short Form Sample: http://rates.psc.gov/fms/dca A-21: http://www.whitehouse.gov/omb/circulars_a021_2004

27. Contact Information Ginger Baker Senior Manager (702) 994-2999 VirginiaBaker@maximus.com Eileen Campbell Manager (435) 770-5225 EileenPCampbell@maximus.com