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The Facilities and Administrative Rate Calculation Process – Simplified Method

The Facilities and Administrative Rate Calculation Process – Simplified Method. Presented by Ginger Baker Eileen Campbell. OMB Circular A-21. Cost Principles for Educational Institutions found in 2 CFR Part 220

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The Facilities and Administrative Rate Calculation Process – Simplified Method

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  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.

  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? Executive Management Budgeting Accounting & Financial Management Building and Equipment Depreciation/ Use Allowance Not directly assignable to any one activity. Payroll or Purchasing Human Resources Repair & Maintenance Utilities

  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

  14. 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

  15. 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.

  16. Reclassification Reclassifications Include: • Scrub Expenses • Unallowable Activities • Sponsored Accounts • Catalogs, Commencement, and Convocations • Department Paid Operations and Maintenance • Library • Department Administration • Specialized Service Facilities

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

  18. 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

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

  20. The F&A Calculation Process

  21. 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

  22. How is the Rate Developed? • Step 2. Develop the base costs: Cost ObjectivesDirect 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

  23. How is the Rate Developed? • Step 3. Calculate the rate: F&A cost pool $ 500,000 Direct cost base $2,000,000 = 25%

  24. 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

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

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

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