Budgeting 101 Sponsored Programs Administration 2012 Research Seminar Series

1. Budgeting 101Sponsored Programs Administration2012 Research Seminar Series

2. Budgeting 101 • This session will lay the basic framework for budgeting in sponsored research. Topics to be discussed today include: • Direct vs. Indirect Costs • OMB Circular A-21 General Costing Principles • Allowability of Costs • Cost Share • Mechanics of Building a Budget

3. OMB Circular A-21 • What is it? • Sets forth allowability principles for the reimbursement of costs associated with federally sponsored projects • Provides guidance for determining direct and indirect costs • Available at: http://www.whitehouse.gov/omb/circulars_a021_2004

4. Direct vs. Indirects • Direct Costs (OMB A-21 D.1.) • Costs that can be identified specifically with a particular sponsored project or • Costs that can be directly assigned to projects relatively easily with a high degree of accuracy • Indirect Costs aka Facilities and Administrative Costs aka Overhead (OMB A-21 E.1.) • Costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project

5. Direct Costs • Examples of Direct Costs include: • Salaries • Fringe • Travel • Commodities/Supplies • Contractuals/Services/Subcontracts • Equipment

6. Indirect Costs (Facilities and Administrative Costs) • Examples of Indirect Costs include: • Facilities • Depreciation and use allowances • Interest of debt associated with certain buildings • Equipment and capital improvements • Operation and maintenance expenses • Library expenses • Administrative • General administration and general expenses • University wide offices: President’s office, General Counsel, etc • Departmental administration • Sponsored programs administration

7. Basic Principles of CostingOMB A-21, C.2 • Reasonable – • OMB A.21, C.2(a) • Allocable – • OMB A.21, C.2(b) • Consistent – • OMB A.21, C.2(c) • Allowable – • OMB A.21, C.2(d)

8. Reasonable • Prudent person test • Considerations for determining reasonableness of a cost: • Generally recognized as necessary • Complies with Federal and State laws and regulations • Whether the individuals involved acted with due prudence • The extent the actions taken are consistent with institutional policies and procedures

9. Allocable • To be allocable • Expenses are incurred solely for the project OR • Expenses benefit both the project and other work in a proportion that can approximated • Split purchases are allowed and are often the most appropriate way to allocate expenses to projects

10. Consistent • Costs must be given consistent treatment • Cost accounting standard (CAS) 502 requires consistent allocation of costs • All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only • Restated: Cannot charge the same cost both directly and indirectly when it is incurred for the same purpose and circumstance

11. Allowable • The cost must conform to any requirements, limitations, etc put forth by all of the following: • OMB Circulars • Sponsor guidelines • Award document • Institutional policies

12. Allowable (cont.) • Allowability criteria applies to both direct and F&A costs • Certain costs may be allowable only as an indirect (F&A) cost • For example, Sponsored Programs expenses are not allowable as a direct cost, but are allowable as an F&A cost

13. To summarize: • Costs must be treated consistently as either a direct cost or an F&A cost, when in like circumstances • ‘like costs in like manner’ • The Disclosure Statement (DS-2) will provide some guidance • Available at: http://www.controller.msstate.edu/cas/cdst/

14. Disclosure Statement (DS-2) • Provides details of how some costs will be treated. An example: • Travel costs incurred while performing the function of general university activity such as travel by executive officers meeting with the State Board of Trustees to discuss general university business would be classified as indirect costs. • Travel by a university employee related to carrying out the functions of a specific contract or grant would be classified as a direct charge to that contract or grant.

15. Allowability as a direct cost • Can I charge a computer to my project? • It depends! • Yes – if being used in a programmatic way. • Computer needed to be connected to a scientific piece of equipment for data collection • Computer needed to run simulations, analyze data, etc • No – if being used in a general way • Check email, browse internet, word processing, etc

16. Allowability as a direct cost • Can I charge my dues for a professional organization to my project? • Typically no, due to lack of allocability • Benefit is not to any specific project and benefits other activities of the university • See also OMB A-21 F.6.b.(3) • Allowable in rare circumstances when the scope of work requires the membership

17. Allowability as a direct cost • Can I charge office supplies to my project? • Typically no, due to lack of allocability • See also OMB A-21 F.6.b.(3)., which states that office supplies are normally treated as F&A costs • However, they are allowable when in unlike circumstances • Used in a programmatic way: conference materials, pamphlets, etc

18. Allowability as a direct cost • Can I charge my administrative assistant to my project? • Typically no, again due to lack of allocability • See also OMB A-21 F.6.b.(2)., which states that salaries of admin and clerical staff are normally treated as F&A costs • However is appropriate on a ‘major project’ • See OMB A-21 Exhibit C

19. Cost share • Anything necessary for the completion of the project that is not paid for by the sponsor • Irrelevant what the source of funds are: • MSU – E&G • MSU – Designated • Third party • Etc

20. Cost share • Can be separated into two categories • Committed – must be tracked • Required by sponsor (committed in proposal) • Not required, but committed in the proposal • Not required, but implied through regulation • Uncommitted – does not need to be tracked • Typically after the fact ‘volunteering’ of MSU resources

21. Cost share (sort of!) • As PI, do I have to charge my time to the project? • No, BUT your time will be cost share, and some portion of it must be committed cost share and tracked • Note: this will also require division approval on the Internal Approval Sheet/Cost Share Form • See OMB Memo 01-06 http://www.whitehouse.gov/omb/memoranda_m01-06/

22. Allowability of cost share expenses • To be allowable as a cost share expense, it must be allowable as a direct cost • Other important criteria: • Expense must be incurred during the project period • Can only be used as cost share once • Cannot be being charged to the feds already (typically F&A costs)

23. Allowability of cost share expenses • The sponsor does not allow me to charge F&A on the project. Can I use this unrecovered F&A to meet my cost share requirement? • Only with the prior approval of the Federal awarding agency • See OMB A-110 C.23.(b).

24. Allowability of cost share expenses • I have two related federal projects. Can I use my NSF funds as cost share for my USDA project? • No, unless authorized by federal statute to be used as cost share. • See OMB A-110 C.23.(a).(5).

25. Allowability of cost share expenses • I bought a piece of equipment a couple of years ago that I am going to use on my project. Can I use that as cost share? • Questions: • Was it purchased with federal funds? • Are the feds already paying for this (through F&A)? Is it in the F&A pool? • Is it fully depreciated? • If all answers are ‘No’, then you could use the depreciation value as cost share.

26. Mechanics of Building a Budget • Basic Principles • All costs budgeted must be in accordance with the principles that have been presented • Reasonable, Allocable, Consistent, Allowable • Properly budgeted as direct vs. indirect • All costs budgeted should be viewed in relation to the project and its needs • Your specific RFP may prohibit or require certain classes of expenses. Read carefully!

27. Mechanics of Building a Budget • Personnel • Principal Investigator, project team, students • Best practices are to do this section first. Many other expenses will be determined by the Personnel budget line. • Calculations • Percentage of effort or person months • 9-month vs. 12-month employees • Rates should be based on current salaries; escalations allowed for future budget periods

28. Mechanics of Building a Budget • Fringe Benefits • Treated as a direct cost • Calculations • Rates are applied to budgeted salary amounts • Different rates for different employee classes • 33.18% Faculty/Staff * • 0.76% Student (Enrolled) • 21.09% Retirees • 9.09% All other Intermittent Employees /Student (not Enrolled) • *Assumes $40,000 average salary

29. Mechanics of Building a Budget • Graduate Student Tuition • Rates vary between colleges • Engineering and Arts and Sciences: • Fiscal Year 2012 - $728/month • All other colleges: • Fiscal Year 2012 - $484/month • Escalate 5-6% each year thereafter • Calculation is based on student’s budgeted effort

30. Mechanics of Building a Budget • Travel • Project related conferences, project review meetings, data collection, etc. • For budgeted project personnel • Calculation • Per diem rates: http://www.travel.msstate.edu/hcma/plhcma.php • $36/day - $46 /day • Mileage: http://www.travel.msstate.edu/mileage/mileage.pdf • $0.51/ mile if no State owned vehicle available • $0.19/mile if State owned vehicle available

31. Mechanics of Building a Budget • Equipment • Definition • Nonexpendable • Tangible • Useful life of more than one year • Acquisition cost of $5,000 or more per unit • Just because it must be inventoried does not make it equipment for budgeting purposes

32. Mechanics of Building a Budget • Commodities/Materials and Supplies • Items to be used for the project • For example: molecular biology supplies (enzymes, reagents, tubes, pipette tips) to be used for DNA sequencing. • Contractuals/Services • Services to be performed by another entity for the project • For example, third party vendor will perform DNA sequencing • Unsure? See: http://www.accountspayable.msstate.edu/glc/

33. Mechanics of Building a Budget • Subawards • Subaward is distinguished from a vendor by the intellectual contribution to the project outcome • Must receive SOW, budget, and budget justification from subrecipient • Subaward budget must comply with sponsor guidelines, subrecipient institution policies, and all federal regulations

34. Mechanics of Building a Budget • Participant Costs • Broadly defined as support provided when a sponsor funds a project or activity in connection with formal meetings, conferences, symposia, or training programs • Specifically, participant support costs are those costs paid to (or on behalf of) participants in such events • Treatment of participant costs vary from agency to agency

35. Mechanics of Building a Budget • Facilities and Administrative Costs (F&A) • Current federally negotiated rates: • On-campus • 44.5% MTDC – Research • 50.9% MTDC – Instruction • 31.1% MTDC – Public Service/Other • Off campus • 26% MTDC – Research and Instruction • 24% MTDC – Public Service/Other • MTDC – Modified Total Direct Costs

36. Mechanics of Building a Budget • Modified Total Direct Cost (MTDC) • All costs excluding tuition, equipment, patient care, off-site rentals, scholarships, fellowships and all subaward costs exceeding $25,000. • Sponsor may further restrict F&A rate • The maximum that can be charged is our federally negotiated rate Total Direct Costs Modified Total Direct Costs Exclusions

37. Budget Problem 1 - Personnel • Dr. Jones ($100,000 annual salary/12 month faculty) plans a one year project. The project will require 10% of his time. Calculate the salary and fringe expenses. • Salary: $100,000 x 10% = $10,000 • Fringe: $10,000 x 33.18% = $3,318

38. Budget Problem 2 - Personnel • Dr. Jones ($50,000 annual salary/9 month faculty/0.62 FTE) plans a one year project. The project will require 10% of his time. Calculate the salary and fringe expenses. • What does 10% mean? 10% of a 12 month equivalent or 10% of his actual appointment? • Because of this uncertainty, the recommendation is to always use person months.

39. Budget Problem 3 - Personnel • Dr. Jones ($50,000 annual salary/9 month faculty/0.62 FTE) plans a one year project. The project will require two months of effort. Calculate the salary and fringe expenses. • First calculate total months in the appointment • Then calculate monthly salary • Then calculate project salary charges

40. Budget Problem 3 – PersonnelSolution • Total months in appointment • 9 month appointment x 0.62 FTE = 5.58 months • Monthly salary • $50,000 annual salary / 5.58 months = $8,961/month • Salary: 2 months x $8,961/month = $17,922 • Fringe: $17,922 x 33.18% = $5,947

41. Budget Problem 4 • Dr. Smith ($100,000 annual salary; 12 month appointment) has a one year research project (7/1/12-6/30/13). This project will require 3 months of his time. In addition, he will need $2,000 for travel to collect samples for his experiments and $3,000 for chemical supplies to run the necessary tests. The sponsor will pay full facilities and administrative costs. What is the total budget amount?

42. Solution 4 • Salary: $100,000/12 x 3 = $25,000 • Fringes: $25,000 x 33.18% = $8,295 • Travel: $2,000 • Supplies: $3,000 • TDC: Sum of all direct costs $38,295 • F&A: $38,295 x 44.5% = $17,041 • Total Cost: Sum of TDC + F&A= $55,336

43. Budget Problem 5 • Dr. Smith ($100,000 annual salary, 12 month appointment) has a one year research project (7/1/12-6/30/12). This project requires two months of her time. In addition, she will need an undergraduate student to be paid $8.00/hr, 20 hours/wk, for 30 weeks. This project will also require $5,000 in travel, $10,000 for chemical supplies and a $10,000 centrifuge for processing of the samples. The sponsor will pay full facilities and administrative costs. What is the total budget amount?

44. Solution 5 • Salaries: $21,467 • PI: $100,000/12*2 = $16,667 • Student: $8.00 x 20 x 30 = $4,800 • Fringes: ($16,667 x 33.18%) + ($4,800 x 0.76%) = $5,566 • Travel: $5,000 • Supplies: $10,000 • Equipment: $10,000 • TDC: Sum of all direct costs $52,033 • MTDC = TDC – Exclusions • $52,033 - $10,000 = $42,033 • F&A: $42,033 x 44.5% = $18,705 • Total Cost: TDC + F&A $70,738

45. Budget Problem 6 • Dr. Smith (a Professor in Mechanical Engineering) is doing a one year research project (7/1/12-6/30/13). He will work 2.0 summer months on the project (his 9-month salary is $60,000). He will need two full time graduate students who will make $20,000/yr. He will need $2,000 for travel. Will also need a specialized piece of equipment for testing material strength and costs $20,000. It will also be necessary to pay a colleague at Auburn $40,000 to do part of the work. Sponsor will pay full F&A. What is the total budget amount?

46. Solution 6 • Salaries: $53,333 • PI: $60,000/9 x 2 = $13,333 • GRA: $20,000 x 2 = $40,000 • Fringes: $4,728 • PI: $13,333 x 33.18% = $4,424 • GRA: $40,000 x .76% = $304 • Tuition: $728 x 1.05 x 12 months x 2 students = $18,346 • Travel: $2,000 • Equipment: $20,000 • Subaward: $40,000 • TDC: Sum of all direct costs $138,407 • MTDC: • $138,407 – 18,346 – 20,000 – 40,000 + 25,000 = $85,061 • F&A: $85,061 x 44.5% = $37,852 • Total Cost: TDC + F&A $176,259

47. Budget Problem 7 • A sponsor limits the project budget total to $100,000 and will pay our full federally negotiated F&A rate of 44.5% MTDC. The project budgets nothing that would be excluded for F&A purposes (tuition, equipment, etc). How much money is available in direct costs?

48. Solution 7 • Available Direct Costs: • $100,000/1.445 = $69,204 in direct costs • Calculation check: • $69,204 x 44.5% = $30,796 • $69,204 + 30,796 = $100,000

49. Budgeting backwards

50. Budget Problem 8 • Starting with the available direct costs ($69,204) in the previous problem, assume we need $5,000 for travel and $5,000 for printing and the rest is for salary and fringe for faculty and professional staff. What would be allocated now to both salary and fringe?