Understanding F&A Costs

1. Understanding F&A Costs Facilities and Administrative Costs Revised April 2014

2. Recording date of this workshop is April 11, 2014 Some of the rules and procedures discussed in this workshop are subject to change. Please check university resources before relying exclusively on this recorded presentation.

3. Presenters: Karen Breese kbreese@wsu.edu F&A Rate Specialist, General Accounting 509-335-2056 Welcome! Preston Comstock preston.comstock@wsu.edu Grant & Contract Manager, Office of Research 509-335-8539

4. F&A Topics • What is the context? - F&A Cost Proposal • Source of terminology, definitions and guidance. • How is the F&A rate calculated? • Why is the F&A rate important? • Distribution of F&A returns, i.e. recoveries • Questions from audience

5. Total Direct Costs – The Direct Cash Expenses recorded in accounting for a Project Direct Expenses: Salaries & Wages Fringe benefits Services Supplies Travel Equipment Subcontracts Interest Rent Utilities

6. Modified Total Direct Costs – Costs allowed in Rate Calculation Particular Expenses: Salaries & Wages Fringe benefits (excluding Tuition) Services Supplies Travel Subcontract costsOver $25,000

7. Organized Research Organized Research and development costs are  • Separately budgeted and recorded Research, such as from the federal government, state governments, foundations, businesses, etc. Includes those sponsored by the University that are separately budgeted and recorded.

8. Rate Example F&A Rate 51% Rate $51 $100

9. Research at WSU

10. Many Locations- Many Activities

11. University View FY13 Total Costs in Accounting for the Entire University were – $ XXX,XXX,XXX ??

12. F&A Cost Calculation Financial Statement Operating Expenses TotalCosts Capitalized Items Federal Expenditures Unallowable Costs Exclusions Less: Credits or Plus: Allowable Interest Adjustments Modified Total Direct Costs

13. Formula for Determining Rate F&A or Indirect Costs F&A Rate = Modified Total Direct Cost Base (MTDC) For the Organized Research Rate: The MTDC Base contains the allowable Direct Costs of Sponsored Research + Cost Sharing

14. Cost Sharing All contributions by a recipient towards accomplishing a sponsored project, including Cash and In-kind. Personnel Costs are generally the majority of Cash Costs (Cost Share) borne by the University. Necessary, Allowable, Verifiable and Measurable Resources used.

15. Calculation of Research F&A Rate All direct (MTDC) expenses related to organized research Sponsored project costs Committed Cost Sharing Overdrafts

16. What are F&A Costs? Pooled Expenses

17. What are F&A Costs?

18. What are F&A Costs? F&A Costs are those associated with completing a project, that support the project, and that are not directly charged to the project. Includes: Space where work is done Utilities where work is done Equipment used to support work done Administration and oversight of work done Use of library facilities General purpose supplies which support work Infrastructure Slide 18

19. What is the context – Why is there F&A? Within the University – Various Projects

20. Why are there F&A Rates? To formalize Reimbursement of University overhead costs from sponsors of research, instruction and training. Context: Federal Cost Accounting Reference: OMB Circular A-21

21. Guide to help universities properly cost projects and calculate F&A costs. • Circular issued by the Office of Management and Budget that contains federal cost principles. • Sets basis • for Cost Allowability and • For Cost Standards. • Defines Direct and F&A costs. • Defines methodologies for allocating F&A to direct functions. OMB Circular A-21

22. Example:A lab is used in several projects. • If Records could finitely track–then • we could differentiate between the uses. • Estimation is used when it is not possible to track: • Joint Costs are pooled and allocated. • F&A costs are not charged as a direct cost. • How are F&A costs handled? • Calculated indirectly to represent a return or recovery of costs already incurred by the institution.

23. DirectCosts Costs that can be identified specifically with a particular project. or activity, or Direct Costs – Costs can be directly assigned to an activity with relative ease and a high degree of accuracy.

24. What are Examples of F&A Costs? • Janitorial Services • Repairs and Renovation • Buildings & Grounds Maintenance • Physical Plant • Environmental Safety • Facility Planning • Utilities

25. Federal OMB A-21 Direct & Indirect (F&A) Costs

26. Research Compliance • Animal Care Review • Human Subjects Review • Office of Grant & Research Development • Sponsored Programs • Purchasing • Payroll • Human Resources • Accounts Payable • General Accounting What are F&A Costs?

27. What is an F&A Rate? • A percentage. • Ratio of the Indirect portion to the Direct costs. If the F&A rate is 50% - for every $1 spent on research - • 50 cents of cost is incurred by the University. • Why don’t we charge the sponsor 50 cents directly? F&A is difficult to estimate project-by-project. The F&A agreement establishes that the federal government or sponsor will pay its fair share of total costs.

28. F&A Rates

29. Cost Accounting Standards Consistency Reasonable Allowable Allocable Context: Federal Cost Accounting

30. How is the F&A Rate calculated? Institutions that wish to be reimbursed for Facilities and Administrative costs - • Two methods of calculating an F&A rate: • Long Form-Required for institutions expending more than $10 million on Federal grants and contracts annually. • Short Form-Simpler allocation methodologies used by institutions that have <$10 mil research expenditures.

31. Overall Timeline for F&A Rate process

32. Federal OMB A-21 Direct & Indirect (F&A) Costs

33. F&A Rate Calculation 1. Start: Operating expenses in financial statement. 2. Adjust to exclude unallowable costs. 3. Map to A-21 cost pools/groups and bases. The indirect costs are dependent on space utilization and other data provided by dept personnel to allocate: • Building Depreciation • Equipment Depreciation • Operations and Maintenance • Interest 5. Allocate indirect costs to direct cost pools. 6. Lastly, calculate Rates. 4. The indirect costs are dependent on Dept personnel providing – space utilization, property inventory records and other data – to allocate:

34. Identify & Group similar activities

37. *Key Rate Components heavily dependent on Department Information: • Research rate components On Campus Off Campus • Building use 5.6 points* • Equipment use 2.7 points* • Operations & Maintenance 15.0 points* • Interest 0.3 points* • Library 1.4 points • General Administration 8.5 points 8.5 • Department Administration 14.6 points* 14.6* • Sponsored Proj. Administration 2.9 points 2.9 • __________________ • Total 51 points 26.0 Total from Key Dept data 38.2 points* 14.6 F&A Costs **Administrative component is capped at 26%.

38. F&A Rate Application Complexities Barriers to charging the full F&A rate F&A Waivers: • Institution grants privileged exceptions. • Institution wants to foment a relationship with a new sponsor. • Sponsor limitations: • Ex. USDA 10% • Ex. Training Grant 8% • Ex. Foundations (common with humanities programs) • TDC Base

39. Office of Research Preston Comstock F&A Returns Expense to Revenue % Distribution Architectural design view of the PACCAR Inc. (www.paccar.com) Environmental Technology facility, formerly proposed as the Clean Technology Lab Building with estimated completion of October 2015.

40. Is F&A Important to Me? Where does my paycheck come from? What is the source of funds for the utilities in my building? How are support staff paid? How are costs for shared purposes tied to the benefiting functions? How is research infrastructure paid for?

41. Allocation of Revenue F&A Revenue Generated 23% to F&A Revenue Generating Units 7% Libraries Dean - 8% total F&A earned Department – 15% total F&A earned Deans and departmental policies 38% Campus Support • With academic affiliation 50% branch campus 50% Pullman campus • Without academic affiliation 100% to branch campus 32% University Support

42. F&A Allocations F&A Splits Contact Pete Beeson 5-9683 Budget Office

43. Why is the F&A rate important?

44. Facilities and Administrative Costs • Incurred for common or joint purposes; • Identifiable at a high level; • Benefiting the total institution.

46. F&A Rate in Action  • Projects for external sponsors have direct costs and indirect costs; the latter being recovered through an F&A percentage. • F&A recoveries support the University. • QUARTERLY F&A recoveries distributions.

47. F&A Questions? Heavily dependent on our accounting consistency. The F&A rate reimburses WSU. Ensure that there are no special accounting practices or treatments for sponsored projects – And – That all costs are consistently treated.

48. Facilities & Administrative Costs Costs that are incurred for • Common or jointobjectives; • Not specific, that is, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. • The University benefits from F&A costs. In the Cost Proposal, F&A costs are Pooled.

49. Presenters Karen Breese kbreese@wsu.edu F&A Rate Specialist 509-335-2056 Preston Comstock preston.comstock@wsu.edu Grant & Contract Manager Office of Research 509-335-8539

50. References • OMB A-21 Office of Management & Budget Circular, Cost Principles for Educational Institutions, Relocated to 2 CFR, Part 220 • OMB A-110, Institutions of Higher Education, CFR, Part 215 • OMB A-133, Audits of States, Local Governments and Non-Profit Organizations • DHHS Division of Cost Allocation College and University Long-Form Guide • DHHS Division of Cost Allocation Frequently Asked Questions • State of Washington and WSU: • Bylaws of the Board of Regents of Washington State University & Executive Policy Manual • WSU’s Business Policies and Procedures Manual • State Administrative and Accounting Manual (SAAM) – State of Washington • Division of Cost Allocation [DCA] – Washington Statewide Cost Allocation Plan [SWCAP] • Cost Accounting Standards Disclosure Statement [DS-2] • Current negotiated federal F&A rate agreement(s) between WSU and the Department of Health & Human Services, through WSU’s cognizant negotiation agency: the Division of Cost Allocation • Postsecondary Education Facilities Inventory and Classification Manual, for Room Use codes.