Oregon State University

1. Oregon State University AN INTRODUCTION TO FACILITIES & ADMINISTRATIVE RATES

2. Outline of This Presentation • Background on F&A Rate calculation • How rate is calculated • Cost components used in calculation • How recovered indirect (F&A) monies are used • How you fit into the process • Summary

3. What are F&A Rates? • F&A = indirect cost or overhead • The rate allows recovery of costs incurred for common joint use that cannot be readily identified to a specific project • The rate is applied to sponsored projects • Rates are negotiated with the Department of Health and Human Services (DHHS)

4. Why Should a Grant pay F&A? • The F&A rate is calculated by an averaging concept, as established in OMB Circular A-21. Most projects require resources from all F&A pools • The F&A rate is a recovery of costs already paid from all OSU fund sources • All projects incur 2 types of costs—those directly related and those required for indirect support of the project

5. OMB Circular A-21 • OMB Circular A-21 guides the F&A process, stipulates the proposal format, and addresses both direct and F&A costs • F&A rates are calculated from OSU’s audited financial statements

6. FACILITIES Building Depreciation Interest on debt Equipment Depreciation Operations & Maintenance Library ADMINISTRATION General Administration Departmental Administration Sponsored Projects Administration Student Services Indirect Costs are Assigned to 1 of 9 Cost Pools The Facilities Components are not subject to a cap The Administrative Components are subject to a 26% cap

7. Administrative Components • General Administration costs include: • President, Provost and OUS Chancellor’s Offices • Business Affairs (except for Research Acctng.) • Information Services/Computing Center • Budget Office • Purchasing • Human Resources

8. Administrative Components • Departmental Administration costs include: • Deans’ offices • Departmental chairs • Departmental administrative staff • Other Administrative Components are Sponsored Projects Administration and Student Services

9. A Simplified F&A Rate Calculation If any of the variables change (numerator or denominator), then the F&A rate will also change. Example: OSU received $147M in research awards in FY04. F&A Costs = F & A Rate Sponsored Agreements + Cost Sharing/Matching (variables)

10. MTDC Base and Allocable F&A Costs for On-Campus Research Rate* (millions) 8.2 10.7 10.8 26% Administrative Cap in Place from 1994 to present *Source: OSU F&A Rate Proposals

11. = Increase over FY00 F&A Costs F&A Costs Needed to Maintain or Increase our Rate 9.2% (3% rate increase) 8.3% F&A Rates (2% rate increase) 6.4% * (0% rate increase) *FY00 F&A costs were $30.9M F&A Costs Required in FY2005 (millions) Assumes $92.9M in Research Expenditures

12. How Does Cost Share “Figure” into this Process? • Cost sharing has a negative impact on the F&A rate since it must be included in the base • When preparing proposals, cost sharing commitments that are not mandatory should be carefully weighed against the negative effect they have on the F&A rate

13. Historical View of OSU’s Rates On-Campus F&A Rates (Percent) Agreement Dates (Agreement Start Dates Coincide with OSU’s Fiscal Year Dates)

14. F&A Cost Calculation • Step 1: Start With Base-year Audited Financial Statement and Identify Each Cost for Inclusion in Either a Direct Cost Base (the major functions) or an Indirect Cost Pool (Program Codesare used) • Step 2: Remove Exclusions (tuition, facility rental, capital expenses, etc.) and eliminate Federally Funded costs & unallowable costs

15. F&A Cost Calculation (contd.) • Step 3: Identify Any Indirect Costs in Other Pools by Account Codeand Allocate to the Appropriate Indirect Cost Pool • Step 4: Allocate the Indirect Cost Pools to the Major Functions of Instruction, Organized Research, Other Sponsored Activities and Other Institutional Activities (numerator of the formula)

16. F&A Calculation (with Cross Allocations) Basis for Allocation Indirect Cost Pools Cross Allocation #1: Bldg. & Equip. Depreciation Interest; Building & Equipment Depreciation Allocated from Space Study & Financials Operations and Maintenance Facilities Portion Cross Allocation #2: O & M Allocated from Special Study or Population Usage Library Cross Allocation #3: General Administration General Administration Allocated from MTDC in Operating Ledger, Based on Supported Function Department Administration Administrative Portion Sponsored Projects Administration Student Services Allocated from Student FTE

17. F&A Cost Calculation (contd.) • Step 5: Identify the Direct Costs of Instruction, Organized Research (including cost sharing), Other Sponsored Activities and Other Institutional Activities (denominator of the formula) • Step 6: Perform the Calculations to Arrive at a Proposed F&A Rate for Organized Research and Other Sponsored Activities

18. Computing the F&A Rates Indirect Cost Pools After Cross Allocations F&A Rate Distribution Base Functions Interest; Building & Equipment Depreciation MTDC Organized Sponsored Research Organized Sponsored Research ÷ = % Facilities Portion Operations and Maintenance MTDC Other Sponsored Activities Other Sponsored Activities % ÷ = Library General Administration Other Institutional Activities Department Administration Note: Distribution Base For Instruction and Other Institutional Activities Are Not Shown Since F&A Rates Are Neither Computed Nor Negotiated for These Functions Administrative Portion Sponsored Projects Administration Instruction Student Services

19. FY 2000 Proposal Components – Research Rate Facilities Components are shaded orange; Administrative Components are shaded green

20. How Does OSU Use Returned Overhead (ROH)? • OSU must use some of its F&A recoveries, as described in Section J.14.h of OMB Circular A-21, to improve research facilities • Research facilities upkeep (BUC funds -- $0.5M in FY04) • Research equipment (RERF fund -- $3.18M in FY04) • The remainder can be used at the discretion of OSU

21. How Does OSU Use Returned Overhead (ROH)? • Returned overhead (ROH) is allocated in OSU’s budget process for: • Utilities, security, custodial, general maintenance, inventory control, risk management • Library support • College accounting & administrative support, and other uses

22. How Does OSU Use Returned Overhead (ROH)? • Sponsored program and compliance support • Human resources, payroll, purchasing, accounts payable, and cashiering support • New research faculty start-up support ($1.25M in FY04)

23. F&A Rates of Peer Institutions

24. Why are OSU’s F&A rates low? • The newer buildings (Ag & Life Sciences Bldg., Richardson Hall) received major Federal funding, which must be excluded • Most buildings are old and have low construction costs. The last proposal used a 2% use allowance (50-year life) • Maintenance costs incurred are low • Utilities on west coast are lower than elsewhere • Oregon public institutions have a history of low debt financing

25. How Can the F&A Rate be Optimized? • Properly code costs in Banner (HRIS and FIS) • Accurately complete the Space Study. The space study affects building depreciation, equipment depreciation, and operations and maintenance • Accurately complete the Library Study

26. How Does Capital Equipment Impact the F&A Rate? • Depreciation on capital equipment purchased with sponsored programs funds and cost share funds must be excluded from the calculation process

27. Equipment Purchases for Organized Research by Source of Funds* (millions) $61.48M Total Amount Available for Equipment portion of F&A Rate Calculation: $32.4M $29.05M Spon. Prog. & CS *Data from FY00 Proposal

28. How Program Codes Relate to F&A Rates Indirect Cost Pools (Numerator) Functions (Denominator) 11xxx – Ag. Ex. Sta. Res. 12000 – FRL 13000 – Other CIPs 15xxx – Spon. Res. 17xxx – Cost Share, Res. Building & Equipment Depreciation Organized Sponsored Research Facilities Portion Operations and Maintenance 5xxxx – O&M 52500 – Facil. Maintenance Other Sponsored Activities Library 18xxx – Other Spon. Act. 2xxxx – Spon. Pub. Ser. General Administration 01800 – Dept. Aca. Support 11200 – Ag. Exp. Sta. Admin. 30600, 30800 – Dean’s Office Other Institutional Activities Department Administration Administrative Portion 4xxxx – Auxiliaries 20600 – Services/Testing Unallowable Expenses Sponsored Projects Administration Instruction Student Services 01100—Instruction

29. How Costs are RecordedDo Matter • The function of an expense should dictate where the cost is recorded. • Example: A department chair charges travel to an FS Foundation index. What is the purpose of the travel? • Dept. administration expense will go to an F&A cost pool • Instruction expense will go to a major function (direct cost activity) • Fund raising/lobbying expense will go to a major function (direct cost activity)

30. F&A Cost Pools vs. Major Functions Indirect Cost Pools (Numerator) Functions (Denominator) Building & Equipment Depreciation Organized Sponsored Research FSxxxD Expense (01800) Facilities Portion Operations and Maintenance Other Sponsored Activities Library General Administration FSxxxV Expense (30600) Other Institutional Activities Department Administration Administrative Portion Sponsored Projects Administration FSxxxN Expense (01100) Instruction/ Dept. Rsch. Student Services

31. Illustration - F&A Pool vs. Function Cost of travel is $5,000 FSxxxD FSxxxN 305,000 500,000 300,000 505,000 • FSxxxD index— Puts the cost in an F&A cost pool • FSxxxN index—Puts the cost in the instruction function

32. O&M Program Code • Use the O&M Program Code (52500) to identify Operations & Maintenance costs • Example: A Building Manager’s salary is currently paid from a Dean’s admin. index • Change the salary expenses to the index with O&M program code 52500. This program code “tracks” to the O&M cost pool rather than a capped department administration pool.

33. Illustration – New Bldg. Mgr. Prog. Code Indirect Cost Pools Interest; Building & Equipment Depreciation Program Code 52500 Tracks Here Operations and Maintenance Facilities Portion Library There is no Cap on Facilities Components General Administration Program Code 30600 Tracks Here Department Administration Administrative Portion Sponsored Projects Administration The Administrative Components are Capped at 26% Student Services

34. The Next Proposal • The proposal will be based on FY09 financial data (July 2008 – June 2009) • Cost coding and FTE/salary will be reviewed throughout FY09 • OSU will start the F&A proposal at the close of FY09 (Aug 2009)

35. The Next Proposal • Library Study will take place throughout FY09 • Equipment inventory will be completed in the spring of FY09 • Space survey will be completed by the spring of 2009 • New agreement should be negotiated in the spring or early summer of 2010

36. How You Fit into this Process As departmental staff, you are critical to OSU’s successful preparation of the next F&A rate proposal. You are involved in: • Space Study that will take place in spring ‘09 (appropriate coding of space is critical) • Equipment Inventory that will take place in spring ’09 (identification of equipment location and condition is critical)

37. How You Fit into this Process You are involved in: (contd.) • Completion of PAR forms • Processing payments for goods and services • Processing payroll transactions

38. You can help by correctly coding and identifying expenses

39. Reminders • Most costs are identified by account code. • Example of allowable vs. unallowable cost: • 24611 is the account code for recruitment advertising (allowable cost) • 24612 is the account code for public relations and institutional advertising (unallowable cost)

40. Reminders (contd.) • Example of properly recording costs: • 23522 is the account code for maintenance materials (tracks to O&M pool) • 20102 is the account code for general operating supplies (????)

41. Reminders (contd.) However, some costs can only be identified by use of indexes with specific Program or Org Codes. • Example: Salary and travel account codes are not unique to any cost pool (numerator) or function (denominator). These costs must be placed in the proper index to correctly identify their purpose.

42. Thanks for Your Efforts—It Can’t Be Done Without You!