Facilities and Administrative Costs
(Indirect or Overhead)
Michael J. Warnock, Ph.D.
Director, Office of Sponsored
Program Administration
What’s in a name?
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Facilities and Administrative Costs
F&A Costs
Indirect Costs
Overhead Costs
Administrative Costs
Direct Costs
Allocable Costs
Not a “tax” over and above the cost of project, but
an integral part of the project cost
What are F&A Costs?
Costs associated with completing a project that
are not directly charged to the project
 Includes:
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 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 supplies/materials to support work
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Cost recovery mechanism based on historical
expenditures
Why not charge F&A costs as a direct
charge?
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Increased administrative burden (cost) to:
 Determine
what charge at what rate for each project
 Accounting for actual and reconciling differences
 Allocations between projects (e.g., costs for a lab
used in several projects would need to be allocated
and records kept to differentiate between the uses
by each project)
Selected Items Excluded From F&A
Animal care costs
 Service operations
 Certain building costs
 Certain utility costs
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Is F&A Important to Me?
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Where does my paycheck come from?
How are my support staff paid?
What was the source of funding for the building I
work in?
What is the source of funds for the utilities in my
building?
How are costs for shared purposes tied to the
benefiting functions (including mine--cost and
benefit)?
How is research infrastructure paid for?
These are real dollars
Scope of F&A Rates
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Research
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Instruction
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On-campus
Off-campus
On-campus
Off-campus
Other Sponsored Activity (any other project
sponsored by an external entity that is not
research or instruction)
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On-campus
Off-campus
Determination of F&A Rate
Summary of financial information—i.e., how
funds were spent in base year
 Classification of cost to cost pools
 Adjustments to identify modified total direct
costs (MTDC)
 Review and adjustments to cost classification
 Allocations of indirect costs
 Calculation of F&A rates
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Summary of Financial Information
 Functional
classifications in PeopleSoft
 PCS (Project Classification System)
codes
 PCS tree for Chartfields
 DeptID (some exceptions) is the key for
PCS codes
Classification of Cost to Cost Pools
 Based
on Chartfield PCS code
 Depends on accurate decision making
with regard to which Chartfield is used
for expenditure
 Expenditures for multiple purposes
must be split between appropriate
Chartfields
Summary of Financial Information
Instruction (28% )
Research (16% )
Service (16% )
Departmental Administration (9% )
Student Services Administration (3% )
General Administration (6% )
Operations & Maintenance (6% )
Scholarships (1% )
Depreciation (4% )
Auxiliary (11% )
Adjustments to Identify MTDC
 Move
certain costs out of individual
Chartfields to other categories
 Capitalized
building expenses
 Capital equipment costs
 Scholarships
 Unallowable costs (including A-21 Exclusions)
 Etc.
 These
reclassifications are proscribed by
OMB Circular A-21
A-21 Exclusions
Certain costs may not normally be charged to
the federal government either as direct charges
or through the F&A rate (see separate handout)
 Under certain conditions, some of these may
be chargeable as direct costs to the federal
government (must be specifically approved by
sponsor)
 There are generally no prohibitions on
charging these as direct costs to non-federal
projects (be careful of federal flow through—it
counts as federal)
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Adjustments to Identify MTDC
Instruction (31% )
Research (16% )
Service (16% )
Departmental Administration (10% )
Student Services Administration (3% )
General Administration (6% )
Operations & Maintenance (5% )
Scholarships (0% )
Depreciation (4% )
Auxiliary (9% )
Review and Adjustment
 Cleanup
process
 Review expenditures on Chartfield to
identify where expenditures may have
been made from Chartfield with one
PCS code that should have been another
 Initial identification by review of
expenses, confirmation by consultation
with Chartfield approver
Review and Adjustment
In stru c tio n (2 0 %)
Re se a rc h (1 1 %)
Oth e r Sp o n so re d Ac tivity (1 2 %)
De p a rtme n ta l Ad min istra tio n (1 0 %)
Stu d e n t Se rvic e s Ad min istra tio n (3 %)
Ge n e ra l Ad min istra tio n (5 %)
Op e ra tio n s & Ma in te n a n c e (8 %)
Sc h o la rsh ip s (0 %)
De p re c ia tio n (4 %)
Oth e r In stitu tio n a l Ac tivity (2 4 %)
L ib ra ry (3 %)
Sp o n so re d Pro je c ts Ad min istra tio n
Allocations of Indirect Costs
 Differing
allocation methods for
different classes of indirect cost pools
 Administrative
pools
 Library
pool
 Facilities pools
 Allocation
functions
of indirect pools are to direct
Administrative Allocations
Allocation is based on expenditures within
covered direct cost pools
 General administration
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 Allocated
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to all institutional direct functions
Departmental administration
 Allocated
among direct functions within
administrative unit
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Student services administration
 Allocated
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entirely to instruction function
Sponsored projects administration
 Allocated
functions
among sponsored project direct cost
Allocation of Library Cost
 Based
on user population
 Allocations differ for each population
 Can be based on employee/user
populations or special study
 Ours done on employee/user FTEs
 Faculty
 Staff
 Students
 Other
users
Facilities Allocation
 Based
on space allocations
 Space allocations can be based on salary
allocation to direct costs or on space
study
 We use a space study because it more
closely ties costs to usage (especially for
O&M and equipment)
Calculation of F&A Rates
Divide amount of indirect cost allocated to
direct cost pool by MTDC amount of direct
cost pool
 (A/B)*100% = C where
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A
= allocated indirect cost
 B = MTDC of direct costs
 C = indirect cost rate for that indirect function
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Thus, if general administrative costs are
$50,000 and direct instruction costs are
$1,000,000, then instruction F&A rate for GA is
5%
After Calculation, Then What?
 Administrative
Cap
 Utility Cost Adjustment
 Rate Proposal
 Negotiation
 Agreement
Administrative Cap
 Administrative
indirect costs for research
cost pool are capped at 26%
 That means any administrative
(collectively) costs above 26% are
unrecoverable
 Administrative cap does not apply to
non-research cost pools (we apply it, A-21
does not)
Utility Cost Adjustment
 A-21
recognizes that research uses a greater
proportion of utilities than other direct cost
functions
 UCA was designed to reimburse these costs
 UCA applies only to certain institutions
 UM campuses are not among those
institutions
 OMB was supposed to have issued new
rules for the UCA in July 2002--not yet done
Rate Proposal
 Lots
of data
 Calculated rates for each indirect cost
pool supporting each direct cost pool
 Additional (beyond the F&A data)
institutional data
 Lots of tables
 Lots of paper
Negotiation
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Government wants to pay as little as possible
University wants reimbursement (we have already spent
this money) for as much of the cost as possible
Research rate is the focus because that is most of what
federal government funds at the negotiated rate
Negotiated rate never exceeds proposed rate—the
amount that it is less is largely based on strength of
proposal
Differentials between proposed rate (cost) and
negotiated rate are 2.9%
Agreement
 Specifies
rates for each direct cost pool
except OIA
 Specifies MTDC base components by
what is excluded from the base
 Specifies effective dates of rates
 Specifies type of rate (normally
“predetermined”)--we were provisional
since July
 References requirements of A-21
A-21 Referenced in Agreement
What does this mean for us?
 Cost Accounting Standards
 No special accounting practices for sponsored
projects (can’t charge them costs not charged
elsewhere)
 F&A rates apply to all projects funded from
outside the institution
 Costs charged to a project must be during the
term of the agreement and for the benefit of
the project
 Others, but these are the big ones
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Where does that leave us?
The F&A rate is a cost recovery process—if we
do not recover F&A from projects, the
difference to cover the costs is made up from
elsewhere
 The cap on the administrative rate means any
administrative costs exceeding 26% are
unrecoverable
 Since we exceed the cap, administrative cap
also means the only variables are facilities and
library costs
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Cost Recovery Assessment
60.0%
51.0%
50.0%
47.0%
40.0%
32.0%
30.0%
26.8%
25.0%
Recoverable
20.0%
Unrecoverable
8.3%
10.0%
0.1%
0.0%
0.0%
Instruction
Research
Other
Sponsored
Activity
Other
Institutional
Activity
Strategies for Strength
Reduce non-mandatory reclassifications
 Have more accurate Asset Management
(buildings and equipment) records
 Develop a higher degree of confidence in
relationship between activity (and funds to
support it) data and space assignment data
 Spend funds according to the PCS code assigned
to the Chartfield
 Conduct a library special study
 All else being equal, use institutional funds for
facilities and project funds for salaries
 Next year (FY 2005) is the next base year
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Space is Critical to Success
 The
space data drive almost all the
facilities costs
 Recoverable building depreciation is based
on space allocations
 Recoverable equipment depreciation is
based on assignment of equipment to
rooms and space allocations of those rooms
 Recoverable O&M is based on space
allocations
What are MU’s F&A rates?
 Research-on
campus 47%
 Research-off campus 26%
 Instruction-on campus 51%
 Instruction-off campus 26%
 Other Sponsored Activity-on campus
25%
 Other Sponsored Activity-off campus
19.5%
What about state projects?
Research-on campus
47
 Research-off campus
26
 Instruction-on campus
51
 Instruction-off campus
26
 Other Sponsored Activity-on campus
25
 Other Sponsored Activity-off campus
19.5
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36.6%
20.2%
39.7%
20.2%
19.5%
15.2%
What are the components of MU’s
research rate?
 General
Administration-4.5%
 Departmental Administration-19.5%
 Sponsored Projects Administration-2.0%
 Building Depreciation-3%
 Equipment Depreciation-2.2%
 Operations and Maintenance-13.9%
 Library-1.9%
What happens when F&A costs are not
recovered?
 Costs
must be picked up from another
source
 RIF is reduced
 Compliance problems
 Reduced future rate (but with constant
or increasing costs)
Who is affected when F&A is not
recovered?
General Administration-4.5% (9.6%)
 Departmental Administration-19.5% (41.4%)
 Sponsored Projects Administration-2% (4.3%)
 Building Depreciation-3% (6.4%)
 Equipment Depreciation-2.2% (4.7%)
 Operations and Maintenance-13.9% (29.6%)
 Library-1.9% (4%)
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Research Rate Components
De p a rtme n ta l Ad min istra tio n (4 1 .4 %)
Ge n e ra l Ad min istra tio n (9 .6 %)
Op e ra tio n s & Ma in te n a n c e (2 9 .6 %)
Bu ild in g De p re c ia tio n (6 .4 %)
Eq u ip me n t De p re c ia tio n (4 .7 %)
L ib ra ry (4 %)
Sp o n so re d Pro je c ts Ad min istra tio n
(4 .3 %)
Who pays when F&A is not recovered?
 General
Administration 7.2%
 Departmental Administration 31.1%
 Sponsored Projects Administration 3.2%
 Building Depreciation 4.8%
 Equipment Depreciation 3.5%
 Operations and Maintenance 22.2%
 Library 3%
 RIF 25%
How do our rates compare?
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University of Illinois
Purdue University
Indiana University
University of Texas
University of Minnesota
University of Oklahoma
University of Colorado
University of Iowa
University of Kentucky
Iowa State University
Kansas State University
University of Kansas
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*provisional rate under negotiation
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53%
52%
50.5
50%*
48.5%
48%
48%
47.5%
47%
46%*
46%
44%
Questions/More Information?
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Mike Warnock, OSPA, 882-4329,
warnockm@missouri.edu