Indirect Cost
Facilities and Administrative
(F&A) Costs
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Introduction
• The Indirect Cost Study is the basis for
calculating reimbursements received for
Facilities and Administrative (F&A) costs.
– F&A rate is a percentage of direct cost applied to
sponsored program billings.
– Federal cost principles, such as A-21, govern the way
indirect costs are calculated and allocated.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Topics of Discussion
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Sponsored Programs
Indirect Cost Proposals
A-21 Cost Principles
Indirect Cost Categories
Service/Recharge Centers
Base and Space Calculations
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Sponsored Programs
• Primary Federal Agencies for Research,
Training and Sponsored Program
Expenditures
– Dept of Health & Human Services
– National Science Foundation
– Dept of Education
– Veterans Administration
– Dept of Defense
– Dept of Energy
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Sponsored Programs
• Non-Federal Research, Training and Other
Sponsored Programs
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Foundations
State of Indiana
Non-Profit
Commercial/For Profit
Higher Education
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Indirect Cost Proposals
• Proposed Facilities & Administrative (F&A)
Rates
– Two separate rates calculated (F&A)
– Administrative rate is capped at 26%
– Allocated to four direct cost functions
• Certifications
– Requires CFO signature
– Assurance statements
• Federal Audit
• Negotiation
• Final Rate Agreement
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
A-21 Cost Principles
• A-21 Office of Management and Budget (OMB)
circular of cost principles for educational
institutions.
• http://www.whitehouse.gov/omb/circulars/a021/a021.html
• A-21 applies to contracts and grants.
• A-21 requires adherence to Cost Accounting
Standards (CAS) and submission of a Disclosure
Statement (DS-2).
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
A-21 Cost Principles
• Cost Accounting Standards Board Requirements
for Educational Institutions.
– 9905.501 Consistency in estimating, accumulating and
reporting costs
– 9905.502 Consistency in allocating costs incurred for the
same purpose
– 9905.505 Accounting for unallowable costs
– 9905.506 Cost accounting period
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
A-21 Cost Principles
• Costs incurred for the same purpose in like
circumstances must be treated consistently
as either direct or indirect (F&A) costs.
• Where an institution treats a particular type of
cost as a direct cost of sponsored agreements,
all costs incurred for the same purpose in like
circumstances shall be treated as direct costs
of all activities of the institution.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
A-21 Cost Principles
• Allowable costs
– Costs must be reasonable, allocable, consistent
and conform to any limitations or exclusions set forth
in the cost principles (A-21).
• Unallowable costs
– Costs must be identified and excluded from costs
applicable to a sponsored agreement.
– A-21 Section J includes general provisions for
selected items of cost.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
A-21 Cost Principles
• Cost Objective
– Major function, particular service or project,
sponsored agreement or facilities & administrative
(F&A) cost activity.
• Allocation
– Process of assigning costs to one or more cost
objectives
– Reasonable, realistic and equitable.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Indirect Cost Categories
• Indirect (F&A) costs are those that are
incurred for common or joint objectives
and therefore cannot be identified readily
and specifically with a particular
sponsored project, an instructional
activity, or any other institutional activity.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Indirect Cost Categories
• Indirect Administrative Costs
– General & Administrative
– Departmental Administration
– Sponsored Projects Administration
– Student Administrative Services
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Cost Categories
• Indirect Facilities Costs
– Building Depreciation
– Equipment Depreciation
– Operations & Maintenance
– Interest
– Library
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Service/Recharge Centers
• Recharge Centers are University operations
that recharge for services or products primarily
for university use.
• Financial Policies
– Fund Balance in Recharge Centers
– Formula for Setting Recharge Center Rates
– Recharge Center Transfers
• Overall requirement to breakeven
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Base and Space Calculations
• Bureau of Facilities requirement for
annual space survey by room
• Space functionalization should correlate
closely with cost activities.
• On and off campus bases are calculated.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Space vs. Base Analysis
• A detailed analysis of salaries and wages
compared to assigned square footage
and the percentage by department is
required.
• Departmental interviews may be
conducted to make sure accurate results
are achieved.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006
Summary
• Indirect costs consist of facilities and
administrative (F&A) costs
• Indirect costs are allocated to final cost
objectives (direct costs).
• Indirect costs allocated to organized research
must exclude unallowable costs and comply
with Cost Accounting Standards in accordance
with OMB Circular A-21.
• Close attention to annual requirements for
recharge center rates and the space survey are
critical for an accurate study.
Kuali Financial Systems – Financial Administrator Development Series - October, 2006