Function Codes in the General
Ledger
University of Arkansas,
Fayetteville
What is a Function Code
• Function codes are the two digit numbers
in the cost center number. Most cost
center numbers contain function codes,
with the exception of Auxiliary Enterprise
cost centers and Plant Fund cost centers
which have “00” in the function code area.
Cost center numbers have this format:
Company Department Function Project
XXXX
XXXXX - XX - XXXX
Purpose of Function Codes
Function codes describe the purpose or type
of activity for which a cost center will be
used. Our general ledger has many cost
centers so that we can collect revenues and
expenses that serve a specific purpose or
activity. It is the expenditures that define the
purpose of the activity. A review of a function
code’s expenses can tell us the cost of each
major activity of the University.
Purpose of Function Codes
• Some cost centers have been set-up to
collect expenses for a department over
time for an ongoing activity such as
instruction, research, etc. Other cost
centers are set-up to report a very specific
instruction, research or other type project.
Typically these are sponsored programs
where the funding for the specific project
comes from an outside source.
Purpose of Function Codes
• Whether a cost center is used for a
department’s ongoing activity or a specific
project, it is important to understand the
function code of the cost center so that the
expenses posted to the cost center are
always expenses incurred to support the
activity defined by the function code of the
cost center.
Using Correct Function Codes
• Why is it important for us to post
expenditures to the correct function code?
• FY2016 is a base year for indirect cost
rate negotiations with the federal
government. To maximize our IDC rate,
expenditures must be classified correctly
in our general ledger - particularly
research expenditures.
Indirect Cost Rate
Indirect Costs
(Depreciation,
Operations
& Maintenance,
Admin Expense)
=
Direct Costs of
Research, Instruction
or other Major
Function
Indirect Cost Rate
for Function (Shown
as a percentage)
Effect of Incorrectly Classifying
Expenses as Research
• Posting expenses to a function code of 2X
for expenditures that are not research
related, reduces our research rate by
increasing the denominator of the rate
calculation with no overhead cost to
include in the numerator.
Effect of Incorrectly Posting Research
Expense to Another Function
• Not capturing research effort in function
2X can result in not being able to include
research overhead such as depreciation
expense in the numerator of the rate
calculation.
OMB Circular A-21 Section A2f
• Cognizant Federal agencies involved in
negotiating facilities and administrative
(F&A) cost rates and auditing should
assure that institutions are generally
applying these cost accounting principles
on a consistent basis.(Uniform Guidance
Section 200.400(e)).
• Note: F&A rates are commonly referred to
as indirect cost rates.
Instruction Function Codes
Instruction function codes begin with a “1”.
• 11 – On campus credit Instruction
• 12 - Departmental administration
• 13 - Off-campus credit instruction
• 14 – Non-credit instruction
• 15 – Instruction cost sharing
• 16 – Academic advising
• 17 – Faculty development
Instruction Function Codes
• The Federal government has defined
several of these function codes or
activities in OMB Circular A-21 and the
new Uniform Guidance. All expenses
posted to a cost center with these function
codes must be expenses that are directly
required for the activity as defined by the
federal government.
Instruction Function Codes
• Cost centers with function codes 11, 13, 14 and 15 have
the following definition in the Federal Circular:
• Instruction means the teaching and training activities of
an institution. Except for research training as provided in
subsection b, this term includes all teaching and training
activities, whether they are offered for credits toward a
degree or certificate or on a non-credit basis, and
whether they are offered through regular academic
departments or separate divisions, such as a summer
school division or extension division.
Uniform Guidance – Appendix III to Part 200 Section A.
1.a.
Instruction Function Codes
• The Federal Circular defines function 12,
Departmental Administration expenses:
• The expenses under this heading are those
that have been incurred for administrative and
supporting services that benefit common or
joint departmental activities or objectives in
academic deans’ offices, academic
departments and divisions, and organized
research units.
Uniform Guidance – Appendix III to Part
200 Section B. 6. a.
Instruction Function Codes
• The Federal Circular also defines function 17, Faculty
Development or Departmental Research.
• Departmental research means research, development
and scholarly activities that are not organized research
and, consequently, are not separately accounted for.
Departmental research, for purposes of this Circular, is
not considered as a major function, but as part of the
instruction function of the institution.
(Uniform Guidance Appendix III to Part 200 Section A.
1.a.(2).
Research Function Codes
Research function codes begin with a “2”.
• 21 Sponsored Research
• 22 University Supported Research
• 23 Sponsored Research – Cost Sharing
• 24 Agri Experiment Station Research
Research Function Codes
• The Federal Circular defines function 21, sponsored
research.
• Sponsored research means all research and
development activities that are sponsored by
Federal and non-Federal agencies and
organizations. This term includes activities involving
the training of individuals in research techniques
(commonly called research training) where such
activities utilize the same facilities as other research
and development activities and where such activities
are not included in the instruction function.
• Uniform Guidance Appendix III to Part 200 Section
A.1.b.(1)
Research Function Codes
• The Federal Circular defines function 22,
University Research
• University research means all research and
development activities that are separately
budgeted and accounted for by the institution
under an internal application of institutional
funds.
Uniform Guidance – Appendix III to Part
200, Section A.1.b.(2)
Research Function Codes
• Expenses posted to cost centers with a
function code of 22 should be expenses
for specific research projects that a college
or department has decided to fund. If the
expenses are for general faculty
development they should be posted to a
cost center with a function code of 17.
Public Service Function Codes
• 31 – Public Service
• 32 – Public Service – Cost Sharing
• 33 – University Sponsored Public Service
Public service is non-instructional activities
of the University that have direct benefits
to the general public. Our transit program,
and KUAF radio are examples of public
service activities.
Academic Support Function Codes
• 41 – Libraries
• 42 – Museums and Galleries
• 43 – Organized Activities
• 44 – Other Academic Support
• 45 – Academic Support – Cost Sharing
Academic support includes expenses
associated with the Dean’s Office,
advisory committees, libraries etc.
Other Function Codes
• Function codes beginning with “5” are used with
Student Services cost centers.
• Function codes beginning with “6” are used with
Central Administration cost centers.
• Function codes beginning with “7” are used with
Facilities Management cost centers.
• Function codes beginning with “8” are used for
Scholarship and Fellowship cost centers.
Expense Transfers
• If expenses are originally posted to a cost center
with the correct function code for the expense,
then any transfer of the expense should be to a
cost center with the same function code. If
expense transfers are made between cost
centers with inconsistent function codes, the
extended description should contain an
explanation of why the function code for the
original cost center was not correct for the
particular expense being transferred.
Faculty and Staff Effort
• Payroll distributions for faculty and staff
should reflect the actual effort of the
employee by posting salaries to cost
centers with the proper function codes.
Payroll distributions for employees who
have a committed level of effort to a
sponsored program should reflect that
level of effort even if the sponsored
program is not paying the salary of the
employee.
Faculty and Staff Effort
• The LCPI screen in DART will list all of the
sponsored program cost centers that
include a specific faculty member as
Principal Investigator. Departmental staff
should be informed of the level of effort
commitment for each employee working
on a sponsored program and make sure
the level of effort is properly reflected in
the function codes of the employee’s
salary distribution.
Salary Distribution Example
• If a Faculty member had 4 sponsored
programs and had committed 10% of his
effort to each program, but only one
program actually paid 10% of his salary,
his research effort would need to be
shown in another cost center. His salary
distribution should reflect the 30%
unreimbursed effort in cost sharing cost
centers (function 23) for each specific
project.
Cost Share Effort
• If a cost share cost center is needed for
unreimbursed effort, contact Research
Support and Sponsored Programs at
575-3845 or Research Accounting at
575-4853 to have a cost share cost center
set-up.
Negotiator’s Query Form
EXAMPLE (Any University)
ATTACHMENT: #1
Salary costs and room type classifications for employees in department ???
NAME
TITLE
FUNDING
SALARY
Is salary inc.
ROOM(S)
SOURCE
FUNDED
in O.R. base?
OCCUPIED
SQUARE FOOTAGE ALLOCATION PER ROOM BY FUNCTION
Research
John Smith
Faculty
Instruction
OSA
DA
Total
NIH #123456
$50,000
yes
Lab #22
400
100
0
0
500
NIH #876543
$30,000
yes
Lab #22
400
100
0
0
500
Dept. Funds
$20,000
no
Lab #22
400
100
0
0
500
0
0
0
100
100
500
0
0
0
500
40
40
0
40
120
Total Salary
Office #10
$100,000
=
Mary Jones
Faculty
NIH #475215
$100,000
yes
Total Salary
Lab #40
Office #12
$100,000
=
Mike Walker
Grad Student
NIH #123456
$15,000
yes
Lab #22
400
100
0
0
500
Dept. Funds
$15,000
no
Lab #22
400
100
0
0
500
Total Salary
$30,000
=
Susan Moore
Grad Student
NIH #767680
$15,000
yes
Lab #57
600
0
0
0
600
Dept. Funds
$10,000
yes
Lab #57
600
0
0
0
600
Office #15
0
0
0
75
75
Office #20
0
0
0
125
125
Total Salary
$25,000
=
Beth Cooper
Secretary
Dept. Funds
$28,000
-
Total Salary
$28,000
=
no
Federal Grants News – May 2005
• An article entitled “Audit Reports Reveal Trends:
Effort Reporting, Cost Sharing, and More”
stated the following:
• “Cost sharing was a factor in effort certification
findings because effort committed to federal
awards, but not charged as payroll expenses to
those awards, must be tracked for two purposes:
(1) verifying that these commitments were met,
and (2) inclusion of the cost shared effort in the
research base for the computation of the F & A
rate.”
Correct Function Codes is a
Priority
• There is some concern that posting
expenses to a cost center with the correct
function code would require some
departments or colleges to double their
number of cost centers. If you need to
double the number of cost centers for your
department to report expenditures in the
correct function code, then that is what
you should do.
Adding cost centers
• To add new cost centers so that you can
post expenditures to the correct function
code, contact:
• Larrie Stolfi @ 5-6278 or lstolfi@uark.edu
• Rachel McGathy @ 5-4249 or
mcgathy@uark.edu
Conclusion
• Understanding the function code of the
cost centers to which expenses are posted
and posting expenses only to cost centers
with the proper function code that reflects
the activity for which the expense was
incurred is an important part of federal
compliance for the University of Arkansas.