F&A Rate Practices, Concepts and Calculations By Michael Anthony, University of Washington Lupe Valencia, University of Washington

Outline What are F&A Rates? What is the simplified (short-form) method? How is it calculated? What is the protocol for submission? Best practices

What are F&A rates? The calculated rates are a representation of the facilities and administrative (indirect) costs that an institution incurs in support of major institutional activities (e.g., instruction, research). Facilities & Administrative (F&A) rates are negotiated with the federal government (per assigned cognizant agency). Cognizant agencies DCAA – Office of Naval Research DHHS – Cost Allocation Services

What are F&A costs? Facilities and administrative costs are those costs that are incurred for joint objectives which cannot be identified specifically to a particular sponsored project, instructional activity or other institutional activity. Costs allowable for inclusion in the F&A calculation for reimbursement purposes are defined in the Code of Federal Regulations, Uniform Guidance (UG), 2 CFR Part 200. Other specific applicable guidance can be found in corresponding Appendix III (UG) and the Cost Allocation Services Best Practices Manual.

What are F&A costs? Administrative costs: Facilities costs: General Administration Sponsored Projects Administration Departmental Administration Student Administrative Services Facilities costs: Building/Equipment Depreciation Interest Expense Library Operations & Maintenance

F&A Rate Development Methods Long Form (Standard) Method Required for schools with >$10M in direct federal awards excluding student aid There are several options for allocating space costs Very time consuming and can be intrusive to campus if it includes a space functionalization survey (optional) Requires segregation of direct cost bases (multiple bases = multiple rates) Schools with <$10M in direct federal awards excluding student aid have the option to use the long-form method Rate may be higher using this methodology If entity elects this option then you cannot revert back to the short-form (simplified) method in the future

F&A Rate Development Methods Short-Form (Simplified) Method For schools with <$10M in direct federal awards excluding student aid Less time consuming Must not have used the long-form methodology in the past Possible to seek Cognizant Agency approval to use this methodology if >$10M in direct federal awards excluding student aid One direct cost rate = one indirect cost rate

Short-Form (Simplified) Method Formula Indirect Costs/Direct Costs = Indirect Cost Rate

What information do you need? Base year cost information Pull financial transactions from financial system of record Include – account numbers and chart string, object codes, department numbers, financial statement cost categories Reconcile transactions to the base year Annual Financial Report (AFR) Depreciation – must tie to AFR amount and must flag federal depreciation as it must be excluded. Review adjusting journal entries to determine which are to be included in calculation Financial statement expense categories (NACUBO/WICHE) – will likely match direct costs F&A/Uniform Guidance – indirect costs/facilities and administrative costs Flag exclusions and unallowable costs Cost groupings

Direct Costs Instruction Research Academic Support Student Services Institutional Support Auxiliary Enterprises Other Direct

Indirect Costs General Administration Departmental Administration Sponsored Projects Administration Student Administrative Services Operations and Maintenance (O&M) Library Depreciation Interest

Exclusions Capital Expenditures Indirect Cost Recovery Student Aid Patient Care Tuition Remission Sponsor Paid Rent Portion of Subcontracts > $25k Participant Support Costs

Unallowable Costs Defined in Uniform Guidance Examples Bad Debt Fines Penalties Entertainment Fundraising

Top Level Rate Calculation Steps Step 1: Financial Statement Recon Step 2: Reclassify AFR costs to F&A categories Step 3: Identify exclusions Step 4: Identify unallowable costs

Rate Calculation Facilities & Administrative Costs Salaries & Wages (S&W) S&W + Fringe Benefits MTDC (Modified Total Direct Costs)

Rate Calculation - Example Step 1. Development of the F&A cost pools (numerator): - Administrative salaries/wages $350,000 - Associated fringe benefits 75,000 - Finance and accounting costs 25,000 - Supplies and materials 17,000 - Space associated (O&M, Depr) 27,000 - Administrative travel 6,000 - Total indirect costs $500,000

How is the Rate Developed? Cost Objectives Direct S&W Federal NSF grants $600,000 Federal NIH grants 350,000 Gates Foundation grants 400,000 State Contracts 250,000 Other subcontracts 400,000 Total base costs $2,000,000 Step 2. Development of the base costs (denominator):

How is the Rate Developed? Step 3. Calculate the rate: F&A Cost Pool $500,000 = 25% Direct Cost Base* $2,000,000 *several options

F&A Rate Proposal Submission Process June 30, 2018 - FYE Close (FY 18 Base Year) October 30, 2018 – Audited Financial Statements Issued December 31, 2018 – F&A Proposal Due to Cognizant Agency May 2019 – Data Request June 2019 – Negotiations July 2019 – New F&A rates in place

F&A Negotiation Process Costs and documentation submitted to feds is basis for federal review and data request After federal review, institution will receive offer Institutions have the option to counter and can negotiate until agreeable rate and duration is reached Calculated rates are rarely negotiated rates

No F&A Rate No F&A rate There is no penalty for not having one. Uniform Guidance allows for a 10% de minimis MTDC rate to be used. There is no penalty for not having one. There are benefits to calculating a rate. Government agencies are required (subject to certain statutory limitations and the like) to pay the negotiated rate. The F&A revenue that is generated is a budgetary inflow to your institution and can be used for institutional investments.

Best Practices Requests for submission extensions (not rate extensions) Appeals Process Rate Extensions Simplified Method Example https://rates.psc.gov/fms/dca/shortform%20example.pdf

Questions? THANK YOU!