1. F&A Rate Practices, Concepts and CalculationsBy
Michael Anthony, University of Washington
Lupe Valencia, University of Washington

2. 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

3. 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

4. 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 Other specific applicable guidance can be found in corresponding Appendix III (UG) and the Cost Allocation Services Best Practices Manual.

5. 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

6. 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

7. 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

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

9. 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

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

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

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

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

14. 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

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

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

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

18. 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

19. F&A Rate Proposal Submission Process
June 30, 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

20. 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

21. 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.

22. Best Practices
Requests for submission extensions (not rate extensions)
Appeals Process
Rate Extensions
Simplified Method Example

23. Questions?
THANK YOU!