1. Understanding F&A Costs Facilities and Administrative Costs 1 Revised April 2015

2. Karen Breese kbreese@wsu.edu kbreese@wsu.edu F&A Rate Specialist, General Accounting 509-335-2056 Presenters: 2 Welcome! Preston Comstock preston.comstock@wsu.edu preston.comstock@wsu.edu Grant & Contract Manager, Office of Research 509-335-8539

3. F&A Topics What are the "F&A" costs – the "Facilities & Administrative" or overhead costs? Source of terminology, definitions and guidance. How does the F&A rate impact WSU ? Distribution of F&A returns, i.e. recoveries Questions from audience 3

4. Total Direct Costs – recorded in WSU accounting for a Sponsored Project 4 Direct Expenses: Salaries & Wages Fringe benefits Services Supplies Travel Equipment Subcontracts Interest Rent Utilities

5. Indirect Costs – N ot specific to a sponsored project. 5 Examples of Indirect Expenses: Utilities Building Maintenance Building Depreciation Care of WSU grounds Custodial

6. What are F&A Costs? Incurred for common or joint objectives ; Identifiable at a high level, but not easily identifiable at a project or activity level; and Benefit the total institution. Slide 6

7. For Research at WSU 7 And For Other Sponsored Activities

8. Organized Research Separately budgeted “Project" accounts to record the activity for our sponsors:  Federal government,  State governments  Corporations, Foundations, Businesses 8

9. 9 Calculation of Research F&A Rate Overdrafts Committed Cost Sharing All direct (MTDC) expenses related to organized research Sponsored project costs

10. 10 F&A Cost Calculation Modified Total Direct Costs Total Costs Exclusions Adjustments Financial Statement Operating Expenses Capitalized Items Federal Expenditures Unallowable Costs Less: Credits or Plus: Allowable Interest

11. Calculating the Base for the F&A Rate MTDC include Total Direct Costs minus: Cost of equipment Buildings Patient care Off-campus rents Training Stipends Student Tuition / Scholarships and Sub-contracts over $25,000 Includes cost sharing in Organized Research 11 Modified Total Direct Cost (MTDC)

12. 12 Sponsored Project View – Example

13. Simple Sponsored Program Project Example 13 One Project’s MTDC: Total Direct Costs: $130,000  Salaries/benefits: $95,000  Supplies: $ 5,000  Scholarships: $10,000  Capital Equipment: $20,000 Modified Total Direct Costs = ?

14. Simple Sponsored Program Project continued 14 Total Direct Costs: $130,000  Salaries/benefits: $95,000  Supplies: $ 5,000  Scholarships: $10,000  Capital Equipment: $20,000 Modified Total Direct Costs: = $130,000 - $10,000 - $20,000 = $100,000 MTDC

15. Rate 15 51% Rate Example F&A Rate $51$100

16. Simple Sponsored Program Project continued 16 Modified Total Direct Costs = $100,000 Accounting System (the mainframe) calculates and applies the 51% F&A Rate (If project’s rate is Organized Research 51%) And Posts the F&A Expense to ‘Object 13.’ Sponsored Programs personnel periodically review and confirm.

17. What is the context – Why is there F&A? 17 Within the University – Various Projects

18. Federal OMB A-21 Direct & Indirect (F&A) Costs 18 Direct – Major FunctionsF&A (Indirect or Overhead) Instruction/Dept. Research Depreciation Organized Research Interest Other Sponsored Activity Departmental Administration Other Institutional Activity Operations & Maintenance Library Sponsored Programs Administration General Administration

19. Why are there F&A Rates? To formalize Reimbursement of University overhead costs from sponsors of research, instruction and training. 19 Context: Federal Cost Accounting Reference: OMB Circular A-21OMB Circular A-21

20. 20 Guide to help universities properly cost projects and calculate F&A costs. Circular issued by the Office of Management and Budget that contains federal cost principles. Sets basis Cost Allowability and Cost Accounting Standards. Defines Direct and F&A costs. Defines methodologies for allocating F&A to direct functions.

21. 21 If Records could finitely track–then we could differentiate between the uses. Estimation is used when it is not possible to track: Joint Costs are pooled and allocated. F&A costs are not charged as a direct cost. How are F&A costs handled? Calculated indirectly to represent a return or recovery of costs already incurred by the institution. Example: A lab is used in several projects.

22. 22 Costs that can be identified specifically with a particular project. or activity, or Direct Costs – Costs can be directly assigned to an activity with relative ease and a high degree of accuracy. Direct Costs

23. Cost Sharing – University Costs towards the Project 23 All contributions towards accomplishing a sponsored project, including Cash and In-kind. Necessary, Allowable, Verifiable and Measurable Resources used. Personnel Costs are generally the majority of Cash Costs (Cost Share) borne by the University.

24. 24 Many Locations- Many Activities

25. What are Examples of F&A Costs? 25 Janitorial Services Repairs and Renovation Buildings & Grounds Maintenance Physical Plant Environmental Safety Facility Planning Utilities

26. 26 Research Compliance Animal Care Review Human Subjects Review Office of Grant & Research Development Sponsored Programs Purchasing Payroll Human Resources Accounts Payable General Accounting What are F&A Costs?

27. What is an F&A Rate? A percentage. Ratio of the Indirect portion to the Direct costs. If the F&A rate is 50% - for every $1 spent on research -  50 cents of cost is incurred by the University. Why don’t we charge the sponsor 50 cents directly? F&A is difficult to estimate project-by-project. The F&A agreement establishes that the federal government or sponsor will pay its fair share of total costs. 27

28. F&A Rates FY15 On-Campus Research51.0 On-Campus Instruction55.0 Off-Campus Research26.0 Off-Campus Instruction26.0 On-Campus Other38.0 Off-Campus Other26.0 28

29. 29 Cost Accounting Standards Consistency Reasonable Allowable Allocable Context: Federal Cost Accounting

30. Institutions that wish to be reimbursed for Facilities and Administrative costs - Two methods of calculating an F&A rate:  Long Form- Required for institutions expending more than $10 million on Federal grants and contracts annually.  Short Form- Simpler allocation methodologies used by institutions that have <$10 mil research expenditures. 30 How is the F&A Rate calculated?

31. Overall Timeline for F&A Rate process Start of Fiscal Year Space Usage Survey End of Fiscal Year Financial Report F&A process: Calculate & submit. Slide 31

32. F&A Rate Calculation 1. Start: Operating expenses in financial statement. 2. Adjust to exclude unallowable costs. 3. Map to A-21 cost pools/groups and bases. The indirect costs are dependent on space utilization and other data provided by dept personnel to allocate: Building Depreciation Equipment Depreciation Operations and Maintenance Interest 5. Allocate indirect costs to direct cost pools. 6. Lastly, calculate Rates. 32 4. The indirect costs are dependent on Dept personnel providing – space utilization, property inventory records and other data – to allocate:

33. 33 Identify & Group similar activities

34. 34

35. F&A Costs 35 * Key Rate Components heavily dependent on Department Information : Research rate components On Campus Off Campus Building use 5.6 points* Equipment use 2.7 points* Operations & Maintenance 15.0 points* Interest 0.3 points* Library 1.4 points General Administration 8.5 points 8.5 Department Administration 14.6 points* 14.6* Sponsored Proj. Administration 2.9 points 2.9 __________________ Total 51 points 26.0 Total from Key Dept data 38.2 points* 14.6 **Administrative component is capped at 26%.

36. F&A Rate Application Complexities Barriers to charging the full F&A rate F&A Waivers :  Institution grants privileged exceptions.  Institution wants to foment a relationship with a new sponsor. Sponsor limitations: –Ex. USDA 10% –Ex. Training Grant 8% –Ex. Foundations (common with humanities programs)  TDC Base 36

37. 37 Office of Research Preston Comstock Architectural design view of the PACCAR Inc. (www.paccar.com) Environmental Technology facility, formerly proposed as the Clean Technology Lab Building with estimated completion of October 2015. F&A Returns Expense to Revenue % Distribution

38. Is F&A Important to Me? Where does my paycheck come from? What is the source of funds for the utilities in my building? How are support staff paid? How are costs for shared purposes tied to the benefiting functions? How is research infrastructure paid for? 38

39. 39 Allocation of Revenue F&A Revenue Generated 23% to F&A Revenue Generating Units 7% Libraries 38% Campus Support 32% University Support Dean - 8% total F&A earned Department – 15% total F&A earned Deans and departmental policies With academic affiliation 50% branch campus 50% Pullman campus Without academic affiliation 100% to branch campus

40. 40 F&A Allocations Pete Beeson 5-9683 Budget Office F&A Splits Contact

41. 41 Why is the F&A rate important?

42. 42 Facilities and Administrative Costs Incurred for common or joint purposes; Identifiable at a high level; Benefiting the total institution.

43. 43

44. F&A Rate in Action  Projects for external sponsors have direct costs and indirect costs; the latter being recovered through an F&A percentage. F&A recoveries support the University. QUARTERLY F&A recoveries distributions. 44

45. F&A Questions? The F&A rate reimburses WSU. 45 Ensure that there are no special accounting practices or treatments for sponsored projects – And – That all costs are consistently treated. Heavily dependent on our accounting consistency.

46. Facilities Building & Equipment Utilities Maintenance Libraries Administrative Dept College Campus University 46 What are F&A Costs? Pooled Expenses

47. Presenters Karen Breese kbreese@wsu.edu kbreese@wsu.edu F&A Rate Specialist 509-335-2056 47 Preston Comstock preston.comstock@wsu.edu preston.comstock@wsu.edu Grant & Contract Manager Office of Research 509-335-8539

48. References  Uniform Guidance CrosswalkCrosswalk  Uniform Guidance Uniform Guidance  OMB A-21 Office of Management & Budget Circular, Cost Principles for Educational Institutions, Relocated to 2 CFR, Part 220 OMB A-21 Office of Management & Budget Circular, Cost Principles for Educational Institutions Relocated to 2 CFR, Part 220  OMB A-110, Institutions of Higher Education, CFR, Part 215 OMB A-110, Institutions of Higher Education CFR, Part 215  OMB A-133, Audits of States, Local Governments and Non-Profit Organizations OMB A-133, Audits of States, Local Governments and Non-Profit Organizations  DHHS Division of Cost Allocation College and University Long-Form Guide Division of Cost Allocation College and University Long-Form Guide  DHHS Division of Cost Allocation Frequently Asked Questions DHHS Division of Cost Allocation Frequently Asked Questions State of Washington and WSU:  Bylaws of the Board of Regents of Washington State University & Executive Policy Manual Bylaws of the Board of Regents of Washington State UniversityExecutive Policy Manual  WSU’s Business Policies and Procedures ManualBusiness Policies and Procedures Manual  State Administrative and Accounting Manual (SAAM) – State of Washington State Administrative and Accounting Manual (SAAM)  Division of Cost Allocation [DCA] – Washington Statewide Cost Allocation Plan [SWCAP] Division of Cost Allocation [DCA] – Washington Statewide Cost Allocation Plan [SWCAP]  Cost Accounting Standards Disclosure Statement [DS-2] Cost Accounting Standards Disclosure Statement [DS-2]  Current negotiated federal F&A rate agreement(s) between WSU and the Department of Health & Human Services, through WSU’s cognizant negotiation agency: the Division of Cost Allocation Current negotiated federal F&A rate agreement(s)  Postsecondary Education Facilities Inventory and Classification Manual, for Room Use codes. Postsecondary Education Facilities Inventory and Classification Manual 48