© huron consulting services llc. all rights reserved. foa – march 2014 costa mesa, california

2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e© Huron Consulting Services LLC. All rights reserved.

The Life Cycle of the F&A RateFOA – March 2014

Costa Mesa, California

2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e

Faculty Paul Nacon – Senior Director, Huron Consulting Group

Chicago, IL and Henderson, NV

Paul has more than 40 years of experience in auditing, accounting, and management consulting with a heavy emphasis on facilities and administrative costs. He has established a professional presence in the higher education and non-profit organization grantee research community. Paul is recognized by professional organizations and peer groups as a national expert in cost allocation and federal compliance. Prior to joining Huron, Paul was the National Director for the Division of Cost Allocation with the U.S. Department of Health and Human Services in Washington DC. He has written several published articles on indirect costs and is a contributing author to a book published by Jones and Bartlett titled Research Administration and Management. Paul is an SRA Distinguished Faculty member, is the recipient of numerous awards and is a past President for the Western Section.

Email: [email protected]

Cell Phone: 312.804.92932


Presenter Nick Schulte – Manager, Huron Consulting Group

Sacramento, CA

Nick has over 10 years of experience related to federal regulations and compliance, both in a consulting and an auditing capacity. His experience working with universities, hospitals and not-for-profit organizations has provided him a strong background in fringe benefit rate development, indirect cost rate development, cost allocation methodology, performance improvement assistance, as well as conducting compliance and performance audits.

He has worked extensively with the University of California on their system-wide fringe benefit rate implementation project.

Email: [email protected]

Cell Phone: 530.902.7812

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The Life Cycle of the F&A RateWhat We Will CoverThe F&A Rate ProposalRate Development

Long Form Short Form

Rate Submission Long Form Short Form

Rate Negotiation Long Form Short Form

Rate ApplicationF&A Revenue Distribution

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The Life Cycle of the F&A RateWhat We Will Cover (continued)

Base Year SuggestionsPooled (Composite) Fringe Benefit Rates

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The Proposal

The financial and statistical documentation and narrative descriptions that are gathered and developed in support of the institutions Facilities and Administrative (F&A) cost rate.

Must comply with the federal cost principles contained on 2CFR, Part 220 (formerly OMB Circular A-21).

The proposal is submitted to either the Department of Human Services (DHHS), Division of Cost Allocation(DCA) or the Department of Defense (DOD), Office of Naval Research (ONR).

The cognizant federal agency for all of the California State Colleges and Universities is DHHS – DCA.

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Rate DevelopmentLong Form A complicated process that can take 6 to 9 months to complete Many universities bring in outside firms to develop and negotiate

the proposal Requires space use survey if not using default methodology Requires a special library user survey if not using default

methodology Requires the development of a direct charge equivalent (DCE) for

academic departments for the departmental administration (DA) cost pool

Requires the development of at least 7 indirect cost pools with individual allocation bases. Many institutions sub-pool for a more discreet allocations

Institutions usually develop 3 rates; an Organized Research (OR) rate, an Other Sponsored Activities (OSA) rate and an Instruction rate. All of these usually have both on-campus and off-campus rates.

Special rates may also be proposed and negotiated

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Rate DevelopmentShort Form A formula driven calculation that takes much less time to

complete Can be developed in house using institutional financial

statements, but many institutions still bring in outside assistance

Does not require a space use survey Does not require a library user survey Does not require the development of a direct charge

equivalent (DCE) Requires the development of one indirect cost pool and one

allocation base. Results in one indirect cost rate applicable to all activities.

Some institutions have off campus rates – but not all

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Rate SubmissionLong FormA large volume of financial and statistical data is submitted to

support the proposed F&A rate calculation. For very large institutions, can be multiple binders. What should be submitted? A cover letter An indirect cost proposal check list An F&A rate certification An assurance statement for depreciation (if applicable) The standard format Indirect cost rate calculations for OR, OSA and Instruction (on and

off campus) A narrative description for each cost pool A schedule identifying the costs assigned to each cost pool A narrative description for each cost pool allocation base A schedule showing how each cost pool is distributed

Continued 9


Rate SubmissionLong FormWhat should be submitted? (continued)

A reconciliation schedule to the financial statements An adjustment schedule A step-down schedule An example of the DCE formula and calculation A copy of the space survey instructions and training materials A calculation of future facility costs for new research buildings

if applicable

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Rate SubmissionShort FormGenerally results in a document that does not initially

exceed 10 pages. What should be submitted? A cover letter The rate calculation An F&A rate certification An F&A proposal checklist A spreadsheet reconciling to the financial statements showing

reclassifications and adjustments to FS financial data Notes to the reconciliation and adjustment schedule explaining

reclassifications and adjustments A worksheet that documents the salaries documented as DA A worksheet that shows space for academic activities versus

other institutional activities to support adjustment to space related costs

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Rate NegotiationLong FormMay take up to six months or more for the review to start

and over one year for negotiations to concludeDepending on the federal research dollars (over $25

million), may require a site visitDCA will usually focus on the space related cost pools since

the administrative cost pools are capped at 26 points (space survey is always reviewed and seldom accepted)

Negotiations are generally more formal and could be in person, but usually can be accomplished over the phone or via email

Rates are usually negotiated on a predetermined basis for 3 to 5 years

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Rate NegotiationShort FormMay take up to six months or more for the review to start,

but once started, can conclude quicklyAlmost never involves a site visitDCA will usually make sure all unallowable costs and

activities have been properly treatedDCA will also look to make sure required adjustments have

been made for OIA activities Negotiations are usually conducted over the phone and via

emailRates are usually negotiated on a predetermined basis for 3

to 5 years

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F&A Revenue DistributionEveryone is different

All or most of the F&A revenue goes to the General Fund All or most of the F&A revenue goes to Central Administration Most of the F&A revenue goes to the VP Research F&A revenue can be split between Central Administration and

the Deans All or most of the F&A revenue goes to the Deans All or most of the F&A revenue goes to Department Chairs Policy mandates return to the Principle Investigators (left up to

Deans and Department Chairs)

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Base Year SuggestionsPlan earlyWhat do you want to do? Are you OK with current rate?

Requests for rate extensions are now permitted with DCA approval.

Identify the operating departments and academic units that will be involved for obtaining financial and / or statistical information.

Keep detail related to year-end GAAP adjustments so that department level information is available to categorize the adjustments into the appropriate cost pools for the F&A rate

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Base Year SuggestionsDetermine if space survey will be used.

Full survey or alternate space survey Identify academic departments to be surveyed Develop instructions and training materials Conduct training and initiate space survey Obtain employee classification titles from human resources for

DCE calculation

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2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e

For

California State Universities

Implementation of Fringe Benefit Rates


AgendaAdvantages of Implementing a Fringe Benefit Rate

CSU System Advantages

UC System Experience

Critical Decision Factors

Fringe Benefit Rate Implementation Approach

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Advantages of a Fringe Benefit RateIncreased Recovery:

A fringe benefit rate will allow your institution to recover costs that are not currently distributed as direct costs to sponsored projects You can likely increase cost recovery by implementing

comprehensive fringe benefit rates Fringe benefits that are funded by central

administration are only partially recovered through the facilities and administrative cost rate

A fringe benefit rate will allow you to further increase recovery by directly charging full fringe benefits to auxiliary operations

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Advantages of a Fringe Benefit RateIncreased Efficiency:

A fringe benefit rate will pool fringe benefit costs and will distribute total costs to benefiting departments, sponsored projects, and other cost objectives One charge for fringe benefits instead of many charges for

individual benefits (FICA, retirement, health insurance, etc.)A fringe benefit rate will allow for easier recordkeeping

and less maintenance of benefits and costs of programs for employees

A fringe benefit rate will simplify the following processes: The monitoring of fringe benefit charges to departments, grants,

and contracts Billing for grants and contracts Salary transfers

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Advantages of a Fringe Benefit RateEasier Budgeting:

A comprehensive fringe benefit rate can be used to budget sponsored projects and departmental expenditures

A fringe benefit rate will simplify budget negotiations with sponsors

The same fringe benefit rate will be used for budgeting and charging purposes Variances between budget and actual costs for grants,

contracts, and departmental budgets will be decreased

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Advantages of a Fringe Benefit RateReduced Risk of Non-Compliance:

Fringe Benefit Rates require annual calculation of actual costs to charged benefits

Over/under is included in future year rate calculations that are agreed upon by the federal government

Opportunities for unallowable/unallocable fringe benefit costs being charged to federal sources is decreased

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CSU System Rate AdvantagesSingle calculation and negotiation

• System-wide calculation and negotiation of rates• Reduced campus administrative burden • Establish a single set of guidelines

• Consistent with how benefits are negotiated and paid

• Having Chancellors Office determine issues may simplify the implementation at a campus

• Simplify final results (fewer categories)• Minimize some of the labor distribution

programming

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UC System ExperienceInitial Project Background

• University of California has 10 campuses plus the Office of the President (UCOP) and the Agriculture and Natural Resources (ANR) division - 5 campuses with Schools of Medicine

• The UC system made the decision to implement a system-wide negotiated methodology for fringe benefits rates that would coincide with the go-live dates of the new payroll system (UCPath)

• The plan was to implement UCPath in 3 waves• UC Davis and UC Berkeley switched to fringe benefit rates prior

to the UC system methodology implementation• Steering Committee created that comprised of members from

most of the campuses to guide the project• Initial discussions included system-wide rates and either a

single rate or 2-3 rate categories

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UC System ExperienceProject Developments and Experience

• UCPath implementation has moved dates multiple times• Current methodology includes 6-8 rate categories at

each of the 10 campuses plus UCOP and ANR• Currently working with some of the individual campuses to

modify this methodology which may potentially increase the rate categories

• Many interested parties with different goals • 10 Universities• University Administration• University Faculty• Federal Government

• Unique issues with University of California that DCA has not dealt with at other universities

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Critical Decision Factors• Approval from DCA for system rates

• Implementing rates at beginning of fiscal year vs. mid-fiscal year• Implementing different campuses at different points in time

• Number of rates and approach to fringe rates• Use of salary bands• Benefits received

• Inclusion of campus based benefit cost• Sabbaticals• Termination pay

• Flexibility allowed to individual campuses• Accommodating individual campus differences

• Research intensive campuses• Salary differentials

• Determine the impact to each institution

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• Fulltime / Part time• Staff categories

• Employee Tuition• Institution Specific contracts


Fringe Benefit Rate Implementation ApproachInternal Communication, Preparation, and Discussion

External Communication/Negotiation with Federal Government

Step 1: System Approach• Determine the approach for the California State University System• Develop an implementation plan • Conduct high level rate development and impact analysisStep 2: DCA Agreement• Prepare financial modeling for DCA • Propose approach to DCA (potential staggered and/or midyear implementation plan)

Step 1: System Approach

Step 2: DCA Agreement

Step 3: Rate Development

Step 4: Impact Analysis

Step 5: Proposal Development & Submission

Step 6: Implement System Changes

.

Step 7: Rollout Fringe Rate

.

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Step 3: Rate Development• Determine the programs to be included in the fringe benefit rate calculation• Develop fringe benefit rate categories (faculty, staff, etc.)• Develop allocation methodology and cost modelStep 4: Impact Analysis• Determine cost recovery impact to individual campuses, funding sources, and

departments within campusesStep 5: Proposal Development and Submission• Prepare proposal for campuses including DS-2 amendments





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Step 6: Implement System Changes• Revise payroll and labor distribution systems to apply fringe benefit rate• Create new accounts/object codes in General Ledger to account for fringe benefit

costs and allocations • Test systems to ensure accuracy of system changesStep 7: Rollout Fringe Rate• Develop fringe benefit rate rollout plan for campuses• Executive leadership and faculty communication• Administrator training








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© huron consulting services llc. all rights reserved. foa – march 2014 costa mesa, california

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