Budgeting 101

Sponsored Programs Administration2012 Research Seminar Series

Budgeting 101

This session will lay the basic framework for budgeting in sponsored research. Topics to be discussed today include: Direct vs. Indirect Costs OMB Circular A-21 General Costing Principles Allowability of Costs Cost Share Mechanics of Building a Budget

OMB Circular A-21

What is it? Sets forth allowability principles for the

reimbursement of costs associated with federally sponsored projects

Provides guidance for determining direct and indirect costs

Available at: http://www.whitehouse.gov/omb/circulars_a021_2004

Direct vs. Indirects

Direct Costs (OMB A-21 D.1.) Costs that can be identified specifically with a

particular sponsored project or Costs that can be directly assigned to projects

relatively easily with a high degree of accuracy Indirect Costs aka Facilities and Administrative

Costs aka Overhead (OMB A-21 E.1.) Costs that are incurred for common or joint objectives

and therefore cannot be identified readily and specifically with a particular sponsored project

Direct Costs

Examples of Direct Costs include: Salaries Fringe Travel Commodities/Supplies Contractuals/Services/Subcontracts Equipment

Indirect Costs (Facilities and Administrative Costs) Examples of Indirect Costs include:

Facilities Depreciation and use allowances Interest of debt associated with certain buildings Equipment and capital improvements Operation and maintenance expenses Library expenses

Administrative General administration and general expenses

University wide offices: President’s office, General Counsel, etc Departmental administration Sponsored programs administration

Basic Principles of CostingOMB A-21, C.2 Reasonable –

OMB A.21, C.2(a)

Allocable – OMB A.21, C.2(b)

Consistent – OMB A.21, C.2(c)

Allowable – OMB A.21, C.2(d)

Reasonable

Prudent person test Considerations for determining reasonableness of

a cost: Generally recognized as necessary Complies with Federal and State laws and regulations Whether the individuals involved acted with due

prudence The extent the actions taken are consistent with

institutional policies and procedures

Allocable

To be allocable Expenses are incurred solely for the project OR Expenses benefit both the project and other work

in a proportion that can approximated Split purchases are allowed and are often the most

appropriate way to allocate expenses to projects

Consistent

Costs must be given consistent treatment Cost accounting standard (CAS) 502 requires

consistent allocation of costs All costs incurred for the same purpose, in like

circumstances, are either direct costs only or F&A costs only

Restated: Cannot charge the same cost both directly and indirectly when it is incurred for the same purpose and circumstance

Allowable

The cost must conform to any requirements, limitations, etc put forth by all of the following: OMB Circulars Sponsor guidelines Award document Institutional policies

Allowable (cont.)

Allowability criteria applies to both direct and F&A costs

Certain costs may be allowable only as an indirect (F&A) cost For example, Sponsored Programs expenses are

not allowable as a direct cost, but are allowable as an F&A cost

To summarize:

Costs must be treated consistently as either a direct cost or an F&A cost, when in like circumstances

‘like costs in like manner’ The Disclosure Statement (DS-2) will provide

some guidance Available at:

http://www.controller.msstate.edu/cas/cdst/

Disclosure Statement (DS-2)

Provides details of how some costs will be treated. An example:

Travel costs incurred while performing the function of general university activity such as travel by executive officers meeting with the State Board of Trustees to discuss general university business would be classified as indirect costs.

Travel by a university employee related to carrying out the functions of a specific contract or grant would be classified as a direct charge to that contract or grant.

Allowability as a direct cost

Can I charge a computer to my project? It depends!

Yes – if being used in a programmatic way. Computer needed to be connected to a scientific piece

of equipment for data collection Computer needed to run simulations, analyze data, etc

No – if being used in a general way Check email, browse internet, word processing, etc

Allowability as a direct cost

Can I charge my dues for a professional organization to my project?

Typically no, due to lack of allocability Benefit is not to any specific project and benefits

other activities of the university See also OMB A-21 F.6.b.(3)

Allowable in rare circumstances when the scope of work requires the membership

Allowability as a direct cost

Can I charge office supplies to my project? Typically no, due to lack of allocability

See also OMB A-21 F.6.b.(3)., which states that office supplies are normally treated as F&A costs

However, they are allowable when in unlike circumstances Used in a programmatic way: conference

materials, pamphlets, etc

Allowability as a direct cost

Can I charge my administrative assistant to my project?

Typically no, again due to lack of allocability See also OMB A-21 F.6.b.(2)., which states that

salaries of admin and clerical staff are normally treated as F&A costs

However is appropriate on a ‘major project’ See OMB A-21 Exhibit C

Cost share

Anything necessary for the completion of the project that is not paid for by the sponsor

Irrelevant what the source of funds are: MSU – E&G MSU – Designated Third party Etc

Cost share

Can be separated into two categories Committed – must be tracked

Required by sponsor (committed in proposal) Not required, but committed in the proposal Not required, but implied through regulation

Uncommitted – does not need to be tracked Typically after the fact ‘volunteering’ of MSU

resources

Cost share (sort of!)

As PI, do I have to charge my time to the project?

No, BUT your time will be cost share, and some portion of it must be committed cost share and tracked Note: this will also require division approval on

the Internal Approval Sheet/Cost Share Form See OMB Memo 01-06

http://www.whitehouse.gov/omb/memoranda_m01-06/

Allowability of cost share expenses

To be allowable as a cost share expense, it must be allowable as a direct cost

Other important criteria: Expense must be incurred during the project

period Can only be used as cost share once Cannot be being charged to the feds already

(typically F&A costs)

Allowability of cost share expenses

The sponsor does not allow me to charge F&A on the project. Can I use this unrecovered F&A to meet my cost share requirement?

Only with the prior approval of the Federal awarding agency See OMB A-110 C.23.(b).

Allowability of cost share expenses

I have two related federal projects. Can I use my NSF funds as cost share for my USDA project?

No, unless authorized by federal statute to be used as cost share. See OMB A-110 C.23.(a).(5).

Allowability of cost share expenses

I bought a piece of equipment a couple of years ago that I am going to use on my project. Can I use that as cost share?

Questions: Was it purchased with federal funds? Are the feds already paying for this (through F&A)? Is it

in the F&A pool? Is it fully depreciated?

If all answers are ‘No’, then you could use the depreciation value as cost share.

Mechanics of Building a Budget

Basic Principles All costs budgeted must be in accordance with

the principles that have been presented Reasonable, Allocable, Consistent, Allowable Properly budgeted as direct vs. indirect

All costs budgeted should be viewed in relation to the project and its needs

Your specific RFP may prohibit or require certain classes of expenses. Read carefully!

Mechanics of Building a Budget

Personnel Principal Investigator, project team, students Best practices are to do this section first. Many

other expenses will be determined by the Personnel budget line.

Calculations Percentage of effort or person months 9-month vs. 12-month employees Rates should be based on current salaries; escalations

allowed for future budget periods

Mechanics of Building a Budget

Fringe Benefits Treated as a direct cost Calculations

Rates are applied to budgeted salary amounts

Different rates for different employee classes

33.18% Faculty/Staff * 0.76% Student

(Enrolled) 21.09% Retirees 9.09% All other

Intermittent Employees /Student (not Enrolled)

*Assumes $40,000 average salary

Mechanics of Building a Budget

Graduate Student Tuition Rates vary between colleges

Engineering and Arts and Sciences: Fiscal Year 2012 - $728/month

All other colleges: Fiscal Year 2012 - $484/month

Escalate 5-6% each year thereafter Calculation is based on student’s budgeted effort

Mechanics of Building a Budget

Travel Project related conferences, project review

meetings, data collection, etc. For budgeted project personnel Calculation

Per diem rates: http://www.travel.msstate.edu/hcma/plhcma.php $36/day - $46 /day

Mileage: http://www.travel.msstate.edu/mileage/mileage.pdf $0.51/ mile if no State owned vehicle available $0.19/mile if State owned vehicle available

Mechanics of Building a Budget

Equipment Definition

Nonexpendable Tangible Useful life of more than one year Acquisition cost of $5,000 or more per unit

Just because it must be inventoried does not make it equipment for budgeting purposes

Mechanics of Building a Budget

Commodities/Materials and Supplies Items to be used for the

project For example: molecular

biology supplies (enzymes, reagents, tubes, pipette tips) to be used for DNA sequencing.

Contractuals/Services Services to be

performed by another entity for the project

For example, third party vendor will perform DNA sequencing

Unsure? See: http://www.accountspayable.msstate.edu/glc

/

Mechanics of Building a Budget

Subawards Subaward is distinguished from a vendor by the

intellectual contribution to the project outcome Must receive SOW, budget, and budget

justification from subrecipient Subaward budget must comply with sponsor

guidelines, subrecipient institution policies, and all federal regulations

Mechanics of Building a Budget

Participant Costs Broadly defined as support provided when a

sponsor funds a project or activity in connection with formal meetings, conferences, symposia, or training programs

Specifically, participant support costs are those costs paid to (or on behalf of) participants in such events

Treatment of participant costs vary from agency to agency

Mechanics of Building a Budget

Facilities and Administrative Costs (F&A) Current federally negotiated rates:

On-campus 44.5% MTDC – Research 50.9% MTDC – Instruction 31.1% MTDC – Public Service/Other

Off campus 26% MTDC – Research and Instruction 24% MTDC – Public Service/Other

MTDC – Modified Total Direct Costs

Mechanics of Building a Budget

Modified Total Direct Cost (MTDC) All costs excluding tuition, equipment, patient

care, off-site rentals, scholarships, fellowships and all subaward costs exceeding $25,000.

Sponsor may further restrict F&A rate The maximum that can be charged is our

federally negotiated rate

Total Direct Costs

Modified Total Direct Costs

Exclusions

Budget Problem 1 - Personnel

Dr. Jones ($100,000 annual salary/12 month faculty) plans a one year project. The project will require 10% of his time. Calculate the salary and fringe expenses.

Salary: $100,000 x 10% = $10,000 Fringe: $10,000 x 33.18% = $3,318

Budget Problem 2 - Personnel

Dr. Jones ($50,000 annual salary/9 month faculty/0.62 FTE) plans a one year project. The project will require 10% of his time. Calculate the salary and fringe expenses.

What does 10% mean? 10% of a 12 month equivalent or 10% of his actual appointment?

Because of this uncertainty, the recommendation is to always use person months.

Budget Problem 3 - Personnel

Dr. Jones ($50,000 annual salary/9 month faculty/0.62 FTE) plans a one year project. The project will require two months of effort. Calculate the salary and fringe expenses.

First calculate total months in the appointment

Then calculate monthly salary Then calculate project salary charges

Budget Problem 3 – PersonnelSolution

Total months in appointment 9 month appointment x 0.62 FTE = 5.58 months

Monthly salary $50,000 annual salary / 5.58 months = $8,961/month

Salary: 2 months x $8,961/month = $17,922 Fringe: $17,922 x 33.18% = $5,947

Budget Problem 4

Dr. Smith ($100,000 annual salary; 12 month appointment) has a one year research project (7/1/12-6/30/13). This project will require 3 months of his time. In addition, he will need $2,000 for travel to collect samples for his experiments and $3,000 for chemical supplies to run the necessary tests. The sponsor will pay full facilities and administrative costs. What is the total budget amount?

Solution 4

Salary: $100,000/12 x 3 = $25,000 Fringes: $25,000 x 33.18% = $8,295 Travel: $2,000 Supplies: $3,000 TDC: Sum of all direct costs $38,295 F&A: $38,295 x 44.5% = $17,041 Total Cost: Sum of TDC + F&A= $55,336

Budget Problem 5

Dr. Smith ($100,000 annual salary, 12 month appointment) has a one year research project (7/1/12-6/30/12). This project requires two months of her time. In addition, she will need an undergraduate student to be paid $8.00/hr, 20 hours/wk, for 30 weeks. This project will also require $5,000 in travel, $10,000 for chemical supplies and a $10,000 centrifuge for processing of the samples. The sponsor will pay full facilities and administrative costs. What is the total budget amount?

Solution 5 Salaries: $21,467

PI: $100,000/12*2 = $16,667 Student: $8.00 x 20 x 30 = $4,800

Fringes: ($16,667 x 33.18%) + ($4,800 x 0.76%) = $5,566 Travel: $5,000 Supplies: $10,000 Equipment: $10,000 TDC: Sum of all direct costs $52,033 MTDC = TDC – Exclusions

$52,033 - $10,000 = $42,033 F&A: $42,033 x 44.5% = $18,705 Total Cost: TDC + F&A $70,738

Budget Problem 6 Dr. Smith (a Professor in Mechanical Engineering) is

doing a one year research project (7/1/12-6/30/13). He will work 2.0 summer months on the project (his 9-month salary is $60,000). He will need two full time graduate students who will make $20,000/yr. He will need $2,000 for travel. Will also need a specialized piece of equipment for testing material strength and costs $20,000. It will also be necessary to pay a colleague at Auburn $40,000 to do part of the work. Sponsor will pay full F&A. What is the total budget amount?

Solution 6 Salaries: $53,333

PI: $60,000/9 x 2 = $13,333 GRA: $20,000 x 2 = $40,000

Fringes: $4,728 PI: $13,333 x 33.18% = $4,424 GRA: $40,000 x .76% = $304

Tuition: $728 x 1.05 x 12 months x 2 students = $18,346 Travel: $2,000 Equipment: $20,000 Subaward: $40,000 TDC: Sum of all direct costs $138,407 MTDC:

$138,407 – 18,346 – 20,000 – 40,000 + 25,000 = $85,061 F&A: $85,061 x 44.5% = $37,852 Total Cost: TDC + F&A $176,259

Budget Problem 7

A sponsor limits the project budget total to $100,000 and will pay our full federally negotiated F&A rate of 44.5% MTDC. The project budgets nothing that would be excluded for F&A purposes (tuition, equipment, etc). How much money is available in direct costs?

Solution 7

Available Direct Costs: $100,000/1.445 = $69,204 in direct costs

Calculation check: $69,204 x 44.5% = $30,796 $69,204 + 30,796 = $100,000

Budgeting backwards

Really just algebra! D = Direct Costs D + (D x 44.5%) = 100,000 1D + 0.445D = 100,000 1.445D = 100,000 = D = 100,000 / 1.445

Budget Problem 8

Starting with the available direct costs ($69,204) in the previous problem, assume we need $5,000 for travel and $5,000 for printing and the rest is for salary and fringe for faculty and professional staff. What would be allocated now to both salary and fringe?

Solution 8

Available Direct Costs: (for salary/fringe)

Salary (backwards budgeting again):

Fringes will be the difference

Questions?

Tina Cunningham662-325-7395

tcunningham@spa.msstate.edu