Facilities and Administrative (F&A) Pools and Bases

Leading Excellence in Research Costing Practices

Conference October 13 - 15, 2015

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Session Presenters: Darryl James, Director, Financial Analysis

Office, UC San Diego, dljames@ucsd.edu, 858.822.5077

Greg Sheahan, President, HCA Asset Management, gsheahan@hcamgt.com, 941.544.2369

Kevin Nguyen, Manager, Financial Analysis Office, UC San Diego, hqn011@ucsd.edu, 858.822.2830

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Overview Cost Principles, OMB Circular A-21, 2 CFR

220 2 CFR Chapter I, Chapter II, Part 200, et al. Uniform

Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards - Applicable to nonfederal entities December 2014 Cost Principles found in Subpart E, Sections 200.4xx and

Appendix III for Institutes of Higher Education (IHE)

Bases and Pools – Direct vs. Indirect (Facilities and Administrative) Costs

Modified Total Direct Cost Basis (MTDC) Facilities and Administrative Cost Rate

Calculation

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Federal Cost Principles, OMB Circular A-21, 2 CFR 220

Federal cost principles for determining costs applicable to grants, contracts and other agreements with educational institutions.

Provides for the federal government to bear their fair share of costs (both direct and indirect F&A costs).

Recognizes the cognizant agency concept whereby all federal agencies will accept cognizant’s negotiated rate agreements. Except where prohibited by law or appropriation limitations.

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Federal Cost Principles OMB Circular A-21, 2 CFR 220 (cont’d)

Principles were NOT intended to impose on an institution with specific accounting practices if compliant with generally accepted accounting practices. Not intended to restrict organizational structure or

management techniques Not intended to restrict how F&A cost revenue should be

used. New Uniform Guidance (2CFR Chapter I, Chapter

II, Part 200, et al., Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards) Combines 8 circulars into one document Applicable to nonfederal entities December 26, 2014 Replaces OMB Circular A-21, 2 CFR 220

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The A-21 RulesImportant Definitions

Direct Costs = Bases = Denominator Those costs specific to a particular sponsored project, an

instructional activity, any other institutional activity Can be directly assigned to activities relatively easily with a

high degree of accuracy Ensures that no benefiting activities (functions) are excluded

when distributing F&A costs Examples: Salaries of Researcher or Teaching faculty or Coach,

Lab supplies purchases specifically for a project

Facilities and Administrative Costs = Pools = Numerator Costs incurred for common or joint objectives and therefore

cannot be identified readily and specifically with a particular sponsored program or institutional activity

Examples: Electricity, Buildings, Interest, General office supplies

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The Direct Cost Bases (the denominator)Bases represent an institution’s direct cost activities: Instruction and Departmental Research (IDR)

Teaching and training Departmental research

Organized Research (OR) Sponsored research University research separately scoped and accounted for

Other Sponsored Activities (OSA) Public/ Community service (sponsored only) Extension Activities

Other Institutional Activities (OIA) Auxiliary enterprises Unallowable activities for F&A purposes

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The Direct Cost Bases (cont’d.)

Issues to consider:

Unallowable costs as OIA Activities that are ALWAYS unallowable (fundraising, commencement,

entertainment, lobbying, etc.) Expenses that are ALWAYS unallowable (alcohol, bad debt, etc.) Unallowable scrub – the process

Cost Share as part of Organized Research Base Verifiable cost shared expenditures Faculty effort variations Hard match funds Project cost overruns or salaries over NIH cap Imputed Cost Share

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Unallowable Scrub – The Process

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The Indirect Cost Pools(The “F” and the “A” numerator)

Facility Costs – “F” Building

Depreciation Equipment

Depreciation Interest Expense on

Buildings Operation and

Maintenance Utilities Various O&M pools

Library

Administrative Costs – “A” General Administration Departmental

Administration Sponsored programs

Administration Student Administration and

Services

26% Cap OR24% Alternate Fixed Allowance (OR Off-campus rate

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The Indirect Cost Pools(The “F” and the “A” numerator)

Biggest changes in the UG that impact depreciation?There is an emphasis being placed on stewardship and accountability of Federally titled and funded equipment and construction. The institutions will need to make sure that their internal controls are effective and are monitoring and accounting for these costs per Federal guidelines. All references to Use Allowances, including the 2% use allowance for Buildings and the 6.67% use allowance for equipment, have been eliminated.

Building Depreciation/Building Componentization Maintaining the physical facilities in the most efficient manner possible to meet the goals and mission of the institution is imperative to providing an effective environment for teaching, research and public service. The depreciation generated from the cost distribution to building shell and building service component(s) is allocated to the entire building on an assignable square foot basis. Fixed equipment depreciation may be allocated to the room where inventoried.

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The Indirect Cost Pools(The “F” and the “A” numerator)

Equipment Depreciation/Food for ThoughtBecause most institutions have moved to a higher threshold ($5,000 >) in recent years we are finding that the accounting classifications for assignment of equipment are very voluminous. A review of current accounting classifications should be reviewed and condensed for more accurate accounting and to remove too many accounting classification choices. It is my belief in most cases the lives of scientific and medical equipment continue to get shorter as research becomes more detailed and specific the lives associated with the instrumentation is limited.

When institution-funded equipment is identified accurately to a room (i.e. a research laboratory), there is no disagreement that the corresponding depreciation is allocable to the function of the room (i.e. research). Acceptance of the room-by-room equipment depreciation methodology is predicated on the institution demonstrating that the location of the equipment identified to particular rooms is accurate.

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The “F” Indirect Cost PoolsBuilding and Equipment Depreciation + Interest Expenses are for the portion of costs related to the

institution’s buildings, capital improvements to land and buildings, and equipment which are computed in accordance with section J.14 and F.2 for A-21. [Section 200.436 and Appendix III (IHE), B.2. for Depreciation; Section 200.449 and Appendix III (IHE), B.3. for Interest in Uniform Guidance]

Reconciled to Financial System Fixed Asset Detail Interest Expense for Buildings follows building cost.

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The “F” Indirect Cost Pools (cont’d.)

Operations and Maintenance (O&M)

Utility cost adjustment (UCA) of 1.3 points only for Exhibit B schools [New Uniform Guidance utilizes weighted research laboratory space for ALL schools with a cap of 1.3 points (For IHE, Appendix III, B.4.c.]Interpretation? All schools (not just the 65 on OMB-A21 Exhibit B) can add a

UCA to the proposed F&A rate calculations. REUI=ratio of a laboratory energy use index (lab EUI) to corresponding index for overall average college or university space (college EUI). Values for these two indices were taken respectively from the Lawrence Berkeley Laboratory “Labs for the 21st Century” benchmarking tool.

According to the proposed language justification, the current Lab EUI is 310 kBTU/sq.ft./yr., and the current College EUI is 155 kBTU/sq.ft./yr., resulting in a ratio of 2 for research space.

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The “F” Indirect Cost Pools (cont’d.)

Operations and Maintenance (O&M)

Interpretation? Sub building metering is allowed ONLY for justification of the

UCA. The allocation of the Utility Cost is to be calculated using the

same methodology as building depreciation – entire building on an assignable SF methodology.

The UCA must be justified by calculations provided by the UG with a cap of 1.3 points.

Schools on OMB-A21 Exhibit B must justify the UCA that has been allowed without such justification since 1998.

Each utility (electricity, steam, chilled water) should be considered separately and determined at the building level.

Allocation of the utility cost(s) is made first at the building level before weighted to research laboratory space.

Special studies for utility cost allocations are unallowable. Single function research lab space metered separately not considered.

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The “F” Indirect Cost Pools (cont’d.)

Operations and Maintenance (O&M)

Expenses incurred for administration, supervision, operation, maintenance, preservation and protection of the institution’s physical plant

Normally includes: Utilities Repair and Renovation Janitorial/housekeeping Grounds maintenance Safety and Security Environmental safety

Hazardous waste disposal Facility planning

Space and capital leasing

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The “F” Indirect Cost Pools (cont’d.)

Library

Expenses incurred for the operation of the library including the costs of books and library materials purchased for the library less applicable credits

Standard allocation based on FTE’s

Special Library Studies

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The “A” Indirect Cost PoolsGeneral Administration Expenses (GA)

Expenses incurred for the general executive and administrative offices and other expense of a general nature which do not relate solely to any major function of the institution

Normally includes: Allocations from administrative offices that serve an

entire university system Institutional administrative executive offices Financial Planning, budgeting, payroll, accounting General counsel

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The “A” Indirect Cost Pools (cont’d)

Departmental Administration (DA)

Expenses incurred for administrative and supporting services that benefit common or joint departmental activities or objectives.

Normally includes: Academic deans’ offices (limited to costs

associated with administrative activities) Academic departments and divisions salaries and

fringe benefits attributable to administrative work Includes department business office and administrative officers Faculty Administrative Allowance (3.6% MTDC) for administrative

work (including bid and proposal preparation) of faculty and professional personnel conducting research and/or instruction

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The “A” Indirect Cost Pools (cont’d)

Sponsored Projects Administration (SPA) Expenses are limited to those incurred by a

separate organization established primarily to administer sponsored projects. Includes grant & contract administration.

Examples VC / VP for Research Pre-Award, Post-Award, Sponsored Projects Offices (Central and

Departmental), Institutional Review Board (IRB), Institutional Animal Care and Use Committee (IACUC)

SPA is allocated to the functions performing sponsored projects based on MTDC of the sponsored projects. Usually includes: Organized research Sponsored instruction Other sponsored activity

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The “A” Indirect Cost Pools (cont’d)

Student Administration and Services (SAS) Expenses are limited to those incurred for

administration of student affairs and services to students

Examples Dean of Students Admissions, Registrar, Counseling and Placement

SAS is allocated to Instruction (by default)

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Putting the Pieces Together

F&A Mechanics

Reconciliation to Financial Statements Expenditure Detail Fixed Asset and Depreciation Detail Payroll Detail Utility Detail And many others

Record for University Space – supplemented with use data FTE Statewide Cost Allocation Plans (SWCAP)

Paid on behalf of university cost by the University of California Office of the President (UCOP) at UC San Diego

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Modified Total Direct Costs (MTDC)Basis for F&A Rate Calculation and Assessment

A-21 discusses the distribution basis for F&A costs and defines it as modified total direct costs (MTDC).

MTDC includes: Salaries and wages along with associated fringe benefits Materials and supplies Services Travel Subawards up to the first $25,000

MTDC excludes: Equipment (capitalized at $5,000 and above) Capital expenditures (buildings and assets $5,000 or greater) Subawards in excess of $25,000 Stipends, tuition, patient care [Participant Support Costs are now a standard exclusion in UG]

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The F&A Rate Calculation

Facilities “F” Administrative “A”

BLDGS EQUIP INTER O&M LIBR GA DA SPA SSA

Indirect Cost Pools (Numerator)

Space Space Space Space FTE MTDC MTDC MTDC MTDC

Direct Cost Bases (Denominator)

ORGANIZEDRESEARCH

INSTRUCTION/DEPTRESEARCH

OTHER SPONSOREDACTIVITY

OTHER INST.ACTIVITY

“F” Rate = Facilities Cost / OR Base* Include Cross Allocations

+“A” Rate = Adm. Cost / OR Base ≤ 26%* Include Cross Allocations

+Utility Cost Adj. (UCA)

=Total F&A Rate

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Stepdown Overview

Cost Group Total Costs BLDG BLDG INT EQP O&M GA CA DA SPA SAS LIB TOTALIndirect Pools:005 BLDG & FIXED EQP DEPRECIATION 137,000,356 (137,000,356)010 BLDG INTEREST 92,836,435 (92,836,435)015 EQUIP DEPRECIATION 74,276,516 (74,276,516)100 OPERATIONS & MAINT 239,027,858 18,027,378 15,097,603 7,780,848 (279,933,687)200 GENERAL ADMIN 249,714,266 2,399,910 1,587,308 1,817,310 8,424,078 (263,942,872) 300 COLLEGE ADMIN 27,145,046 1,725,891 1,181,043 883,230 11,173,646 2,226,540 (44,335,396)400 DEPARTMENT ADMIN 152,443,384 790,213 197,089 725,137 1,761,115 12,503,975 44,335,397 (212,756,310)600 SPONS PROJECT ADMIN 20,312,100 967,056 619,924 538,464 2,545,300 1,586,641 (26,569,485)700 STUDENT SERV ADMIN 60,715,727 468,538 212,577 30,303 245,964 3,968,203 (65,641,312)800 LIBRARIES 35,542,815 2,789,989 2,336,443 431,270 6,493,924 2,915,355 (50,509,796)

Direct Bases:905 OTHER SPONS. ACTIVITY 14,913,592 959,010 616,192 281,761 1,687,377 1,466,878 1,293,932 731,822 1,010,196 22,960,760910 INTRUCTION/DEPT RES 530,240,489 31,954,883 19,510,172 8,286,909 61,335,795 52,572,974 109,886,591 838,224 65,641,312 29,800,780 910,068,129920 ORGANIZED RESEARCH 466,849,881 29,206,178 15,686,541 20,749,688 67,080,099 38,016,604 91,466,508 22,289,374 10,101,959 761,446,832930 NIMITZ MARINE/MPL 43,156,578 18,136 405,593 644,150 3,539,864 3,066,948 1,798,186 52,629,455940 JPA/IPA 8,234,668 675,439 1,207,308 405,718 10,523,133970 OTHER INSTIT. ACTIVITY 774,087,649 47,693,177 35,791,553 32,345,996 118,542,201 144,470,394 5,835,023 506,161 9,596,861 1,168,869,015Totals: 2,926,497,360 3 10 (7) (38) (5) 1 0 0 0 0 2,926,497,324

STEPDOWN SCHEDULETotal Costs Column = Account Mappings, Adjustments, Transfers, Exclusions, Overrides, etc.

These represent a causal and beneficial relationship of indirect costs received through Cross Allocations from other indirect activities.

Indirect costs allocated to the Bases

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Questions

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THANK YOU!