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Indirect Cost Accounting: Principles and Policies

Indirect Cost Accounting: Principles and Policies. The California Institute for Climate Solutions Public Workshop on UC’s Proposal December 12, 2007 Arthur Bienenstock Stanford University. Indirect (F&A) Costs – Definitions OMB Circular A-21.

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Indirect Cost Accounting: Principles and Policies

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  1. Indirect Cost Accounting: Principles and Policies The California Institute for Climate Solutions Public Workshop on UC’s Proposal December 12, 2007 Arthur Bienenstock Stanford University

  2. Indirect (F&A) Costs – DefinitionsOMB Circular A-21 • “Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” • “F&A costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.”

  3. Indirect Costs – Some Examples • Utility costs – electricity, heat, water • Environment, Health and Safety • Depreciation of shared research equipment • Research share of accounting, procurement, human resources • Interest on loans for construction or renovation of research facilities

  4. Indirect Costs are Important for Research • Cannot do modern research without these services • Costs are real and carefully audited by the federal government • Federal reimbursement rate is typically less than needed to cover indirect costs of research • Formally acknowledged by White House Office of Science and Technology 2000 report, Analysis of Facilities and Administrative Costs at Universities • Formally acknowledged by auditors of Stanford

  5. How Should Indirect Costs Be Funded? • Divert funds from education, financial aid, etc.? • Increase tuition? • State pays parts of them directly for public universities • Reduced federal indirect cost reimbursement rate • Research sponsor reimburses at federal indirect cost rate as part of research funding • Most fair and appropriate • Advocated by universities • Precedent – California’s Breast Cancer Research Program • Reduces administrative costs compared to separate rate

  6. Confusion on Rates • Federal IDC rate is NOT a percentage of total costs • 50% rate is not 50% of total cost • Total cost = Direct cost + (rate x Dir. Cost) • $150 total = $100 Dir + $50 IDC • 50% IDC rate is 33.3% of total costs • Stanford 58% rate is 36.7% of total costs

  7. Consequences of Arbitrarily Low Indirect Cost Reimbursement Rates • NATIONAL INSTITUTE FOR FOOD AND AGRICULTURE • REPORT OF THE RESEARCH, EDUCATION AND ECONOMICS TASK FORCE OF THE UNITED STATE DEPARTMENT OF AGRICULTURE - July 2004 • “…overhead reimbursement to institutions that receive NRI grants is so low that many institutional leaders discourage their scientists from applying for them. As a result, many scientists interested in agriculture prefer projects that receive funding from NIH or NSF.” • (NRI is USDA’s National Research Initiative, the flagship of its research programs)

  8. Conclusion • Reimburse indirect research costs at the federally negotiated indirect cost rate

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