Indirect Costs

1. Indirect Costs CALS RESEARCH DIVISION April 24, 2008 Website: http://www.cals.wisc.edu/research/ Meredith Luschen, mluschen@cals.wisc.edu, 261-1500 Becky Bound, rbound@cals.wisc.edu, 265-8443 Sandy Fowler, sfowler@cals.wisc.edu, 262-3947

2. Outline • Preaward • What are indirect costs? • How do you calculate indirect costs? • Examples • Postaward • How is it calculated Post Award? • Common Questions and Frequent Pitfalls

3. What are Indirect Costs? • Sometimes called Facilities and Administrative (F&A) Costs or Overhead • Facilities and Administrative (F & A) costs are "those [costs] 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." OMB Circular A-21 Section E.1 • Negotiated by the University with the Federal Government

4. F&A Cost Components • Facilities Costs: • Building Depreciation (or Use Allowance) • Equipment Depreciation (or Use Allowance) • Operations and Maintenance (utilities, maintenance, custodial costs, non-capital improvements) • Interest Expense (paid to external parties) • Library (books, library facilities and library administration)

5. F&A Cost Components *Administrative Costs: • Departmental Administration • Dean’s Office, Dept Heads, Dept Administrative staff and administrative work of faculty (including bid and proposal preparation) • General Administration & General Expense • President of Chancellor, Institution-wide Financial Management and Business Services, Personnel Management, Safety & Risk Mgmt, etc. • Sponsored Projects Administration • Grant and Contract Administration, Cost Analysis, Patent Expenses • Student Services • Registrar, Bursar, Student Medical • Typically supports and is allocated to Instruction *Administrative components limited to 26% of MTDC

6. Calculation of F&A Rate Facilities Costs + Admin Costs   ————————————  = F & A Rate Organized Research Base • Organized Research Base includes: • Sponsored project costs • University-funded competitive awards • Overdrafts • Committed cost sharing

7. Indirect Costs Rate Types • Research • Extension/Public Service • Instruction • Clinical Trials • Off Campus • Governmental Agencies within the state of Wisconsin

8. Types of Indirect Cost Base • Modified Total Direct Costs • Total Direct Costs • Salaries and Wages • Other specified in the RFP

9. Modified Total Direct Costs • Definition: Sum of direct costs, less… • Capital Equipment (items > $5,000) • Tuition Remission • Subcontract amounts in excess of $25,000 (the first $25k of each subcontract remains part of the direct cost base and is subject to indirects) • Rental/Lease • Patient Care SEE EXAMPLE

10. Total Direct Costs • Definition: Sum of direct costs, less… • Nothing SEE EXAMPLE

11. Salaries and Wages • Definition: Sum of all Salaries and wages • PI salary • Other personnel salary • Fringe benefits Can only be used with the Simplified Method

12. Other as specified by agency • Total Project costs • eg:17.5% of direct costs plus matching costs • Total awarded amount • eg: 10% of total awarded amount (DATCP GLCI) • Total federal funds awarded • eg: 20% of total federal funds awarded. Another method of calculating the maximum allowable is 25% of TDC (USDA NRI) • NSF REU – 25% of stipend only SEE EXAMPLE

13. Post Award How is it calculated Post Award? What F&A Base rate is being used on your award? How does F&A relate to your purchases? What direct costs are left to spend on an award? What happens to the remaining F&A balance? Common Questions and /Frequent Pitfalls

14. What F&A Base rate is being used on your award?

15. How does F&A relate to your purchases? • Previous example had a Base F&A Code (Rate): MTDC (45.5%) • All modified total direct costs will generate 45.5% F&A • Example, a $100 supply charge will produce $45.50 in F&A. • Salary and fringe benefits are included in the MTDC base and therefore do generate F&A • F&A posts at end of month • How is it known what expenditure will generate F&A? • Based on account code. See handout • A charge that is defined as part of the MTDC base will produce indirect costs when expended. • Specific charges may or may not fall under the MTDC base, based on the type of charge it is defined as. • Pay attention to what a charge is coded as to see if it will or will not produce F&A • Example: Support Cost budgeted, coded as travel • Example: Mileage budgeted, changed to vehicle rental

16. What direct costs are left to spend on an award? • WISDM project view now breaks F&A (overhead in WISDM) into a separate section. • There are 4 view levels • Summary level 2 shows direct costs as one line item • Summary level 3 is the same as level 2 (for now) • Summary level 4 is the default view which shows full budget detail • Summary level 5 is the view that has all the account codes • In Summary level 4 – look at the SUBTOTAL DIRECT AVAILABLE BALANCE under the Balance column – this is the direct cost balance • Don’t forget the various encumbrances on your account • This number is subject to change based on the coding of future expenditures

17. What happens to the remaining F&A balance? • Read your agreement • What does the agency allow? • Will they allow you to use remaining F&A balance towards direct purchases? • This is why forecasting is important. Allows time to request budget variation. • Can the remaining F&A be carried forward to the successor award?

18. Common Questions and Frequent Pitfalls • Account codes not correctly coded during the purchase process. eg: support cost (5000 series) coded as travel. • Not spending budget on items as proposed (not always an error, but different spending can create a surplus F&A balance) • Assuming all capital expenditures will not be assessed F&A. Remember there are other rate bases that do assess F&A to capital expenditures • No planning or forecasting • Spending down the award without considering F&A costs. This overdrafts the award. • Transfers submitted to clear overdraft without F&A calculated. • Spending unused F&A as a direct cost without agency approval (if needed).

19. Questions?