Understanding F&A Costs

1. Understanding F&A Costs Date Presenter Name Presenter Phone Number Presenter E-mail

2. A-21 Definition • A-21 definition of F&A costs • “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. Definition • Facilities & Administrative costs is an easy mechanism for charging a sponsored project an added cost for facilities used and administrative costs • Some costs are too difficult or too time consuming to account for on an individual project basis • This is a shortcut accounting method for general instead of project-specific costs • Actual project direct costs multiplied by a predetermined percentage rate

4. Regulatory guidance • OMB Circular A-21 • Direct costs and F&A cost • Identification & assignment of F&A cost • To determine UT’s F&A rate, the nature of our costs are evaluated and classified in prescribed cost pools for facilities costs and administrative costs • Determination & application of F&A cost rates

5. Direct costs Salaries, staff benefits, supplies, long-distance phone calls, travel, equipment, subcontracts Exception to “basic support” costs Due to nature of project technical work F&A costs Facilities costs Bldgs, equip, electricity, library Admin costs “Basic support” costs Direct versus F&A costs

6. Facilities Buildings Sidewalks Electricity / fuel Equipment Library Security Custodial Administrative Department clerical & admin staff salaries Research & business offices Basic office supplies & expenses Portion of other admin costs – Dept Head, Dean, system charge, etc. Expenses included in F&A

7. F&A facts • Federally-approved rate applied to a specified cost base • Matrix of rates in effect • Reimbursement for expenses already paid by UT to support research • These are real costs! • Predetermined F&A rates to be used prospectively • Fixed rate for the life of the sponsored project • This is really important!

8. Matrix of F&A rates • Campus • Function • Instruction • Research • Other sponsored Activities • Location • On-campus • Off-campus • Award year • Same rate for life of project • This is a requirement of OMB Circular A-21

9. Current rates in effect

10. Current rates in effect

11. Frequency of computation • Computer program is executed monthly during the month-end closing process • This normally occurs on the 3rd or 4th business day of the following month

12. Basis of computation • Expenditures that posted to the WBS Element for the month • Attributes present on CJ20N for the WBS Element • Control tab - Costing sheet and Overhead key • Cust enhancement tab - F&A box of 5 attributes

13. CJ20N Control tab • Costing sheet • Budget entity • 01 is Knoxville • Source of funds • F is Federal • Base • M is MTDC • Overhead key • Budget entity • 01 is Knoxville • Function • R is Research • Location • N is on-campus • Rate agreement year • 02 is 2002 These attributes are critical because they actually control the F&A postings

14. CJ20N Customerenhancement tab • These attributes are for informational purposes only – they don’t actually control the F&A and F&A cost sharing postings • Audited base • Audited rate % • Allowed base • Allowed rate % • Location

15. Audited versus allowed • The audited rate and base are predetermined based on UT’s F&A rate agreement with the Federal government • The allowed rate and base are those specified in the individual award document or sponsor rules • For most sponsored projects, the sponsor allows us to charge our audited rate • If not, it’s called F&A cost sharing

16. Cost bases • Modified Total Direct Costs (MTDC) base • Salaries & Wages (S&W) base • Total Direct Costs (TDC) • Other • Participant support costs

17. MTDC base • MTDC is Modified Total Direct Costs • Definition: • Total direct costs minus certain modifying cost elements • Modifiers mandated by Federal government • MTDC is the most common audited base and is specified by the Federal government in F&A rate agreements with large research institutions • All of UT except for Chattanooga and Martin which use Salaries & Wages base

18. Modifiers • Memorize these cost elements • 461000 Equipment • All of 444000 Grants & Subsidies (includes444100 Student Fees) • 482100 Subcontracts > $25,000 • 441300 Real Estate Rental • Patient Care costs (Memphis) • Several different cost elements

19. Cost element 481100 Subcontracts up to $25,000 Does incur F&A costs Cost element 482100 Subcontracts greater than $25,000 Does NOT incur F&A costs Subcontracts modifier(These rules apply to each subcontractorfor the life of the project)

20. MTDC computation example

21. S&W base • S&W is Salaries and Wages • Definition: • Just salary cost elements make up the base • S&W is the audited base specified by the Federal government in F&A rate agreements with small educational institutions • UT’s Chattanooga and Martin campuses

22. S&W computation example

23. TDC base • TDC is Total Direct Costs • Definition: • All direct costs are included in this base • TDC is never an audited rate specified by the Federal government in F&A rate agreements with educational institutions • But it is a common allowed base • State of Tennessee agencies use it

24. TDC computation example

25. Other bases • Other bases may be defined and used by specific sponsors • Other bases are never an audited rate specified by the Federal government in F&A rate agreements with educational institutions • Example – participant support costs

26. Participant support costs • This F&A base is sometimes an allowable base used by Federal agencies for that portion of the award costs directly supporting participants • May include various types of costs such as housing, motor pool, supplies, etc. • These costs must be collected separately in a WBS Element so that the correct F&A costs can be computed and posted

27. Participant support costs computation example

28. F&A posting • Audited F&A costs are debited to the sponsored project WBS Element using cost element 501000

29. F&A cost sharing • Definition: • The difference between our audited rate and what the sponsor will allow • Must be negotiated & approved in advance by campus / unit research office • Most sponsors will pay our audited rate • F&A cost sharing should be minimized • A portion of collected F&A is returned to college / unit that generated it • This is reimbursement for actual costs that UT has already spent

30. F&A cost sharing attributes • Attributes are located in IRIS on CJ20N • Cust enhancement tab • Settlement rule and settlement parameters • Can be complicated to set up correctly

31. Allowable F&A attributes • If there is a difference between the audited rate and base and the allowed rate and base, then F&A cost sharing is indicated • These attributes are for informational purposes only – they don’t actually control the F&A and F&A cost sharing postings

32. Settlementrequired attribute • In IRIS, cost sharing is accomplished by a process known as “settlement” • The “settlement req” attribute must indicate whether or not there is an active settlement rule on the WBS Element

33. Menu path to settlement • The settlement parameters and settlement rule are attached to the WBS Element

34. Settlement rule • The settlement rule shows the percentage of F&A costs to be cost shared • In this example, 92.89% of the F&A costs must be cost shared to get to the allowed rate of 3.2% • 45% * .9289 = 41.8 • 45% - 41.8% = 3.2%

35. Settlement parameters • The settlement parameters control the type of settlement to be done • Get here via menu path Goto > Settlement parameters

36. F&A cost sharing posting • F&A cost sharing is credited using cost element 501990 in an amount sufficient so that the net F&A charge is equal to the amount or % allowed by the sponsor

37. Importance of postinggross amounts • UT records the gross amounts for F&A costs and for F&A cost sharing in separate cost elements • Fully cost the project • Monitor cost sharing for management purposes • Easily report cost sharing to sponsors • Cost sharing must be quantified for F&A rate proposals

38. F&A costs and F&A costsharing posting example Gross F&A costs Gross F&A cost sharing Net F&A costs allowable

39. Posting exceptionfor TDC base • IRIS is unable to charge the audited base and net down to a TDC base • Solution: • Charge the allowable rate using TDC base • Implications: • Overstates F&A costs • Overstates F&A cost sharing • Net F&A amount is correct

40. TDC posting example Here’s how we wish we could post it Here’s how we actually post it

41. F&A overspending • Sometimes, a PI may over or under spend a project because only the direct cost budget variance was reviewed • Spending differently than the budget may cause this if differences are between F&A and non-F&A bearing cost elements • See the example on the next slide • IRIS reports ZFM_WBS_SUMMARY and ZFWBS012 calculate amount left to spend taking this situation into account

42. F&A overspending example

43. Training classes • 1 Overview of Accounting for Sponsored Projects • 2 OMB Circulars & Cost Accounting Standards • 3 Understanding F&A Costs • 4 Direct Costing • 5 Cost Transfers & Closeout • 6 Cost Sharing • 7 Subcontract Monitoring • 8 Advanced Topics • 9 Invoicing, Reporting & Cash Receipts • 10 Sponsored Projects Reports in IRIS • Other – IRIS reporting for sponsored projects