Understanding FA Costs Date Presenter Name Presenter Phone

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

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” 2

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 3

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 4

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

Expenses included in F&A • 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. 6

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! 7

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 8

Current rates in effect FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 KNOX INSTRUCT ON-CAMPUS 45. 0 48. 0 KNOX INSTRUCT OFF-CAMPUS 26. 0 26. 0 KNOX RESEARCH ON-CAMPUS 43. 0 45. 0 46. 0 47. 0 KNOX RESEARCH OFF-CAMPUS 23. 0 24. 7 26. 0 39. 0 40. 0 32. 0 24. 5 25. 0 24. 0 6. 2 BASE MTDC KNOX OTHER SPONSORED ACTIVITY ON-CAMPUS KNOX OTHER SPONSORED ACTIVITY OFF-CAMPUS KNOX IPA AGREEMENTS TULL INSTRUCT ON-CAMPUS 35. 0 34. 8 31. 7 TULL INSTRUCT OFF-CAMPUS 26. 0 26. 0 TULL RESEARCH ON-CAMPUS 50. 5 50. 3 50. 0 TULL RESEARCH OFF-CAMPUS 26. 0 26. 0 MHD RESEARCH ON-CAMPUS 18. 0 18. 0 7. 0 IPA AGREEMENTS CHATTANOOGA ON-CAMPUS 48. 0 47. 0 45. 5 CHATTANOOGA OFF-CAMPUS 16. 8 16. 8 13. 1 MARTIN ON-CAMPUS 39. 0 39. 0 44. 0 MARTIN OFF-CAMPUS 14. 1 14. 1 16. 0 MTDC SAL & WAGES 9

Current rates in effect MEMPHIS INSTRUCT ON-CAMPUS 36. 0 36. 1 37. 0 MEMPHIS INSTRUCT OFF-CAMPUS 30. 0 29. 0 26. 0 MEMPHIS RESEARCH ON-CAMPUS 42. 5 42. 0 43. 0 46. 0 MEMPHIS RESEARCH OFF-CAMPUS 23. 6 24. 4 26. 0 30. 0 28. 2 39. 0 22. 0 23. 8 23. 9 37. 0 36. 8 26. 0 MTDC MEMPHIS OTHER SPONSORED ACTIVITY ON-CAMPUS MEMPHIS OTHER SPONSORED ACTIVITY OFF-CAMPUS MEMORIAL RES CTR ON-CAMPUS MEMORIAL RES CTR OFF-CAMPUS MTDC AG EXPERIMENT STATION-ON-CAMPUS 31. 5 30. 5 35. 0 AG EXPERIMENT STATION-OFF-CAMPUS 31. 5 30. 5 22. 0 3. 0 AG EXPERIMENT STATION-IPA AGREEMENTS AG EXTENSION SERVICE-ON CAMPUS 14. 0 14. 0 15. 0 AG EXTENSION SERVICE-OFF CAMPUS 14. 0 14. 0 12. 6 2. 0 AG EXTENSION SERVICE-IPA AGREEMENTS MTDC IPS ON-CAMPUS 29. 0 28. 8 28. 0 IPS OFF-CAMPUS 21. 0 21. 0 22. 0 VET MED INSTR ON-CAMPUS 35. 0 34. 8 * * * MTDC 26. 0 * *Beginning FY 06 44. 8 45. 0 instruction should 26. 0 26. 0 use Knoxville rates 4. 0 VET MED INSTR OFF-CAMPUS VET MED RES ON-CAMPUS VET MED RES OFF-CAMPUS VET MED IPA AGREEMENTS 45. 0 MTDC 10

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

Basis of computation • Expenditures that posted to the WBS Element for the month • Attributes present on CJ 20 N for the WBS Element – Control tab - Costing sheet and Overhead key – Cust enhancement tab - F&A box of 5 attributes 12

CJ 20 N Control tab • Costing sheet – Budget entity • 01 is Knoxville – Source of funds • F is Federal – Base • M is MTDC These attributes are critical because they actually control the F&A postings • Overhead key – Budget entity • 01 is Knoxville – Function • R is Research – Location • N is on-campus – Rate agreement year • 02 is 2002 13

CJ 20 N Customer enhancement 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 14

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 15

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

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 17

Modifiers • Memorize these cost elements – 461000 Equipment – All of 444000 Grants & Subsidies (includes 444100 Student Fees) – 482100 Subcontracts > $25, 000 – 441300 Real Estate Rental – Patient Care costs (Memphis) • Several different cost elements 18

Subcontracts modifier (These rules apply to each subcontractor for the life of the project) • 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 19

MTDC computation example 20

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 21

S&W computation example 22

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 23

TDC computation example 24

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 25

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 26

Participant support costs computation example 27

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

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 29

F&A cost sharing attributes • Attributes are located in IRIS on CJ 20 N – Cust enhancement tab – Settlement rule and settlement parameters • Can be complicated to set up correctly 30

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 31

Settlement required 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 32

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

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% 34

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

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 36

Importance of posting gross 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 37

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

Posting exception for 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 39

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

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 ZFWBS 012 calculate amount left to spend taking this situation into account 41

F&A overspending example 42

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 43