Indirect Costs

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Indirect Costs

• CALS RESEARCH DIVISION
• April 24, 2008
• Website http//www.cals.wisc.edu/research/
• Meredith Luschen, mluschen_at_cals.wisc.edu,
  261-1500
• Becky Bound, rbound_at_cals.wisc.edu, 265-8443
• Sandy Fowler, sfowler_at_cals.wisc.edu, 262-3947

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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

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What are Indirect Costs?

• Sometimes called Facilities and Administrative
  (FA) 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

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FA 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)

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FA Cost Components

• Administrative Costs
• Departmental Administration
• Deans 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

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Calculation of FA 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

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Indirect Costs Rate Types

• Research
• Extension/Public Service
• Instruction
• Clinical Trials
• Off Campus
• Governmental Agencies within the state of
  Wisconsin

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Types of Indirect Cost Base

• Modified Total Direct Costs
• Total Direct Costs
• Salaries and Wages
• Other specified in the RFP

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Modified Total Direct Costs

• Definition Sum of direct costs, less
• Capital Equipment (items gt 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

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Total Direct Costs

• Definition Sum of direct costs, less
• Nothing
• SEE EXAMPLE

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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

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Other as specified by agency

• Total Project costs
• eg17.5 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

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Post Award

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

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What FA Base rate is being used on your award?
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How does FA relate to your purchases?

• Previous example had a Base FA Code (Rate) MTDC
  (45.5)
• All modified total direct costs will generate
  45.5 FA
• Example, a 100 supply charge will produce 45.50
  in FA.
• Salary and fringe benefits are included in the
  MTDC base and therefore do generate FA
• FA posts at end of month
• How is it known what expenditure will generate
  FA?
• 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 FA
• Example Support Cost budgeted, coded as travel
• Example Mileage budgeted, changed to vehicle
  rental

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What direct costs are left to spend on an award?

• WISDM project view now breaks FA (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
• Dont forget the various encumbrances on your
  account
• This number is subject to change based on the
  coding of future expenditures

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What happens to the remaining FA balance?

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

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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 FA balance)
• Assuming all capital expenditures will not be
  assessed FA. Remember there are other rate bases
  that do assess FA to capital expenditures
• No planning or forecasting
• Spending down the award without considering FA
  costs. This overdrafts the award.
• Transfers submitted to clear overdraft without
  FA calculated.
• Spending unused FA as a direct cost without
  agency approval (if needed).

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Questions?