Post Award Accounting Services and Fiscal Compliance

PLEASE NOTE: In the May 8, 1996, proposed revision of the Office of Management and Budget Circular A-21 the term `Indirect Cost' has been changed. "2. Replace the term `indirect' costs with facilities and administrative (F & A) costs. F & A costs are synonymous with `indirect' costs, as previously used in this Circular and as currently used in Appendices A and B."

The following excerpts are from a publication entitled College and University Business Administration, printed in 1981 by the National Association of College and University Business Officers (NACUBO). Quotations are from chapter Four, "Indirect Costs of Sponsored Programs."

The advancement of knowledge, particularly in science, needs support not only of the direct costs of sponsored projects, but also of Indirect (F & A) costs. Indirect (F & A) costs are actually incurred and the functions served by indirect activities are essential for the operation of an institution. Without Indirect (F & A) cost reimbursements, sponsored programs in colleges and universities would require institutional support of indirect services, to the detriment of other functions of the institution. In order to study and understand Indirect (F & A) costs, it is important to distinguish these from direct costs.

Direct costs are those that can be identified and charged to a specific project relatively easily with a reasonable degree of accuracy and without an inordinate amount of accounting. These costs could include salaries, wages, benefits, services, materials, and equipment. It is not the nature of the goods or services that determines direct cost classifications: rather, it is the ease of identification with the sponsored work or a final cost objective.

Indirect (F & A) costs, in contrast with direct costs, are those that have been incurred for purposes common to a number or all of the specific projects, programs, or activities of an institution, but which cannot be identified and charged directly to such projects, programs, or activities relatively easily with a reasonable degree of accuracy and without an inordinate amount of accounting. Examples include such items as heating, lighting, air conditioning, and janitorial services of buildings, and administrative services such as accounting, purchasing, personnel, and library services.

The following excerpts are from a publication entitled College and University Business Administration, printed in 1981 by the National Association of College and University Business Officers (NACUBO). Quotations are from chapter Four, "Indirect (F & A) Costs of Sponsored Programs."

There is often much misunderstanding about the use of funds received to reimburse Indirect (F & A) costs. Reimbursement for Indirect (F & A) costs are for costs incurred, just as they are for such direct costs as salaries and supplies. The use of funds received as Indirect (F & A) cost reimbursement has no direct bearing on the Indirect (F & A) cost rate, since the rate is based on costs incurred. However, a strong case can be made for placing Indirect (F & A) cost recoveries back into the budget that funds the Indirect (F & A) cost activities where they were generated. To do otherwise could result in a dissipation of funds and the institution could no longer maintain the same level of Indirect (F & A) cost services.

In most independent institutions, Indirect (F & A) cost reimbursements are not distributed arbitrarily but such recoveries are generally recognized as unrestricted revenue. Budgets are projected on the basis of justified needs and projected revenue from Indirect (F & A) costs and all other sources. In institutions where separate departments or colleges function at least in part on the basis of their own revenue, such s that from endowment, tuition, or sponsored projects, it is quite consistent with the principles of Indirect (F & A) costs that the reimbursement for at least part of Indirect (F & A) costs be returned to the departments or colleges where that part of the Indirect (F & A) costs was incurred. This of course is accomplished if the recovery is included with the allocated, unrestricted revenue.

State institutions, perhaps because of state appropriations, have a wide variety of postures with regard to Indirect (F & A) cost recoveries. For example, the states sometimes recapture all Indirect (F & A) cost reimbursement on the basis that the state is paying the Indirect (F & A) costs incurred. Another practice is to incorporate the total anticipated revenue from Indirect (F & A) costs, along with revenues from tuition and other sources, in the total annual budget of an institution.

At the other end of the spectrum, there may be states that pay the full Indirect (F & A) costs of the institution and permit the latter to retain the reimbursements made to it for Indirect (F & A) costs as essentially unrestricted revenues. The practices of some states fall between these methods, allowing some portion of Indirect (F & A) cost reimbursement to be retained and distributed. Additional amounts retained are sometimes distributed as incentives or program supplements to colleges and departments in which the sponsored programs are conducted.

The following information is taken from the May, 1990, Policy Statement on Usage of College Overhead Account."

The purpose of this policy is to define the allowable uses of the "College Overhead Accounts".

Revenues to be put into these accounts are:

• The 30% rebate on recovered overhead.
• The 5% (up to $1,000.00) residual funds on fixed price contracts.
• Summer session over-attainment monies.

These accounts are not to be used for other miscellaneous revenues.

Expenditures from College Overhead Accounts should be mainly sponsored projects related, including:

• Expenditures to promote new funding or for sponsored projects.
• Cost overruns on sponsored project accounts.
• Disallowed costs on sponsored projects.
• Matching funds required for sponsored projects.

Another allowable use of these funds is for faculty development.