Recovery | History | Definition of Indirect Costs | Components of Indirect Costs | Representative Unallowables

 

 

Recovery (Back to Top)

A-21, "Cost Principles for Educational Institutions," was revised by OMB as of May 8, 1996. One of the revisions changed the term indirect costs to Facilities and Administrative Costs (F & A Costs)

The policy of Western Kentucky University is to share F & A recovery funds coming to the University through grants and contracts in an equitable manner. The principles for allocation and use of these funds are:

• The funds should provide incentives to those units that are successful in attracting funds.
  
• The funds should provide base funding for the University's efforts to increase extramural funding.
  
• Priority should be given to meeting the needs for equipment, facilities, and administrative costs, especially where improvements will increase opportunities for additional extramural funding.
  
• In addition to rewarding units and individuals for research, funds should provide seed funding for increasing grant writing and for helping junior faculty and departments become competitive for extramural funding.
  

When F & A cost recovery funds result from projects involving faculty in more than one college, the deans of the colleges will be responsible for jointly recommending F & A cost distribution to the Director of the Office of Sponsored Programs. F & A cost recovery funds will be allocated FOUR times a year. Allocations will be based on receipts from the previous three months (i.e., one quarter lag). The allocation will occur as follows:

 

 

The funds will be distributed in the following manner:

• 40% University's General fund for support of facilities
• 40% College or appropriate Vice President
• 20% Office of Sponsored Programs

The Chief Financial Officer will allocate the previous quarter's F & A cost recovery revenue under the above-referenced formula in the F & A cost center accounts. F & A cost recovery funds allocated to cost center accounts in any given fiscal period will be carried over from year-to-year. Carry forward funds will be available for use in the new fiscal year after the previous fiscal year's books are closed (approximately the first week of August of each year).

Additionally, a year-end report is to be submitted by each cost center fiscal officer to the Office of Sponsored Programs and the Vice President for Academic Affairs summarizing how these funds were used in the context of this policy. The Office of Sponsored Programs will periodically review accounts.

 

History and Evolution of Indirect Cost Rates (Back to Top)

Indirect Cost Rates paralleled the rapid evolution of American colleges and universities after World War II. In 1947, the Office of Naval Research (ONR) began to reimburse universities for indirect costs incurred for Navy contracts. In 1955, the Department of Health, Education and Welfare used this approach to set the rate at 8% of Total Direct Costs (still the maximum for Training Grants.) In 1958, NIH raised the rates to 15%. That same year, indirect costing was established when the Bureau of Budget introduced the famous Circular A-21. In 1963, NIH raised the Indirect Cost Rate to 20%.

In 1966, the year Western achieved university status, the Federal Government made a commitment to fully reimburse universities for the cost of federally sponsored research. This commitment went unchallenged until 1979 when A-21 was revised with the concept of Modified Total Direct Costs (MTDC.) In 1986, another A-21 revision capped faculty administration costs at 3.6%.

Following the famous Stanford case, in October 1991, yet another A-21 revision capped administrative components (General Administration, Departmental Administration, and Sponsored Programs Administration) at 26%. Certification about unallowable costs was required in the indirect cost proposal. New unallowables, e.g., alcoholic beverages, alumni activities, lobbying, trustees' travel, etc. were added. Most important, the revision of October 1991 required assurances from major institutions that indirect cost reimbursement for facilities and equipment would be expended for that purpose within five years. Moreover, the revision prohibited shifts of under-recovery of research sponsored by foreign governments, industry, or other sponsors to federally funded research.

The A-21 Revision of July 1993 brought additional clarification. It placed indirect costs into two broad categories: facilities and administration. The revision retained the 26% cap on administrative components. Student services were now included in that cap. For our purposes, this revision called for quality controls when it defined consistent treatment of costs as "costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs," for all departments. This revision established that administrative and clerical staff costs should be normally treated as indirect costs. It emphasized that predetermined rates (such as our current predetermined rate of 52% of salaries) should run from two to four years.

As a result of the Revision of 1993, grant budgets must meet these new tests. It is good practice, for example, for project directors to put the budget number on all faculty-generated correspondence to identify and protect the charge under the consistency guidelines above.
The Revision of 1993, as one might guess, caused considerable consternation, especially among the major research universities. Therefore, on July 13, 1994 an attachment to A-21, titled "Treatment of Administrative and Clerical Salaries, sent from OMB to DHHS, ONR and NSF, added an additional illustration of when direct charging of salaries of administrative or clerical staff may be appropriate. The language was:

• Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity; and where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support which is significantly greater than the routine level of such services provided by academic departments. Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as indirect costs.

Examples were given to illustrate circumstances, some of which are apparent at Western, where direct charging the salaries of administrative or clerical staff may be appropriate. The examples:

• Large, complex programs, such as General Clinical Research Centers, Primate Centers, Program Projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
  
• Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical records studies.
  
• Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
  
• Projects whose principal focus are the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports.)
  
• Projects that are geographically inaccessible to normal department administrative services, such as seagoing research vessels, radio astronomy projects, and other research field sites that are remote from the campus.
  
• Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocol, IRB preparations and/or other project-specific regulatory protocols; and multiple project-related investigator coordination and communications.
  

These examples are not exhaustive or intended to imply that direct charging of administrative or clerical salaries will always be appropriate for the situations illustrated above. What is important to remember is that where direct charges for administrative and clerical salaries are made, care must be used to assure that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities.

Definition of Indirect Costs (Back to Top)

Indirect Costs are 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.

Components of Indirect Costs (Back to Top)

Administration: This component includes Departmental Administration, General Administration, Sponsored Projects Administration, and Student Services. Administrative components are limited to 26%.

Facilities: This component includes Buildings Depreciation or Use Allowance, Equipment Depreciation or Use Allowance, Operation and Maintenance, and the Library.

 

Under these conditions, qualified faculty and staff members may be approved to use indirect costs to support research and the development of grants for:

• Local telephone costs
  
• Memberships
  
• Salaries of Administrative Staff
  
• Salaries of Clerical Staff
  
• Office supplies
  
• Typing manuscripts
  
• Small travel grants
  
• Assistance from the Computer Center
  
• Application fees for grant applications
  
• Microfilming
  
• Supplies and equipment attributable to the research but which were not requested as direct costs. (Proposers should make certain that the equipment will be used by faculty and students after the grant expires).
  
• Consultants
  
• Service Contracts
  
• Instructional materials
  
• Data processing
  
• Salaries for research personnel such as lab technicians, graduate assistants, interns, and student help. (If not funded as direct costs).
  
• Graphics (illustrations of research)
  
• Building and equipment maintenance
  
• Communications and postage
  
• Insurance
  
• Technical reports
  
• Human subjects
  
• Reprints
  
• Awards
  
• Advertising costs (for Personnel)
  
• Affirmative Action Monitoring
  
• Animal care reviews
  
• Central Administration
  
• College Administration
  
• Custodial Services
  
• Department Administration
  
• Electronics Shops
  
• Employee Benefits
  
• Environmental Health & Safety
  
• Facilities and space usage
  
• Graduate student admissions
  
• Grant and Contract Services Office
  
• Human Subjects Reviews
  
• Insurance (not life)
  
• Library Services
  
• Machine Shops
  
• Payroll Office
  
• Personnel Office
  
• Purchasing Office
  
• Recreational Facilities
  
• Risk Management
  
• Security (Campus Policy)
  
• Selected publications
  
• Selected subscriptions
  
• Seminar Costs
  
• Stockroom
  
• Taxes
  
• Transportation Costs
  
• University Architect
  
• Utilities
  

 

Representative Unallowables (Back to Top)

• Institution-furnished automobiles for personal use
  
• Legal costs of criminal and civil proceedings, appeals and patent infringements
  
• Donations and contributions made by an institution
  
• Fund raising activities
  
• Entertainment
  
• Insurance against defects
  
• Fines and penalties
  
• Goods and services for personal use of employees
  
• Housing and personal living expenses of an institution's officers
  
• Memberships in any civic, community or social organization or country club
  
• Selling or marketing of goods or services
  
• Contracts for translations by faculty in support of another faculty member's research
  
• Contracts to faculty to assist faculty who obtained the grant
  
• Athletic tickets
  
• Receptions
  
• Party expenses
  
• Alcoholic beverages
  
• Artwork
  
• Overseas trips
  
• Alumni publications and other activities
  
• Carpeting
  
• Equipment unconnected with grants
  
• Word processing by anyone on the payroll
  
• Lobbying
  
• Trustees' travel

In 1996, A-21, "Cost Principles for Educational Institutions," was again revised by OMB. One of the revisions changed the term "indirect costs" to "facilities and administrative costs."