Indirect cost accounting principles and policies
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Indirect Cost Accounting: Principles and Policies. The California Institute for Climate Solutions Public Workshop on UC’s Proposal December 12, 2007 Arthur Bienenstock Stanford University. Indirect (F&A) Costs – Definitions OMB Circular A-21.

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Indirect cost accounting principles and policies

Indirect Cost Accounting: Principles and Policies

The California Institute for Climate Solutions

Public Workshop on UC’s Proposal

December 12, 2007

Arthur Bienenstock

Stanford University


Indirect f a costs definitions omb circular a 21
Indirect (F&A) Costs – DefinitionsOMB Circular A-21

  • “Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.”

  • “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.”


Indirect costs some examples
Indirect Costs – Some Examples

  • Utility costs – electricity, heat, water

  • Environment, Health and Safety

  • Depreciation of shared research equipment

  • Research share of accounting, procurement, human resources

  • Interest on loans for construction or renovation of research facilities


Indirect costs are important for research
Indirect Costs are Important for Research

  • Cannot do modern research without these services

  • Costs are real and carefully audited by the federal government

    • Federal reimbursement rate is typically less than needed to cover indirect costs of research

      • Formally acknowledged by White House Office of Science and Technology 2000 report, Analysis of Facilities and Administrative Costs at Universities

      • Formally acknowledged by auditors of Stanford


How should indirect costs be funded
How Should Indirect Costs Be Funded?

  • Divert funds from education, financial aid, etc.?

  • Increase tuition?

  • State pays parts of them directly for public universities

    • Reduced federal indirect cost reimbursement rate

  • Research sponsor reimburses at federal indirect cost rate as part of research funding

    • Most fair and appropriate

    • Advocated by universities

    • Precedent – California’s Breast Cancer Research Program

    • Reduces administrative costs compared to separate rate


Confusion on rates
Confusion on Rates

  • Federal IDC rate is NOT a percentage of total costs

  • 50% rate is not 50% of total cost

  • Total cost = Direct cost + (rate x Dir. Cost)

  • $150 total = $100 Dir + $50 IDC

  • 50% IDC rate is 33.3% of total costs

  • Stanford 58% rate is 36.7% of total costs


Consequences of arbitrarily low indirect cost reimbursement rates
Consequences of Arbitrarily Low Indirect Cost Reimbursement Rates

  • NATIONAL INSTITUTE FOR FOOD AND AGRICULTURE

    • REPORT OF THE RESEARCH, EDUCATION AND ECONOMICS TASK FORCE OF THE UNITED STATE DEPARTMENT OF AGRICULTURE - July 2004

  • “…overhead reimbursement to institutions that receive NRI grants is so low that many institutional leaders discourage their scientists from applying for them. As a result, many scientists interested in agriculture prefer projects that receive funding from NIH or NSF.”

  • (NRI is USDA’s National Research Initiative, the flagship of its research programs)


Conclusion
Conclusion Rates

  • Reimburse indirect research costs at the federally negotiated indirect cost rate


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