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