Budgeting Basics

Budgeting Basics From Proposal to Closeout

Objectives • Understand the implications of poor budget planning • Understand the rules governing budget management • Understand the budget revision process

Introduction • All sponsored projects require a budget • Budgets help ensure that all costs toward completing the project have been anticipated • OMB Circular A-110, Subpart C.25, “Post-award requirements, revision of budget and program plans” outlines the requirements for grants and agreements with Institutions of Higher Education

Definitions • Total Cost = Direct cost + Facilities and Administration costs (F&A) + Match costs • Direct Costs are those costs that can be directly attributed to a specific project • F&A Costs are those costs that cannot be directly attributed to a specific project • Match Costs are those costs borne by the Institution which are not reimbursed by the sponsor, also called cost share

Read and understand the Sponsor guidelines • Is there a limit to the maximum costs? • Are there exclusions of specific categories? • Are there exclusions of specific entities to be funded? • Are there exclusions of specific individuals to be funded? • Is there a cap on F&A costs allowed? • Is there a salary cap? • Is there a mandatory cost share requirement? • Are there any other crazy requirements we haven’t thought of before?

Read and Understand the University of Memphis Policies and Procedures • Disclosure Statement (OMB Circular A-21 C.14) • Charges to Sponsored Agreements • Cost Transfers • Extra Compensation and Outside Employment • Institutional Base Salary • Incentive Pay • Subagreements Issued to a Third Party

Prepare the Budget Narrative • The budget should flow logically from the proposal narrative. • Does the budget narrative include quantified project costs that are specifically excluded by the sponsor? If so, these costs will become cost share to the Institution. • Does the budget narrative include quantified project costs that will not be borne by the sponsor? If so, these costs will become committed cost share to the Institution.

Prepare the Budget Using the Template Provided • Salaries and Wages • Fringe Benefits • Travel • Supplies • Equipment • Subcontracts • Tuition/fees for graduate students • Other • Indirect Costs

F&A Base • To get the F&A costs, you must first find the base • Base = Direct Costs – Exempt Items • TDC – Total Direct Costs • MTDC – Modified Total Direct Costs • Exempt Items under MTDC Include = Equipment, subaward amount over 25K, patient care costs, rent, tuition, scholarships, and fellowships

F&A Rates • Research • On Campus 41% • Off Campus 26% • Instruction • On Campus 55% • Off Campus 26% • Other Activities • On Campus 35% • Off Campus 26% • TN State Agencies and Local Governments: 15% Off-campus rate is applied in cases where rent for off-campus facilities is budgeted as a direct cost.

Budget Proposal Submission Process • Email budget request to Researchsupportservices@memphis.edu • Submit at least 10 working days prior to submission deadline • Include scope of work and Sponsor guidelines • Budget will be reviewed, modified, approved, and emailed back to the PI/PD • Submit approved budget with the Proposal Routing Form

Budget Revisions After Award • Budget revisions for individual grants are processed on-line in self service and Grants Accounting will approve or disapprove. • Budget revisions must be allowed under the terms and conditions of the award document. • Any prior approvals must be obtained prior to submitting the budget revision. • There must be sufficient funds within the value category in order to transfer the funds • Be sure to recalculate the F&A rate when transferring funds to and from exempt categories. • Transferring funds from an exempt category to a non-exempt category will effect the direct costs available for the project.

Other Budget Revisions • All budget revisions between salary account codes are to be discussed with the Grants Accountant and they will do the budget revision • Forms for budget revisions for base/current year along with information about basic budget revisions are available on the Financial Planning website.

Conditions Where Prior Approval by Sponsor is Required • Sponsor terms and conditions dictate • Change in scope of work • Transferring amounts from trainee costs • Capital expenditures (construction, land or building acquisition) • Need for additional funding • Transfer of funds between construction and non-construction work

Effects of Rebudgets on F&A Expenses Scenario 1 $50,000 budgeted in equipment is to be transferred to supplies. How much can be rebudgeted to supplies and how much is to be rebudgeted to F&A?

Effects of Rebudgets on F&A Expenses Answer: The amount being transferred from an exempt category (equipment) should be divided by (1.00 + F&A rate). This quotient can be moved into other direct non-exempt categories. The balance will be added to the F&A budget.

Effects of Rebudgets on F&A Expenses Example: • $50,000 decrease in equipment • At a 46% F&A rate • 50,000/1.46 = 34,246.57 • 34,246.57 is added to supplies • 15,753.42 is added to F&A

Effects of Rebudgets on F&A Expenses Scenario 2 The PI needs to purchase an unbudgeted piece of equipment from the grant and wants to use funds from the supply line. How does this rebudget affect the F&A budget line?

Effects of Rebudgets on F&A Expenses Answer: The amount being rebudgeted to an exempt line (equipment) should be divided by (1.00+ F&A rate). This quotient is the amount to be reduced in the supplies category. The difference is the amount to be reduced in the F&A category.

Effects of Rebudgets on F&A Expenses Example: • $50,000 increase in equipment • At a 46% F&A rate • 50,000/1.46 = 34,246.57 • $34,246.57 reduction to supplies • $15,753.43 reduction to F&A

General Provisions for Selected Items of Cost OMB A-21 Section J

Objectives • Understand what are allowable and unallowable costs to Federal grants • Understand the importance of properly budgeting for costs on Federal grants • Understand the consequences of improperly documenting costs on Federal grants

OMB A-21 Section J • Lists 54 items of cost • Failure to mention a particular item of cost is not intended to imply that it is either allowable or unallowable; rather, determination as to allowability in each case should be based on the treatment provided for similar or related items of cost.

General Criteria • Allowable (A-21 C.2) • Reasonable (A-21 C.3) • Allocable (A-21 C.4) • Consistent Treatment (A-21 C.11) • Conform to limitations set forth in A-21 or in the sponsored agreement as to types or amounts of cost items

Reasonable Test • Prudent person rule • Necessary for the operation of the Institution or performance of the sponsored program • Consistent with regulations, state and federal laws, and institutional policies and procedures

Allocable Test • It is incurred solely to advance the work under the sponsored agreement • It benefits both the sponsored agreement and other work of the institution proportionately • Cost principles, internal controls, direct cost allocation principles, and documentation • Documented in accordance with the Procurement Standards in OMB Circular A-110, Subsections C.40 – C.48

Direct vs. Indirect Cost A cost is either Allowable or Unallowable And Direct or Indirect

F&A Costs • 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. • Items of cost must be treated consistently across the Institution with respect to direct or indirect application

Allowable Charges Allowable F&A Charges Unallowable Equipment Administrative Support Entertainment F&A Allocation

Terms of Agreement In case of a discrepancy between the provisions of a specific sponsored agreement and the provisions of the OMB, the agreement should govern. Note: the program officer does not determine allowability of a cost. The Grants Management Specialist is responsible for the negotiation, award, and administration of the financial aspect of the project. Our Disclosure Statement (DS2) outlines how the Institution will allocate costs.

Budgeting • Be specific about what you need to complete the project • Be sure to budget your items in the correct value category • Be specific about what you label things, e.g., advertising vs. marketing • Be sure to read the proposal guidelines

Proposal Guidelines • In some cases the proposal guidelines determine how the items of cost will be labeled • In case of a discrepancy between the provisions of a specific sponsored agreement and the provisions in Banner, the agreement should govern • Banner, however, cannot be modified to match the sponsored provisions • Therefore, off ledger adjustments may be necessary when reporting financial data to the sponsor

Consequences • During an audit, costs deemed unallowable must be removed from the grant along with the associated F&A costs incurred • Cost transfers that are not properly documented may be considered unallowable and must also be removed from the grant • These unallowable items become uncommitted voluntary cost share, i.e., costs to the department!

Commonly Asked Questions • Are clerical salaries allowed on Federal grants? • Generally allowable as an F&A expense • Are office supplies allowed on Federal grants? • Generally allowable as an F&A expense • What about general purpose equipment, such as copy machines, computers, and typewriters? • Unallowable as direct charge, except where approved in advance by the awarding agency • What about memberships, subscriptions, and professional organizations? • Allowable for institution only, except civic, community organizations, country clubs, or social clubs. Institutional policy requires that the Sponsor must give prior approval of all professional memberships.

Commonly Asked Questions • Are recruiting costs allowed on Federal grants? • Allowable under strict conditions • Are rental cost of buildings and equipment allowed? • Allowable under strict conditions • Are scholarships and student aid costs allowable? • Only if the purpose of the sponsored agreement is to provide training to selected participants (e.g., NIH Kirschstein-NRSA fellows) • Tuition remission can be paid in lieu of wages to students under certain circumstances (see section J.10 for reporting requirements). Institutional policy is that tuition remission is only allowed if the Dean of Graduate School waives the tuition in writing. Additionally, if the student receives salary on a grant, the tuition follows the salary.

Commonly Asked Questions • What about Stipends? • These are Payments made to an individual under a fellowship or training grant in accordance with preestablished levels to provide for the individual’s living expenses during the period of training. A stipend is not considered compensation for the services expected of an employee. • Stipends are not allowable under research grants even when they appear to benefit the research project. • Although stipends are not considered salaries, this income is still subject to Federal and, sometimes, State income tax.

Questions? Websites for more information: • Research Support Services • http://researchsupport.memphis.edu/ • Grants Accounting • http://bf.memphis.edu/finance/accounting/gc.php

Budgeting Basics