Tina Cunningham, CRAAssistant Director, Sponsored Programs AdministrationMississippi State University

Carly Cummings, PhDAssistant to the Dean of ResearchCollege of Arts & Sciences, Mississippi State University

Budgets 101

The Plan• Basic framework for budgeting in sponsored

research• Topics include:– OMB Circular A-21 General Costing Principles– Direct vs. Indirect Costs– Mechanics of Building a Budget

OMB Circular A-21

• What is it?– Allowability principles for the reimbursements of

costs associated with federally sponsored projects– Guidance for determining direct and indirect costs

Basic Principles of CostingOMB A-21, C.2

• Reasonable – – OMB A.21, C.2(a)

• Allocable – – OMB A.21, C.2(b)

• Consistent – – OMB A.21, C.2(c)

• Allowable – – OMB A.21, C.2(d)

Reasonable• Prudent person test• Considerations :– Generally recognized as necessary– Complies with Federal and State laws and

regulations– Did individuals involved act with due prudence?– The extent the actions taken are consistent with

institutional policies and procedures

Allocable

• To be allocable, expenses. . . .– Are incurred solely for the project, OR– Benefit both project and other work in a

proportion that can approximated, OR– Are necessary for the overall operation of the

institution and is deemed assignable in part to a sponsored project

Consistent• Costs must be given consistent treatment– Institution must estimate costs during proposal

preparation consistent with its cost accounting standards

– All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only

– Institution's Disclosure Statement (DS-2) will provide details on how costs will be budgeted and expensed

Allowable• The cost must conform to any requirements,

limitations, etc. put forth by all of the following:– OMB Circulars– Sponsor guidelines– Award document– Institutional policies

• Allowability applies to both direct and F&A costs– For ex.: Sponsored Programs expenses are not allowable

as a direct cost, but are allowable as an F&A cost

Direct vs. Indirect• Direct Costs (OMB A-21 D.1.)– Can be identified specifically with a particular

sponsored project, OR– Can be directly assigned to projects relatively easily

with a high degree of accuracy• Indirect Costs (aka Facilities & Administrative

Costs, Overhead) (OMB A-21 E.1.)– Incurred for common or joint objectives - cannot be

identified readily and specifically with a particular sponsored project

Direct Costs• Examples:– Salaries– Fringe (sometimes)– Travel– Supplies/Commodities– Services/Contractuals/Subcontracts– Equipment

Indirect Costs (F & A Costs)Facilities

Depreciation and use allowancesInterest of debt associated with certain buildingsEquipment and capital improvementsOperation and maintenance expensesLibrary expenses

AdministrativeGeneral Administrative and general expensesDepartmental administrationSponsored programs administrationStudent administration and services

Direct Costs vs. Indirects (cont.)Costs must be treated consistently - either a

direct or an F&A cost‘like costs in like manner’

Institution’s DS-2 often details which costs will be viewed as direct vs. indirect

Disclosure Statement (DS-2)• Example:

• Travel costs incurred while performing the function of general university activity, such as travel by executive officers meeting with the State Board of Trustees to discuss general university business, would be classified as indirect costs. • Travel by a university employee related to carrying out

the functions of a specific contract or grant would be classified as a direct charge to that contract or grant.

Mechanics of Building a Budget• Basic Principles– All costs budgeted must be in accordance with the

principles presented• Reasonable, Allocable, Consistent, Allowable• Properly budgeted as direct vs. indirect

– All costs budgeted should be viewed in relation to the project and its needs

Mechanics of Building a Budget (cont’d)• Personnel– Principal Investigator, project team, students– Best to do this section first - many other expenses

will be determined by this budget line– Calculations• Percentage of effort or person months• 9-month vs. 12-month employees• Rates should be based on current salaries; escalations

allowed for future budget periods

Mechanics of Building a Budget (cont’d)

• Fringe Benefits– Direct or Indirect – consult institution F&A

agreement– Rate may/may not be negotiated– Different rates for different employee classes– Calculations• Rates are applied to budgeted salary amounts

Mechanics of Building a Budget (cont’d)• Travel– Project related conferences, project review

meetings, data collection, etc.– For budgeted project personnel– Calculations• Based on federal (U.S. General Services Administration)

or state/university rates, if lower– Per diem rates: http://www.gsa.gov/portal/category/21287– Mileage: http://www.gsa.gov/portal/content/100715

Mechanics of Building a Budget (cont’d)• Equipment– Institutional definition of equipment is found in

your F&A rate agreement• Nonexpendable• Tangible• Useful life of > 1 year• Acquisition cost of $5,000 or more per unit – The federal threshold; your institutional threshold

may be lower

Mechanics of Building a Budget (cont’d)• Materials and Supplies– Items to be used for the project• Molecular biology supplies (enzymes, reagents, tubes,

etc.) to be used for DNA sequencing

• Services/Contractuals– Services to be performed by another entity for the

project• Third party vendor will perform DNA sequencing

Mechanics of Building a Budget (cont’d)• Subawards– Subaward is distinguished from a vendor by the

intellectual contribution to the project outcome– Must receive SOW, budget, and budget

justification from subrecipient– Subaward budget must comply with sponsor

guidelines, subrecipient institution policies, and all federal regulations.

Mechanics of Building a Budget (cont’d)

• Graduate Student Tuition– Rates vary between institutions– Calculation is based on student’s budgeted effort

Mechanics of Building a Budget (cont’d)• Participant Costs– Broadly defined: “Support provided when a sponsor

funds a project or activity in connection with formal meetings, conferences, symposia, or training programs”

– Specifically, participant support costs are those costs paid to (or on behalf of) participants in such events

– Treatment of participant costs vary from agency to agency

Mechanics of Building a Budget (cont’d)• Facilities and Administrative Costs (F&A)– Applied to costs specified in negotiated rate

agreement• Modified Total Direct Cost (MTDC)– All costs excluding tuition, equipment, patient care, off-

site rentals, scholarships, fellowships, and all subaward costs exceeding $25,000

• Salary and Wages• Salary, Wages, and Fringes

– Sponsor may place further restrictions

Sponsor Budget Restrictions• USDA– Consultant limit – current $598/day ($74.75/hr)– F&A restriction – 30% Total federal funds awarded

• NSF– No F&A on participant costs

• NIH– Genomics restriction: http

://grants.nih.gov/grants/guide/notice-files/NOT-OD-10-097.html

– Salary cap ($179,700)– Modular budget for $250,000 total DIRECT costs

Cost share

• Anything necessary for the completion of the project that is not paid for by the sponsor

• Irrelevant what the source of funds are:– Institution– Third party– Etc.

Cost share (cont’d)• Two categories– Committed – must be tracked• Required by sponsor (committed in proposal)• Not required, but committed in the proposal• Not required, but implied through regulation

– Uncommitted – does not need to be tracked• Typically after the fact• ‘Volunteering’ of institution resources

Cost share (sort of!)

• Does a PI have to charge their time to the project?– No, BUT their time will be cost share, and some

portion of it must be committed cost share and tracked

– See OMB Memo 01-06 http://www.whitehouse.gov/omb/memoranda_m01-06/

Allowability of cost share expenses• Must be allowable as a direct cost• Other important criteria:– Expense must be incurred during the project

period– Can only be used as cost share once– Cannot be being charged to the feds already

(typically F&A costs)

Time for budget problems!!

• Dr. Jones ($50,000 annual salary/9 month faculty/0.62 FTE) plans a one year project. The project will require 10% of his time. Calculate the salary and fringe expenses.

• What does 10% mean? 10% of a 12 month equivalent or 10% of his actual appointment?

• Because of this uncertainty, the recommendation is to always use person months.

• Dr. Jones ($45,000 annual salary/9 month faculty/0.50 FTE) plans a one year project. The project will require two months of effort. Calculate the salary and fringe expenses (use 30% fringe rate).– First calculate total months in the appointment– Then calculate monthly salary– Then calculate project salary charges

• Solution• Total months in appointment– 9 month appointment x 0.50 FTE = 4.5 months

• Monthly salary– $45,000 annual salary / 4.5 months = $10,000/month

• Salary: 2 months x $10,000/month = $20,000• Fringe: $20,000 x 30% = $6,000

• Dr. Smith ($120,000 annual salary; 12 month appointment) has a one year research project (7/1/14-6/30/15). This project will require 3 months of his time. In addition, he will need $2,000 for travel to collect samples for his experiments and $3,000 for chemical supplies to run the necessary tests. The sponsor will pay full facilities and administrative costs. What is the total budget amount?

• Salary: $120,000/12 x 3 = $30,000

• Fringes: $30,000 x 30% = $ 9,000

• Travel: $ 2,000

• Supplies: $ 3,000

• TDC: Sum of all direct costs $44,000• F&A (MTDC): $44,000 x 50% = $22,000• Total Cost: Sum of TDC + F&A= $66,000

• Salary: $120,000/12 x 3 = $30,000

• Fringes: $30,000 x 30% = $ 9,000

• Travel: $ 2,000

• Supplies: $ 3,000

• TDC: Sum of all direct costs $44,000• F&A (SWF): $39,000 x 60% = $23,400• Total Cost: Sum of TDC + F&A= $67,400

• Dr. Smith is doing a one year research project (7/1/14-6/30/15). He will work 2.0 summer months on the project (his 9-month salary is $90,000). He will need two full time graduate students who will make $20,000/yr. He will need a specialized piece of equipment for testing material strength and costs $25,000. It will also be necessary to pay a colleague at Arch Rival University (ARU) $40,000 to do part of the work. Sponsor will pay full F&A. What is the total budget amount?

• Salaries: $60,000– PI: $90,000/9 x 2 = $20,000– GRA: $20,000 x 2 = $40,000

• Fringes: $10,000– PI: $20,000 x 30% = $6,000– GRA: $40,000 x 10% = $4,000

• Tuition: $7,500 x 2 students = $15,000• Equipment: $25,000• Subaward: $40,000• TDC: Sum of all direct costs $150,000• MTDC:

– $150,000 – 15,000 – 25,000 – 40,000 + 25,000 = $95,000• F&A: $95,000 x 50% = $47,500• Total Cost: TDC + F&A $197,500

• A sponsor limits the project budget total to $150,000 and will pay our full federally negotiated F&A rate of 50% MTDC. The project budgets nothing that would be excluded for F&A purposes (tuition, equipment, etc). How much money is available in direct costs?

• Available Direct Costs: – $150,000/1.50 = $100,000 in direct costs

• Calculation check:• $100,000 x 50% = $50,000• $100,000 + 50,000 = $150,000

• Really just algebra!• D = Direct Costs• D + (D x 50%) = 150,000• 1D + 0.50D = 150,000• 1.5D = 150,000• = • D = 100,000 / 1.5

• Starting with the available direct costs ($100,000) in the previous problem, assume we need $5,000 for travel and $5,000 for printing and the rest is for salary and fringe for faculty and professional staff. What would be allocated now to both salary and fringe?

• Available Direct Costs: – 90,000 (for salary/fringe)

• Salary (backwards budgeting again): –

• Fringes will be the difference

Questions?

Tina Cunninghamtcunningham@spa.msstate.edu

Carly Cummingsccummings@deanas.msstate.edu