Indirect Costs Part II: Clarity Please

Last month I briefly discussed the ‘tax’ of indirect costs (or F&A - facilities and administrative costs) as a necessary evil of funding the university enterprise. In short, with an ever increasing proportion of the university budget coming from sponsored research, teaching, and outreach work – it becomes ever more important that these are taxed fairly to pay for the overall overhead of running Mizzou. In the five issues we’ve published Synthesis, never have I gotten so much comment and email back. So much in fact that I want to revisit a few issues where I might be able to sharpen my message.

First, let me attempt a better illustration of the 45% full indirect costs of doing on-campus research (see figure, below). In past audits, these were the best estimates of providing the facility and administrative services to do research here in Columbia. You’ll note that approximately half of them are due to administration, the other half due to facilities/equipment. Thus, if research is done off this campus, and the facilities costs are not covered by the overall university, the appropriate rate of ‘tax’ should be about 23.7%. In fact, it is 23%. This is the basis of our discussion with OSPA concerning research conducted at our outlying Farms/Centers, where the campus does not provide utilities or upkeep directly. As mentioned last month, we now have mechanisms to lower the indirect cost on research that is conducted at places other than Columbia.

Illustrating the components that collectively make up the 45% rate, however, does not represent how the indirect costs are spent. The indirect costs recovered are allocated to one of two accounts: one being the 25% returned to the originating department, the other going into the general revenue funding of the campus. In FY03, the campus is counting on just over $20 million (about 5%). Most of our grants do not garner the 45%. The university as a whole is trying to increase that rate (and there are some indications that we are near 20% now) but many of our sponsors (such as USDA) will not allow full indirect cost recover. Thus, what’s collected will never match exactly what the true costs are as illustrated.

Increasing our indirect cost recovery is part of the motivation behind OSPA’s policy of carefully watching faculty requests to waive indirect costs. Many of CAFNR’s sponsors are other state agencies, commodity associations, and other organizations that don’t typically allow full indirect costs to be taken from the investigators. Contrary to rumor, OSPA will honor a sponsor’s policy of no or limited indirect costs if there is proof of its authenticity. Such proof needs to be found in organizational minutes, by-laws, or other official documents. USDA’s policy was an act of Congress – and is honored. It is not enough for the sponsor’s administration simply to send a letter stating that ‘we will not allow indirect costs to be charged against this project.’ In this case, the indirect costs (and RIF) not being recovered must be negotiated among the department/unit, college, and OSPA. Martha Jones and I regularly work on such negotiations since many of our sponsors have no official policy.

Lastly, unless the investigator or college waives their rights to the RIF (research incentive funds), MU returns 25% of the collected indirect costs to the originating Unit. Here in CAFNR, all RIF is returned to the Unit and none is retained by the Dean’s office. (However, the Dean’s office does receive RIF on grants it submits.) Policies on RIF vary by CAFNR Unit reached by consensus between the Unit Leader and the faculty. We just received our RIF dollars for deposit in Unit accounts based upon collection from grants in FY02.

In total, CAFNR collected $803,220, which will be distributed among the originating Units as illustrated in the figure above. Though relatively small compared to the $60 million annual enterprise of CAFNR, RIF represents some of the few discretionary dollars available to Units for their own directed use.

Regards,
John