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• F&A Underrecovery on Research WBS Elements

F&A Underrecovery on Research WBS Elements

Last revised: 08/03/2011

Contents
Overview
Proposal Phase
Award Phase
Monitoring Phase
Closeout Phase
Who to Contact with Questions
Data Warehouse Reports
Related Links

Overview

The overhead rates for federal awards and sub-awards are determined in accordance with the provisions of section G-7 of the OMB Circular A-21 (effective May 1996). Federal policy requires fixing rates for the life of the award at rates in effect (including negotiated provisional rates that will be revised when the federal rates are negotiated) at the time of the award. See OSP's policy Implementation of "Fixed Rate" Requirements of A-21 . Most non-federal awards are established at MIT billing rates which change each FY to the current FY’s federal negotiated rates. However, both federal and nonfederal sponsors occasionally specify a rate and/or base which differs from those which would normally be applied under federal and/or Institute policies.

This document describes the practices for departments, laboratories and centers (DLCs) related to handling overhead information on research WBS elements. It particularly focuses on the funding of underrecovery (U/R) incurred by Research WBS elements (other than U/R resulting from Federal A-21 "Fixed Rate" requirements or Training Grants). The DLC’s U/R posts to the DLC's U/R cost center. U/R resulting from Federal A-21 "Fixed Rate" requirements and Training Grants post directly to the Institute, not to the DLC’s U/R cost center. U/R may occur in any research WBS element where overhead specifications are established at less than the current federal negotiated rates. See OSP's Indirect Cost Rates page on the web.

Note: Overhead (OH) is also referred to as Facilities and Administration (F&A;) costs or Indirect costs. The terms overhead and F&A will be used interchangeably throughout this document. MIT prefers the term F&A; to be consistent with the Federal government, but the SAP system refers to overhead.

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Proposal Phase

With proposal preparation, DLCs complete most research budgets utilizing current federal negotiated research overhead rates on a modified total direct cost (MTDC) base. However, occasionally sponsor policies dictate a rate and/or base that will result in overhead recovery below that which would be produced using the federal negotiated research rates. When this occurs, the DLC also prepares an estimate of the U/R of overhead for each year of the project period. This estimate is for internal purposes only and is not submitted to the sponsor with the proposal.

On the MIT Proposal Summary Form, the DLC enters the sponsor's overhead rate and base. DLC also enters the anticipated U/R of overhead for each year of the proposal with the source of funds identified to cover the U/R. The funding source may be one or more of the following:

• Discretionary cost object(s) identified by the DLC, School, or Provost
• Released general (The use of released general for F&A U/R requires approval by a representative of the appropriate Dean.)
• Sponsor-funded facility costs in lieu of, or in addition to, F&A
• Vice President for Research’s (VPR’s) U/R budget, 1733000 (the proposal summary form requires an approval signature by a representative of the appropriate Dean or Vice President for Research)

If a funding source other than the above is negotiated, please email CAO at ur-issues@mit.edu to determine the correct journal entries to process funding. A copy of every MIT Proposal Summary Form for proposals incurring U/R, independent of funding source, should be sent to Charlene Placido, VPR’s Office, 3-240; for the School of Humanities, Arts, and Social Sciences, the proposals incurring U/R should also be routed to Charlene.

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Award Phase

OSP administrators are responsible for determining and entering the costing sheets and rates on Coeus input sheets. If the WBS element will incur U/R (other than U/R resulting from Federal A-21 "Fixed Rate" requirements or Training Grants), OSP administrators are also responsible for entering by Project Year the U/R amount and source of funding as entered by the DLC on the MIT Proposal Summary Form. See the OSP documentation on Research WBS Elements .

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Monitoring Phase

Overview of Responsibilities

OSP	Assigns and corrects a WBS element’s costing sheet and adjustment keys . An 001 and Notice of Award (NoA) will be generated for new and changed WBS elements and sent to DLCs.
CAO	Calculates and processes corrections and/or adjustments to posted F&A resulting from a change to the costing sheet and/or adjustment keys and from the assignment of a costing sheet that only approximates the sponsor's base. CAO notifies DLCs of document number for correcting JV entries after posting. See the CAO documentation, New Underrecovery Process .
DLC	Reviews the WBS elements costing sheet and adjustment key assignments on 001 and NoA and reports to OSP any concerns.
	Monthly, reviews the Summary Statements to verify accuracy of all entries. DLC is not required to recalculate F&A on all its cost objects each month, but to review for major errors such as: no F&A posting when cost object is subject to F&A, or the reverse; or that a cost object is incorrectly assigned an off campus costing sheet when it should be on campus, or vice versa.
	Responsible for all entries that post to its U/R cost center.

The F&A cost elements are used as follows:

The SAP costing sheets post the system calculated F&A at MIT billing rates to the following cost elements:

600304	F&A On
600305	F&A Off

	Cost Object	Cost Element
Debit	WBS Element	see above
Credit	Institute F&A	see above

If the wrong costing sheet had been assigned resulting in an error in the posted MIT billing rate amount, a JV must be prepared by CAO to correct the billing rate amount. Since manual JV entries cannot post to 600304 or 600305 (6-series cost elements), the following (4-series) cost elements are used:

490310	Correct Current Yr F&A On
490311	Correct Current Yr F&A Off
490312	Correct Prior Yr F&A On
490313	Correct Prior Yr F&A Off

	Cost Object	Cost Element
Debit	Institute F&A	see above
Credit	WBS Element	see above

Note: The SAP system uses the 6-series cost elements for posting system calculated costs such as F&A, EB, or settlements. Manual entries such as JV's cannot post to the 6-series cost elements, but instead must use the corresponding 4-series cost elements.

If the sponsor funds F&A at a base/rate other than MIT billing rates, the SAP costing sheets post an adjustment to the billing rate amount to net F&A to the sponsor's base/rate amount using the following cost elements:

600316	Adj F&A On to Spon Base/Rate
600317	Adj F&A Off to Spon Base/Rate

	Cost Object	Cost Element
Debit	DLC U/R Cost Center	see above
Credit	WBS Element	see above

If the wrong costing sheet and/or adjustment key had been assigned resulting in an error in the posted adjustment amount:

1. DLC notifies OSP to correct the costing sheet and/or rates to avoid errors in future months
2. OSP corrects the costing sheet and/or rates. An 001 and NoA will be generated for corrections and sent to DLC.
3. Within two weeks of month-end close, CAO calculates the necessary overhead corrections to prior months for posted F&A, and notifies DLC of document numbers for any JV correcting entries after posting. CAO's correction entry reverses the incorrect U/R amount using the following cost elements:
   
   

   490318	Adj CY F&A On to Spon Base/Rate
   490319	Adj CY F&A Off to Spon Base/Rate
   490320	Adj PY F&A On to Spon Base/Rate
   490321	Adj PY F&A Off to Spon Base/Rate

   
   

   	Cost Object	Cost Element	Cost Element Name	Allocation #
   Debit	WBS Element	see above	Adjust F&A to Sponsor Base/Rate	WBS which incurred U/R
   Credit	DLC U/R Cost Center	see above	Adjust F&A to Sponsor Base/Rate	WBS which incurred U/R

   
   

   Note: CY (Current Year) is used for posting adjusting F&A; calculations applicable to the current MIT fiscal year F&A.; PY (Prior Year) is used for posting adjusting F&A; calculations in the current MIT fiscal year but applicable to prior fiscal years F&A.;

If an SAP costing sheet has not been created for a sponsor's base, OSP will assign a costing sheet that most closely matches the sponsor's base. Since the sponsor's base for F&A; is different than the costing sheet base on which the sponsor's F&A; is being calculated, OSP will enter a note in Coeus and notify CAO to process a monthly JV to manually adjust the F&A; to the sponsor's base/rate. Within two weeks of monthly closing, CAO will calculate and post these F&A; adjustment JV entries. After posting CAO will email to DLCs the JV document number for the adjusting JV entries. If you have a WBS that has been assigned a costing sheet that only approximates the sponsor's base, please wait for CAO email notice before funding the U/R for this type WBS. (Note: Until CAO adjustment entries post, the F&A; U/R amount and the WBS uncommitted balance will not be accurate.) If the F&A; at billing rates has correctly posted to the WBS element but the total net F&A; charged to sponsor is incorrect as a result of the assignment of a costing sheet that only approximates the sponsor's base, CAO will process the following JV entry:

If the WBS net F&A is understated,

	Cost Object	Cost Element Name	Allocation #
Debit	WBS Element	Adj CY F&A to Sponsor Base/Rate	WBS which incurred U/R
Credit	DLC U/R Cost Center	Adj CY F&A to Sponsor Base/Rate	WBS which incurred U/R

If the WBS net F&A is overstated,

	Cost Object	Cost Element Name	Allocation #
Debit	DLC U/R Cost Center	Adj CY F&A to Sponsor Base/Rate	WBS which incurred U/R
Credit	WBS Element	Adj CY F&A to Sponsor Base/Rate	WBS which incurred U/R

OSP is responsible for assigning and correcting a WBS element’s costing sheet and adjustment keys and notifying DLCs of corrective action via a Coeus NoA. For all changes to costing sheets and/or adjustment keys, monthly CAO reviews the financial data to determine whether overhead charges posted to the cost object need to be corrected. Within two weeks of month-end close, CAO is responsible for calculating and processing the necessary overhead corrections to posted F&A resulting from the assignment of a wrong costing sheet and/or adjustment key. After posting JV entries, CAO will email the JV document number to the DLC.

DLC U/R Cost Center

Monthly, DLCs will:

1. Review accuracy of the SAP Costing Sheet U/R entries which post to one or more of the following cost elements:
   
   

   600316	Adj F&A On to Spon Base/Rate
   600317	Adj F&A Off to Spon Base/Rate

and

2. Process a journal voucher to fund the posted U/R with funds from one or more of the following sources (please see Data Warehouse Reports at the end of this document).


1. DLC Discretionary Cost Object:



	Cost Object	Cost Element	Cost Element Name	Allocation #
Debit	DLC Discretionary	800704	F&A UR Funded Transfer Out	WBS which incurred U/R
Credit	DLC U/R Cost Center	800703	F&A UR Funded Transfer In	WBS which incurred U/R



2. Vice President for Research’s (VPR's) U/R Budget (also referred to as School's U/R Allocation):



	Cost Object	Cost Element	Cost Element Name	Allocation #
Debit	VPR Cost Center 1733000	800704	F&A UR Funded Transfer Out	WBS which incurred U/R
Credit	DLC U/R Cost Center	800703	F&A UR Funded Transfer In	WBS which incurred U/R



3. By Released General:



	Cost Object	Cost Element	Cost Element Name	Allocation #
Debit	DLC General	800704	F&A UR Funded Transfer Out	WBS which incurred U/R
Credit	DLC U/R Cost Center	800703	F&A UR Funded Transfer In	WBS which incurred U/R




When WBS U/R exceeds the released general funds, DLC should process additional funding entry:

	Cost Object	Cost Element	Cost Element Name	Allocation #
Debit	Funding Source	800704	F&A UR Funded Transfer Out	WBS which incurred U/R
Credit	DLC U/R Cost Center	800703	F&A UR Funded Transfer In	WBS which incurred U/R



4. By Sponsor funding of facility costs:

If at FY-end the sponsor-funded facility costs exceed the F&A U/R, the DLC should process the following entries to carry forward the credit balance to the next FY:

"FY" JV, Period "13" , Document Date "6/30/YY"

	Cost Object	Cost Element	Allocation #
Debit	DLC U/R Cost Center	420316	WBS which incurred U/R
Credit	DLC Discretionary Cost Object	420316	WBS which incurred U/R

And

"SA" JV, Period "1", Document Date (Current Date)

	Cost Object	Cost Element	Allocation #
Debit	DLC Discretionary Cost Object	420316	WBS which incurred U/R
Credit	DLC U/R Cost Center	420316	WBS which incurred U/R

When WBS exceeds the facility costs , DLC should process additional funding entry:

Since the full year’s cost sharing amount is posted to the DLC’s U/R Cost Center in the first month of the project year, the net postings for this WBS element in the DLC’s U/R Cost Center will be in credit status until such time the actual U/R equals the cost sharing amount.

If at FY-end the funded costs exceed the F&A U/R, the DLC should process the following entries to carry forward the credit balance to the next FY:

"FY" JV, Period "13" , Document Date "6/30/YY"

	Cost Object	Cost Element	Allocation #
Debit	DLC U/R Cost Center	420317	WBS which incurred U/R
Credit	DLC Discretionary Cost Object	420317	WBS which incurred U/R

And

"SA" JV, Period "1", Document Date (Current Date)

	Cost Object	Cost Element	Allocation #
Debit	DLC Discretionary Cost Object	420317	WBS which incurred U/R
Credit	DLC U/R Cost Center	420317	WBS which incurred U/R

For guidance on preparing final June entries to clear the U/R cost center, send email to ur-issues@mit.edu . Reminder: The F&A U/R cost center must net to zero at the end of each fiscal year. Therefore, funding for June F&A U/R must be processed as a final June entry in period 13 , that is:

Document Date "06/30/YY" (YY=fiscal year that just ended)
Document Type " FY " Period "13"
Posting Date "06/30/YY" (YY=fiscal year that just ended)

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Closeout Phase

CAO final audit of overhead will be based on overhead specifications in Coeus. Any questions CAO accountants have related to this information should be directed to the appropriate OSP Contract Administrator and DLC Administrator. After processing any overhead correction entries, CAO will send email with the JV document number to the DLC Administrator.

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Who to Contact with Questions:

The following CAO personnel receive emails addressed to

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Data Warehouse Reports

To assist DLCs in monitoring U/R, four Data Warehouse (DW) reports have been created. See Data Warehouse Reports .

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Related Links

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