Working with Overhead for the VT Department Fiscal Manager

The Basics

AGENDA

  1. What is Overhead?
  1. Direct vs. Indirect Expenditures
  1. Earned vs. Returned Overhead
  1. Who gets the returned overhead?
  1. Spending returned overhead – Rules of the Road

AGENDA

  1. Banner overhead automation in three stages
  1. The Banner Overhead Earnings report
  1. Form C: What is it? When do I use it?
  1. Banner overhead funds for faculty – pro & con

10.Manual transfers to PI overhead funds

What this training is NOT… ¾ Thou Shalt do it this way ¾ A new supported computer system or tool ¾ A negotiation of who gets what

What this training IS… General education about Overhead How to understand and use existing Banner tools Sharing techniques with other departments An Excel template that you might be able to adapt to your own needs, or just get ideas from

What is Overhead?

  • Terminology: OVERHEAD = INDIRECT = F&A (Facilities & Administrative)
  • Most research grants and contracts budget both DIRECT and INDIRECT charges to the sponsor
  • Why? Because federal regulations restrict what can be DIRECTLY charged to a research project
  • And therefore the INDIRECT allows us to collect money from a sponsor to cover other costs not directly charged
  • The INDIRECT money collected from the sponsor becomes OVERHEAD money transferred monthly to your department as an automatic budget transfer

You can charge these DIRECTLY to a research project:

  • GRA salaries, fringes & tuition
  • Faculty salaries ONLY for time worked on THAT project
  • Travel necessary for THAT project
  • Supplies used for THAT project
  • Equipment
  • Subcontract payments

But not these:

  • Admin Staff salaries except in special circumstances
  • General supplies used on multiple projects
  • Unrelated travel
  • Equipment not specifically budgeted
  • Rent and Utilities

But these other costs are still real, and we have to cover them, so we negotiate an indirect rate and collect money from the sponsors to distribute around the university to help cover the general costs of doing research.

Sample Budget showing Direct vs. Indirect

Indirect Rate: 61% Modified Total Direct Cost Direct (MTDC) BASIS GRA Salaries 24,000 24,000 GRA Fringes 1,800 1,800 GRA Tuition 12,620 No Indirect on Tuition - Supplies 900 900 Travel 3,200 3,200 Equipment 5,000 No indirect on Equipment - Subcontract 40,000 No indirect on Subcontracts after first $25K 25,000

Total Direct Costs 87,520 MTDC Total 54,900

Indirect Costs 33,489 Indirect = MTDC * 61%

Total Costs 121,009

A Banner research fund generally has both Direct and Indirect Expenditures In FY2015, VT had $228M in Direct and $55M in Indirect, for a total of $283M in total research expenditures

What is a DIRECT Expenditure? The normal expenses like payroll, tuition, supplies, travel, equipment, services, subcontracts that apply specifically to a research project.

What is an INDIRECT Expenditure?

  • A financial transaction that automatically posts at month-end based on that month’s direct expenses
  • Amount is based on the direct expenditure amount in applicable categories multiplied by the indirect rate on the project
  • Posted in Banner so VT can bill the sponsor and get reimbursed for the full cost of the project (direct AND indirect costs)
  • Posted to account codes OH*** (e.g., OH140 – college share)
  • These Indirect Expenditures are also called EARNED OVERHEAD or EARNED INDIRECT or OVERHEAD EARNINGS
  • Some Direct expenses are EXEMPT from the indirect charge:
  • Tuition
  • Equipment
  • Subcontracts after the first $25,000

EARNED vs. RETURNED EARNED Overhead is the actual expenditure automatically posted to Banner This is a bookkeeping entry that sets the stage for making the overhead money available for spending

RETURNED Overhead is the real budget money that can be spent

  • Returned Overhead is held as budgets in Banner funds numbered 2xxxxx.
  • The amounts are transferred automatically at month-end in several stages.
  • The amounts are derived from the EARNED overhead expenditure amounts.
  • Departments have the option of manually distributing the returned overhead to PI funds or other funds, by making budget transfers in Banner.
  • Departments can also set up a Form C on a fund (usually done at the proposal phase) to automate a complex distribution to multiple departments. This can remove the need to make manual transfers.

College of Agriculture

EXCLUDED

  1. Budget is automatically transferred to departments on a monthly basis
  2. The amount is based on sponsored project expenditures
  3. You have a main overhead fund in your department that receives the money; you must make further distributions yourself
  4. Unspent balances carry over AUTOMATICALLY at year-end
  5. Normally all the Overhead funds in your department are pooled together as an aggregate balance for non-sufficient funds checking (though there can be exceptions)
  1. The money is intended for general support of research (not specific to a single project); however there are very few restrictions on spending it
  2. Most departments distribute a share of overhead to faculty and let them spend it how they like; the rest is used for general department support
  3. Avoid paying salary on overhead because you must also pay the fringes (currently 34.25% on faculty, 50.5% on staff)
  4. In the colleges, salaries and fringes account for 38% of overhead spending (vs. 85% of E&G spending)

Banner Overhead Automation in Three Stages Monthly, by individual project (Banner Fund):

  1. Earned Indirect is posted to the major areas: State, Admin, College, Capital, Research Capital
  1. Returned Overhead is transferred as budget dollars to College and Departmental Banner Funds
  1. (optional) Form C causes special overhead distribution to designated funds (used for complex multi-department collaborations)

And the optional FOURTH stage…

  1. Department manually transfers Returned Overhead (budget dollars) to individual PI Banner funds

STAGE TWO of automated distribution The COLLEGE portion of the overhead is split between the dean’s office and the department as follows:

COLLEGE College share Dept share

Agriculture 100% 0% NOTE: this chart shows only the AUTOMATED distribution at Stage Two. Architecture 100% 0% It does not represent the full policy of Business 20% 80% overhead sharing that individual Engineering 25% 75% colleges have with their units. For Science 50% 50% example, Agriculture and VetMed distribute to departments manually, and Liberal Arts 37% 63% Architecture overrides the default with Vet Med 100% 0% Form C actions. Natural Resources 50% 50%

Notable exceptions to the above defaults are as follows: College Unit College share Dept share Unit Share

Engineering Computer Science Discovery Analytic Center 12.5% 37.5% 50%

Science Center for Neutrino Physics 45% 45% 10%

Nat Resources Center for Envir. Application of Remote Sensing 25% 25% 50%

Nat Resources Water Resources Research Center 0% 0% 100%

Nat Resources Conservation Management Institute 0% 0% 100%

Nat Resources Center for Geospatial Info Tech 0% 0% 100%

Liberal Arts School of Education 37% 43% 20% Architecture Institute for Policy and Governance 0% 0% 100%

STAGE THREE of automated distribution There is an OPTIONAL special distribution that can be set up on an individual fund. This is done by filling out the Form C on the Sponsored Programs Approval Form. The info from that form is entered into Banner and controls how the overhead earned by that fund is distributed monthly. Generally there is no further need for manual distribution after that.

The NORMAL default distribution of the OH140 (College share) of earned overhead is… 25% 230637 College of Engineering overhead fund 75% 233056 BEAM departmental overhead fund

Why? Because the setup in Banner says to automatically distribute any overhead earned in department 0112 (BEAM) exactly as above.

The FORM C says to override the default distribution. Distribute the OH140 (College share) of the earned overhead as follows… 25% 230637 College of Engineering overhead fund 56.25% 233056 BEAM departmental overhead fund 18.75% 234737 Jonathan Boreyko overhead fund

STAGE FOUR (optional): Manually distribute returned overhead to faculty Banner funds

Enter a single budget transaction in Banner using rule code BBO, with the following line items that net to zero: Fund Account Amount DEPARTMENT 230612 1200 $ (9,014) Aning 232555 1200 $ 526 Asryan 232897 1200 $ 480 Corcoran 232557 1200 $ 2,557 Druschitz 234260 1200 $ 85 Farkas 232558 1200 $ 910 Foster 234808 1200 $ 922 Hendricks 232560 1200 $ 879 Li 232562 1200 $ 350 Lu GQ 232564 1200 $ 157 Lu Peizhen 232895 1200 $ 1,436 Murayama 234261 1200 $ 293 Pickrell 232896 1200 $ 52 Reynolds 232566 1200 $ (3) Viehland 232568 1200 $ 78 Whittington 233396 1200 $ 293

Net $ 0

That’s easy. The hard part is figuring out who gets what!

How do you know what’s going on with Overhead? Run the Banner Finance Departmental Overhead Earnings Report (soon to be accessed through MicroStrategy but with the same result)

How do you know what’s going on with Overhead? Run the Banner Finance Departmental Overhead Earnings Report (MicroStrategy version)

How do you know what’s going on with Overhead? Run the Banner Finance Departmental Overhead Earnings Report (MicroStrategy version)

Run the Banner Finance Departmental Overhead Earnings Report

  1. Dec 2015 is the end of second quarter
  2. Enter your organization code (typically the 4-digit department code)
  3. Ask for Quarter-to-Date (QTD)
  4. Select “Program” type (“Sr Management” is similar but with different sort order)
  5. Select “Both” to get both monthly allocation and special (Form C) allocation
  6. Generate Excel data file if you want to use it in your internal process

Output from the Banner Finance Departmental Overhead Earnings Report

Excel extracts Stage 2 distribution { Stage 1 distribution Stage 3 distribution

  • “Program1” report shows Stage 1 earnings by OH120, OH140 etc.
  • “Monthly” report shows Stage 2 distribution to the department level
  • “Special” report shows Stage 3 (Form C) distributions

Departmental Overhead Earnings Report “program1” report shows STAGE ONE distribution of earned overhead to State, Capital, College, Admin, etc.

These actions post in Banner at month-end as actual expenditures, and are called Indirect Expenditures and are included in the annual research expenditure totals. They are easy to identify in reports or queries because they use account codes that begin with ‘OH’, e.g., the college share is OH140 (with object code OH14).

IMPORTANT NOTE: keep in mind that ALL funds that earned overhead are shown here, including ones with a Form C. So you can u se this as a starting point for a manual distribution but you’ll have to remove any fund that has a Form C because it has ALREADY been d istributed.

Departmental Overhead Earnings Report “program1” report shows STAGE ONE distribution of earned overhead to State, Capital, College, Admin, etc.

Departmental Overhead Earnings Report “program1” report shows STAGE ONE distribution of earned overhead to State, Capital, College, Admin, etc.

MicroStrategy version

Departmental Overhead Earnings Report “monthly” report shows STAGE TWO distribution of returned overhead to College and Department overhead funds.