GRANT AND CONTRACT ACCOUNTING

A Consumer's Guide to Indirect Costs at Temple
"Do you get your money's worth?"

What are Indirect Costs?
Scholarly activity incurs two types of costs. Direct costs can be unambiguously linked to a particular project: the costs of hiring a technician, purchasing supplies, traveling to field sites, and so on. Scholars also make use of the libraries, their labs are heated, facilities are depreciated, secretarial assistance may be available in the departmental office paychecks are issued and accounting reports are filed. The costs of such services are not easy to assign to particular projects, and come under the category of Indirect Costs.

Indirect costs are typically calculated as a fraction of Modified Total Direct Costs. MTDC includes nearly all research expenditures except equipment over $2,500 and large subcontracts over $25,000. That is, suppose your research grant has a budget of $150,000 or which $50,000 was for equipment. Your MTDC would be $100,000 ($150,000 - $50,000) and your indirect cost would be $51,000 ($100,000 x 51%).

Temple's current rate for externally-funded research on campus is 51%. Where does this number come from?
Temple negotiates all its indirect cost rates with the federal Department of Health and Human Services, the agency designated to negotiate indirect cost recovery rates for most federal grants and contracts. In 1991, Temple supplied federal auditors with information on its actual expenditures for research, instruction, and public service. After an intricate negotiation process, Temple and the feds agreed on the 51% figure for on-campus research grants for 1996-97.

There are several other negotiated indirect rates, depending on the type of project. They are: instruction (58.5% on-campus, 26% off-campus); public service and other (46% on-campus, 25% off-campus); and research (26% off-campus).

Off-campus rates cover projects located in facilities not owned by the University. These rates are lower than on-campus rates because the average off-campus investigator will not use campus lab space, heat, lights, and so on.

What kinds of expenditures are included in the computations?
There are six classes of expenditures that go into the computation of an indirect cost rate. The are:

• General administrative costs (Provost's Office, Personnel, Payroll Accounting; etc.)
  
  
• Departmental administrative costs (staff time, Dean's office, faculty time in administration, and fringe
  benefits on those personnel costs)
  
  
• Sponsored programs administration
  
  
• Operation and maintenance of physical plant (security, custodial care, heat, building depreciation, et al)
  
  
• Library services
  
  
• Student services
  
  

The first three comprise the category of "administration." Temple's actual administrative rate was 28%. However this rate has been arbitrarily capped by the government at 26%.

Table 1. Components of indirect cost rates charged in 1996-97 to grants and contracts. Components are expressed as percentages of modified total direct dollars.