Executive Management: Considerations for Focusing on the F&A Future—Part 1: Why Dry Runs are Important

David Moore
Manager, Education, Nonprofit, and Commercial Services

COVID-19, campus shutdowns, shrinking budgets, and F&A rate extensions require that administrators consider the investment in research and impact on future years’ F&A rates. More than ever before colleges and universities are planning for the next rate proposal and examine techniques to identify and optimize cost allocation to benefitting activities. For example, many institutions took advantage of the opportunity to defer F&A proposals based on FY20 until FY21. In this four-part blog series, we examine the considerations of four important initiatives including: a diagnostic review to improve costing processes via a dry run exercise; the benefits of proper utility metering; updating capital asset depreciation expense; and the evolution of the library infrastructure.

Part 1: Why Dry Runs are Important

Regardless of the base year or situation, all institutions can benefit from performing a dry run ahead of their next F&A base year submission. Dry runs allow institutions to diagnostically analyze the expenditure data, sponsored awards, facilities occupancy, capital spending, supporting systems, and human resources required to prepare the F&A cost proposal. The dry run is performed using the pre-base year. The diagnostic review will render findings and conclusions directed towards ensuring compliance and optimizing F&A cost reimbursement. 

Much of the data that is used in a F&A proposal has counterintuitive impacts on the calculated rates. For example, one may think that an increase in research expenditures will result in a higher calculated F&A rate. However, unless the indirect expenses associated with the research have increased at the same rate as the direct expenses, the calculated rate will likely be lower. 

Looking at the state of the dataset is a low-effort, high-impact endeavor. More broadly, the following questions are examples of areas that should be assessed to complete the review.

  • When was the space occupancy data last updated?
  • When was a physical moveable equipment inventory performed? 
  • Are buildings componentized to accelerate depreciation expense? 
  • Are utility meters working correctly? 
  • Are utility meters installed at separate individual buildings?
  • What is the trend of library expenses with growing digital services? 
  • Are research expenditures higher or lower than the last submission? 
  • How much cost-sharing needs to go into the proposal?

The benefits of a dry run should help executives and administrators to make informed decisions based on data analysis to answer questions like:

  • What opportunities are available to ensure compliance and to optimize cost recovery that can be implemented before the close of the base year?
  • Should we consider a multi-year rate extension?
  • Do we have the human resources to dedicate to the preparation of the F&A proposal? How much consulting expertise do we require?
  • Are the current costing systems (cost modeling system, space management, fixed assets) adequate to support the documentation required for the F&A proposal?

The questions above are meant to provoke insight and they can be answered without exhaustive effort. If followed appropriately, making enhancements and corrections before the close of the base year should ensure the ideal recovery of indirect costs.

Note: This article was first published in the January/February Issue of the NCURA magazine. Download the PDF here.

About the Author

David Moore 

David Moore is a Manager in Attain's Education, Nonprofit, and Commercial Services practice. Since 2005, he has specialized in guiding higher education and academic medical center institutions on F&A proposal preparation and negotiation, F&A diagnostic reviews, space functional usage studies, service center rate calculations, and other costing issues. He is also the solution manager for AttainSpace and AttainRate. Mr. Moore is a frequent presenter at conferences, webcasts, and webinars on these subjects.

By David Moore, Manager, Education, Nonprofit, and Commercial Services