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Function Codes in the General Ledger
University of Arkansas, Fayetteville
What is a Function Code
• Function codes are the two digit numbers in the cost center number. Most cost center numbers contain function codes, with the exception of Auxiliary Enterprise cost centers and Plant Fund cost centers which have “00” in the function code area.
Cost center numbers have this format: Company Department Function Project XXXX XXXXX - XX - XXXX
Purpose of Function CodesFunction codes describe the purpose or type of activity for which a cost center will be used. Our general ledger has many cost centers so that we can collect revenues and expenses that serve a specific purpose or activity. It is the expenditures that define the purpose of the activity. A review of a function code’s expenses can tell us the cost of each major activity of the University.
Purpose of Function Codes
• Some cost centers have been set-up to collect expenses for a department over time for an ongoing activity such as instruction, research, etc. Other cost centers are set-up to report a very specific instruction, research or other type project. Typically these are sponsored programs where the funding for the specific project comes from an outside source.
Purpose of Function Codes
• Whether a cost center is used for a department’s ongoing activity or a specific project, it is important to understand the function code of the cost center so that the expenses posted to the cost center are always expenses incurred to support the activity defined by the function code of the cost center.
Using Correct Function Codes
• Why is it important for us to post expenditures to the correct function code?
• FY2016 is a base year for indirect cost rate negotiations with the federal government. To maximize our IDC rate, expenditures must be classified correctly in our general ledger - particularly research expenditures.
Indirect Cost Rate
Indirect Costs
(Depreciation, Operations
& Maintenance, Admin Expense) =
Direct Costs of Research, Instruction or other Major Function
Indirect Cost Rate for Function (Shown as a percentage)
Effect of Incorrectly Classifying Expenses as Research
• Posting expenses to a function code of 2X for expenditures that are not research related, reduces our research rate by increasing the denominator of the rate calculation with no overhead cost to include in the numerator.
• Not capturing research effort in function 2X can result in not being able to include research overhead such as depreciation expense in the numerator of the rate calculation.
Effect of Incorrectly Posting Research Expense to Another Function
OMB Circular A-21 Section A2f
• Cognizant Federal agencies involved in negotiating facilities and administrative (F&A) cost rates and auditing should assure that institutions are generally applying these cost accounting principles on a consistent basis.(Uniform Guidance Section 200.400(e)).
• Note: F&A rates are commonly referred to as indirect cost rates.
Instruction Function Codes
Instruction function codes begin with a “1”.• 11 – On campus credit Instruction• 12 - Departmental administration• 13 - Off-campus credit instruction• 14 – Non-credit instruction• 15 – Instruction cost sharing• 16 – Academic advising• 17 – Faculty development
Instruction Function Codes
• The Federal government has defined several of these function codes or activities in OMB Circular A-21 and the new Uniform Guidance. All expenses posted to a cost center with these function codes must be expenses that are directly required for the activity as defined by the federal government.
Instruction Function Codes
• Cost centers with function codes 11, 13, 14 and 15 have the following definition in the Federal Circular:
• Instruction means the teaching and training activities of an institution. Except for research training as provided in subsection b, this term includes all teaching and training activities, whether they are offered for credits toward a degree or certificate or on a non-credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or extension division.
Uniform Guidance – Appendix III to Part 200 Section A. 1.a.
Instruction Function Codes
• The Federal Circular defines function 12, Departmental Administration expenses:
• The expenses under this heading are those that have been incurred for administrative and supporting services that benefit common or joint departmental activities or objectives in academic deans’ offices, academic departments and divisions, and organized research units.
Uniform Guidance – Appendix III to Part 200 Section B. 6. a.
Instruction Function Codes
• The Federal Circular also defines function 17, Faculty Development or Departmental Research.
• Departmental research means research, development and scholarly activities that are not organized research and, consequently, are not separately accounted for. Departmental research, for purposes of this Circular, is not considered as a major function, but as part of the instruction function of the institution.
(Uniform Guidance Appendix III to Part 200 Section A.
1.a.(2).
Research Function Codes
Research function codes begin with a “2”.• 21 Sponsored Research• 22 University Supported Research• 23 Sponsored Research – Cost Sharing• 24 Agri Experiment Station Research
Research Function Codes• The Federal Circular defines function 21, sponsored
research.• Sponsored research means all research and
development activities that are sponsored by Federal and non-Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
• Uniform Guidance Appendix III to Part 200 Section A.1.b.(1)
Research Function Codes
• The Federal Circular defines function 22, University Research
• University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds.
Uniform Guidance – Appendix III to Part
200, Section A.1.b.(2)
Research Function Codes
• Expenses posted to cost centers with a function code of 22 should be expenses for specific research projects that a college or department has decided to fund. If the expenses are for general faculty development they should be posted to a cost center with a function code of 17.
Public Service Function Codes
• 31 – Public Service• 32 – Public Service – Cost Sharing• 33 – University Sponsored Public Service
Public service is non-instructional activities of the University that have direct benefits to the general public. Our transit program, and KUAF radio are examples of public service activities.
Academic Support Function Codes
• 41 – Libraries• 42 – Museums and Galleries• 43 – Organized Activities• 44 – Other Academic Support• 45 – Academic Support – Cost Sharing
Academic support includes expenses associated with the Dean’s Office, advisory committees, libraries etc.
Other Function Codes
• Function codes beginning with “5” are used with Student Services cost centers.
• Function codes beginning with “6” are used with Central Administration cost centers.
• Function codes beginning with “7” are used with Facilities Management cost centers.
• Function codes beginning with “8” are used for Scholarship and Fellowship cost centers.
Expense Transfers
• If expenses are originally posted to a cost center with the correct function code for the expense, then any transfer of the expense should be to a cost center with the same function code. If expense transfers are made between cost centers with inconsistent function codes, the extended description should contain an explanation of why the function code for the original cost center was not correct for the particular expense being transferred.
Faculty and Staff Effort
• Payroll distributions for faculty and staff should reflect the actual effort of the employee by posting salaries to cost centers with the proper function codes. Payroll distributions for employees who have a committed level of effort to a sponsored program should reflect that level of effort even if the sponsored program is not paying the salary of the employee.
Faculty and Staff Effort
• The LCPI screen in DART will list all of the sponsored program cost centers that include a specific faculty member as Principal Investigator. Departmental staff should be informed of the level of effort commitment for each employee working on a sponsored program and make sure the level of effort is properly reflected in the function codes of the employee’s salary distribution.
Salary Distribution Example
• If a Faculty member had 4 sponsored programs and had committed 10% of his effort to each program, but only one program actually paid 10% of his salary, his research effort would need to be shown in another cost center. His salary distribution should reflect the 30% unreimbursed effort in cost sharing cost centers (function 23) for each specific project.
Cost Share Effort
• If a cost share cost center is needed for unreimbursed effort, contact Research Support and Sponsored Programs at
575-3845 or Research Accounting at 575-4853 to have a cost share cost center set-up.
EXAMPLE (Any University) ATTACHMENT: #1
Salary costs and room type classifications for employees in department ???
FUNDING SALARY Is salary inc. ROOM(S) SQUARE FOOTAGE ALLOCATION PER ROOM BY FUNCTION
NAME TITLE SOURCE FUNDED in O.R. base? OCCUPIED
Research Instruction OSA DA Total
John Smith Faculty NIH #123456 $50,000 yes Lab #22 400 100 0 0 500
NIH #876543 $30,000 yes Lab #22 400 100 0 0 500
Dept. Funds $20,000 no Lab #22 400 100 0 0 500
- Office #10 0 0 0 100 100
Total Salary $100,000
=
Mary Jones Faculty NIH #475215 $100,000 yes Lab #40 500 0 0 0 500
- Office #12 40 40 0 40 120
Total Salary $100,000
=
Mike Walker Grad Student NIH #123456 $15,000 yes Lab #22 400 100 0 0 500
Dept. Funds $15,000 no Lab #22 400 100 0 0 500
-
Total Salary $30,000
=
Susan Moore Grad Student NIH #767680 $15,000 yes Lab #57 600 0 0 0 600
Dept. Funds $10,000 yes Lab #57 600 0 0 0 600
- Office #15 0 0 0 75 75
Total Salary $25,000
=
Beth Cooper Secretary Dept. Funds $28,000 no Office #20 0 0 0 125 125
-
Total Salary $28,000
=
Negotiator’s Query Form
Federal Grants News – May 2005
• An article entitled “Audit Reports Reveal Trends: Effort Reporting, Cost Sharing, and More” stated the following:
• “Cost sharing was a factor in effort certification findings because effort committed to federal awards, but not charged as payroll expenses to those awards, must be tracked for two purposes: (1) verifying that these commitments were met, and (2) inclusion of the cost shared effort in the research base for the computation of the F & A rate.”
Correct Function Codes is a Priority
• There is some concern that posting expenses to a cost center with the correct function code would require some departments or colleges to double their number of cost centers. If you need to double the number of cost centers for your department to report expenditures in the correct function code, then that is what you should do.
Adding cost centers
• To add new cost centers so that you can post expenditures to the correct function code, contact:
• Larrie Stolfi @ 5-6278 or [email protected]• Rachel McGathy @ 5-4249 or
Conclusion
• Understanding the function code of the cost centers to which expenses are posted and posting expenses only to cost centers with the proper function code that reflects the activity for which the expense was incurred is an important part of federal compliance for the University of Arkansas.
