Types of funding
Direct funds are awarded by the sponsor of a contract/grant or project. The agreement will generally specify how the funds may be used – salaries, benefits, department operating expenses, subcontracts, etc. These are dollars from outside the University.
Indirect funds have many different names; facilities and administration (F&A), overhead, administrative, etc. They essentially represent the cost of doing business. Indirect funds cover the cost of building use, lighting, heating and cooling, equipment such as copiers, fax machines and computers, support staff, etc. They are real costs and must be paid by some means. In the grants and contracts world indirect funds can pay these costs.
If an agreement with a sponsor does not include indirect funds the cost of doing business must be paid from departmental or some other source of funds. It is important to realize these costs will be paid the question is by whom, the sponsor, the University, or the department.
Cost share funds are those provided by the university or an entity other than the sponsor of the project. Cost share is sometimes referred to as matching funds. In many cases salaries and fringe benefits are used as cost share. In these cases a percentage or dollar amount of specific university faculty or staff members is “associated/linked” to the project. This associated amount is termed cost share. The university would have paid the salary/benefits whether there was a grant or not, but the association indicates a commitment to the project. (If the university is willing to pay $10,000 in salaries and benefits for those involved in the project it shows a commitment to that project.) Cost shared salary/fringe must be documented in the university’s accounting system. This is accomplished by using MoCodes with specific Chartfield Strings that link/associate that portion of pay to be cost shared to the specific project.
Like Indirect funds, cost share dollars are real money. There is a limit to the amount of cost sharing of which any individual may be a part; no more than the individual is paid plus the fringe benefits associated with that level of pay. (Remember, this is the theoretical maximum. Not all individuals would have the option of cost sharing 100% of their salary.) Since cost share dollars are real and there is a limit to individual availability, cost sharing should not be volunteered to the sponsor. Similarly, volunteering excessive cost share may be interpreted by the sponsor as a lack of need for its direct funds; if the University is willing to put forth such a large portion of the cost of the project perhaps it can pay for the entire project. Cost sharing should be considered only if the sponsor requires it.
Cost share may also be attributed to costs covered by third parties. The savings realized by a venue made available by XYZ Corp. for no or a reduced cost may be permitted as cost share. Documentation of third party cost share/match must be kept at the department level. (A letter, on the organization’s letterhead, detailing what was contributed and specifying the value of the contribution is generally sufficient.) Third party match cannot be documented in the University accounting system, because actual dollars are not exchanged only value is.
If cost sharing is required by the sponsor of a project and the agreed upon amount is not achieved, the sponsor may reduce the level of direct funds paid. For this reason it is important to setup and track cost shared salary as close to the beginning of a project as possible.