You have just received notice that your biotechnology core facility will be audited. It may be by the General Accounting Office, external private auditors, or internal institutional auditors. One aspect of the audit will concern whether your facility is in compliance with guidelines issued by the Office of Management and Budget, in particular with their Circular A-21. What is your initial reaction? Probably not positivedread, fear, irritation, perhaps panic. But if your experience is similar to ours, we propose that the audit could be productive and beneficial to your facility. The key to a successful audit is to be prepared with the types of information the auditors will require. We will describe some preparations that will help you prepare for the audit and have the added benefit of assisting you to accurately price individual biotechnology services to reflect actual costs.
NIH guidelines require that (i) each major biotechnology service stand on its own financially and (ii) the user charges (i.e., the users paying from NIH grants) for each service truly reflect the facility's cost of providing that service. We present hypothetical examples of cost analyses for the four major biotechnology services offered by our facility that satisfy both of these requirements. For oligonucleotide or peptide synthesis, where we offer multiple synthesis scales, we analyzed the cost of the scale that was most commonly requested.
Tables 1-4 present the cost analyses for oligonucleotide synthesis, DNA sequencing, peptide synthesis, and protein sequencing. Click here to download Table 1 , Table 2 , Table 3 or Table 4 . The top portion of each table breaks down the reagent costs for that service. Fifteen percent wastage is included in the calculations of reagent cost based on our experience, except for protein sequencing, which was estimated at 20% reagent wastage. Service-associated expenses follow, including expenditures for salaries plus benefits, service contracts, supplies, minor equipment purchases, and equipment depreciation allowances. Salaries and benefits expenses for each service were calculated as shown in Table 5 and described below. Click here to download Table 5 . The cost of supplies and minor equipment was an estimate. If you categorize each purchase according to service, these costs can be calculated accurately. Equipment depreciation allowance was calculated (Tables 6 and 7) and, as shown in Table 6, was allocated as a function of each service's income. Click here to download Table 6 or Table 7 . When equipment could be identified as being used strictly for one service, the depreciation amount was applied to that service only.
For the cost analyses, you can use either a forward-based prediction of expenses and throughput or a retrospective analysis based on the actual expenses and activity associated with each service during the previous fiscal year. Be prepared to document how you obtained the information used in the cost analyses. The charges calculated in each service cost analysis must be consistent with the charges published in your price list (See Table 8 for an example). Click here to download Table 8 .
If the price for a service needs to be adjusted, this can be done conveniently when you analyze service costs. This provides an annual occasion for review of costs and charges. For example, if a service shows excessive profits, charges should be lowered.
The annualized profit or loss for each service should approach zero over time. Of course, when a new service is established, it will probably produce a deficit for a period but should tend with time to be self-supporting and break even. In addition, if the facility as a whole has incurred a large profit or deficit in past fiscal years, this needs to be factored into the cost analyses to move the facility toward a neutral financial position.
To convince the auditor that your charges are reasonable, you might want to compare charges and cost recovery to those of a typical biotechnology core facility, as given in a recent ABRF survey (1). This can provide a useful framework for auditors, who might otherwise have difficulty deciding if the charges are reasonable.
All NIH investigators must be offered the lowest price for a service. No special pricing advantage, for example, for the facility director is allowed. The auditor may randomly select several orders to check this and ask you to provide the original order form plus the charge sheet and compare charges with the published price list (Table 8).
Not every item on the price list needs a cost breakdown, only those major services that generate a significant portion of facility income. Price lists used during previous years may be requested to confirm that prices are changing in a manner appropriate to approach a neutral profit/loss sum.
The calculation of annualized salary expenditure by service is given in Table 5. Unless shown otherwise, percentage time is 100%. The salaries given are those paid by the facility. If, for example, certain staff are paid from grants, their salaries should not be included in the personnel expenditures spreadsheet.
For technical staff, the percentage time devoted to each service was estimated from an analysis of their duties. For administrative staff, the percentage time spent on each service was calculated from the income of that service relative to total facility income (Table 6). Other methods could be used for this purpose as long as they are validated.
The income by service and total facility income are given in Table 6, along with the calculated percentage income from each service and the calculated dollar amount of instrument depreciation attributed to each service. The instrument depreciation figure was obtained by multiplying the percentage income due to that service by the total dollar amount instrument depreciation. A typical instrument depreciation list is given in Table 7 and is needed to document how depreciation was calculated.
NIH guidelines provide for instrument depreciation. This calculation requires a full listing of all major equipment purchased from facility funds, with date of purchase, purchase order number, full purchase price, along with a depreciation schedule. We depreciate linearly over a five year period. In this method one fifth of the purchase price of the equipment is depreciated for each of five years. This amount must be transferred from a running account to an equipment account, which is used to replace depreciated equipment. You cannot depreciate equipment purchased from grants, only equipment purchased from facility funds. Additionally, a list of all major equipment (costing more that $500) purchased by the facility, including exact cost, location, and fund source should be available for the auditors. Note that in the near future, the hurdle amount for major equipment will be raised from $500 to $5,000.
The annual preparation of the cost analyses highlights the usefulness and benefit of tracking facility records with a good database. It then takes just moments to calculate the activity of a service over a period of time, to total the income from that service, to breakdown orders for different scales of synthesis, to determine the number of outside users, etc. We currently use a Fourth Dimension database for these purposes. For a review on the advantages and choice of a database for a biotechnology facility, see reference 2.
Some additional matters that the accountant might address during the audit include the following. Do rates differ for in -house users and outside non-profit users? If so, how did you determine the rate difference? You must be able to document it with data including costs for postage, Federal Express, and Fax. Because the typical facility charges outside non-profit users 172% of in-house user fees (1), this is an area where charges need to be validated before the audit. Surcharges for outside for-profit users do not appear to receive such scrutiny.
To facilitate your preparation of cost analyses of major biotechnology services, Tables 1-7 can be copied as Microsoft Excel files from the ABRF WWW Homepage.
In conclusion, we hope that our experience will assist you in the event your facility is audited. Even without an audit, it is extremely useful to compare the costs and charges for each major service as described here.
We would like to thank Ken Williams for helpful comments and suggestions on the manuscript.
1. Ivanetich, K.M., Niece, R.L., Rohde, M., Fowler, E. and T. Hayes. Biotechnology Core Facilities: Trends and Update, FASEB J. 7, 1109-1114 (1993).
2. Ivanetich, K.M. and French, D. Biotechnology Facility Databases: Useful Features for Database Development and Evaluation. ABRF News 5 (2), 11-18 (June 1994).
The authors may be contacted at the Biomolecular Resource Center, Department of Pharmaceutical Chemistry, and Department of Biochemistry and Biophysics, University of California at San Francisco, Box 0541, San Francisco, CA 94143.
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