JCPSG | TRAC Guidance

Part III - Annual TRAC

The annual TRAC process involves the attribution of costs to five figures, for reporting each year to the Funding Councils. The aim is to satisfy public accountability, and also to provide data that can be used for internal management.

The costing schematic shows how the annual TRAC processes provide data for the annual TRAC return and the charge-out rates that are used to derive costs used in estimating the fEC of research projects.

Section A: Overview

Background

1. The context in which annual TRAC was introduced is described in Part I.
2. TRAC aims to provide high-level aggregate information for Government. The principle is that the costs of activities to be reported for the TRAC requirement should be at as high a level as possible while meeting the requirement.
3. The focus was initially on publicly funded activity: Government was interested in understanding what cross-subsidy, if any, there was from public funds to non-publicly funded activity. The agenda is now broader than that – it is now about full cost recovery and long-term financial sustainability, and about all activities in aggregate.  

External accountability

4. Institutions are to report the total gross costs of institutional activity on Teaching, Research and Other activities, as calculated by a robust method and reconciled to consolidated financial statements. This is to be signed off by the head of institution as representing a fair and reasonable view of the actual costs.
5. To do this, institutions have to collect data about the costs of: Teaching (T), Research (R), Other activities (O), and Support (S). Support activities are carried out on behalf of the other three, and these costs are separately collected and then attributed to the other three. Support costs are not reported separately.
6. For public accountability, five cost figures need to be reported as follows:

   Teaching		Research		Other
   publicly funded	non-publicly funded	publicly funded	non-publicly funded

7. These total:

   costs in the financial statements

   plus

   cost adjustments: infrastructure cost of capital employed

8. Income figures are now to be reported alongside the costs.
9. The role of the head of institution here is important. He or she is the designated officer (under the Funding Councils’ financial memorandum) and so has the responsibility to satisfy himself or herself that the figures reported are fair and reasonable.

Internal management

10. For internal management, institutions are to calculate costs of Teaching, Research and Other activities, by department and research sponsor type:

11. This information is to be generated for internal purposes, for quality assurance and to inform pricing. It is not to be reported annually, but there will be ad hoc requests for information from the public sector funding bodies. These requests are likely to focus on requirements to account effectively for the use of public funds. Public sector sponsors will also need to assess the extent that complementary funding streams are mutually re-enforcing.
12. Research sponsor type indicates a broad grouping of sponsors: Research Councils; institution-/own-funded; UK government; PGRs; charities; EU; industry. TRAC does not require the collection or production of information by an individual sponsor, nor does TRAC facilitate this. There is also no requirement to report information by external sponsor type externally – although there is a requirement to collect it. Institutions will have this information available as they build up to the five figures required for reporting, and it is at least possible that there will be a future requirement for external reporting of these to satisfy the legitimate needs of public sector bodies.
13. The term ‘department’ is used here to describe an academic unit in an institution. Departments are aggregated into three subject levels or discipline groups for TRAC. Costs are to be robust at the level of discipline group, but not at the level of an individual department. The subjects that are included in each discipline group are not defined in TRAC.
14. Costs do not have to be analysed between PF and NPF, or by research sponsor type, at the level of individual department.

Charge-out rates

15. The annual TRAC process generates the indirect cost rates and estates charges that are used to charge sponsors with costs of a particular project or programme.
16. Costs are classified as direct or Support during the annual TRAC process:
    • Direct costs are those that can be attributed directly to an individual project or programme, or are shared between a few projects or programmes. These would include Research Assistants' costs (R), under-graduate student fieldwork (T), residences (O).
    • Support costs, such as indirect and estates costs, are necessarily incurred in carrying out Teaching, Research or Other activities, but cannot be so directly charged to a specific activity or project.

      Support costs are attributed to academic departments, and to activities, using cost drivers. These include: the square metres of each type of space used (estates); the number of books (some library costs); staff and student numbers (some of the finance department costs).

17. The indirect cost rates and estates charges are derived from the Support costs identified during the annual TRAC process.

Processes

18. The data collection and aggregation processes which are needed to produce the annual TRAC figures are shown in the figure – the pyramid of costs:

    The pyramid of costs

    Reported at institution level £
    Collected at department level     (central departments)
    Cost attribution to department/ activity
    Time allocation to activity

Overview of the cost attribution process

19. The methods to be used are shown in the figure – overview of the cost attribution process:

     

20. These methods cover the following:
    • attribution of academic and research staff costs. Researcher and lecturer costs should be attributed directly to an activity where possible (e.g. a Research Assistant to Research). Otherwise academic staff should complete time allocation schedules using robust methods to provide information for use in attribution. These are not timesheets: they might include, for example each academic completing three time allocation schedules that together cover a 12-month period, within each three-year cycle – see Chapter C.1 academic staff time;
    • attribution of non-staff costs. Attribution methods are to be based on activity-based costing concepts. Cost drivers are used to attribute costs, held in cost pools, to activities – see Section D all other costs;
    • calculation of cost adjustments. Two cost adjustments are made:
      • an infrastructure adjustment which bring in an estates cost that is closer to the full economic cost of maintaining the institution’s physical infrastructure. This is usually understated in institutions’ financial statements;
      • a cost of capital employed which ensures that TRAC costs cover the costs of financing and contain a margin that meets the costs of restructuring and future development needs.

      See Annex 15 (cost adjustments).

21. In addition, the Funding Councils require income to be reported alongside costs in the annual TRAC return. Attributing income as well as costs is also a valuable internal management tool for reviewing performance and developing processes that support sustainability. Internal and external benchmarking of surplus and deficits can provide assurance as to the robustness of the methods used. See Annex 16 (income allocation).