Transcript Federally-sponsored projects update

Cost Accounting Standards
The University of Alabama
April 28, 2000
2
Today’s Questions

Why did the government promulgate cost accounting
standards?

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
3
What are the Cost Accounting Standards (CAS)?
 Designed
for defense contractors
 In
1978, educational institutions were exempted
from CAS

OMB Circular A-21 was understood to contain required
guidance
 Then


Consequence of overhead “scandals” of early 1990s
Staggered implementation


CAS was applied to them
FY 2000 for UA
CAS led to refinement of other policies
4
Today’s Questions

Why did the government promulgate cost accounting
standards

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
5
Grant-related settlements in $$MM
40
35
FDA
drug
Clinical
Trials;
Criminal
Penalties
Imposed
Cost
30 sharing,
25 MCR
20
15
10
5
0
Train.
Grant
Unallow.
Costs
Alloc.
betwn
Phys.
awards presence
6
Today’s Questions

Why did the government promulgate cost accounting
standards

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
7
New CAS requires four Standards and a Disclosure
Statement

501: Consistency in Estimating, Accumulating, and
Reporting Costs

502: Consistency in Allocating Costs Incurred for the
same purpose

505: Accounting for Unallowable Costs

506: Consistency in Using the Same Cost Accounting
Period

CASB Disclosure Statement

Will be audited by Office of the Inspector General
8
CAS in Brief

The CAS theme is consistency

Consistency difficult to enforce


Between the proposal and what's actually charged and
reported

In cost treatment among departments
UA principal investigators and administrators should:

Become familiar with the rules

Identify inconsistencies
9
What is CAS 501?


Consistency in Estimating, Accumulating, and Reporting
Costs

Practices for estimating costs must be consistent with practices
used in accumulating and reporting costs during contract
performance

Should be able to compare budget with actual costs for any
"significant" type of cost
Consistency from

Proposal to proposal

Proposal to award

Department to department
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What is CAS 502?

Consistency in allocating costs incurred for the same
purpose

Each type of cost must be allocated on only one basis to any
contract or other cost objective

If a grant is charged directly for a cost, the same type of costs
cannot be charged to that project, or any other project, through
the indirect cost rate
11
The "double screen" behind CAS 502
Chemistry
Department
Charges copying directly
Chemical Engineering
Department
Charges copying indirectly
Chemistry grants pay twice
1. Directly for Chemistry copies
2. Indirectly for part of ChE copies
12
CAS 505: Unallowable costs

Must be removed from grants and indirect cost pools

Unallowable as direct or indirect costs


Alcohol

Fund raising, etc.
Types of costs unallowable as direct costs

Salaries of administrative staff

Office supplies

Postage and local telephone

Memberships
13
Today’s Questions

Why did the government promulgate cost accounting
standards

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
14
How might CAS 501 affect UA departments?

Cost sharing

Effort reporting

Categories of costs
15
Cost Sharing Definition

Financial support contributed by the University to
sponsored projects.

Two categories:

1) Mandatory

2) Voluntary
16
Mandatory Cost Sharing

Required by legislation or by the sponsor



Identified in RFP/RFA or funding opportunity as a condition for
an award,
or
Quantified in proposal by investigator; e.g., 5% effort
with no salary dollars

Becomes mandatory upon award

Effort report needs to show 5% as coming from a non-federal
source
Should be captured in a specific cost share account for
the grant
17
Voluntary cost sharing

Not required by sponsor

Occurs as project proceeds

Account for in general cost share accounts
18
Voluntary Cost Sharing and Effort Reporting


Effort not committed in the project budget

But it occurs and

If charged to accounts that do not reach the organized research
base...
CAS problem

Inconsistent treatment
Treated
Not
differently because of funding
because of difference in purpose and/or circumstance
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Cost Sharing and Effort Reporting
Award Budget-Personnel:
J. Jones 25% $25,000
B. Smith
5%
-0CAS 501
Award Accounting
Personnel:
J. Jones 25% $25,000
B. Smith 5%
-0-
Budget and
propose
Accumulate
and report
B. Smith spends 5% of his or her effort on the
project as budgeted, no matter what is charged.
Result: cost sharing that must be recorded
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When a contract or grant goes over budget

Cost share accounts will be used to absorb the excess
cost.

The excess charge will be funded from


The department operating account or

Another account designated by the department when the
award is received.
If an unallowable charge is made to a contract or grant
or cost share account, the unallowable charge will be
transferred to the department account.
CAS 501: Budget costs consistently or at a consolidated
level
Award Budget:
Less detail
Lab Supplies
Supplies
Award Accouting:
More detail
Budget and
propose
Accumulate
and Report
Lab supplies:
- Diodes
- Resistors
- Chemicals
Supplies:
- Specialized
software
21
22
CAS 502 Issues

Direct and indirect costs

Departmental administrative costs

Multiple funded programs

Equipment as a direct charge
23
Consistent treatment--one extreme case

If one PI charges one stamp to
one grant

You must remove all postage
from the indirect-cost rate

(Or charge the stamp
elsewhere)
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Definition of direct and indirect cost categories

Direct costs

Subcodes: per policy

Cost bases
Instruction
Organized
Other

research
sponsored activity
Indirect costs

General administration

Departmental administration

Operating and maintenance costs

Library

Sponsored research administration
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Today’s Questions

Why did the government promulgate cost accounting
standards

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
26
What are the new or revised policies?

Cost policy

Cost sharing

Cost transfers

Effort certification

Grant and contract policy

Spending policy
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Criteria for charging a direct cost per policy

Support the project’s purpose and activity

Represent those costs necessary to meet the project’s
scientific and technical requirements

Be included in the awarded budget, or the cost must be
permitted within rebudgeting authority granted by the
sponsor.

The cost must not be restricted by the sponsor.
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Unacceptable direct costing practices

Rotation of charges among sponsored agreements by
month without establishing that the rotation schedule
credibly reflects the relative benefits to each sponsored
agreement

Assigning charges to the sponsored agreement with the
largest remaining balance

Charging the budgeted amount rather than charging an
amount based on actual usage

Assigning charges to a sponsored agreement in
advance of the time the cost is actually incurred
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Unacceptable practices, cont.

Identifying a cost as something other than what it
actually is, such as classifying a supply as an item of
equipment

Charging expenses exclusively to sponsored
agreements when the expense has supported nonsponsored agreement activities

Assigning charges that are part of normal administrative
support (indirect costs) for sponsored agreements (e.g.,
accounting, payroll).
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Allocation of a direct cost to two or more projects

Direct assignment

Proportional benefit

Credible documentation.

Interrelatedness

Documentation by PI

Source A-21 c(4)(d)(2)
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Multiple Funding Sources - Projects as proposed
Project
Admin Asst
Technician
Federal A
25%
25%
Federal B
25%
25%
Non-federal
25%
50%
State funds
25%
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Multiple Funding Sources - Projects as awarded
Project
Admin Asst
Technician
Federal A
25%
25%
Federal B
0%
25%
Non-federal
25%
50%
State funds
25%
33
When one sponsor won't pick up a certain cost:
Alternative
Consequence
Rebudget to project
after award
Proposal not = PI
intention
Charge to another
source
Not allowable there
Charge to the
departmental budget
Should be counted as
cost sharing
34
With these awards departments can charge normally
indirect to direct

Industrial/Commercial.


Foundations and Non-For-Profit Agencies and
Associations.


Based on the agreement between the sponsor and the
University.
State Sponsored Agreements.


Based on the agreement between the sponsor and the
University.
State agency regulations govern
Training Grants.

“Institutional allowance”
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Charging normally indirect to direct, cont.

Geographically inaccessible projects.

Projects that take place in remote site(s).

Projects that require travel and meeting arrangements
for large numbers of participants.

Projects involving large, complex programs

Complexity goes well beyond the normal departmental support

Program project grants, center grants, (EPSCOR)
36
Charging normally indirect to direct, cont.

Projects which involve extensive data management.

Mailing expense

Projects whose principle focus includes extensive
reports

Other Sponsored Activities (not Research or Instruction)


public service, workshops, community development
Specific costs incurred for a different purpose
37
Recharges: per grant and contract policy

Billing rates are based on cost and

Must be applied uniformly to all users.

Billing rates may not be based on what others in the
industry charge for similar services.

In some cases it may be necessary to establish rates at
less than full cost, but under no circumstances may
rates exceed cost over the accepted operating cycle
(five years).

No capital equipment acquisitions are allowed in the
operating account
38
Cost transfers: per separate policy

Timely

Appropriate

Reasonable

Allowable

Allocable

Consistently treated

Adequate documentation

Responsibility for compliance

PI

Contract and Grant Accounting
39
Documentation of Cost Transfers per policy

The cost must be identified with activity in the
sponsored agreement to which the cost is charged

Documentation that links the cost incurred to the
sponsored agreement activity should be done by
someone who is in a position to know the sponsored
agreement activity (normally the PI)

Documentation must be maintained for a period of three
years
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Documentation


Basic regulation

Direct costs are those costs that can be identified specifically
with a particular sponsored project...or that can be assigned [to
such activity] relatively easily and with a high degree of
accuracy

Goal is to document the transaction in a way that demonstrates
these
Per A-21 c(4)(d) this is the responsibility of the principal
investigator

The institution's documentation requirements ... (e.g., signature
or initials of the principal investigator or designee or use of a
password) will normally be considered sufficient.
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Equipment as a direct charge should:

Have clear and close
relationship to award

Not be used in similar way
to equipment treated as
indirect

Not be purchased at end of
award
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Conclusions

There are risks in non-compliance with costing
regulations at UA



When costs are charged to a grant, the relationship to the
science should be clear and close
Charging practices should be in line with UA policies
and procedures. This will:

Avoid damaging inconsistency

Help UA negotiate a fair overhead rate
Each project should be managed:

In conjunction with departmental administrator

To avoid questionable transactions
43
Today’s Questions

Why did the government promulgate cost accounting
standards

Why should UA departments follow them?

What standards apply?

What are they likely to mean to your department?

What are the new or revised policies?

Where can you seek guidance?
44
Where to seek guidance:

Contract and Grant Accounting Office


Office of Sponsored Programs


(205) 348-5592 Telephone
(205) 348-5339 FAX
(205) 348-5152 Telephone
(2050 348-8882 Fax
Policy guidelines

Faculty Handbook: Post-Award Policies & Procedures at


www.ua.edu/cgfac.html
UA Spending Policies
www.bama.ua.edu/~finacct/spendweb.html
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Questions and Discussion