A Guide for UW-Madison Administrators & Faculty

1
A Guide for UW-Madison Administrators Faculty

• Basics of theCost Accounting Standards
  (CAS),OMB Circular A-21, andCost Principles
• March 28, 2006
• Robert Andresen
  Carol
  HillmerAssistant Director, Post-Award Services
  Assistant Dean, Research Division
  Research and Sponsor Programs College of
  Agricultural and Life Sciences

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Overview

• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions

3
Cost Accounting Standards (CAS)

• What is the CAS Board?
• What are CAS?
• Why are there CAS?
• How are CAS applied to educational institutions?

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What is the Cost Accounting Standards Board?

• The Board is an independent legislatively-establis
  hed board located within the Office of Federal
  Procurement Policy (a section of the Office of
  Management and Budget).
• The Board issues rules and regulations by which
  government agencies, contractors, and
  subcontractors are required to comply.
• The Board has exclusive authority to make,
  promulgate, and amend cost accounting standards
  and interpretations designed to achieve
  uniformity and consistency in the cost accounting
  practices governing the measurement, assignment,
  and allocation of costs.

5
What are Cost Accounting Standards?

• CAS incorporates three areas of cost accounting
• Measurement of costs
• Assignment of cost to cost accounting period
• Allocation of cost to cost objectives
• There are 19 standards, 4 of which apply to
  educational institutions (see OMB CircularA-21,
  Subsections C.10-14).

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Why are there Cost Accounting Standards?

• CAS were designed to achieve uniformity and
  consistency in the measurement, assignment, and
  allocation of costs.
• The standards are based on examinations of common
  cost accounting practices.
• CAS establish limits and constraints on what is
  considered appropriate, with the goal of
  providing consistency and uniformity in cost
  accounting.

7
Cost Accounting Standards applied to Educ.
Institutions

• OMB Circular A-21 Subsections C.10-14 impose 4 of
  the 19 standards on educational institutions
• CAS 501 Consistency in Estimating, Accumulating
  and Reporting Costs
• CAS 502 Consistency in Allocating Costs Incurred
  for the Same Purpose
• CAS 505 Accounting for Unallowable Costs
• CAS 506 Cost Accounting Period

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Cost Accounting Standards applied to Educ.
Institutions

• CAS 501 Consistency in Estimating, Accumulating
  and Reporting Costs
• Requires that an institutions practices in
  estimating costs in pricing a proposal be
  consistent with the institution's cost accounting
  practices used in accumulating and reporting
  costs.
• Requires that an institution's cost accounting
  practices used in accumulating and reporting
  actual costs for a sponsored agreement be
  consistent with its practices used inestimating
  costs in pricing the relatedproposal or
  application.

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Cost Accounting Standards applied to Educ.
Institutions

• CAS 502 Consistency in Allocating Costs Incurred
  for the Same Purpose
• Requires that all costs incurred for the same
  purpose, in like circumstances, be treated as
  either direct costs only or FA costs only with
  respect to final cost objectives.

10
Cost Accounting Standards applied to Educ.
Institutions

• CAS 505 Accounting for Unallowable Costs
• Unallowable costs must be identified and excluded
  from any billing, claim, application, or proposal
  applicable to a sponsored agreement.

11
Cost Accounting Standards applied to Educ.
Institutions

• CAS 506 Cost Accounting Period
• Educational institutions must use their fiscal
  year as their cost accounting period.

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Overview

• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions

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OMB Circular A-21

• What is OMB Circular A-21?
• Purpose of OMB A-21
• CAS in OMB A-21

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What is OMB Circular A-21?

• OMB is the Office of Management and Budget.
• Circulars are instructions or information issued
  by OMB.
• Circular A-21 addresses Cost Principles for
  Educational Institutions.
• Circulars are expected to have a continuing
  effect of two years or more.
• Current Circular A-21 was Revised 05/10/04.

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Purpose of OMB Circular A-21

• Establishes principles for determining costs
  applicable to grants, contracts, and other
  agreements with educational institutions.
• Principles deal with the subject of cost
  determination.
• Principles are designed to provide that the
  Federal Government bear its fair share of total
  costs, determined in accordance with generally
  accepted accounting principles, except where
  restricted or prohibited by law.

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Cost Accounting Standards in OMB Circular A-21

• In 1996, A-21 implemented CAS for all sponsored
  agreements.
• Effective July 1, 1997, UW-Madison implemented
  its compliance with the CAS required by the OMB.

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Cost Accounting Standards in OMB Circular A-21

• OMB Circular A-21 Cost Principles for Educational
  Institutions requires that institutions treat
  similar costs consistently as either direct costs
  or FA costs.
• OMB expects that certain types of costs will be
  included in the institutions FA cost rate and
  will not be charged as direct costs to Federal
  projects.

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Overview

• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions

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Cost Principles

• Costs are reimbursable by the Federal Government
  ONLY if they are
• Necessary Reasonable Allocable Allowable
  Consistently treated Permissible
• If a cost cannot meet this criteria, it is
  unallowable no matter what it is for.

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Necessary

• Costs applied to the project MUST be necessary to
  accomplish the scope of work.
• To be necessary, the cost applied must be
  absolutely essential to achieve a certain result
  or results.

21
Reasonable

• If the nature of the goods or services acquired
  or applied to the project reflect the action that
  a prudent person would take under similar
  circumstances.
• Emphasis would be upon one acting in good
  judgment.
• Not excessive or extreme fair.

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Allocable

• Cost is incurred solely for advancement of work
  on the project.
• Application of cost is in proportions that can be
  approximated through reasonable methods.
• Cost is necessary and deemed assignable to the
  project.

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Additional Considerations of Allocability

• Costs allocable to a particular sponsored
  agreement may not be shifted to other sponsored
  agreements to meet deficits caused by overruns or
  other fund considerations, to avoid restrictions,
  or for other reasons of convenience.
• Costs allocable to activities sponsored by
  industry, foreign governments or other sponsors
  may not be shifted to federally-sponsored
  agreements.

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Additional Considerations of Allocability

• When equipment is purchased as authorized under a
  sponsored agreement, the costs are assignable to
  the sponsored agreement regardless of the use
  that may be made of the equipment after the end
  of the project.

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Allowable

• Allowability of costs is defined specifically in
  OMB Circular A-21 Section J General Provisions of
  the cost principles.
• A-21 Section J see handout summarizing
  allowability of costs

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Consistently Treated

• Like costs must be treated the same in like
  circumstances consistently.
• Costs may be treated as direct costs only or as
  FA costs only.

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Permissible

• Costs must be permissible under the law
• AND/OR
• Costs must be permissible under terms/conditions
  of the award

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Overview

• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions

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Allowable vs. Unallowable Costs

• OMB Circular A-21 Section J defines 54 specific
  categories of costs and assigns them to the
  categories of allowable and unallowable.
• Section J instructs grantees on the acceptable
  treatment of allowable costs as either direct
  costs or FA costs.

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Allowable Costs

• Section J instructs that an allowable cost may
  be
• normally treated as a direct cost
• normally treated as an FA cost or
• normally treated as an FA cost, except in
  unlike circumstances under which it may be
  treated as a direct cost.
• Note that such unlike circumstances mustbe
  documented during the institutional CAS review
  and approval process.

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Unallowable Costs

• Section J instructs that an institution is
  required to separately track and account for all
  unallowable costs to ensure that they are not
  charged to Federal awards either as direct costs
  or as part of the institutions FA cost rate
  calculations.
• Examples Alcoholic Beverages, Alumni Activity,
  Commencement Costs, Bad Debts, etc.
• Costs that are named in Section J asunallowable
  are unallowable in anycircumstance.

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CAS 502 Impact on Allowability

• Requires that all costs incurred for the same
  purpose, in like circumstances, be treated as
  either direct costs only or FA costs only with
  respect to final cost objectives.
• Prohibits double direct charging of the same cost
  to multiple projects.
• Prohibits charging as a direct cost any cost for
  which other costs incurred for the same purpose,
  in like circumstances, have been included in any
  FA cost pool to be allocated to that or any
  otherfinal cost objective.

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Costs Normally Treated as Indirect Costs (FA)

• Administrative and Clerical Salaries
• Telecommunications -- Local Telephone
  Service Including phone equipment such as
  telephones, cell phones, pagers, fax machines,
  and line charges
• Postage Including U.S. Postal Service, Federal
  Express, UPS
• Dues and Memberships
• Office Supplies

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Costs Normally Treated as Indirect Costs (FA)

• Subscriptions, Books, and Periodicals
• General Purpose EquipmentNon-research equipment
  which may be used for general office purposes
  such as desktop computers, laptop computers,
  printers, fax machines, copy machines, and office
  furniture.
• General computer services, networking costs, or
  other DoIT services
• Staff recruitment and relocation

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Overview

• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions

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Is a Cost Eligible for a CAS Exception?

• A cost normally treated by UW-Madison as an FA
  cost may be appropriate as a direct cost on a
  Federally sponsored project if
• The cost is necessary, reasonable, allocable,
  allowable, and permissible under the law,
  terms/conditions of the award, and the
  circumstances are unlike.
• Unlike circumstances may be determined by the
  nature of the project, such as those detailedin
  Exhibit C of OMB Circular A-21.

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Exhibit C OMB Circular A-21 Major Project
Examples

• Large, complex programs that entail assembling
  and managing teams of investigators
• Examples General Clinical Research Centers
  (GCRC), Primate Centers, Program Projects,
  Environmental or Engineering Research Centers.
• Projects involving extensive data accumulation,
  analysis/entry, surveying, tabulation,
  cataloging, reporting
• Examples Epidemiological Studies, Clinical
  Trials.

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Exhibit C OMB Circular A-21 Major Project
Examples

• Projects whose principal focus is preparation and
  production of manuals, reports, books
• Excludes Routine Progress and Technical Reports.
• Individual projects requiring project-specificdat
  abase management or individualized
  manuscriptpreparation

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Exhibit C OMB Circular A-21 Major Project
Examples

• Projects which require extensive travel or
  meeting arrangements
• Examples Conference or Seminar Awards.
• Projects that are geographically inaccessible to
  normal department administrative services
• Examples Radio Astronomy Projects, Remote Field
  Sites.
• NOTE These examples are not exhaustive, nor are
  they always appropriate as instances when
  assessment of administrative/clericalsalaries
  would be allowed.

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Administrative and Clerical Salaries

• Administrative and clerical salaries should
  normally be treated as FA costs per A-21
  F.6.b.2. It may be appropriate to charge
  administrative and clerical salaries to a Federal
  award under the following circumstances
• A major project (as defined in OMB A-21 Exhibit
  C) or activity explicitly budgets for
  administrative or clerical services and
• Employees involved can be specifically identified
  with the project or activity and
• Costs are incurred in unlike circumstances,
  i.e.,the actual activities direct charged are
  not thesame as the actual activities normally
  includedin the institution's FA cost pool.

41
Telecommunications Costs

• Long distance phone calls are normally treated as
  direct costs under Section F.6.b.1.
• Local phone service and phone equipment are
  normally treated as FA costs by UW-Madison per
  A-21 F.6.b.3.

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Telecommunications Costs

• It may be appropriate to charge local and
  equipment costs to a Federal award under the
  following circumstances
• A pager may be necessary for a clinical trial in
  order to allow the study coordinator to remain in
  immediate contact with the PI for the safety of
  patients.
• A fax machine and line may be justifiable if it
  is dedicated to the project and is necessary to
  ensure confidentiality of transmitted patient
  information.
• Monthly telephone line charges may be justifiable
  if the telephone line is fully dedicated to the
  project andused for no other purposes.

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Postage

• Postage costs which include U.S. Postal Service,
  Federal Express, and UPS should normally be
  treated as FA costs per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• Costs of shipping biological samples in dry ice
  to a collaborator may be allowable as direct
  costs due to unlike circumstances.
• Costs associated with mailings involving data
  collection/survey costs, also may be allowableas
  direct costs due to unlike circumstances.

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Postage

• Conversely, cost of sending the proposal,
  revisions, periodic or annual reports, or related
  correspondence to the funding agency should not
  be charged as direct costs to a sponsored
  project.Section J.34. Proposal Costs specifies
  that costs of preparing proposals should normally
  be treated as FA costs. No unlike
  circumstance exists.

45
Dues and Memberships

• Dues and Membership fees should normally be
  treated as FA costs per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• A investigator will attend a specific meeting or
  conference to present finds of their research
  under a specific award. The registration costs
  to attend include membership fees. A non-member
  option of attendance is more costly than the
  registration including membership.
• The RFP under which application was made
  requiresinvestigator attendance at a specific
  meeting. Meeting attendance requires the
  individual to hold a currentmembership.

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Office Supplies

• Office Supply costs should normally be treated as
  FA costs. Office supplies such as paper,
  envelopes, pens, staples, etc. are normally
  treated as FA by UW-Madison per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• A large epidemiological survey project may
  require paper, envelopes, etc. to produce and
  mail surveys to study participants.
• An outreach project may require paper andpens as
  part of the training componentdefined within the
  scope of the project.

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Subscriptions, Books, and Periodicals

• Subscription, Book, and Periodical costs should
  normally be treated as FA costs per A-21.F.8.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• An outreach project may require specific books as
  part of the training component to be available
  for use and reference at traveling training sites
  defined within the scope of the project.
• However, subscriptions or books specifically
  purchased for a general laboratory
  referencelibrary would not be allowable.

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General Purpose Equipment

• General purpose equipment such as desktop
  computers, laptop computers, printers, office
  furniture and vehicles are normally treated as
  FA costs.
• Under J.16.b.1, such charges are unallowable as
  direct charges, except where approved in advance
  by the sponsored agency. Some agencies have
  waived prior approval requirements under
  FDP/Expanded Authorities.
• However, CAS 502 requires consistent treatment as
  FA costs except in unlike circumstances.

49
General Purpose Equipment

• CAS requires consistent treatment of similar
  costs in like circumstances. Since general
  purpose equipment costs are normally treated as
  FA by UW-Madison, CAS exceptions for direct
  charging these items may be approved only in
  unlike circumstances
• For example, a desktop computer might be
  necessary, dedicated and justifiable for a
  project that requires large amounts of
  statistical or data analysis.
• A laptop computer might be necessary, dedicated
  and justifiable for a study of microbial
  contamination offresh produce in which data will
  be collected andentered into a database using
  the laptop in aremote agricultural site during
  harvest of produce.

50
General computing, networking costs, other DoIT
services

• General computer services, networking costs, or
  other DoIT services should normally be treated as
  FA costs.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• The award is for a large clinical research center
  (a major project). Networking costs would need
  to be fully dedicated to the center to be
  allowable.
• NOTE Networking costs for the vast majority of
  Principal Investigators would NOT be allowable in
  that their role is NOT fully dedicated 100 to
  any one specific award.

51
Staff Recruitment and Relocation

• Staff Recruitment and Relocation costs should
  normally be treated as FA costs.
• It may be appropriate to charge such costs to a
  Federal award under the following circumstances
• Expertise of an unusual nature is required on a
  specific project.
• Advertisement costs may be allowable if the
  recruitment costs are normal in nature -- costs
  incurred must be pursuant to a well managed
  recruitment program, the advertisement is
  promoted in keeping with standard recruiting
  methods (see A-21 J.42.), and the opportunity
  being recruited must be required to fulfill the
  needs of the project.

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CAS Exception Review Approval

• Investigators should provide clear justification
  in Federal project budgets for direct cost items
  that normally are treated as FA costs.
• The fact that the sponsoring agency allows such
  costs to remain in the awarded budget may not be
  interpreted as approval for these items as CAS
  exceptions.
• School/College Deans Offices review andapprove
  CAS exceptions on sponsoredproject budgets.
  This institutional approvalis required by A-21.

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Is a Cost Eligible for a CAS Exception?

• At the time a proposal is being submitted, items
  which would normally be treated as FA costs, may
  be included in the budget request as a CAS
  Exception. To do so
• The project scope of work would need to qualify
  as a project under which exceptions could be
  granted.
• The budget/narrative would need to clearly detail
  the exceptional nature of the item.
• Approvals would need to be granted by
  theSchool/College Deans Office and includedas
  an approved CAS Exception with theproposal
  routed to RSP at time ofsubmission.

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Is a Cost Eligible for a CAS Exception?

• When an exception was not properly identified and
  approved within the proposal at time of
  submission, an exception can be requested at time
  of occurrence during the award.
• Request must be made through a campus exception
  approval process.
• Departments/Centers need to submit a formal
  request justifying the purchase in question.  The
  request will require Deans Office approval prior
  to purchase and may in certain instances
  require agency review and approval.

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Is a Cost Eligible for a CAS Exception?

• Request should include Principal investigator
  name Project grant number (i.e.,
  144-____) Agency name Project title Detail
  regarding specific item(s) to be purchased (i.e.,
  description and amount) Full justification of
  why the item(s) is required and why a CAS
  exception would be appropriate
• Request can route in hardcopy or via email. If
  by email, email needs to be sent from PI or on
  behalf of PI by an appropriate designee.
• Route to School/College Deans Office.Deans
  Office will review and if acceptable,route
  forward to RSP.

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Is a Cost Eligible for a CAS Exception?

• RSP assists in reviewing terms/conditions,
  consulting with departments and College/Schools
  Deans Offices, and making recommendations for
  granting exceptions.
• Such approvals should accompany purchase requests
  and be retained in the award file to document the
  CAS exception.
• NOTE approvals should be requested and granted
  prior to a purchase proceeding or an expenditure
  being applied to an award.
• ATTENTION The fact that the sponsoring agency
  allows such costs to remain in the awarded budget
  may not be interpreted as approval for these
  items as CASexceptions.

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CAS Applied to Non-Federal Awards

• General Principles of A-21 apply.
• More exceptions than on the Federal side.
• Many Non-Federal Sponsors prohibit direct
  charging of certain types of costs.
• Full Indirect Cost Recovery vs. Partial (or No)
  Recovery.
• Bottom Line It Depends.

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What if I have Questions?

• Campus contacts/experts
• Research and Sponsored Programs
  Post-AwardCharles Hoffman 2-0253
  choffman_at_rsp.wisc.edu-or-Barbara Keenan 2-2588
  bkeenan_at_rsp.wisc.edu
• School/College Post-Award Deans Offices or
  School/College Business Services Offices

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What if I have Questions?

• Website references
• A-21 http//www.whitehouse.gov/omb/grants/grants_
  circulars.html
• RSP http//www.rsp.wisc.edu
• Slides http//www.rsp.wisc.edu/training