COST ACCOUNTING STANDARDS CAS TRAINING June, 2001

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COST ACCOUNTING STANDARDS (CAS) TRAININGJune,
2001

• PRESENTED BY
• RITA JENSEN - Administrator, Bioengineering
• TAMI SADUSKY - Director, Grant and Contract
  Accounting
• JOEL SEARLES - Associate Director, Grant and
  Contract Services
• KEN WELCH - Senior Auditor, Internal Audit
• JANE WISEMAN - Director, Management Accounting
  and Analysis
• ZENAIDA SHATTUCK - Audit Supervisor, Internal
  Audit

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CAS TRAINING - WHY???

• University must comply with federal Cost
  Accounting Standards (CAS) in OMB circular A-21
• UW Audit Risk
• Greatest risk - Academic departments
  inconsistent treatment of costs as either Direct
  or Indirect

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CAS BACKGROUND

• Four cost accounting standards were incorporated
  into OMB Circular A-21 in 1996
• University was also required to
• Disclose its accounting practices to DHHS
• Demonstrate that UW accounting practices comply
  with the cost accounting standards in A-21

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HOW WAS CAS IMPLEMENTED AT THE UW

• Primary goal of CAS team
• Retain flexibility for departments to continue
  accounting/operating practices
• Enable UW to comply with CAS

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HOW WAS CAS IMPLEMENTED AT THE UW (cont)

• To accomplish this goal, the CAS team met with
  academic departments to
• Determine what existing accounting practices were
  in place
• Discuss how to structure required changes so
  departments could continue to run efficiently

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HOW WAS CAS IMPLEMENTED AT THE UW (cont)

• UWs Disclosure Statement
• Audited by the Federal government to determine if
  our accounting practices complied with the four
  CAS standards
• November, 1999, UWs disclosure statement was
  approved by DHHS

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HOW DOES CAS AFFECT UW?

• CAS standard that has the biggest
• impact upon the University
• All costs incurred for the same purpose, in
  like circumstances, are either direct costs only
  or FA costs only
• Federal government concerns
• That the same type of costs not be charged both
  directly and indirectly unless unlike
  circumstances exist

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HOW DOES CAS AFFECT UW? (cont)

• UW developed and revised policies as needed to
  comply with CAS
• GIM 23 - Costing Policy for sponsored agreements
  created
• GIM 21 - Cost Sharing on sponsored agreements was
  revised

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DIRECT COSTS

• Definition of direct costs in OMB Circular A-21
  is
• Direct costs are those costs that can be
  identified specifically with a particular
  sponsored project, an instructional activity, or
  any other institutional activity, or that can be
  directly assigned to such activities relatively
  easily with a high degree of accuracy

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WHEN CAN A COST BE DIRECTLY CHARGED?

• To directly charge a cost, it must
• Be specifically identified to the work conducted
  under the project
• Provide explicit benefit for a specific
  programmatic purpose
• Be chargeable or assignable in accordance with
  the relative benefits received or other equitable
  relationship

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FA OR INDIRECT COSTS

• Definition of FA costs in OMB Circular A-21
• FA costs are those that are incurred for common
  or joint objectives and therefore cannot be
  identified readily and specifically with a
  particular sponsored project, an instructional
  activity, or any other institutional activity

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NORMAL FA OR INDIRECT COSTS

• Normal facilities and administrative costs
  must be charged indirectly, unless
• A level of service above the normal level is
  required by the sponsored agreement
• Special technical expertise or items are required
  by the sponsored agreement, which are not
  otherwise needed or available in the department
• A non-federal award allows the cost

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LIST OF NORMAL FA OR INDIRECT COSTS

• Administrative and Clerical Salaries
• Office Supplies
• Toner cartridges and diskettes
• Basic Telephone Services
• Includes installation, line charge, instrument
• Pagers and related service charges
• Routine copying charges
• Memberships
• Journals and subscriptions

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OFFICE SUPPLIES

• Binders
• Business cards
• Copy paper
• Diskettes (1.44 MB)
• Envelopes
• File folders and labels
• Letterhead
• Paper clips
• Pencils, pens, erasers

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OFFICE SUPPLIES (CONT)

• Post-its
• Push pins
• Rubber bands
• Rulers
• Scissors
• Staplers, staples, staple pullers
• Tape (scotch, masking, etc.)
• Telephone message pads

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DIRECTLY CHARGING NORMAL FA COSTS

• To directly charge normal FA costs to federal
  awards, all of the following must occur
• Unlike circumstances must exist
• Above normal level of services or items
• Technical expertise or items not otherwise needed
  by department
• Cost must
• Be specifically identified to the work conducted
  under the project

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DIRECTLY CHARGING NORMAL FA COSTS (CONT)

• Provide explicit benefit for a specific
  programmatic purpose
• Proposal must include
• The normal FA cost in the budget of the
  sponsored agreement
• A sufficient explanation of the unlike
  circumstances that exist to justify the direct
  charging of the normal indirect cost
• Modular grants require justification in the file
• Sponsoring agency must accept the cost
• SPONSOR APPROVAL ALONE IS NOT SUFFICIENT

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NORMAL FA COSTS CAN ALSO BE DIRECTLY CHARGED
IF

• It is a non-federally sponsored agreement and
  directly charging the cost complies with the
  terms and conditions of the sponsored agreement
• Off-campus research can directly charge
• Basic telephone costs
• Office supply costs

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EXAMPLES OF UNLIKE CIRCUMSTANCES

• Sponsored agreement that requires a survey be
  sent to 2,000 participants
• can charge an administrative assistants time,
  paper, etc. needed to conduct a survey
• Sponsored agreement requires the assignment of a
  firefighter trained in handling flammable
  materials required by the sponsored award, and
  this service is not otherwise needed or available
  in the department

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EXAMPLES OF UNLIKE CIRCUMSTANCES (CONT)

• Examples when administrative/clerical salaries
  can be directly charged
• Large, complex programs, such as clinical
  research centers or program projects
• Grants/contracts that entail assembling and
  managing teams of investigators from a number of
  institutions
• Projects which involve extensive data
  accumulation, analysis and surveying, such as
  clinical trials

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EXAMPLES OF UNLIKE CIRCUMSTANCES (CONT)

• Projects that require making travel and meeting
  arrangements for large numbers of participants,
  such as conferences
• Projects that are geographically inaccessible to
  normal departmental administrative services, such
  as seagoing research vessels and other remote
  research sites

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EXAMPLES OF UNLIKE CIRCUMSTANCES (CONT)

• Phone installation and line costs for a crisis
  line required by the sponsored agreement
• Copying of journal articles directly and solely
  related to the sponsored project
• A membership fee that lowers (and is less than
  the difference in) the conference cost for a
  conference specifically related

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EXAMPLES OF UNLIKE CIRCUMSTANCES (CONT)

• Cost of a journal specifically and solely related
  to the sponsored work conducted

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FACULTY EFFORT COST SHARING

• Faculty effort cost sharing changes that occurred
  to comply with CAS include
• When faculty pledge effort without funding in the
  proposal, the budget number for that award prints
  in the cost sharing section of the faculty effort
  certification (FEC) form
• When faculty effort cost sharing is entered into
  the budget driver, it is coded as one of the
  following
• M - Mandatory
• V - Budgeted Voluntary
• O - Other Voluntary
• C - Capped

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1/5/01 CHANGES TO COST SHARING

• Only report cost sharing effort that is
• Mandatory
• Included in the proposal budget or budget
  justification
• Assumes that cost sharing will not be placed in
  other parts of the proposal (i.e. Narrative)
• Cost sharing is added to the organized research
  base to calculate FA rates

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1/5/01 CHANGES TO COST SHARING (CONT)

• Most federal awards should have faculty or
  senior researcher effort, either paid or unpaid
• Faculty salary paid by the sponsored project in
  summer quarter only satisfies this requirement
• Exception for some awards, such as
• Programs for equipment and instrumentation
• Doctoral dissertations
• Student augmentation

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DISTRIBUTION OF COSTS BETWEEN TWO OR MORE
GRANTS/CONTRACTS

• A-21 provides two methods for allocating an
  allowable direct cost to two or more sponsored
  agreements
• the proportional benefit rate
• the interrelationship rule

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REBUDGETING TO DIRECTLY CHARGE A NORMAL FA COST

• Unlike circumstances must exist, and be
  documented in writing by the PI
• Documentation will be maintained in the
  departmental grant file
• Rebudgeting is allowed by NIH, NSF and ONR
• Other agencies require prior approval

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AUDIT ISSUES
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GENERAL AUDIT OBJECTIVE

• To determine whether the systems of internal
  controls are sufficient to ensure compliance with
  federal regulations and university policies that
  pertain to the consistent treatment of costs

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AUDIT SCOPE

• IA reviewed controls at eight departments
  representing five colleges/schools
• Reviewed controls currently in place
• Testing concentrated on four categories of costs
  that are normally charged as indirect costs
• Administrative and clerical salaries
• Office supplies
• Subscriptions
• Memberships

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OVERALL CONCLUSION/FINDINGS

• Controls were not sufficient to ensure compliance
• Findings
• Costs that should normally be treated as indirect
  costs were directly charged to federal projects
  and university requirements were not followed
• Costs were not included in the proposed budget

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FINDINGS (CONT)

• Proposals did not include justifications
• Budget justifications had inadequate explanations
  of the unlike circumstances requiring the direct
  charging of costs

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FINDINGS (CONT)

• When rebudgeting occurred, the need and
  exceptional circumstance for direct charging the
  costs were not justified and documented in
  writing by the PI
• Costs were not reviewed for allowability during
  the BAR reconciliation process
• Higher risk for unallowed charges for departments
  that permit students to place orders

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INTERNAL CONTROLS
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AUTHORIZATION AND APPROVAL

• As part of proposal review and approval,
  departments should ensure that requirements under
  GIM 23 (costing policy for sponsored agreements)
  are being followed. Specifically
• Costs are specified in the proposed budget
• Exceptional or unlike circumstances requiring the
  direct charging of normally indirect costs are
  justified in the proposal

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AUTHORIZATION AND APPROVAL (CONT)

• Departments should have clear understanding as to
  who in the department is responsible for
  reviewing proposals for accuracy and completeness

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AUTHORIZATION AND APPROVAL (CONT)

• Only individuals authorized by the PI to incur
  expenses for the project should approve the
  acquisition of goods and services
• Individuals should have direct knowledge of the
  needs of the project (see GIM 14)
• Individuals should know which cost categories
  can be charged to the budget

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REVIEW AND RECONCILIATION

• Purchasing and payroll requests should be
  reviewed for proper authorization and
  allowability of proposed expenditures prior to
  processing
• Departments should check for allowability of
  expenditures during the BAR reconciliation
  process
• Follow up! Make the necessary cost transfers or
  obtain documentation and approval

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DOCUMENTATION

• Costs must be specified in the proposed budget
  and the exceptional or unlike circumstances
  requiring the direct charging are justified in
  the proposal
• When rebudgeting occurs, obtain documentation
  from the PI that explains the unlike or
  exceptional circumstances for direct charging the
  costs. Explanation must be maintained in the
  department grant file

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MONITORING

• Management should ensure that controls in place
  are working as planned
• Review of controls should be be done on a
  regular basis
• Examples of monitoring controls
• Review the exception report from GCA
• Review sample BSRs or download data from FAS to
  analyze expenditures

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MONITORING (CONT)

• Follow-up when unusual pattern is noted
• Review a sampling of transactions for adherence
  to controls such as proper documentation,
  authorization, etc.
• Periodic meetings with faculty and staff to
  communicate policy and to discuss concerns.
  Document and retain meeting minutes

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BEST PRACTICES

• Departmental Examples
• Recommendations
• Documents for Budget/Grant

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DEPARTMENTAL EXAMPLES

• Binder of Fiscal Procedures
• Org Chart of Business Office
• Org Chart Practices of Large Programs
• Procedures for each Fiscal Position

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RECOMMENDATIONS

• New Budget Memo
• Allowable Charges, Unlike Circumstances
• Signature Authority Form
• File Review - Forms, Signatures

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Documents for Budget Files

• Modular Grant Budgets
• Maximum to be covered by department
• Supply Sharing between Projects

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CAS QUIZ/ QUESTIONS AND ANSWERS

• Review of Examples on CAS Quiz Handout
• Question and Answer period