Allowable and Unallowable Costs on Sponsored Projects

1
Allowable and Unallowable Costs on Sponsored
Projects

• Office of Sponsored Programs
• June 14, 2006

2
Session Agenda

• OMB Circulars
• A-21
• Cost Accounting Standards (CAS)
• Disclosure Statement (DS-2)
• A-110
• A-133
• Cost Transfer Policy
• Allowable/Unallowable Cost Examples

3
Federal Policies and Guidelines

• As a recipient of Federal funding, Mason must
  comply with Federal guidelines and regulations
  such as
• A-21
• Cost Accounting Standards (CAS)
• Disclosure Statement (DS-2)
• A-110
• A-133
• http//www.whitehouse.gov/omb/circulars/

4
A-21 Overview

• Cost Principles for Educational Institutions
• Defines Direct versus FA (Indirect) Costs
• Identifies the costs that can be included in the
  FA Rate
• Provides guidance on the classification of
  expenses
• Section J includes a description of selected cost
  items

5
A-21 Direct vs. Indirect

• Costs must be classified as Direct or FA
  (Indirect) Costs
• Direct Costs are costs that can be associated
  with a specific activity with a high degree of
  accuracy
• Indirect are costs incurred for common objectives
  and cannot be readily associated with a specific
  activity

6
A-21 Cost Allowability

• All 3 criteria must apply for a cost to be
  charged directly to a federal project
• 1) The cost must be allowable under both the
  provisions of A-21 AND under the terms of a
  specific project
• 2) The cost must be allocable, meaning it can be
  associated to a project with a high degree of
  accuracy
• 3) The cost must be reasonable, meaning it
  reflects what a prudent person would pay in
  like circumstances

7
Cost Accounting Standards (CAS)

• Educational CAS requirements include 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
• DS-2 Disclosure Statement

8
CAS 501

• CAS 501 requires consistency in the way costs
  are
• Proposed
• Accumulated
• Reported
• Requires that the practices for estimating costs
  must be consistent with those practices used in
  accumulating and reporting costs
• There should be consistency in federal and
  non-federal proposal budgets

9
CAS 502

• CAS 502 requires consistency in allocating costs
  incurred for the same purpose by educational
  institutions
• Each type of cost must be allocated once and on
  only one basis to any contract or other cost
  objective
• Costs must be consistently treated as either a
  direct or indirect cost
• Costs incurred for the same purpose, in like
  circumstances must be treated consistently

10
CAS 502 Unacceptable Practices

• Rotation of charges among projects
• Charging projects with largest remaining balance
• Charging budget, not actual amount
• Charging projects in advance of when cost is
  incurred
• Describing a cost as something other than what it
  is, for example
• Office supplies as lab supplies
• Administrative staff as Technical staff

11
CAS 502 Unacceptable Practices

• Charging costs that benefit multiple activities
  (sponsored and non-sponsored) exclusively to
  sponsored projects
• Charging costs that are part of normal
  administration, for example
• Administrative staff, payroll, accounting, OSP
• Departmental taxes for
• General administrative services
• Add on to supply costs

12
CAS 502 Exceptions

• Costs generally considered indirect (office
  supplies, postage, local phone, membership fees,
  admin. salaries) cannot be charged directly to
  federally sponsored projects except if the
  following three criteria apply
• 1) The project has characteristics that make it
  one of different purpose and circumstance
• 2) The cost can be specifically identified with
  the project with a high degree of accuracy
• 3) The cost is identified in the budget and
  approved by the sponsor

13
CAS 502 Exceptions

• What does different purpose and circumstance
  mean?
• It means the projects purpose requires an
  inordinate amount of administrative costs
• Example A project whose primary purpose is to
  collect survey data by mail would use
  significantly more postage than a typical
  research project. In this case if the postage is
  approved by the sponsor, this administrative cost
  (postage) could be charged directly.

14
CAS 505 and CAS 506

• CAS 505 requires an accounting of unallowable
  costs for the FA Rate proposal. We follow A-21
  Section J for guidance.
• CAS 506 requires consistency in the same use of
  accounting periods. This is not an issue for us
  since the entire University uses Fiscal Year.

15
CAS Final Thoughts

• There may be instances when costs are included in
  a Federal project budget but may be unallowable
  due to the CAS consistency rules.
• For non-Federal sponsored projects, if the cost
  is approved in the sponsor budget it can be
  charged directly. Remember, OMB Circulars apply
  to Federally funded projects.

16
Disclosure Statement (DS-2)

• Provides a road map for auditors
• Outlines Masons policies and practices related
  to cost allocation
• Examples from the Mason DS-2
• Salaries and fringe benefits of administrative
  and clerical staff are normally treated as
  indirect costs.
• The costs of office supplies, postage, local
  (basic) telephone costs, and memberships are
  treated as indirect costs except when such costs
  are considered by the University to be unlike
  circumstances under Cost Accounting Standard
  502.

17
A-110 Post Award Requirements

• Establishes uniform administrative requirements
  for Pre and Post-award activities
• Post Award areas addressed
• Methods for making payments
• Cost sharing and matching
• Accounting for program income
• Budget revisions
• Audits
• Allowability of costs
• Fund availability

18
A-110 Cost Sharing

• Cost Sharing is becoming more closely monitored
  by federal sponsors and auditors
• Cost Sharing must
• be verifiable from recipients records
• not be used as cost sharing on other projects
• be necessary and reasonable to accomplish project
  objectives
• be an allowable cost
• not be paid from another federal project

19
A-110 Cost Sharing

• We must be able to provide support to sponsors
  showing cost share commitments were met and the
  costs are allowable.
• If contributed effort is used to meet a cost
  share commitment, individuals should not be
  committed more than 100.
• A Cost Share Policy is being developed and OSP,
  Budget and Fiscal Services are developing a
  method to track cost share expenses in Banner.

20
A-133

• Defines requirement for an annual external audit
  of non-profits receiving federal funds for
  sponsored programs in excess of 500,000
• Mason receives approximately 55M in federal
  funding annually
• A-133 audits include
• Testing of internal controls
• Testing of specific transactions
• Testing of compliance functions (ex effort
  reporting, cost sharing and cost transfers)

21
Cost Transfer Policy

• The Cost Transfer Policy will be effective July
  1, 2006
• Addresses any transfer to a federally sponsored
  project previously recorded elsewhere
• Federal regulations require cost transfers be
  timely and properly documented
• Cost transfers should be kept to a minimum
• Monthly review of projects will ensure erroneous
  charges are corrected in a timely manner

22
Cost Transfer Policy

• Cost Transfers over 120 days will only be
  approved if extenuating circumstances exist
• The following are not considered appropriate
  extenuating circumstances
• Absence of PI or Departmental Staff
• Shortage of staff
• Lack of experience of staff
• Administrative oversight

23
Cost Transfer Policy

• Examples of appropriate extenuating circumstances
  to justify a greater than 120 day Cost Transfer
• Award set-up delayed because of late award notice
  (transfer of costs incurred elsewhere need to be
  done within 60 days of the establishment of new
  fund)
• Failure of another department to take corrective
  action (submitting department should show
  documentation indicating continued follow-up
  efforts)

24
Cost Transfer Policy Final Thoughts

• Journals and reallocations need to have
  sufficient supporting documentation or they will
  be disallowed.
• Cost Transfer forms should provide a clear
  explanation that an auditor unfamiliar with the
  details can easily understand.
• Regular reconciliation and review of sponsored
  projects will reduce the chance for disallowed
  cost transfers.

25
Roles and Responsibilities

• Sponsored project administration and compliance
  with Sponsor and Federal guidelines is everyones
  responsibility!
• Principal Investigator
• Departmental Personnel
• Department Chair/Dean
• Office of Sponsored Programs
• Sponsored Roles and Responsibilities Matrix
  http//research.gmu.edu/osp/procedures.html