Cost Accounting Standards An Introduction for Research Administrators

1
Cost Accounting Standards An Introduction for
Research Administrators
2
Facilitators

• Dave Boling, Associate Comptroller, Financial
  Analysis, djb2k_at_virginia.edu, 924-4291
• Sharon Boyd, Director of Research Administration
  - Outreach Compliance, sgb4n_at_virginia.edu,
  243-2036
• Gina Corell, Education Coordinator,
  glc2z_at_virginia.edu, 243-8653
• Mike Glasgow, Assistant Vice President for
  Research Administration, mgg5e_at_virginia.edu,
  924-4274

3
Course Objectives

• The Body of Knowledge
• Review the Historical Background and Federal
  Policy on Cost Accounting Standards (CAS)
• Understand the Basic Philosophy of CAS 4
  Standards
• Review Consistent Treatment of Costs and CAS
  Applicability
• Review Definitions of Costs
• Understand the Facilities and Administrative
  (FA) Cost Piece
• Understand Cost Sharing Implications on FA
  Recovery
• Review Major Projects and Unlike Circumstances
• Clarify Roles and Responsibilities in the
  Application of CAS
• Understand Unlike Circumstances and
  Justification Process
• Understand the Risks of Noncompliance

4
Body of Knowledge

• Federal Regulations (A-21, A-110, FAR)
• Internal Policies and Procedures (DS-2)
• External Policies and Procedures
• Sponsor Award Terms and Conditions
• Facts and circumstances of each award

5
Activity 1

• A quick test of your general knowledge on Cost
  Accounting Standards.

6
CAS Historical Background Information

• Early 1970s
• 17 Cost Accounting Standards
• mandated for private industry
• Covered pricing/costing of goods/services paid
  with Federal dollars
• 1992 - 4 standards for Universitys proposed
  (contracts only)
• 1994 - 4 standards for Universitys required
  (contracts only)
• 1996 - A-21 revised in April to include 4
  standards for grants and cooperative agreements

7
CAS The Universitys Disclosure Statement (DS-2)

• These Cost Accounting Standards require
• that UVa discloses our costing practices in a
  formalized document, called the Disclosure
  Statement, or DS-2
• that we actually follow the costing practices
  weve outlined in the DS-2
• The DS-2 describes to the government how were
  treating costs at the University. In simplified
  terms, it details which costs we treat
  (allocate or assign) as direct costs, and
  which ones we treat as facilities
  administrative costs.
• The development and preparation of this rate
  agreement is regulated by OMB Circular A-21,
  Sections E-G.

8
CAS The Basic Philosophy

• CONSISTENCY ..
• In the budgeting, charging and reporting of costs
  on Federal sponsored awards.
• Consistency Must Be Achieved Across GROUNDS!!!

9
Cost Accounting StandardsThe Big Four

• OUR FOCUS TODAY!
• Standard 502
• Requires consistency in allocating costs incurred
  for the same purpose by educational institutions.
  
• In other words
• All costs incurred for the same purposes are
  either direct costs only or facilities and
  administrative (indirect) costs only.

10
Cost Accounting StandardsThe Big Four

• Standard 501
• Requires consistency in estimating, accumulating
  and reporting costs by educational institutions.
• Standard 505
• Requires accounting for unallowable costs.
• Standard 506
• Defines the Cost Accounting Period.

11

WHAT IS CAS REALLY SAYING?

• 1. Dont charge the government twice for the
  same cost.
• (Direct versus FA costs)
• Keep in mind the basic philosophy of CAS
  Consistency!
• 2. Dont charge the government for any
  unallowable costs.

12
CAS Applicability at UVA

• CAS must be applied to
• all Federal awards
• all awards that contain any Federal flow-through
  money
• awards where the terms and conditions of the
  proposal or award documents reference OMB
  Circular A-21 or Cost Accounting Standards
• awards that are being used as cost sharing to a
  CAS covered project. Only the individual cost(s)
  being used as cost sharing would be subject to
  CAS
• REMEMBER CAS WILL APPLY TO SPONSORED AWARDS THAT
  MEET ANY ONE OF THESE CRITERIA.

13
Definition - Unallowable Costs

• Costs which cannot be proven to be necessary,
  reasonable, allocable or non-personal in nature,
  and thus, the federal government will not
  cover/reimburse examples include
• alcoholic beverages
• entertainment
• lobbying
• losses on other sponsored projects
• memberships in civic, community organizations and
  country clubs
• public relations
• This list is not inclusive see A-21 Section J.
  These costs cannot be charged direct or recovered
  through an FA rate.

14
Definition - Direct Costs

• Is specifically identifiable with an individual
  project (point of allocation)
• a specific cost is assigned to a specific project
• directly related to the objectives of the science
• Identification is made with relative ease and a
  high degree of accuracy

15
To be Considered Direct- The Cost Must Be

• Allowable - A cost must be allowable under both
  the provisions of OMB Circular A-21, Section J
  AND the terms of the particular award.
• Allocable - The project which pays the expense
  must directly benefit from it. The item charged
  to a grant must be directly related to the
  objectives of the science.

16
To be Considered Direct- The Cost Must Be

• Reasonable - An expense must be reasonable, in
  that a prudent person would have paid the
  stated amount for the good/service and also would
  have applied the cost to a sponsored award in the
  same manner.
• Consistent - All costs incurred for the same
  purpose, in like circumstances, are either to be
  treated as direct OR FA (indirect) costs.

17
Definition - Facilities Administrative Costs
(FA)

• general institutional expenses
• incurred for and a benefit to common objectives
• identified in the Universitys FA Cost Proposal
  (submitted to the Federal Government) as an
  indirect or overhead-related cost
• FA Cost indirect costs overhead

18
UNIVERSITY OF VIRGINIANegotiated
Research Facilities and Administrative Rate(AKA
Indirect Cost Rate)

• 07/01/03- 06/30/06 RESEARCH
• RATE COMPONENTS ON GROUNDS OFFGROUNDS
• FACILITIES
• Building Depreciation
  4.1
• Equipment Depreciation 4.6
• Interest 1.1
• Operations Maintenance 14.2
• Libraries 2.0
• Total FACILITIES 26.0
• ADMINISTRATION
• General Administrative 6.4
  6.4
• Departmental Administration 17.1
  17.1
• Sponsored Projects Admin 2.5
  2.5
• Total ADMINISTRATION 26.0
  26.0
• TOTAL 52.0 26.0
• Estimated breakdown. Actual breakdown not
  provided by the government.

19
UNIVERSITY OF VIRGINIANegotiated
Research Facilities and Administrative Rate(AKA
Indirect Cost Rate)

• 07/01/03- 06/30/06 RESEARCH
• RATE COMPONENTS ON GROUNDS OFF GROUNDS
• FACILITIES
• Building Depreciation 4,100
• Equipment Depreciation 4,600
• Interest 1,100
• Operations Maintenance 14,200
• Libraries 2,000
• Total FACILITIES 26,000
• ADMINISTRATION
• General Administrative 6,400
  6,400
• Departmental Administration
  17,100 17,100
• Sponsored Projects Admin 2,500
  2,500
• Total ADMINISTRATION 26,000
  26,000
• TOTAL 52,000
  26,000
• Estimated breakdown. Actual breakdown not
  provided by the government.

20
UNIVERSITY OF VIRGINIANegotiated
Research Facilities and Administrative Rate(AKA
Indirect Cost Rate)

• On-Grounds Organized Research FA Rate
• For Rates in Place FY03 through FY06
• PROPOSED RATE 58.3
• PROJECTION ADD-ON 1.8
• _____
• SUBTOTAL 60.1
• OF ADMIN gt 26 ADMIN CAP -4.0
• NET PROPOSED RATE 56.1
• FINAL NEGOTIATED RATE 52.0
• "Real" Total Costs Rate 60.1
• Final Negotiated Rate 52.0
• Difference (Lost Rate) 8.1

21
A Bit of Cost Sharing

• A general term that describes an arrangement in
  which more than one party contributes to the
  total cost of a project. Cost sharing can be in
  the form of "hard dollars," or in-kind
  contributions such as time committed to a
  project.
• Example A university receives a grant for a
  project estimated to have a total cost of
  100,000. The sponsor agrees to pay 75 (75,000)
  and the university agrees to pay 25 (25,000).
  The 25,000 is the cost-sharing component.

22
CAS Unlike Circumstances

• Exist when a cost that is normally considered an
  FA cost qualifies as a direct cost by..
• satisfying the definition of a direct cost,
• KEYS allocable and identifiable with relative
  ease high degree of accuracy
• being extensive in nature (over and above routine
  use at the University/support by the academic
  unit),

23
CAS Unlike Circumstances

• Exist when a cost that is normally considered an
  FA cost qualifies as a direct cost by..
• ensuring that the purpose of the award (survey
  creation, database building) is such that its
  activities are unlike those generally charged as
  FA costs and can support the direct charging of
  the questioned costs.

24
MAJOR PROJECTS OMB EXAMPLE 1
ADMINISTRATIVE - CLERICAL

• Large, complex research programs -

Coordination/management of a team of
researchers, units, departments,
institutions, centers

• Large consortiums

25
MAJOR PROJECTS OMB EXAMPLE 2
ADMINISTRATIVE - CLERICAL

• Projects that are geographically inaccessible to
  routine support, i.e., remote field locations

26
MAJOR PROJECTS OMB EXAMPLE 3
ADMINISTRATIVE - CLERICAL
Projects that require extensive, repeated travel
and/ or meeting arrangements for large numbers of
participants
27
MAJOR PROJECTS OMB EXAMPLE 4
ADMINISTRATIVE - CLERICAL

• Projects involving
• extensive surveying, data entry and collection,
  tabulation, cataloging, analysis

28
MAJOR PROJECTS OMB EXAMPLE 5
ADMINISTRATIVE - CLERICAL

• Projects involving
• extensive surveying, data entry and collection,
  tabulation, cataloging, analysis

29
Activity 2

• There are five cost items that are not normally
  allowable as a direct costs on federal or federal
  flow-through awards.
• Can you name them?

30
The BIG FIVE

• Administrative and Clerical Salaries
• General Office Supplies
• Postage
• Local Telephone Calls/Recurring Costs
• Individual/Professional Memberships
• Subscriptions MAY be allowed, but not their
  related membership costs

31
Time for a Breather! OSP Education Opportunities

• Current Offerings
• Resource Library
• Web site http//www.virginia.edu/sponsoredprogr
  ams/
• Certified Research Administrators (CRA) Review
• NCURA Video Teleconferences
• Under Construction
• Comprehensive Education Program - Certification
• Research Digest
• Brown Bag Discussion Groups/QA Sessions

32
Activity 320 Questions Review

• Assess your understanding of CAS definitions and
  consistency issues
• Table teams discuss/work together
• Five minutes to complete
• Team with most correct best time wins (with
  prize implications!)

33
Roles and Responsibilities

• OFFICE OF SPONSORED PROGRAMS
• Establish, review, and communicate policies and
  procedures related to sponsored programs
  administration
• See UVa Cost Accounting Standards Guidelines
  document
• Monitor management practices in the research
  arena to help ensure consistency in budgeting,
  charging, and reporting of costs throughout the
  award process
• Review and approve proposal packages (exception
  SOM) and provide final approval on CAS exceptions
  and justifications (all Schools)

34
Roles and Responsibilities

• OFFICE OF SPONSORED PROGRAMS
• Provide necessary assistance, customer service,
  and training to the University research
  administration community
• Implement Transaction Controls through the
  Integrated System to assist in costing practices
  adopted by Uva
• Coordinate external audits and reviews

35
Roles and Responsibilities

• COMPTROLLERS OFFICE
• To collect monies owed to the University
• To record and report the movement of monies
  through the University's accounts
• To negotiate, approve, and administer certain
  contracts made between the University and
  external entities
• Track material University assets

36
Roles and Responsibilities

• COMPTROLLERS OFFICE
• Ensure compliance with fiduciary regulations
• Prepare official institutional regulatory
  reports
• Conduct financial studies and analyses and
  prepare information
• Develop and distribute financial policies and
  procedures to guide financial activities

37
Roles and Responsibilities

• SCHOOLS/DEPARTMENTS
• Provide consistency in the application of costs
  in the budgeting process
• performing a detailed review of all proposals and
  the related financial narratives and budgets
• developing adequate written justifications for
  any unlike circumstances
• obtaining a thorough understanding of
  unallowable, direct, and FA cost items

38
Roles and Responsibilities

• SCHOOLS/DEPARTMENTS
• Develop consistency in charging sponsored award
  costs
• developing effective, adequate pre-audit
  processes, adequate written justifications for
  unlike circumstances that may arise after award
  set up by re-budgeting, transfer of charges kept
  to a minimum, seeking prior approval from the
  responsible parties, etc.
• obtaining a thorough understanding of Cost
  Accounting Standards
• ensuring monthly reconciliation of project costs
  in a timely manner with the required PI signature

39
Exploring the UVa CAS Guidelines Document

• The governing UVa policy/procedural document
  concerning CAS
• http//www.virginia.edu/sponsoredprograms/
• casguidelines.doc
• Containing thorough information concerning CAS
  principles, with illustrations, and details
  concerning specific cost items, such as the big
  five, equipment, computers, etc.

40
Exploring the UVa CAS Guidelines Document, cont.

• Outlines how to complete a justification for an
  unlike circumstance
• Provides a list of cost items not normally
  allowable as direct costs (not inclusive)
• includes a decision chart for determining
  allowability of direct allocation

41
Justification of Unlike Circumstances

• NOTE Always include the following information
  on the Justification Request Form
• specific cost item(s)
• comprehensive justification
• item quantity and unit cost
• Project/Task/Award information
• PIs last name

42
The CAS Unlike Circumstance Justification Process

• CONCENTRATE ON

DO YOUR HOMEWORK
MAKE A JUDGMENT
EQUALS
WRITE JUSTIFICATION
AN APPROVED BUDGET
43
STEP 1-DO YOUR HOMEWORK

• Apply applicable award requirements
• Federal Regulations
• Internal Policies and Procedures
• Award Specific Terms and Conditions
• Facts and Circumstances of the award

44
STEP 2-MAKE A JUDGEMENT

• Based on the review
• Determine allowability, allocability,
  reasonableness
• If allowable, determine proper classification
  between direct and FA costs

45
SAMPLE QUESTIONS TO ASK

• Does the cost provide a direct benefit to the
  purpose or objective of the project or is it just
  needed to complete the project?
  
• Can the cost meet the definition of a direct
  charge?
• For other cost that are normally FA, do the
  facts and circumstances meet the criteria to
  qualify the cost as a direct charge under an
  unlike circumstance?
• If I were on the jury discussing the direct
  charging of these costs, would I reach the same
  conclusion (consistency and point of allocation
  issues)?

46
STEP 3- PROVIDE WRITTEN JUSTIFICATION

• UVA internal procedures require written
  justification and approval over the direct
  charging of costs normally considered as FA
  costs.
• Justification should be provided in appropriate
  detail in the proposal/budget and be further
  explained/approved on Part III of the OSP
  GoldenRod form.
• Should unlike circumstances arise after the
  project is awarded, detailed justification/approva
  l should be provided on Part III of the GoldenRod
  form.

47
Invalid Arguments For Unlike Circumstances

• Insufficient FA cost money to support cost
• Sponsor wont pay FA costs
• Sponsor approval without proper review by
  institution
• Sponsor is willing to pay direct
• Need vs. directly related to the purpose of the
  project

48
Activity 4 YOU BE THE JUDGE
1 ITEM postage, express mail, educational videos,
administrative Staff salary/fringe, photocopying,
public programming expenses
JUSTIFICATION Because the project at hand was
awarded in support of our national resource
center operations, and all of these budget items
are allowable as direct costs.
49
Activity 4 YOU BE THE JUDGE
JUSTIFICATION The project outcome relies on
surveying a specific population the PI needs to
make copies of the survey in sufficient numbers
for her proposed study subjects. The surveys
will be administered during focus groups to be
conducted at Rockingham Memorial Hospital. PI
will need to solicit potential subjects for her
focus group by mail and follow up with them by
mail.

• 2
• ITEM
• printing and
• postage for
• questionnaires,
• confirmation
• Letters, and no
• response
• letters

50
Activity 4 YOU BE THE JUDGE
JUSTIFICATION Needed to identify and track the
large amount of expensive electronic equipment
including computers which have been purchased
with grant funds for this research. Labeler will
provide ability to track inventory for security
reasons as required by the Sponsor.

• 3
• ITEM
• electric labeler, labeling materials,
  administrative salary/fringe

51
Activity 4 YOU BE THE JUDGE

• 4
• ITEM
• freight costs

JUSTIFICATION Special shipping costs for cadaver
(heads) and equipment back to the Sponsor.
52
Recent Cases of Audit Disallowance

• Johns Hopkins University agreed to pay
  2.6-million to settle claims that their
  scientists had over billed medical-research
  projects financed by the federal government.
• University of California agreed to pay a 2.1
  Million fine for inadequately documented billing
  of services and coding irregularities related to
  the NIH salary cap
• Florida International University paid 11.5
  Million plus 1.7 Million in foregone costs

53
Violations are Both Criminal Civil Offenses

• Criminal Liability
• Up to 5 years imprisonment for individuals, and
• Up to 250,000 fine
• Civil Liability
• Civil penalty for each false claim is not less
  than 5,000 and not more than 10,000
• Plus 3 times the amount of damages which the
  Government sustains because of the act of the
  defendant

54
Risks of Noncompliance
Disallowance of Costs Adverse Affects on FA
Negotiations Published Audit Findings Loss of
Delegated Authority Greater Audit Oversight Loss
of Future Funding Loss of University
Credibility
55
Course Objectives

• The Body of Knowledge
• Review the Historical Background and Federal
  Policy on Cost Accounting Standards (CAS)
• Understand the Basic Philosophy of CAS 4
  Standards
• Review Consistent Treatment of Costs and CAS
  Applicability
• Review Definitions of Costs
• Understand the Facilities and Administrative
  (FA) Cost Piece
• Understand Cost Sharing Implications on FA
  Recovery
• Review Major Projects and Unlike Circumstances
• Clarify Roles and Responsibilities in the
  Application of CAS
• Understand Unlike Circumstances and
  Justification Process
• Understand the Risks of Noncompliance

56
QUESTIONS?
57
POVERTY IS NEVER AN EXCUSE !!