Costing and Cost Transfers

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Costing and Cost Transfers

• John Caruso
• Campus Relations Manager,
• Sponsored Projects Administration

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Audience

• This course is intended for department
  administrative staffincluding department
  administrators, division managers, department
  fiscal managers, department effort coordinators,
  etc.

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Costing Basics

• As a condition of receiving award funds from
  federal sponsors, OHSU is required to follow
  basic government regulations and Cost Accounting
  Standards (CAS)
• Agency regulations include the following
• OMB Circular A-21
• 2 CFR Part 215 (formerly OMB Circular A-110)
• OMB Circular A-133
• CAS 501, 502, 505 and 506

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Circular A-21

• Defines the rules for Direct and Indirect
  (Facilities Administrative) costs
• Provides principles for determining if costs are
  allowable, allocable, and reasonable
• Sets forth standards for Effort Reporting

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Circular 2 CFR Part 215

• Defines reporting requirements
• Sets forth acceptable forms of cost sharing
• Defines methods for handling program income
• Explains when prior approvals are required for
  revisions to budget or program plans
• Defines procurement standards and procedures
• Sets forth accounting standards for equipment

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Circular A-133

• Provides the standards for consistency and
  uniformity in the auditing of states, local
  governments, and non-profit organizations
  receiving and expending federal funding

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Cost Accounting Standards

• CAS 501, 502, 505 and 506 were developed to
  create consistency in the following areas
• Estimating, accumulating, and reporting costs
  (CAS 501)
• Allocating costs incurred for the same purpose in
  like circumstances (CAS 502)
• Accounting for unallowable costs (CAS 505)
• Cost accounting periods (CAS 506)

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Purposes of CAS

• Cost Accounting Standards are designed to help
  promote consistency and fairness
• It is essential to consistently follow OHSUs
  disclosed accounting practices on costs
• http//www.ohsu.edu/research/rda/spa/direct.shtml

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Direct Costs

• Cost Accounting Standards reduce the risk of
  double dipping or charging expenditures as both
  direct and indirect costs
• Department administrators need to understand OHSU
  accounting practices and be familiar with the
  regulations defining direct costs

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Charging Direct Costs

• Sponsor funds are available
• Costs are allocable
• Costs are reasonable
• Costs are allowable
• Like costs are treated consistently

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Sponsor Funds Available

• Appropriate direct cost items should be charged
  to sponsor funds
• Expenditures must be between award start and end
  dates
• Funds must remain unspent and uncommitted
• If sponsor funds are unavailable, costs may be
  identified as Cost Sharing

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Allocable

• To be allocable as a direct cost, the expenditure
  must benefit only one project, or must be easily
  and proportionally assigned to multiple projects
  that benefit

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Reasonable

• To be reasonable, costs must pass the prudent
  person test
• Would the local press make a story out of the
  costs you are charging to taxpayer funds? If so,
  you might want to think again.

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Allowable

• For costs to be allowable on a federally
  sponsored award, they must conform to any
  limitations or exclusions set forth in these
  federal principles or in the sponsored
  agreement as to types or amounts of cost items
  (OMB Circular A-21, C.2.d)

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Consistent

• Costs incurred for the same purpose in like
  circumstances must be treated consistently as
  either direct or FA costs. Where an institution
  treats a particular type of cost as a direct cost
  of sponsored agreements, all costs incurred for
  the same purpose in like circumstances shall be
  treated as direct costs of all activities of the
  institution. (OMB Circular A-21, D.1)

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Consistent

• Certain items are generally considered indirect
  (F A) costsunless a direct relationship to a
  specific sponsored project can be established
• Salaries of departmental staff
• Office supplies
• Telephone expenses
• Photocopying and postage
• Etc

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Responsibilities

• Principal Investigators, department
  administrators, and Sponsored Projects
  Administration (SPA) have specific roles and
  responsibilities related to the proper handling
  of costs

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PI Responsibilities

• The Principal Investigator (PI) is ultimately
  responsible for justifying the appropriateness of
  all direct costs budgeted and charged on
  sponsored projects, and must abide by the
  following
• overall government regulations
• agency guidelines
• terms and conditions specific to the individual
  award
• OHSUs policies and guidelines

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Dept Admin Role

• The role of departmental administrators is to be
  a resource to PIs
• Advising on proper direct cost budgeting and
  charging practices
• Helping with regular reports and review of
  expenditures
• Maintaining copies of relevant documents (award
  terms and conditions, OMB Circulars, OHSU
  policies, etc)

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Role of Dean/Director

• The Dean/Director must ensure that guidance is
  provided to PIs and departmental administrators
  on the criteria to be used in budgeting and
  charging direct costs
• The Dean/Director is also responsible for making
  sure mechanisms are in place to ensure
  accountability for budgeting and charging costs

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SPA Responsibilities

• SPA is responsible for providing guidance and
  assistance to PIs and departmental
  administrators in the proper charging of direct
  costs
• SPA also oversees and assists with cost transfers

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Cost Transfers

• Cost Transfer the process for moving an item of
  expenditure between sponsored projects,
  expenditure types, or different types of funds
• Cost Transfers need justification, documentation,
  and approval

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Cost Transfer Overview

• Rules governing Cost Transfers
• Necessary approvals
• Walk through of OHSU Adjustment Form
• Cost Transfers and Audits
• Strategies for Prevention of Cost Transfers
• Examples

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Avoid the Need

• All project costs should be appropriately charged
  to accounts according to accepted accounting
  principles as well as OHSU policies and the
  regulations applicable to sponsoring agencies
• Ideally, completed transactions should not need
  correction

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Transfer When Necessary

• However, in certain circumstances, changes are
  required to move expensesCost Transfer
• Between projects
• Between expenditure types
• Between different types of funds
• Cost Transfers need all of the following
  justification, documentation, and authorization

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Federal Requirements

• The Federal Government questions the propriety of
  Cost Transfers on federally funded projects
• Cost Transfers can cast doubt on a grantees
  accounting system and internal controls
• The Government expects documentation and an
  authorization process for all Cost Transfers on
  federally assisted projects

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Federal Requirements

• There are situations when Cost Transfers are
  appropriate
• To correct a clerical or bookkeeping error
• When work on a project has started, but the
  official notification of the award is delayed
• To move payroll off suspense

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Federal Requirements

• Under no circumstances may a Cost Transfer be
  made with the sole intent of using up the
  unexpended balance in a federal account.

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SPA Procedure

• The Principal Investigator (or Dept Admin)
  initiates the OHSU Adjustment Form as soon as
  possible (within 90 days of expense being
  charged)
• The PI provides all information on the Formnote
  that to correct error is not sufficient cause
• The Department Chair/Division Head reviews the
  Form, and forwards it to SPA if approved

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SPA Procedure

• SPA reviews the OHSU Adjustment Form for
• Allowability
• Acceptability
• Propriety of charges
• If the request does not meet these criteria, it
  will be returned to the PI
• If the request is approved, SPA forwards the form
  for processing

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Acceptable Reasons

• Correction of errorbut be more specific
• Charges benefit more than one program
  (distribution of costs based on benefits
  received)
• Programs involve closely related work

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Unacceptable Reasons

• To reduce overruns if the transfer is from one
  federal project to another
• For reasons of convenience
• To use unspent money in a project
• Because the bookkeeper was on leave, etc

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Walk Through of Form

• Make Cost Transfers using the OHSU (Transfer
  Between) Adjustment Form http//ozone.ohsu.edu/a
  is/docs/adjustmentForm.xls
• There are also online instructions to this form
  http//ozone.ohsu.edu/ais/docs/adjustmentInstructi
  ons.doc

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Audits

• Cost Transfers can be a red flag to auditors
• Auditors examine
• Frequency
• Justification
• Remedies

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Audit Questions

• Are Cost Transfers supported by documentation
  which adequately explains and justifies why the
  transfers were made?
• Are Cost Transfers caused by work which is
  supported by more than one funding source?
• Are there Cost Transfers between projects which
  are in an overrun condition to those with
  unexpended balances?

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Audit Questions

• Are Cost Transfers which represent corrections of
  clerical errors made promptly after discovery?
• Are Cost Transfers dated?
• Is an explanation provided that fully explains
  how the error occurred?

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Strategies for Prevention

• Formal policies and related procedures governing
  Cost Transfers
• Compliance training sessions
• Awareness of the risks involved in making
  inappropriate transfers
• Review of account balances, open orders, etc,
  three months prior to close out

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Cost Transfer Case Study 1

• An OHSU employee transfers expenses from one
  account to another and annotates the cost
  transfer to correct an accounting error
• Is this an appropriate justification?
• Why or why not?

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Case Study 1

• If it was an accounting error, the transfer must
  be supported by documentation that fully explains
  how the error occurred and a certification of the
  correctness of the new charge by a responsible
  organization official
• Transfers made solely to cover cost overruns are
  not allowable

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Cost Transfer Case Study 2

• You are asked by a PI to stop at an office supply
  store on your way to work and pick up a few
  items. The PI also asked you to get donuts for
  the lab meeting that morning. When you arrive at
  work, the PI tells you that all the items should
  be charged to the grant
• Your Department Administrator tells you that
  these purchases must come from departmental
  funds. Why?

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Case Study 2

• If the supplies are not specifically allocable to
  the grant, they are considered general office
  supplies and should not be charged as a direct
  cost to the grant account
• Entertainment, such as food, is unallowable under
  the provisions of A-21

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Cost Transfer Case Study 3

• Dr. Miller purchases a much needed piece of
  specialized equipment for her research on
  hypertension. When preparing the purchase
  request, she realizes that the only account with
  enough money is her grant for research on sleep
  disorders. Because both grants are funded by
  NIH, she charges the equipment to the sleep
  disorder grant. Is this acceptable?

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Case Study 3

• The cost principles address four tests to
  determine allowability of costs
• Allocability
• Reasonableness
• Consistency
• Conformance

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Allocable

• A cost is allocable to a specific grant if it is
  incurred solely in order to advance work under
  the grant and is deemed assignable, at least in
  part, to the grant

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Reasonable

• A cost may be considered reasonable if the nature
  of the goods or services reflect the action that
  a prudent person would have taken under the
  circumstances prevailing at the time the decision
  to incur the cost was made

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Consistent

• Grantees must be consistent in assigning costs.
  Although costs may be charged as either direct
  costs or FA costs, depending on their
  identifiable benefit to a particular project or
  program, they must be treated consistently for
  all work of the organization under similar
  circumstances, regardless of the source of funding

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Conformance

• Conformance with limitations and exclusions as
  contained in the terms and conditions of
  awardvaries by type of activity, type of
  recipient, and other variables on individual
  awards

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Cost Transfer Summary

• Cost Transfer is the process of moving an
  expenditure between research projects,
  expenditure types, or different types of funds
• Cost Transfers should be an exception, not a
  standard means of operating
• Cost Transfers need justification, documentation,
  and approval

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Course Summary

• This course has examined the importance of Cost
  Accounting Standards in the successful management
  of federal award funds
• With proper planning and regular review, costs
  should be charged correctly the first time
• When necessary, cost transfers can be used to
  correct errors, as long as they include proper
  justification, documentation and authorization

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Some Useful Websites

• Grants Page/OER homepage
• http//grants.nih.gov/grants/oer.htm
• NIH Grants Policy Statement (12/03)
• http//grants.nih.gov/grants/policy/nihgps_2003/in
  dex.htm
• NIH Guide for Grants and Contracts
• http//grants.nih.gov/grants/guide/index.html

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Cost Transfers

• Questions?