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Office of Management and Budget (OMB) CIRCULAR A-21
Principles for determining costs applicable to grants, contracts, and other agreements
with educational institutions
CReATE ver. 05/13 © 2013 Florida State University. All rights reserved
DHHS Audit Experience
Entrance Conference December 6, 2010 Fieldwork December 6, 2010 – May 26, 2011 Exit Conference May 27, 2011 Draft report received from OIG November 16, 2011 Response to draft submitted January 31, 2012 Final report issued by DHHS OIG July 19, 2012 Response to final report submitted October 9, 2012 Audit Resolution Phase
Awaiting DHHS decision on what division will negotiate the final resolution with FSU 3
A-21: A Brief History
Originally issued in 1958 Significant changes made in 1996:
Raised threshold for capitalizing equipment to $5,000 Established use of Facilities & Administration (F&A)
rate(s) in effect at start of sponsored agreement over life of agreement
Incorporated four Cost Accounting Standards (CAS) Required educational institutions to submit a Disclosure
Statement (DS-2) regarding cost accounting practices Draft Super Circular issued
Combines 7 circulars into one document COGR has issued draft response Responses to OMB due June 2, 2013 4
Why talk about OMB Circular A-21?
SRS and SRAS employees need to refer to OMB Circulars A-21 and A-110 (next presentation) on a daily basis
Every decision on federally funded agreements is guided by these pronouncements
5
A-21: Applicability
To all research and development, training and other work funded with federal funds at educational institutions
Principles used only as guide in pricing of fixed price or lump sum agreements The Proposal budget on a fixed price
agreement is subject to audit for compliance with A-21 Basis for requiring a detailed budget on a fixed
price award Actual expenditures on a fixed price
agreement are not subject to audit6
Major Functions
Instruction Teaching and training activities Not research training Departmental research
Not organized research Not separately budgeted Not considered major function
Organized Research Research and development activities Separately budgeted Includes research training 7
Major Functions
Other Sponsored Activities Programs and projects that are service oriented Not instruction or organized research Examples
Head Start program WFSU activities
Other Institutional Activities All activities not otherwise classified
Dorms Dining facilities
F&A costs Specialized Service Facilities 8
A-21: Direct Costs
Can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or can be directly assigned to such activities relatively easily with a high degree of accuracy
Where an institution treats a particular type of cost as direct cost of sponsored agreements, all costs incurred for same purpose in like circumstances must be treated as direct costs of all institutional activities
9
Direct Costs – Personnel Costs
Salaries and fringe benefits
Faculty and other non administrative/clerical and student employees working on the sponsored project
Job titles (not all inclusive) Researcher
Lab Assistant/Researcher
Graduate Research Assistant
10
Direct Costs – Non Personnel
Other direct costs: Animals Animal care Audio-visual supplies (chemicals, glassware, etc.) Books and periodicals Specialized & technical svcs Consulting services Lab equipment & equipment maintenance Computer equipment and supplies - research purpose Laboratory supplies Long distance telephone Publication costs Rent & other off-campus facilities costs Scientific reprints Subawards Travel Tuition
11
Facilities & Administrative (F&A) Costs
Costs incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity
12
Computer Purchases
Deemed to be “general purpose equipment” per A-21 J18a(4) Generally unallowable as direct charges
(J18b(1)) Requires approval in advance by awarding
agency Refer to guidance issued in June 2012
http://www.research.fsu.edu/contractsgrants/documents/ITguide.pdf
Included in proposal – adequate justification Not included in proposal – seek approval
Prior to purchase
13
A-21: Cost Accounting Standards
CAS 501- Consistency in estimating, accumulating and reporting costs Basis used in estimating costs in proposal
budget, charging costs to sponsored agreement and reporting costs to sponsor must be consistent with one another
CAS 502- Consistency in allocating costs incurred for same purpose All costs incurred for same purpose, in
like circumstances, are either direct costs only or indirect costs only 14
A-21: Cost Accounting Standards
CAS 505 - Accounting for unallowable costs Unallowable costs must be identified in
accounting system or identifiable from departmental records
CAS 506 - Cost accounting period FSU’s fiscal year – July 1, xxxx – June 30, xxxx
15
A-21: Disclosure Statement
Large educational institutions $25 million per year or more in federally funded awards
To cognitive agency (DHHS) for review and approval
FSU Disclosure Statement (DS-2) History Submitted – June 1998
FSU submitted revisions – September 2006, April 2009 and
January 2010
Received approval March 2010
Revised capitalization threshold to $5,000 approved with most
recent negotiated F&A rate agreement in July 2012 16
Key FSU Practices
Accounting system description: cash basis
Cost accounting period: 7/1 to 6/30 Capitalization of non-expendable
tangible personal property $5,000/useful life greater than one year
Treatment of costs – direct and indirect declared
17
FSU Policies Related to DS-2
Issued a policy on Direct and Indirect Costs of Sponsored Agreements
Issued a policy on Cost Sharing Issued a policy on Unallowable Costs of
Federally Sponsored Projects Policies can be found on Sponsored Research
Web site ( http://www.research.fsu.edu )
18
A-21 Cost Principles
Allowability FactorsReasonablenessAllocabilityConsistency of treatmentConformity to limitations or
exclusions
19
Reasonableness
1 - Reasonable
Prudent person would have paid the stated
amount for the goods/services
Cost necessary to accomplish objectives of
sponsored award
Restraints or requirements imposed by arm’s-
length bargaining/Federal & State
laws/sponsored award terms & conditions
Due prudence
Consistent with institutional policies20
Researcher requesting reimbursement for purchase of 1,000 pipette tips from vendor with no price agreement with FSU and paid for with personal credit card. Price paid $.50/tip vs. eMarket vendor cost = $.10/tip.
Travel by researcher to Washington to discuss technical issue on sponsored project with sponsoring agency’s program manager. Researcher followed FSU travel rules.
Lunch for researcher and department chair at Governor’s Club to discuss courses for next semester.
21
Examples
Answers
Not reasonable – did not follow institutional policies
Reasonable – meets criteria
Not reasonable – not research purpose
22
Allocability
2 - Allocable Goods or services involved can be charged
in accordance with relative benefits received Identifiable to a sponsored award Incurred solely to advance work under
sponsored agreement Benefits more than one sponsored
project or other institutional activity, the cost must be shared
Necessary for operation of sponsored and/or other institutional activity 23
Allocability
Equipment specifically authorized under sponsored agreement, is assignable to sponsored agreement regardless of any use that may subsequently be made
24
Allocability - Lab Manager
In multi award lab general duties must be
allocated across awards on a reasonable
basis. Examples, Training of students, other researchers in lab
protocols and procedures
Animal care that may not be specific to one project
Performing or supervising others in the preparation
of experiments, equipment maintenance, and lab
inventory
Staying abreast of animal care developments25
Example – Lab Manager
Dr. Gold performs retinal research with zebra fish on 2 R01 NIH awards and conducts some departmental research.
Ms. Seminole trains all students in lab techniques and protocols (10%), orders supplies for the lab (5%), cares for the fish colonies (25%), performs experiments assigned by Dr. Gold (60%)
How allocate?
26
Answer
40% general duties Both R01 grants Non sponsored source for the
departmental research % as determined by Dr. Gold
60% directly related to performing experiments allocated (Dr. Gold estimate)
27
Example – Salary Charges
Research associate’s salary for month of July 2008 charged to sponsored project for actual work performed on project in January 2008
Research associate’s effort in July 2008 did not pertain to sponsored project
Sponsored project period was 1/1/08 to 12/31/08
28
Answer
Charge is unallowable because research associate’s effort in July did not benefit sponsored project
This practice is referred to as “cost substitution” and does not conform to A-21 requirements
29
Allocability – General Lab Supplies
In multi award lab general lab supplies (pipettes, gloves, etc.) must be allocated across awards on a reasonable basis. Considerations, Can/will items be used by all awards in lab?
Specialized items?
Is item used for general lab upkeep?
What are the lab supply and ordering practices?
Is there non sponsored research occurring in the lab?
Length of awards using items?
What type of experiments are being conducted?30
Example – General Lab Supplies
Dr. Tomahawk performs sense of smell research with
rats and has 1 R01 NIH and 2 NSF grants all in the
same lab. The aims do not overlap but all of the grants
use similar research techniques and equipment.
The lab manager requests for purchase 5000 pipette
tips ($500), 300 glass test tubes ($150) and 1
gustometer ($6,000) that will be used only on the R01
award.
How should the items purchased be charged to each
award?31
Answer 1
The pipette tips and test tubes should be allocated to all awards: PI estimate % of usage on each award
Charge 100% of gustometer to the R01 award.
32
Answer 2
Each researcher works on only 1 award and requests supplies from lab manager monthly: Grad Student A (R01) 2000 pipette tips =
$200 Grad Student B (NSF A) 2000 pipette tips 200
test tubes = $300 Grad Student C (NSF B) 1000 pipette tips and
100 test tubes = $150 Charge 100% of gustometer to the R01
award = $6,00033
Allocability – Service Agreements
In multi award lab service agreements for equipment must be allocated across awards on a reasonable basis. Considerations, When was the equipment purchased? Source of
funding? Source active?
What is the equipment used for? What projects require
the use of the equipment for the svc agmt period
Is there non sponsored research occurring in the lab?
Length of awards using items?
What type of experiments are being conducted?34
Example – Service Agreement
Dr. Tomahawk performs sense of smell research with rats
and has 1 R01 NIH (ends 6/30/2012) and 2 NSF grants
(both end 12/31/2013) all in the same lab. The aims do
not overlap but all of the grants use similar research
techniques and equipment.
There are 5 centrifuges in the lab. The R01 uses the 3
large centrifuges and the 2 NSF awards use the 2 smaller
ones with equal usage.
Each service agreement costs $500 for period 1/1/2012-
12/31/2012
How should the service agreements’ costs be charged to
each award?35
Answer
R01 = $750NSF A = $500NSF B = $500Non sponsored source = $750Total = $2,500
Note rotation among awards generally not acceptable method
36
Example – Equipment
Dr. Garnett purchased a microscope costing $10,000 on an NSF-funded project during last month of a one-year grant period. The microscope has a 5 year life.
The microscope was included in the budget approved by the agency.
The equipment was required to complete the analysis phase of research.
37
Answer
Charge for this equipment is allowable as it was purchased during grant period.
Even though equipment had five year useful life and was used only one month of grant period, it conforms to A-21 provision “specifically authorized in grant… regardless of
subsequent use”.
38
Allocability – Cost Transfer Policy
Effective April 1, 2008; revised July 1, 2010 http://www.research.fsu.edu/contractsgrants/
documents/costtranspolicy.pdf Expenditure transfers to or between
sponsored projects Red flags
Frequent transfers Transfers close to end of project Inadequate documentation to support transfer
39
Cost Transfers
Improper cost transfers Cover overruns Spend available balance close to end of project Transfer of unallowable cost from one project to
another Circumvention of award limitation/restriction Charge costs to one project that belong to an
award not yet executed Advance policy enacted for this reason!
40
Cost Transfers
Allowable transfers Correct erroneous charge
Allocate portion of charge that applies to the project (e.g.
split purchases)
Cost Transfer Justification Form at
http://www.research.fsu.edu/contractsgrants/forms.html
Must be received by SRAS as follows: Within 90 calendar days from the end of the month in which
the error occurred (personnel and non-personnel)
Retroactive Distribution of Funding Moving salary between or onto projects reallocating original
ePAF distribution as a result of the effort certified is
acceptable justification for salary cost transfers 41
Cost Transfers
Cost transfers not received by SRAS by deadline will only be approved in extenuating circumstances, which does not include: Absences of PI or project administrators Non qualified staff Shortage of staff
SRAS Compliance Committee reviews on weekly basis
SRAS Director approves >$25,000 or > 90 days Monthly reconciliations needed to detect and
correct errors within established timeframes Controller’s Office offers training:
BTFA03 - General Ledger Reconciliation 42
Cost Transfers
Justifications – what not to say! “Charged to NSF grant waiting for NIH
grant to get set up.” “Reconciliations were not performed for 6
months because of support staff turnover.” “There are funds left on Project Aaa and we
want to spend the balance. We charged the costs to Project Bee but now that there is funding left so we need to move the costs.”
43
Example – Cost Transfers
A graduate assistant worked and was paid 50% on grant from US Dept. of Agriculture (USDA) and 50% on grant from National Science Foundation (NSF). Each grant was charged 50% of tuition. Since USDA policy does not permit charges for tuition, the PI requested that the tuition charge be transferred from USDA account to NSF account.
Would you approve this cost transfer?? Why or Why not??
44
Answer
Tuition charge transferred to NSF account is unallowable because Charge to NSF grant (now at 100%) was
not proportional to effort devoted to NSF grant (50%)
Transfer was made to avoid restriction of USDA policy.
45
Example – Cost Transfers
At the start of Fall 2011 semester, Dr. Nole was appointed as follows:E&G funding = 65%NIH P01 award = 20%NSF award = 15%
Dr. Nole certified his Fall 2011 effort report as follows:E&G funding = 65%NIH P01 award = 15% (Error occurred <20%
paid)NSF award = 20%
How do we resolve the effort error?? 46
Answer
An RDF is required to move 5% from the NIH to the NSF award. Allowable because it “trues” up to actual Meets time criterion because as a result of
actual effort Requesting the PI to change his/her effort
certification “to get rid of the error” IS NOT the solution!!!!
47
Cost Transfers - NIH Policy
The NIH Grants Policy Statement Cost Transfers to NIH grants by grantees…should be
accomplished within 90 days… Transfers must be supported by documentation that fully
explains how error occurred and certification of correctness of new charge by responsible University official …
Stating that transfer was made “to correct error” or “to transfer to correct project” is not sufficient.
Transfers of costs solely to cover cost overruns are not allowable.
48
Cost Transfers - NIH policy
Grantee’s must maintain prescribed documentation of cost transfers and must make it available for audit…
Frequent errors in recording costs may indicate need for accounting system improvements and/or enhanced internal controls.
If such errors occur, grantees are encouraged to evaluate need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence.
NIH also may require a grantee to take corrective action by imposing additional terms and conditions on an award.
49
Allocation & DocumentationStandard - Internal Controls
An institution's financial management system must provide that no one person has complete control over all aspects of a financial transaction
50
Example – Internal Control
PI (also department chair) prepares TAR for PI’s travel and signs as traveler, PI and PI’s supervisor.
PI prepares travel reimbursement and reconciles departmental accounting records.
Is this appropriate?
51
Answer
No This would be an unacceptable practice and
would not meet the criteria of A-21
FSU’s signature requirements on accounting documents prevents an internal control violation such as this from occurring
52
Allocation & Documentation Standard - Applicable Credits
Applicable credits must be applied to related expenditures
Typical examples of applicable credits are: purchase discounts, rebates, or allowances; and adjustments of overpayments or erroneous charges
53
Example – Applicable Credits
Lab equipment was purchased in July 2011 for $2,000 on Dr. Gold’s R01 grant that ended September 30, 2011.
In September 2011 it was discovered that the vendor overcharged for the equipment by $500.
A credit was received and the department charged the credit to Dr. Gold’s P01 award because it was the only award open.
Is this appropriate?54
Answer
The $500 credit should have been applied against Dr. Gold’s R01 grant that was closed
SRAS is supposed to receive all refund checks when related to sponsored projects
Department submits refund form that includes chartfield information where the original charge was posted
SRAS verifies chartfields to ensure the appropriate sponsored project is credited even if project is closed 55
Limitations on Allowance of Costs
Sponsored agreements may be subject to statutory requirements that limit allowance of costs
When maximum amount allowable under limitation is less than total amount allowed in A-21, amount not recoverable under sponsored agreement may not be charged to other sponsored agreements Must be funded by a non-sponsored source of
funds
56
Example – Limitations
PI had an NIH grant and devoted 50% effort to it during month of August 2005PI’s annual salary rate was $190,000/yr,
$15,834/moGrant period was Feb. 05 to Jan. 06Grant was charged $7,917 (50% of
$15,834) for PI’s August salaryNIH had salary rate cap of $180,100/yr or
$15,008/mo for 2005
[Current 2012 NIH Salary Cap is $179,700]
57
Answer
Costs of $413 are unallowable because the salary charged to the grant exceeded the sponsoring agency’s “rate of pay” limitation
Maximum amount chargeable to grant for 50% effort was $7,504 (50% of $15,008)
The grant should have been charged $7,504 for effort and amount in excess of the NIH cap ($7,917-$7,504=$413) charged to E&G or another unrestricted funding source
[Current (2012) NIH Salary Cap is $179,700]
58
Cost Accounting Standard 502
CAS 502- Consistency in allocating costs incurred for same purpose All costs incurred for same purpose, in
like circumstances, are either direct costs only or indirect costs only
59
Cost Accounting Standard (CAS) Exemption
Allowable to charge Administrative costs directly to the sponsored project Exceptional Circumstances
Must be approved in advance of charges normally classified as administrative being charged directly to a project Try to handle at proposal stage
60
Exceptional Circumstances – Definition
If the nature of a sponsored project requires an extensive amount of administrative and/or clerical support or goods/services significantly greater than the routine level provided by an academic department, then the effort is deemed an exceptional circumstance and such costs can be accounted for as direct
61
Exceptional Circumstances – Other conditions required
Be specifically identifiable to a particular sponsored project
Meet A-21 requirements for reasonableness, allowability and allocability
Be specified in the proposal budget and approved by the sponsoring agency
62
Exceptional Circumstances - Documentation Requirements
CAS Form Complete and submit to SRS
Salaries: Title(s), FTE, and salary amount(s) for the
clerical/administrative position(s) What it is about the scope of the project that requires
this extensive effort Other Costs (office supplies, memberships, postage,
local telephone, cell phones, etc.): Description and cost of supplies/services What it is about the scope of the project that requires
these goods/services to further the research or other sponsored activity 63
Exceptional circumstances – Examples
Large, complex programs, such as Clinical Research Centers, program projects, environmental research & engineering research centers & projects that entail assembling & managing teams of investigators from a number of institutions
Projects which involve extensive data accumulation, analysis & data entry, surveying, tabulation, cataloging, searching literature, & reporting, such as epidemiological studies & clinical records
Projects that require making travel & meeting arrangements for large numbers of participants, such as conferences and seminars
64
Exceptional circumstances – Examples (cont’d)
Projects whose principal focus is the preparation & production of manuals & large reports, books & monographs (excluding routine progress & technical reports).
Projects that are geographically inaccessible to normal departmental administrative services, such as seagoing research vessels, radio astronomy projects, & other research field sites that are remote from campus.
Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.
65
Example - CAS Exemption
Professor Washington is awarded a $5,000,000 (5 year) grant to coordinate Medical teams from all Florida universities to train medical professionals on new geriatric caretaking techniques. Training meetings are to be conducted 4 times per year at different locations across the state.
Professor Washington is requesting a CAS exemption for two administrative positions to coordinate the training teams, organize training conferences including travel arrangements for the University teams and to do outreach to the bring/entice the professionals to participate in the training. These positions were included in the budget approved by the agency.
Approve or Deny???? 66
Example - CAS Exemption
Professor Adams is awarded a $50,000 (1 year) grant to write and produce training materials for the US Dept of Education’s early childhood education program. The materials will be used to train childcare professionals.
Professor Adams is requesting a CAS exemption to charge $25,000 for printing/reproduction of 1,000 manuals. These costs were included in the budget approved by the agency.
Approve or Deny????
67
F&A Costs and Rate Agreement
F&A costs defined as those incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity F&A a.k.a. Overhead a.k.a. Indirect Costs
FSU negotiates F&A rates with the FSU’s cognitive agency – Department of Health and Human Services (DHHS) Division of Cost Allocation (DCA)
Negotiations culminate in a Rate Agreement at http://www.research.fsu.edu/contractsgrants/documents/rateagreement.pdf
68
F&A Cost Categories
Facilities Building and Equipment Depreciation Interest Operations and Maintenance Library
Administration General Administration Departmental Administration Sponsored Projects Administration Student Services Administration
69
F&A Rate Development
Negotiating cycle is every four years Prepare and submit F&A cost allocation proposal
FSU’s current rates negotiated July 2012 Effective through June 30, 2016
Objective of the F&A allocation proposal is to aggregate and distribute F&A costs to the major functions of the institution in proportions reasonably consistent with the nature and extent of their use
70
F&A Rate Application
Multiple Rates are allowed: On Campus – comprised of both facility and administrative
costs Off Campus – comprised of administrative costs only (26%) Separate functions – rates for instruction, organized
research, and other sponsored activity Separate rate for NHMFL at FSU
The actual charge to the sponsored project is calculated by multiplying the F&A rate by the distribution base
71
Facilities & Administrative Rates
Organized Research On Campus 51.3% (52% effective July 1, 2014) Off Campus 26.0%
National High Magnetic Field Lab (NHMFL) Rate On Campus 70.0% Off Campus 26.0%
F&A Distribution Bases
Federal = Modified Total Direct Cost (MTDC) Exclusions:
Equipment/capital expenditures Patient care Rent Scholarships/fellowships Subcontract amount > $25,000 Tuition Remission
State of Florida = Total Direct Costs (TDC) Exclusion:
Tuition Remission
73
Example Calculation
TDC MTDCSalaries $10,000 $10,000Benefits 2,000 2,000Tuition 1,000 1,000Materials and Supplies 2,000 2,000Equipment 5,000 5,000Total Direct Costs $20,000 $20,000F&A Base $19,000 $14,000F&A Rate 10% 51.3%F&A Amount 1,900 7,182Total Project Cost $21,900 $27,182
74
F&A Costs Recovered
The F&A costs recovered by the University from charges made to sponsored projects are placed into the Sponsored Research and Development (SRAD) Fund
Presentation on the SRAD recovery and distribution later
75
A-21: Selected Items of Cost
A-21 principles must be applied in establishing allowability of cost, whether particular item is treated as direct cost or indirect cost
Fifty-four specific items of costs are addressed in section J.
Other items not specified may be allowable or unallowable
Items specifically stated as “allowable” must meet the “allowability principles”
76
Section J. Unallowable Costs
Public Relations
Alcoholic Beverages
Bad Debts
Commencement/Convocation
Contingencies
Entertainment
Improvements to land, buildings, or equip that increase value or life (unless prior agency approval)
Fines/Penalties
77
Section J. Unallowable Costs
Goods or Services for personal use
Lobbying
Losses on other awards
Memberships
Preagreement/pre award (unless approved by agency)
Student Activity Fees (unless specifically provided for in award)
78
A-21: Certification of Charges/Payment
Required on financial reports and payment requests
Reads essentially as follows: "I certify that all expenditures reported (or payment requested) are for appropriate purposes and in accordance with the provisions of the application and award documents.“
SRAS requests PI signature on final expenditure report or invoice 79