Office of Management and Budget OMB CIRCULAR A21
Office of Management and Budget (OMB) CIRCULAR A-21 Principles for determining costs applicable to grants, contracts, and other agreements with educational institutions CRe. ATE ver. 05/13 © 2013 Florida State University. All rights reserved
OMB Circular A-21 THE PRIMARY ACCOUNTING REFERENCE FOR FEDERAL SPONSORED AGREEMENTS 2
DHHS Audit Experience n Entrance Conference December 6, 2010 n Fieldwork December 6, 2010 – May 26, 2011 n Exit Conference May 27, 2011 n Draft report received from OIG November 16, 2011 n Response to draft submitted January 31, 2012 n Final report issued by DHHS OIG July 19, 2012 n Response to final report submitted October 9, 2012 n Audit Resolution Phase n 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 n Every decision on federally funded agreements is guided by these pronouncements n 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 audit 6
Major Functions n Instruction n Teaching and training activities n Not research training n Departmental research n n n Not organized research Not separately budgeted Not considered major function n Organized Research n Research and development activities n Separately budgeted n Includes research training 7
Major Functions n Other Sponsored Activities n Programs and projects that are service oriented n Not instruction or organized research n Examples n n Head Start program WFSU activities n Other Institutional Activities n All activities not otherwise classified n n 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 ü Faculty and other non administrative/clerical and student employees working on the sponsored project ü Job titles (not all inclusive) Ø Researcher Ø Lab Assistant/Researcher Ø Graduate Research Assistant 10
Direct Costs – Non Personnel § Other direct costs: ü ü ü ü 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 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 n Deemed to be “general purpose equipment” per A-21 J 18 a(4) ü Generally unallowable as direct charges (J 18 b(1)) ü Requires approval in advance by awarding agency n Refer to guidance issued in June 2012 n http: //www. research. fsu. edu/contractsgra nts/documents/ITguide. pdf n Included in proposal – adequate justification n Not included in proposal – seek approval n Prior to purchase 13
A-21: Cost Accounting Standards § CAS 501 - Consistency in estimating, accumulating and reporting costs Ø 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 Ø All costs incurred for same purpose, purpose in like circumstances, circumstances are either direct costs only or indirect costs only 14
A-21: Cost Accounting Standards n CAS 505 - Accounting for unallowable costs Ø Unallowable costs must be identified in accounting system or identifiable from departmental records n CAS 506 - Cost accounting period Ø FSU’s fiscal year – July 1, xxxx – June 30, xxxx 15
A-21: Disclosure Statement § Large educational institutions ü $25 million per year or more in federally funded awards ü To cognitive agency (DHHS) for review and approval § FSU Disclosure Statement (DS-2) History ü Submitted – June 1998 ü FSU submitted revisions – September 2006, April 2009 and January 2010 ü Received approval March 2010 ü 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 ü $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 Factors ü Reasonableness ü Allocability ü Consistency of treatment ü Conformity to limitations or exclusions 19
Reasonableness 1 - Reasonable n Prudent person would have paid the stated amount for the goods/services ü Cost necessary to accomplish objectives of sponsored award ü Restraints or requirements imposed by arm’slength bargaining/Federal & State laws/sponsored award terms & conditions ü Due prudence ü Consistent with institutional policies 20
Examples n 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. e. Market vendor cost = $. 10/tip. n Travel by researcher to Washington to discuss technical issue on sponsored project with sponsoring agency’s program manager. Researcher followed FSU travel rules. n Lunch for researcher and department chair at Governor’s Club to discuss courses for next semester. 21
Answers ü Not reasonable – did not follow institutional policies ü Reasonable – meets criteria ü Not reasonable – not research purpose 22
Allocability 2 - Allocable n Goods or services involved can be charged in accordance with relative benefits received ü Identifiable to a sponsored award ü Incurred solely to advance work under sponsored agreement ü Benefits more than one sponsored project or other institutional activity, activity the cost must be shared ü Necessary for operation of sponsored and/or other institutional activity 23
Allocability ü Equipment specifically authorized under sponsored agreement, is assignable to sponsored agreement regardless of any use that may subsequently be made 24
Allocability - Lab Manager n In multi award lab general duties must be allocated across awards on a reasonable basis. Examples, ü Training of students, other researchers in lab protocols and procedures ü Animal care that may not be specific to one project ü Performing or supervising others in the preparation of experiments, equipment maintenance, and lab inventory ü Staying abreast of animal care developments 25
Example – Lab Manager n Dr. Gold performs retinal research with zebra fish on 2 R 01 NIH awards and conducts some departmental research. n 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%) n How allocate? 26
Answer n 40% general duties ü Both R 01 grants ü Non sponsored source for the departmental research ü % as determined by Dr. Gold n 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 n Charge is unallowable because research associate’s effort in July did not benefit sponsored project n This practice is referred to as “cost substitution” and does not conform to A-21 requirements 29
Allocability – General Lab Supplies n In multi award lab general lab supplies (pipettes, gloves, etc. ) must be allocated across awards on a reasonable basis. Considerations, ü Can/will items be used by all awards in lab? Specialized items? ü Is item used for general lab upkeep? ü What are the lab supply and ordering practices? ü Is there non sponsored research occurring in the lab? ü Length of awards using items? ü What type of experiments are being conducted? 30
Example – General Lab Supplies n Dr. Tomahawk performs sense of smell research with rats and has 1 R 01 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. n 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 R 01 award. n How should the items purchased be charged to each award? 31
Answer 1 n The pipette tips and test tubes should be allocated to all awards: ü PI estimate % of usage on each award n Charge 100% of gustometer to the R 01 award. 32
Answer 2 n Each researcher works on only 1 award and requests supplies from lab manager monthly: ü Grad Student A (R 01) 2000 pipette tips = $200 ü Grad Student B (NSF A) 2000 pipette tips 200 test tubes = $300 ü Grad Student C (NSF B) 1000 pipette tips and 100 test tubes = $150 n Charge 100% of gustometer to the R 01 award = $6, 000 33
Allocability – Service Agreements n In multi award lab service agreements for equipment must be allocated across awards on a reasonable basis. Considerations, ü When was the equipment purchased? Source of funding? Source active? ü What is the equipment used for? What projects require the use of the equipment for the svc agmt period ü Is there non sponsored research occurring in the lab? ü Length of awards using items? ü What type of experiments are being conducted? 34
Example – Service Agreement n Dr. Tomahawk performs sense of smell research with rats and has 1 R 01 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. n There are 5 centrifuges in the lab. The R 01 uses the 3 large centrifuges and the 2 NSF awards use the 2 smaller ones with equal usage. n Each service agreement costs $500 for period 1/1/2012 -12/31/2012 n How should the service agreements’ costs be charged to each award? 35
Answer ü ü ü R 01 = $750 NSF A = $500 NSF B = $500 Non sponsored source = $750 Total = $2, 500 v 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 n Charge for this equipment is allowable as it was purchased during grant period. n Even though equipment had five year useful life and was used only one month of grant period, it conforms to A-21 provision n “specifically authorized in grant… regardless of subsequent use”. 38
Allocability – Cost Transfer Policy n Effective April 1, 2008; revised July 1, 2010 n http: //www. research. fsu. edu/contractsgrants/ documents/costtranspolicy. pdf n Expenditure transfers to or between sponsored projects n Red flags ü Frequent transfers ü Transfers close to end of project ü Inadequate documentation to support transfer 39
Cost Transfers n Improper cost transfers ü Coverruns ü Spend available balance close to end of project ü Transfer of unallowable cost from one project to another ü Circumvention of award limitation/restriction ü Charge costs to one project that belong to an award not yet executed Ø Advance policy enacted for this reason! 40
Cost Transfers n Allowable transfers ü Correct erroneous charge ü Allocate portion of charge that applies to the project (e. g. split purchases) n Cost Transfer Justification Form at http: //www. research. fsu. edu/contractsgrants/forms. html n Must be received by SRAS as follows: ü Within 90 calendar days from the end of the month in which the error occurred (personnel and non-personnel) ü Retroactive Distribution of Funding Ø Moving salary between or onto projects reallocating original e. PAF distribution as a result of the effort certified is acceptable justification for salary cost transfers 41
Cost Transfers n Cost transfers not received by SRAS by deadline will only be approved in extenuating circumstances, which does not include: n n n Absences of PI or project administrators Non qualified staff Shortage of staff n SRAS Compliance Committee reviews on weekly basis n SRAS Director approves >$25, 000 or > 90 days n Monthly reconciliations needed to detect and correct errors within established timeframes n Controller’s Office offers training: n BTFA 03 - General Ledger Reconciliation 42
Cost Transfers n Justifications – what not to say! ü “Charged to NSF grant waiting for NIH grant to get set up. ” ü “Reconciliations were not performed for 6 months because of support staff turnover. ” ü “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 n 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. n Would you approve this cost transfer? ? Why or Why not? ? 44
Answer n Tuition charge transferred to NSF account is unallowable because ü Charge to NSF grant (now at 100%) was not proportional to effort devoted to NSF grant (50%) ü Transfer was made to avoid restriction of USDA policy. 45
Example – Cost Transfers n At the start of Fall 2011 semester, Dr. Nole was appointed as follows: ü E&G funding = 65% ü NIH P 01 award = 20% ü NSF award = 15% n Dr. Nole certified his Fall 2011 effort report as follows: ü E&G funding = 65% ü NIH P 01 award = 15% (Error occurred <20% paid) ü NSF award = 20% n How do we resolve the effort error? ? 46
Answer n An RDF is required to move 5% from the NIH to the NSF award. ü Allowable because it “trues” up to actual ü Meets time criterion because as a result of actual effort n 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 & Documentation Standard - 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 n No n This would be an unacceptable practice and would not meet the criteria of A-21 n 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 R 01 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 P 01 award because it was the only award open. § Is this appropriate? 54
Answer n The $500 credit should have been applied against Dr. Gold’s R 01 grant that was closed n SRAS is supposed to receive all refund checks when related to sponsored projects n Department submits refund form that includes chartfield information where the original charge was posted n 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 2005 üPI’s annual salary rate was $190, 000/yr, $15, 834/mo üGrant period was Feb. 05 to Jan. 06 üGrant was charged $7, 917 (50% of $15, 834) for PI’s August salary üNIH 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 Ø All costs incurred for same purpose, purpose in like circumstances, circumstances are either direct costs only or indirect costs only 59
Cost Accounting Standard (CAS) Exemption n Allowable to charge Administrative costs directly to the sponsored project ü Exceptional Circumstances n Must be approved in advance of charges normally classified as administrative being charged directly to a project ü 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 ü Complete and submit to SRS § Salaries: ü Title(s), FTE, and salary amount(s) for the clerical/administrative position(s) ü 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. ): ü Description and cost of supplies/services ü 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 n Professor Washington is awarded a $5, 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. n 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. n Approve or Deny? ? 66
Example - CAS Exemption n 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. n 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. n Approve or Deny? ? 67
F&A Costs and Rate Agreement n 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 n F&A a. k. a. Overhead a. k. a. Indirect Costs n FSU negotiates F&A rates with the FSU’s cognitive agency – Department of Health and Human Services (DHHS) Division of Cost Allocation (DCA) n Negotiations culminate in a Rate Agreement at http: //www. research. fsu. edu/contractsgrants/documents/rateagreemen t. pdf 68
F&A Cost Categories n Facilities n n Building and Equipment Depreciation Interest Operations and Maintenance Library n Administration n n General Administration Departmental Administration Sponsored Projects Administration Student Services Administration 69
F&A Rate Development n Negotiating cycle is every four years n Prepare and submit F&A cost allocation proposal n FSU’s current rates negotiated July 2012 n Effective through June 30, 2016 n 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 n Multiple Rates are allowed: n n 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 for NHMFL at FSU n The actual charge to the sponsored project is calculated by multiplying the F&A rate by the distribution base 71
Facilities & Administrative Rates n Organized Research n On Campus 51. 3% (52% effective July 1, 2014) n Off Campus 26. 0% n National High Magnetic Field Lab (NHMFL) Rate n On Campus 70. 0% n Off Campus 26. 0%
F&A Distribution Bases n Federal = Modified Total Direct Cost (MTDC) n Exclusions: n n n Equipment/capital expenditures Patient care Rent Scholarships/fellowships Subcontract amount > $25, 000 Tuition Remission n State of Florida = Total Direct Costs (TDC) n Exclusion: n Tuition Remission 73
Example Calculation Salaries Benefits Tuition Materials and Supplies Equipment Total Direct Costs F&A Base F&A Rate F&A Amount Total Project Cost TDC $10, 000 2, 000 1, 000 2, 000 5, 000 $20, 000 $19, 000 10% 1, 900 $21, 900 MTDC $10, 000 2, 000 1, 000 2, 000 5, 000 $20, 000 $14, 000 51. 3% 7, 182 $27, 182 74
F&A Costs Recovered n The F&A costs recovered by the University from charges made to sponsored projects are placed into the Sponsored Research and Development (SRAD) Fund n 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
QUESTIONS 80
- Slides: 80