Cost Principles 2CFR Part 220 (Formerly OMB Circular A-21 ) Office of Sponsored Programs

1. Departmental Research Administrators Training Track Cost Principles 2CFR Part 220 (Formerly OMB Circular A-21) Office of Sponsored Programs Engineering 329 ospa@umbc.edu 410-455-3140 (Phone) 410-455-1876 (Fax) www.umbc.edu/research/OSP

2. 2CFR Part 220 Emphasizes Allowable and Unallowable Costs Calculating F&A Proposal Cost Accounting Standards

3. You Will... …Learn what costs are allowable and unallowable …Discover how the F&A Rate is determined …Learn what F&A costs are …Explore cost accounting standards (CAS)

4. Parts of the Cost Principles for Educational Institutions Part A -General Part B -Definition & Terms Part C -Basic Consideration Part D -Direct Costs

5. Parts Continued Part E - F&A Costs (formerly Indirect Costs) Part F - Identification of F&A Costs Part G - Determining F&A Rates Part H -Methods for small institutions Part I -Reserved Part J -Provisions for costs Part K -Certification of charges

6. 2CFR Part 220 Appendix: A.- Cost Accounting Standards B.- Disclosure Statement C.- Examples of Administrative Charges

7. 2CFR 220Part A Principles for determining costs applicable to grants, contracts, and other agreements The principles are designed to provide that the Federal Government bear its fair share of total cost, determined in accordance with generally accepted accounting principles

8. 2 CFR 220Part B Defines terms Defines allowable and unallowable costs (the “J” section) Defines methods of indirect cost rate identification and calculation

9. History of Indirect Cost Rates 1947 ONR reimbursed universities for indirect costs incurred for Navy contracts 1955DHEW used this approach to set their rate at 8% of Total Direct Costs 1958NIH raised the rates to 15% 1958 The Bureau of Budget introduced the famous Circular A-21

10. History of 2CFR 220 Continued 1966 The Government made a commitment to fully reimburse universities for the cost of federally sponsored research 1979 A-21 revision introduced the MTDC concept 1986 A-21 revision capped faculty administration costs @3.6%

11. Revisions: October 1991 26% Cap on administrative components (GA, DA, SPA) Certification about unallowable costs required in IDC proposal New unallowables, e.g. alumni activities, lobbying, trustees travel

12. Revisions: October 1991 Assurances from major institutions that indirect cost reimbursement for facilities and equipment will be expended for that purpose within 5 years Can’t shift underrecovery of research sponsored by foreign government, industry or other sponsor to federally funded research

13. Revisions: July 1993 Two broad categories: Facilities and Administration 26% cap on administrative components retained Predetermined rates from two to four years is the norm

14. Revisions: July 1993 Consistent treatment of costs - “Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.” New rules on administrative and clerical staff costs- normally treated as indirect costs

15. Revisions: July 1993 “The salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project of activity. Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as indirect costs.” F.6.b.

16. Revisions: July 1996 Extend CAS and Disclosure Statement to grants and Cooperative Agreements Increase maximum equipment capitalization level to $5,000 Change cognizant agency assignments

17. Revisions: July 1996 Require Fixed F&A rate(s) for entire competitive segment of a project period Standardize treatment of unrecovered depreciation when institution converts from allowances to depreciation

18. Revisions: July 1996 Add new conditions for allowability of interest costs Disallow tuition benefits for employee family members

19. A-21 Revisions, July 1998 Guidelines for depreciating buildings Standard forms for F&A proposal Clarification of charging administrative salaries Exhibit C

20. Main Objectives of Changes Tighten rules on allowability and allocation of costs Primary focus on F&A costs Promote greater standardization in treatment of costs Also directed primarily at F&A costs

21. Costs are reimbursable by the Federal government if they are: ALLOWABLE: Under the circulars applicable to the award (2CFR 220) ALLOCABLE: They can be assigned to the activity on some reasonable basis. REASONABLE: A prudent person would have purchased this item/paid this price. If a cost cannot meet the above criteria, it is UNALLOWABLE, no matter what it is for.

22. Facilities & Administrative (F&A) Costs Costs that cannot be identified specifically with a particular sponsored project Costs associated with common or joint objectives Formally identified as indirect costs

23. Cost are Distributed Based on Activity Instruction Organized Research Other Sponsored Activity Other Institutional Activities

24. Definition: Instruction The teaching and training activities of an institution, whether they are for credit or on a non-credit basis. Includes departmental research

25. Definition: Instruction Sponsored instruction & training: Specific instructional or training activity established by grant, contract or cooperative agreement Departmental research: Development and scholarly activities that are not separately budgeted and accounted for.

26. Definition: Organized Research All research and development activities of an institution that are separately budgeted and accounted for

27. Organized Research Includes: Sponsored Research means all research and development activities that are sponsored by Federal and non-Federal agencies. This includes training individuals in research techniques University research activities are separately budgeted and accounted for using institutional funds

28. Definition: Other Sponsored Activity Programs and projects financed by Federal and non-Federal agencies that involve work other than instruction and organized research. (e.g... heath service and community service programs)

29. Definition: Other Institutional Activities Activities such as operation of: residence halls dining halls student unions athletics bookstores chapels theaters

30. Distribution of F&A Costs Distribution is proportional to function within the University Appropriate distribution base: Facility costs based on functional use of space Administrative costs based on MTDC GA - Campus MTDC DA - Departmental MTDC

31. 2CFR Part 220 Types of costs included in the F&A calculation

32. Depreciation & Use Allowance Allocated on basis of usable square feet of space: Equipment depreciation Building use allowance Interest on debt

33. Operation & Maintenance Incurred for the administration, supervision, operation, maintenance preservation and protection of physical plant: Janitorial & utilities Repairs & alterations/planning Care of grounds Security/hazardous waste disposal

34. Library Costs incurred for operation and acquisition of materials Books Building Salaries of Librarians Allocated by category of user Student Professional Other

35. Administrative Costs - General Incurred for administrative offices that serve the entire university: President’s office & legal affairs Institution wide financial management Personnel Administrative computer center

36. Departmental Administration Incurred for administration in: Dean’s office Departmental office Includes 3.6% for faculty preparation of proposals Organized research units institutes & centers Functions such as Secretarial & clerical staff Business officers

37. Sponsored Project Administration Costs incurred by OSP and CGA to administer sponsored projects review proposals negotiate awards collect award dollars calculate & negotiate F&A rate keep official financial records close-out

38. Student Administration Incurred for administration of student affairs & services Dean of Students Admissions & registrar Counseling & placement Advisors Health center Catalogs & materials

39. Determination of F&A Rate Aggregate F&A costs into pools Divide pool by functional base MTDC Three major function rates Research Instruction Other sponsored activity

40. F&A Cost Calculation TotalCosts Financial Statement Capital Expenditures Exclusions UMSA/State Allocation Building/Equip. Use Adjustments Modified Total Costs

41. FACILITIES AND ADMINISTRATION (F&A) COST CALCULATION DIRECT COST POOLS These become the denominator (base) in the rate calculations MODIFIED TOTAL COSTS Depreciation of Building & Equip Instruction Operations & Maintenance Library Organized Research General & Administrative Departmental Administration Other Sponsored Activities Sponsored Project Administration Other Institutional Activities F&A COST POOLS After cross-allocations – these become the numerator in the rate calculations Student Services Administration

42. Simplified F&A Rate Calculation Numerator Expenses: Library Building Depreciation Operation & Maintenance (Utilities) General Administration (Payroll) Department Administration (Dean, Business Mgr.) Sponsored Projects Administration = F & A Rate Denominator Expenses: Sponsored Agreements Non-Sponsored Dept. Research Cost Sharing/Matching

43. Negotiation & Approval of F&A rate Department of Health & Human Services Cognizant agency is responsible for negotiating and approving rates on behalf of all federal agencies

44. Fiscal Year 1995 Rate Schedule - Research F&AMTDC % GeneralAdmin 6,140 83,540 7.35 Department Administration 16,400 83,540 19.63 Sponsored Programs Admin 1,738 79,985 2.17 29.15 26 Building Use Allow 2,144 71,801 2.99 Equipment Use 2,506 71,801 3.49 Building Interest 695 71,801 0.97 Operating & Maintenance Plant 12,646 71,801 17.61 Library 1,357 71,766 1.87 Facilities 26.93 Total on Campus Rate 56.08 52.93 Total Off Campus Rate 29.15 26

45. 2CFR Part 220 The J section

46. Section JGeneral Provisions for Selected Items of Costs Cost principles apply whether an item is treated as direct or F&A costs In a case of discrepancy between provisions of a sponsored agreement and section J, the agreement should govern.

47. Unallowable Costs(When charged against Federal agreements, used as cost sharing or placed in the F&A cost base) Unallowable Activities (something you do) Organized fund raising Lobbying General public relations & alumni activities Student Activities Managing investments solely to enhance income Unallowable Objects (Something you buy, a line item) Advertising Alcoholic beverages Entertainment Fines & penalties Moving costs if employee resigns within twelve months Certain recruitment costs

48. Unallowable Costs(When charged against Federal agreements, used as cost sharing or placed in the F&A cost base) Certain travel costs Cash donations to other parties “Golden Parachute” severance Interest (except interest paid to outside parties for certain purposes) Memberships in social, dining or country clubs

49. Sections J1 & J8 Advertising - allowable for: Recruiting of personnel for the project Procurement of goods & services Disposal of scrap materials Compensation for employees: Salaries, wages & fringe benefits Estimates with a “degree of tolerance” is appropriate Tuition for family members unallowable on federal awards after 7/1/99

50. Effort Reports J8c.2 Reports will reasonably reflect the activities for which employees are compensated Reports will be signed by the employee, principal investigator or responsible official...