OMB Circular A-21

1. OMB Circular A-21 Regulation Grant Brown Bag Session February 12, 2013 By: Tracy Morkunas, CPA Controller’s Office

2. Topic Coverage • What is the OMB Circular A-21? • To whom is it applicable? • Knowing which guidance to use • A-21 versus Funding Source • Define some terms: • Allowable cost • Reasonable cost • Allocable cost • Overview select cost topics for allowability • Direct Cost • Indirect Cost

3. What is the A-21? • OMB Circular A-21 is entitled: • Cost Principles for Educational Institutions • The A-21’s purpose is to “establish principles for determining costs applicable to grants, contracts, and other agreements with educational institutions.” • Created in 1973 as FMC 73-8, but revised & reissued in 2004 as OMB Circular No. A-21 http://www.whitehouse.gov/omb/circulars_a021_2004

4. Applicability • Per the A-21, “All Federal agencies that sponsor research & development, training, and other work at educational institutions shall apply the provisions of this Circular in determining the costs incurred for such work.” • Applies to all Federal grants and State grants that have Federal Pass-through monies • SomePrivate and purely State funded grants will say “expenditures must be in compliance with applicable Federal and/or state legislation, guidelines & requirements.”

5. It Can’t be THAT Easy, Right? Sorry, Charlie… • Unfortunately, it is not as easy as simply referring to the A-21 for all our questions • We must combine the literature within the A-21 with the guidance given by the Funding Source • Some Funding Sources will have their own interpretations to these rules • These interpretations may be more or less restrictive

6. Standard Rules - Allowable Costs Tests of allowability of costs: • Costs must be reasonable • Costs must be allocable to sponsored agreements • Costs must be given consistent treatment … appropriate to the circumstances • Costs must conform to any limitations or exclusions set forth in the A-21 or in the sponsored agreement as to types or amounts of cost items

7. Standard Rules – Reasonable Costs Cost is reasonable ifthe nature of the goods or services acquired & the amount, 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.

8. Reasonable Costs, continued… Major Considerations to determine reasonableness • Is the cost necessary for the operation of the institution or the performance of the agreement? • Restraints or requirements imposed by: arm’s length bargaining, Federal & State laws & reg.’s and sponsored agreement terms & conditions followed? • Did the individuals act with due prudence in the circumstances? • Were actions taken consistent with established institutional policies & practices?

9. Standard Rules - Allocable Costs • We can allocate costs to an agreement if the goods or services involved are chargeable or assignable to such cost objective • Can allocate if the amount/proportion can be approximated through the use of reasonable methods • Must be necessary to the overall operation • Allocable costs MAY NOTbe shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.

10. Unallowable Costs • Costs expressly unallowable or mutually agreed to be unallowable shall be identified and excluded from any billing, claim, application, etc. • Only charge expenses that are related to and allowable under the grant to the fund # associated with your grant • Grant Directors must periodically review the expense activity on their grant • Accounting invoices the funding source for expenses listed within Banner – if it’s an expense in Banner, we assume the Grant Director deemed it allowable

11. Direct Costs Costs that can be identified specifically with a particular sponsored project that can be directly assigned to such activities relatively easily with a high degree of accuracy

12. Indirect Costs A-21 doesn’t specifically mention the TERM Indirect Cost. They refer to F&A Costs F&A Costs = Facilities & Administration Facilities covers things like depreciation & use Administration covers general expenses like Accounting & other Administrative functions

13. Section J: General provisions for selected items of cost • Section J contains 54 principles to apply in establishing the allowability of selected costs • This section is NOT all inclusive • If your cost isn’t in there, it isn’t automatically allowable or unallowable • ALTHOUGH AN EXCELLENT GUIDE, CHECK WITH YOUR FUNDING SOURCE FOR EXCEPTIONS

14. Section J, excerpts & examples • Entertainment Costs (#17) - including amusement, diversion, & social activities and any costs directly associated (such as tickets to shows or sports events, meals, lodging, rentals, transportation, & gratuities) are unallowable. • Meetings & Conferences (#32) – if the primary purpose is the dissemination of technical information, are allowable. Includes costs of meals, transportation, rental of facilities, speakers' fees, and other items incidental to the meeting/conference

15. Section J, excerpts & examples • Meals (food) in the separate contexts seem clear enough, but Grant Director’s should obtain prior authorization from the fund source, first. • During a Federal audit at CCRI, food purchased WITH funding source preauthorization were deemed unallowable by the auditor. • Written authorization from the funding source must be obtained for all food/refreshment expenses before the cost is incurred (email documentation is sufficient)

16. Section J, excerpts & examples • Commencement & Convocation costs (#8) – Generally unallowable (exception in Section F.9) • Alumni/ae activities (#4) – Costs for, or in support of, alumni/ae activities and similar services are unallowable. • Maintenance & Repair costs (#30) - necessary maintenance, repair, or upkeep of buildings & equipment are allowable. Improvements that extend the useful life are capital expenditures

17. Section J, excerpts & examples • Compensation for personal services (#10) - Salaries, wages, and fringe benefits are allowable as long as in accordance with institutional policy • Compensation must be related to the sponsored agreement and supporting documentation must be maintained • Time & Effort reports are how we certify that the hours being compensated are related to the grant

18. Section J, excerpts & examples • Scholarships & Student Aid costs (#45) - scholarships, fellowships & other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. • In general, most Federally funded grants do not want to directly cover student tuition, however, some may pay to run a course if it is directly related to the grant’s purpose

19. Summary • OMB Circular A-21 establishes cost principles for educational institutions • It is applicable to all Federal grants, State grants with Federal Pass-through funding, and any other grant that opts-into following Federal provisions • Some funding sources interpret the A-21 differently, so we must coordinate our understanding • Costs must be allowable, reasonable, and applicable in order to be charged applied to the grant • Some costs, like food, will need to be approved directly by the funding source to ensure allowability under audit

20. Question/Comment Period