ISO 202 (Take 2)

1. ISO 202(Take 2) Kelly Tallaksen (612) 624-0754 oconn044@umn.edu

2. How do OMB A-21 and CAS affect ISO Activities at the University? OMB Circular A-21 Federal CAS University Policy 3.2.1 Objective: Reduce Risk!!

3. Federal CAS (Cost Accounting Standards) • Applicable to institutions receiving federal funds • Incorporated into OMB Circular A-21 • 4 Key Standards • 501: consistency in estimating, accumulating and reporting costs • 502: consistency in allocating costs incurred for the same purpose • 505: accounting for unallowable costs • 506: cost accounting period

4. CAS 501Consistency in Estimating, Accumulating and Reporting Costs by Educational Institutions • Same practices in estimating costs • Award budgets • Accounting systems • Reporting to sponsors • Includes classification of costs • Direct • Indirect

5. CAS 502Consistency in Allocating Costs Incurred for the Same Purpose by Educational Institutions • Allocate each cost only once and only on one basis • “costs incurred for the same purpose in like circumstances should be consistently treated as direct or indirect” • Example • “Unlike circumstances” • Changes nature of expense from indirect to direct • Still must meet direct charging criteria • Example: admin/clerical salaries

6. CAS 505Accounting for Unallowable Costs – Educational Institutions • Identify unallowable costs in accounting records • Differences in funding sources does not matter

7. CAS 506Cost Accounting Period – Educational Institutions • Must use fiscal year • Promotes uniformity/consistency

8. OMB Circular A-21 Incorporates CAS Standards… …and more!!

9. OMB Circular A-21 • General Allowability Concepts • Reasonableness • “prudent person” test • Necessity • Arms-length • Consistent w/institution’s practices • Allocability • Sole incurrence • Necessary to operations • Direct vs. Indirect (consistency)

10. OMB Circular A-21 • Section J: General Provisions for Selected Items of Cost • 2 Pieces • Allowable Costs in General • Specific: ISOs

11. OMB Circular A-21 • J47: Specialized Service Facilities • Key Point • “The costs of such services…must be charged directly…based on actual usage of the services on the basis of a schedule of rates…that does not discriminate against federally-supported activities…”

12. OMB Circular A-21 • J9 – Communication costs • J11 – Contingency provisions • J14 – Equipment (Depreciation) • J17 – Entertainment Costs • J32: Meetings and Conferences • J24 – Idle Facilities / Capacity • J26 – Interest • J39 – Publication Costs • J46 – Selling and Marketing

13. University Policy 3.2.1 (Selling Goods and Services to University Departments) • Establishing an ISO • Requirements • Procedures • Internal vs. External Customer • Rate Review Process • Additional Cost Principle: Historical Basis

14. What is an ISO? • University Policy • Activity that provides goods/services • At approved rates • On a regular and continuing basis • Predominantly to University departments • Incidentally to the general public BUT….

15. What is an ISO? Any department selling internally, especially to customers paying with federal funds, must follow all applicable rules and policies OMB Circular A-21 provides principles for associating costs to federal funds/contracts as either direct or indirect charges. Because it covers cost principles, there are no provisions to make a profit on these charges. Because it covers both direct and indirect charges, you need to comply with this policy even if you don’t sell to federal accounts.

16. ISO Set-Up Business Plan Org Request Approvals Rate Development Begin Operations Sales Approval Questionnaire

17. ISO Set-Up: Business Plan • What type of service is being offered? • Answer the 5 W’s (and 1 H) • What types of service CAN we have? • “specialized services” • Unlike circumstances • OK: scientific instrument repair service • Not OK: general desktop computer support

18. ISO Set-Up:Rate Development • Consistent Charging • Allowable Costs • Volumes

19. Rate Development: Consistent Charging • EVERYONE MUST BE TREATED THE SAME!!!! • Volume Discounts? • Service Lines? • Unfunded vs. Funded projects?

20. Rate Development: Consistent Charging • Audit Issues (HHS-OIG) – FINES/PENALTIES • 1/12/94: “universities did not bill all users for services or billed certain users at a reduced rate” • 3/26/96: “one service center provided a discount to its largest customer” • 3/5/97: “3 of 15 universities allowed recharge centers to bill users at different rates for the same services”

21. Rate Development: Allowable Costs - General A-21, Section J.

22. Rate Development:Allowable Costs - Equipment • Depreciation Only!! • Cost basis / funding sources • Useful life • Inventory Services / PAMS • Tracks all equipment activity • Consistency principle (CAS 501) • Plant Funds • Policy 3.2.1.5: Establishing Reserve Funds • Org request to set up • Timing  Replenishment

23. GOOD Per hour worked Per item repaired Per (server) storage space used Per time connected to server BAD Per FTE Per computer Rate Development:Volumes MUST BE BASED ON ACTUAL USAGE

24. ISO Monitoring Accounting Services Department Audits Budget Office

25. ISO Monitoring – Department • Annually is best • Key points • Margins • Budget vs. Actual • Nature of activity • Volumes • Correction of Surpluses/Deficits • KEY: charging users at cost • > 15%: correct in current year • < 15%: build into subsequent year’s rates

26. ISO Monitoring – Budget Office • Type of service • Understand rate changes • May direct certain U-wide ISOs in their rate development • Subsidies

27. ISO Monitoring – Department of Audits • Annual / long-term audit plan • Will look at ISO activity if appropriate • Billing processes • Rate development

28. ISO Monitoring – Accounting Services • ISO Set-Up • Annual Review Process • Planning • Expectations from Departments • Review Issues • Common Compliance Issues • Final Product

29. Unallowable Costs Transfer Codes Fund/Function Code All allowable costs in rates Rate Volumes Depreciation Margins Costs in other FAOs External Sales Budget vs. Actual and Rate Development Internal Audit Reports Customer base and rate type ISO Monitoring – Accounting Services Review Issues

30. ISO Monitoring – Accounting Services Common Compliance Issues • Not charging all customers the same rates • Volume not reflecting actual usage • Purchasing equipment directly on the ISO account • Including other unallowable costs in rates (and/or on the CUFS account) • Incorrect fund/function

31. ISO Day-to-Day Accounting • Internal vs. External sales • Internal rates < or = to External rates • Separation of activity (Policy 3.2.1.2: Record Keeping) • Billing (IV Processing) • Transaction Justification Standards (Policy 3.1.2: Documentation Financial/Accounting Transactions – Job Aid) • ISO is responsible for the billing process • Bill within 45 days • In some cases, buyer department can refuse charges

32. RESOURCES • University Policies http://www.fpd.finop.umn.edu/groups/ppd/documents/index/FINcontents.cfm • OMB Circular A-21 http://www.whitehouse.gov/omb/circulars/a021/a021.html • Commonly Asked Questions http://process.umn.edu/groups/controller/documents/faq/accounting_dept_isofaq.cfm

33. QUESTIONS??? Ryan Gourde, Accounting Services (4-3876)