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OMB Circular A-21. OverviewGeneral and Specific Rules on Cost Allowability Unallowable Costs Direct and Indirect (F
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1. FRA XI - OMB Circular A-21 Cost Principles for Educational Institutions Cindy Hope, The University of Alabama
Gary Talesnik, Eclat Consulting LLC 1
2. OMB Circular A-21 Overview
General and Specific Rules on Cost Allowability
Unallowable Costs
Direct and Indirect (F&A) Costs
F&A Rates
Cost Accounting Standards & Disclosure Statement
Common Problem Areas
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3. I. Overview 3
4. Objectives of Circular A-21
Government–Wide Policies on Cost Reimbursement
Uniform Standards of Cost Allowability
Uniform Standards of Cost Allocation
Also Applies to Costs Used for Cost Sharing
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5. Major Provisions of Circular A-21
General Standards for Cost Allowability
Reasonable
Allocable
Treated Consistently 5
6. Major Provisions of Circular A-21 Specific Rules on Selected Types of Costs
Examples: Salaries and Wages, Fringe Benefits, Depreciation, Travel, etc.
Covers Allowability, Federal Approval Requirements, Documentation, Other Conditions
Standards for Classifying and Allocating Indirect Costs and Computing Indirect Cost Rates
Indirect Costs are Officially Called “Facilities and Administrative” Costs or “F&A” Costs 6
7. II. General and Specific Rules on Cost Allowability 7
8. General Standards for Cost Allowability Reasonable and Necessary
Prudent Person Rule for Reasonableness
Is Cost Necessary for Overall Operation of Institution or the Performance of the Sponsored Project?
Are Costs Incurred Consistent with University Policies and Procedures?
Allocable
Assignable to a Cost Objective (e.g., a Research Project) in Accordance with Relative Benefits Received 8
9. General Standards for Cost Allowability Allocability to Sponsored Agreements
Incurred Solely to Advance Work Under Sponsored Projects
Benefits both Sponsored Projects and Other Institutional Activities in Proportions that can be Approximated
Is Necessary for the Overall Operations of the Institution and Can be Considered to Benefit Sponsored Programs
Consistent Treatment
Requires Costs Incurred for the Same Purpose, In Like Circumstances, to be Handled Consistently as Direct or Indirect Costs
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10. General Standards for Cost Allowability Applicable Credits
Receipts or Negative Expenditures that Offset Direct or Indirect Costs
Purchase Discounts
Insurance Refunds 10
11. Specific Rules on Cost Allowability Section J. of Circular A-21
Currently Describes 54 Types of Costs
Alphabetical Order – Advertising to Trustee Expenses
Provides Specific Policies on Cost Allowability
For Some Costs, Also Specifies Approval Requirements, Documentation, Other Provisions 11
12. III. Unallowable Costs 12
13. Generally Unallowable Costs Advertising, Public Relations
Alcoholic Beverages
Alumni Activities
Bad Debts
Charitable Contributions
Contingencies
Entertainment
Fines and Penalties
Fund Raising and Investment Management Costs
Goods and Services for Personal Use
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14. Generally Unallowable Costs Housing of Officers
Interest Expense for Operating Purposes
Certain Legal Costs
Lobbying Costs
Losses on Sponsored Agreements (Overruns)
Losses that Could Have Been Covered by Insurance
Memberships in Community Organizations, Country Clubs, Social Clubs
Selling and Marketing Costs
Student Activity Costs
First Class Air Travel
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15. IV. Direct and F&A Costs 15
16. Direct vs. F&A Costs
Direct Costs: Specifically Identified to Individual Projects, Instruction Function or Other Major Functions
F&A Costs: Common or Joint Objectives 16
17. Examples of Direct Costs Salaries and Wages, Fringe Benefits of Faculty, Technicians, Graduate Students, etc. for Work to Carry Out Project Objectives
Travel Related to Performance of Project
Lab Supplies
Consulting and Other Specialized Services
Subgrants and Subcontracts 17
18. F&A Cost Pools Building Depreciation or Use Allowances
Equipment Depreciation or Use Allowances
Interest Expense
Operations and Maintenance Expenses
General Administration and General Expenses
Departmental Administration
Sponsored Projects Administration
Library
Student Services 18
19. V. F&A Rates 19
20. F&A Rates F&A Costs are Claimed Based on F&A Rates
Rates are Developed by Institutions in Periodic Indirect Cost Proposals
Proposals are submitted to Cognizant Agency for Review, Negotiation, Approval
After the Rates are Approved, they are Applied to Each Grant and Contract to Determine the Amount of Indirect Costs to be Charged to the Grant or Contract 20
21. Development of F&A Rates Rate Development Process
Each F&A Cost Pool is Allocated to Major University Functions (e.g., Instruction, Research)
Amount Allocated to Each Major Function is Divided by a “Base” which Represents Direct Operations of the Function
The Resulting Percentage is the F&A Rate for that Function
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22. Development of F&A Rates The Base Specified in Circular A-21 is “Modified Total Direct Costs” (Except for Some Schools Using the “Simplified Method” for Computing Indirect Cost Rates)
Rates are Commonly Developed for Three Major University Functions:
Organized Research
Instruction
Other Sponsored Programs 22
23. Example of F&A Rate F&A Costs Allocated to University Research Function
Direct Cost Base of Research Function
F&A Rate:
$20 Million
$40 Million
$20 Million
$40 Million
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24. Types of F&A Rates Predetermined Rates
Set in Advance
No Adjustments
Fixed Rates
Set in Advance
“Carry-Forward” Adjustments to Future Rates for Variances Between Fixed Rates and Actual Costs 24
25. Types of F&A Rates Provisional Rates
Temporary Rate
Will be replaced by a Predetermined, Fixed or Final Rate
Adjustment Required if Provisional Rate Used in FSRs and New Rate is Lower Than Provisional Rate
Adjustment is Optional If New Rate is Higher
No Adjustment If New Rate is Same as Provisional Rate
Final Rates
Rarely Used for Universities
Established After-the-Fact, When Fiscal Year is Complete
Needed Only When Provisional Rates are Used for an Entire Fiscal Year
Used to Make F&A Cost Adjustments if Provisional Rates Were Used for the Full Year 25
26. Cognizant Agencies A Cognizant Federal Agency is Designated by OMB For Each College and University
Responsible for Audits, Audit Resolution, F&A Rate Negotiations
May be Different Agencies for Audit/Audit Resolution vs. Rate Negotiation
Acts on Behalf of All Federal Agencies
Cognizance Usually Assigned to Agency with Largest Amount of Grants and Contracts with Institution
HHS and DOD Office of Naval Research are Cognizant for All College and University F&A Negotiations 26
27. VI. Cost Accounting Standards and Disclosure Statement 27
28. Applicability of CAS To Educational Institutions Established by CASB in 1994
Extended to Grants and Cooperative Agreements in Circular A-21 in 1996
Four Standards and Disclosure Statement
Standards Apply to all Grants, Contracts and Cooperative Agreements
Collectively Called Sponsored Agreements
No Dollar Threshold for Application of Standards
Disclosure Statement Applies to Larger Schools
All Institutions Receiving $25M Annually in Sponsored Agreements Subject To A-21 (Regardless of Amounts of Individual Awards) 28
29. Cost Accounting StandardsApplicable To Educational Institutions 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 29
30. Consistency Standard “502” Consistency in Treatment of Costs Incurred for the Same Purpose Costs Incurred for the Same Purpose, in Like Circumstances, Must be Treated Consistently as Direct or F&A Costs
Cannot Assign as Direct Cost if Included in F&A Cost Pool
Cannot Assign to F&A Cost Pool if Charged as Direct Costs 30
31. “Normal” Treatment of Specific Departmental Costs (Sec. F.6.b.) “Normal” F&A Costs
Salaries of Administrative and Clerical Staff
Office Supplies
Postage
Basic (Local) Telephone Charges
Membership Dues
Personal Computers
Journal Subscriptions 31
32. Administrative and Clerical Salaries Normally Treated as F&A Costs
Can be Directly Charged Only Under Exceptional Circumstances
“Major Project”
Specifically Identified
Explicitly Budgeted
Definition of “Major Project”
Requires an Extensive Amount of Administrative or Clerical Support
Significantly Greater Than Routine Level Provided by Academic Departments
Should have Written Justification and Approval 32
33. Administrative and Clerical Salaries Examples of “Major Project” (Exhibit C of A-21) Direct Charges MAY be Appropriate
Large, Complex Programs – Center Grants, Program Projects
Extensive Data Accumulation, Analysis, Reporting, Surveying, Tabulation (e.g., Epidemiological Studies, Clinical Trials)
Making Travel and Meeting Arrangements for Large Numbers of People (e.g., Conferences and Seminars)
Principal Focus is Preparation and Production of Manuals, Large Reports, Books, Monographs (Excluding Routine Progress, Technical Reports)
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34. Administrative and Clerical Salaries Examples of “Major Project” (Exhibit C of A-21)
Geographically Inaccessible to Normal Departmental Administrative Services, Such as Research Vessels
Project-Specific Database Management; Individualized Graphics or Manuscript Preparation; Human or Animal Protocols; Multiple Project-Related Investigator Coordination 34
35. Other Normal F&A Costs Other Normal F&A Costs Specified in A-21
Office Supplies
Postage
Local (Basic) Telephone Services
Membership Dues, Personal Computers, Journal Subscriptions
Can be Directly Charged Only Under Exceptional Circumstances
Examples of Exceptional Circumstances
Postage – Mail Survey, Shipping Specimens
Local Telephone – Dedicated Phone Lines for Telephone Survey, Hot Line
Membership Dues – Membership Required to Attend a Conference (if Attendance at Conference is a Proper Direct Cost)
Should Have Written Justification and Approval 35
36. CAS Disclosure Statement Comprehensive Description of an Institution’s Cost Accounting Practices
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37. VII. Common Problem Areas 37
38. Common Problem Areas Effort Reporting – Documentation of Salaries and Wages
Cost Transfers
Documentation / Explanation of Transfers
Timing
Inconsistent Treatment of Costs; “Normal” F&A Costs Charged Directly
Clerical & Administrative Salaries
Office Supplies
Postage
Local Telephone Costs
Membership Dues, Personal Computer, Journal Subscriptions
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39. Common Problem Areas (Continued) Documentation of Supplies and Other Non-Labor Costs
Documentation of Cost Sharing
Unallowable Costs
Subrecipient Monitoring 39
40. Cindy Hope
Assistant Vice President for Research
The University of Alabama
(205) 348- 8119
E-mail: chope@fa.ua.edu
Gary Talesnik
Special Consultant
Eclat Consulting LLC
(301) 738-0088
E-mail: gtalesnik@msn.com
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