Cost Accounting Standards

1. Cost Accounting Standards The University of Alabama April 28, 2000

2. Today’s Questions • Why did the government promulgate cost accounting standards? • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

3. What are the Cost Accounting Standards (CAS)? • Designed for defense contractors • In 1978, educational institutions were exempted from CAS • OMB Circular A-21 was understood to contain required guidance • Then CAS was applied to them • Consequence of overhead “scandals” of early 1990s • Staggered implementation • FY 2000 for UA • CAS led to refinement of other policies

4. Today’s Questions • Why did the government promulgate cost accounting standards • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

5. FDA drug Clinical Trials; Criminal Penalties Imposed Cost sharing, MCR Alloc. betwn awards Train. Grant Unallow. Costs Phys. presence University of Minnesota Stanford University University of Connecticut New York University Medical College of GA Beth Israel Deaconess U of Chicago Grant-related settlements in $$MM

6. Today’s Questions • Why did the government promulgate cost accounting standards • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

7. New CAS requires four Standards and a Disclosure Statement • 501: Consistency in Estimating, Accumulating, and Reporting Costs • 502: Consistency in Allocating Costs Incurred for the same purpose • 505: Accounting for Unallowable Costs • 506: Consistency in Using the Same Cost Accounting Period • CASB Disclosure Statement • Will be audited by Office of the Inspector General

8. CAS in Brief • The CAS theme is consistency • Consistency difficult to enforce • Between the proposal and what's actually charged and reported • In cost treatment among departments • UA principal investigators and administrators should: • Become familiar with the rules • Identify inconsistencies A-21 CAS

9. What is CAS 501? • Consistency in Estimating, Accumulating, and Reporting Costs • Practices for estimating costs must be consistent with practices used in accumulating and reporting costs during contract performance • Should be able to compare budget with actual costs for any "significant" type of cost • Consistency from • Proposal to proposal • Proposal to award • Department to department

10. What is CAS 502? • Consistency in allocating costs incurred for the same purpose • Each type of cost must be allocated on only one basis to any contract or other cost objective • If a grant is charged directly for a cost, the same type of costs cannot be charged to that project, or any other project, through the indirect cost rate

11. Chemistry grants pay twice 1. Directly for Chemistry copies 2. Indirectly for part of ChE copies Chemical Engineering Department Charges copying indirectly Chemistry Department Charges copying directly The "double screen" behind CAS 502

12. CAS 505: Unallowable costs • Must be removed from grants and indirect cost pools • Unallowable as direct or indirect costs • Alcohol • Fund raising, etc. • Types of costs unallowable as direct costs • Salaries of administrative staff • Office supplies • Postage and local telephone • Memberships

13. Today’s Questions • Why did the government promulgate cost accounting standards • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

14. How might CAS 501 affect UA departments? • Cost sharing • Effort reporting • Categories of costs

15. Cost Sharing Definition • Financial support contributed by the University to sponsored projects. • Two categories: • 1) Mandatory • 2) Voluntary

16. Mandatory Cost Sharing • Required by legislation or by the sponsor • Identified in RFP/RFA or funding opportunity as a condition for an award, or • Quantified in proposal by investigator; e.g., 5% effort with no salary dollars • Becomes mandatory upon award • Effort report needs to show 5% as coming from a non-federal source • Should be captured in a specific cost share account for the grant

17. Voluntary cost sharing • Not required by sponsor • Occurs as project proceeds • Account for in general cost share accounts

18. Voluntary Cost Sharing and Effort Reporting • Effort not committed in the project budget • But it occurs and • If charged to accounts that do not reach the organized research base... • CAS problem • Inconsistent treatment • Treated differently because of funding • Not because of difference in purpose and/or circumstance

19. Award Budget-- Award Accounting Personnel: Personnel: J. Jones 25% $25,000 B. Smith 5% -0- J. Jones 25% $25,000 B. Smith 5% -0- Budget and propose CAS 501 Accumulate and report Cost Sharing and Effort Reporting B. Smith spends 5% of his or her effort on the project as budgeted, no matter what is charged. Result: cost sharing that must be recorded

20. When a contract or grant goes over budget • Cost share accounts will be used to absorb the excess cost. • The excess charge will be funded from • The department operating account or • Another account designated by the department when the award is received. • If an unallowable charge is made to a contract or grant or cost share account, the unallowable charge will be transferred to the department account.

21. Budget and propose Accumulate and Report Award Budget: Less detail Award Accouting: More detail CAS 501: Budget costs consistently or at a consolidated level Lab Supplies Supplies Lab supplies: - Diodes - Resistors - Chemicals Supplies: - Specialized software

22. CAS 502 Issues • Direct and indirect costs • Departmental administrative costs • Multiple funded programs • Equipment as a direct charge

23. Consistent treatment--one extreme case • If one PI charges one stamp to one grant • You must remove all postage from the indirect-cost rate • (Or charge the stamp elsewhere)

24. Definition of direct and indirect cost categories • Direct costs • Subcodes: per policy • Cost bases • Instruction • Organized research • Other sponsored activity • Indirect costs • General administration • Departmental administration • Operating and maintenance costs • Library • Sponsored research administration

25. Today’s Questions • Why did the government promulgate cost accounting standards • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

26. What are the new or revised policies? • Cost policy • Cost sharing • Cost transfers • Effort certification • Grant and contract policy • Spending policy

27. Criteria for charging a direct cost per policy • Support the project’s purpose and activity • Represent those costs necessary to meet the project’s scientific and technical requirements • Be included in the awarded budget, or the cost must be permitted within rebudgeting authority granted by the sponsor. • The cost must not be restricted by the sponsor.

28. Unacceptable direct costing practices • Rotation of charges among sponsored agreements by month without establishing that the rotation schedule credibly reflects the relative benefits to each sponsored agreement • Assigning charges to the sponsored agreement with the largest remaining balance • Charging the budgeted amount rather than charging an amount based on actual usage • Assigning charges to a sponsored agreement in advance of the time the cost is actually incurred

29. Unacceptable practices, cont. • Identifying a cost as something other than what it actually is, such as classifying a supply as an item of equipment • Charging expenses exclusively to sponsored agreements when the expense has supported non-sponsored agreement activities • Assigning charges that are part of normal administrative support (indirect costs) for sponsored agreements (e.g., accounting, payroll).

30. Allocation of a direct cost to two or more projects • Direct assignment • Proportional benefit • Credible documentation. • Interrelatedness • Documentation by PI • Source A-21 c(4)(d)(2)

31. Multiple Funding Sources - Projects as proposed

32. Multiple Funding Sources - Projects as awarded

33. Consequence Proposal not = PI intention Not allowable there Should be counted as cost sharing When one sponsor won't pick up a certain cost: • Alternative • Rebudget to project after award • Charge to another source • Charge to the departmental budget

34. With these awards departments can charge normally indirect to direct • Industrial/Commercial. • Based on the agreement between the sponsor and the University. • Foundations and Non-For-Profit Agencies and Associations. • Based on the agreement between the sponsor and the University. • State Sponsored Agreements. • State agency regulations govern • Training Grants. • “Institutional allowance”

35. Charging normally indirect to direct, cont. • Geographically inaccessible projects. • Projects that take place in remote site(s). • Projects that require travel and meeting arrangements for large numbers of participants. • Projects involving large, complex programs • Complexity goes well beyond the normal departmental support • Program project grants, center grants, (EPSCOR)

36. Charging normally indirect to direct, cont. • Projects which involve extensive data management. • Mailing expense • Projects whose principle focus includes extensive reports • Other Sponsored Activities (not Research or Instruction) • public service, workshops, community development • Specific costs incurred for a different purpose

37. Recharges: per grant and contract policy • Billing rates are based on cost and • Must be applied uniformly to all users. • Billing rates may not be based on what others in the industry charge for similar services. • In some cases it may be necessary to establish rates at less than full cost, but under no circumstances may rates exceed cost over the accepted operating cycle (five years). • No capital equipment acquisitions are allowed in the operating account

38. Cost transfers: per separate policy • Timely • Appropriate • Reasonable • Allowable • Allocable • Consistently treated • Adequate documentation • Responsibility for compliance • PI • Contract and Grant Accounting

39. Documentation of Cost Transfers per policy • The cost must be identified with activity in the sponsored agreement to which the cost is charged • Documentation that links the cost incurred to the sponsored agreement activity should be done by someone who is in a position to know the sponsored agreement activity (normally the PI) • Documentation must be maintained for a period of three years

40. Documentation • Basic regulation • Direct costs are those costs that can be identified specifically with a particular sponsored project...or that can be assigned [to such activity] relatively easily and with a high degree of accuracy • Goal is to document the transaction in a way that demonstrates these • Per A-21 c(4)(d) this is the responsibility of the principal investigator • The institution's documentation requirements ... (e.g., signature or initials of the principal investigator or designee or use of a password) will normally be considered sufficient.

41. Have clear and close relationship to award Not be used in similar way to equipment treated as indirect Not be purchased at end of award Equipment as a direct charge should:

42. Conclusions • There are risks in non-compliance with costing regulations at UA • When costs are charged to a grant, the relationship to the science should be clear and close • Charging practices should be in line with UA policies and procedures. This will: • Avoid damaging inconsistency • Help UA negotiate a fair overhead rate • Each project should be managed: • In conjunction with departmental administrator • To avoid questionable transactions

43. Today’s Questions • Why did the government promulgate cost accounting standards • Why should UA departments follow them? • What standards apply? • What are they likely to mean to your department? • What are the new or revised policies? • Where can you seek guidance?

44. Where to seek guidance: • Contract and Grant Accounting Office • (205) 348-5592 Telephone(205) 348-5339 FAX • Office of Sponsored Programs • (205) 348-5152 Telephone(2050 348-8882 Fax • Policy guidelines • Faculty Handbook: Post-Award Policies & Procedures at • www.ua.edu/cgfac.html • UA Spending Policies • www.bama.ua.edu/~finacct/spendweb.html

45. Questions and Discussion