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SPS Primer

SPS Primer Workshop

Cost Accounting Considerations When Preparing Budgets for

Sponsored Proposals

Division of Financial Affairs

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SPS PrimerTable of Contents

• OMB Circular A-21• What the cost principles do?• What are reasonable, allowable, and allocable?• What are unallowable and excludable costs?• What are total costs?• What are direct costs?• What are F&A costs?• Consistent treatment of costs

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SPS PrimerOMB Circular A-21

The Office of Management and Budget circular contains the cost principles for determining costs applicable to grants, contract, and other agreements with educational institutions.

Addresses both “Direct” and “Facilities and Administrative” (F&A) costs.

In existence since 1958

Revised periodically

http://www.whitehouse.gov/omb/circulars/a021/a021_2004.html

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SPS Primer

What the Cost Principles Do?

• Requires a cost– Be allowable– Be allocable– Be reasonable– Be treated consistently– Be necessary to perform the program– Be permissible under the law

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SPS Primer

What the Cost Principles Do?

• Identify full cost of federal programs

• Provide that the federal government bears its fair share of total costs

• Requires uniform acceptance by all federal agencies of allowable costs except where:– The cost is restricted or prohibited by law– Cost is prohibited by appropriation limitations

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SPS Primer

What are Reasonable, Allowable, and Allocable Costs?

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SPS Primer

• REASONABLE – “Prudent Person Test” Generally Recognized as Necessary Arm’s Length Transaction Act with due prudence

– Consistent with Established University Policies

– Translation – Wear your taxpayer hat

Allowability Factors

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SPS Primer

• ALLOWABLE– Conforms to specific sponsored agreement

guidelines.

– Conforms to Cornell policy.

– Conforms to federal guidelines established in Office of Management and Budget Circular A-21 (Section J).

Allowability Factors

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SPS Primer

• ALLOCABLE - Charged (or assigned) in accordance with the benefit received.

– Incurred to advance the work under the sponsored agreement (direct).

– Necessary for the overall operation of the institution and is assignable in part to the sponsored agreement (indirect).

Allowability Factors

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SPS Primer

What are Federal Unallowable Costs?

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SPS Primer

Federal Unallowable Costs?

• Costs that may not be charged to a federal sponsored activity because it is either expressly disallowed under A-21 or because it is not allocable in accordance with A-21.

– Cannot be charged directly or indirectly through the F&A rate

– Cannot be used as cost sharing

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SPS Primer

Federal Unallowable Costs

• Common examples:>J1 – Advertising & Public Relations Costs

>J3 – Alcoholic beverages

>J4 – Alumni Activities

>J6 – Bad Debts

>J8 – Commencement & Convocation Costs

>J15 – Donations & Contributions

>J17 – Entertainment Costs

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SPS Primer

Federal Unallowable Costs

• Common examples (con’t):

>J19 – Fines & Penalties

>J20 – Fund Raising & Investment Costs

>J28 – Lobbying

>J29 – Losses on other Sponsored Agreements

>J33 – Personal Memberships or subscriptions not related to employment

>J46 – Selling and Marketing

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SPS Primer

What are Excludable Costs?

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SPS PrimerExcludable Costs

• Excludable costs are those generally not included in the calculation & application of the F&A rate.

• Attempts to avoid inequitable assessment of F&A costs – guidelines included in A-21

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SPS Primer

What are Total Costs?

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SPS PrimerTotal Costs

TOTAL COSTS = TOTAL COSTS = DIRECT COSTS + F&A COSTSDIRECT COSTS + F&A COSTS

Total costs of a sponsored agreement is comprised of the allowable direct costs incident to its performance, plus an allocable share of the allowable F&A costs… less applicable credits… (A-21,C.1)

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SPS Primer

What are Direct Costs?

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SPS PrimerDirect Costs

• Costs that can be identified specifically with a particular sponsored project, an instructional activity or any other institutional activity, or can be directly assigned to such activities easily with a high degree of accuracy. (A-21, D.1)

• Must be allowable, allocable, and reasonable

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SPS PrimerDirect Costs

• Examples of Costs that can be directly assignable to one program:

• Salaries and Wages of:

Principal Investigator

Research Associates & Assistants

Laboratory Technicians

Associated Fringe Benefits

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SPS PrimerDirect Costs

• Examples of Costs that can be directly assignable to one program:

• Equipment

• Project related materials and supplies

• Project related travel

• Subcontract Costs

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SPS Primer

What are Facilities and Administrative Costs?

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SPS Primer

• Costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project or institutional activity (A-21, B.4).

• F&A costs are synonymous with “indirect” costs.

Facilities & Administrative Costs

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SPS Primer

• F&A Costs consist of:• Building & Equipment Depreciation• Interest Expense• Operations and Maintenance (O&M)• Libraries• General Administration• College and Department Administration• Student Services• Sponsored Programs Administration

Facilities & Administrative Costs

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SPS Primer

Consistent Treatment of Direct and Facilities and Administrative

(F&A) Costs

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• Consistent Treatment of costs

>Specifically required by Circular A-21

>Assures same types of costs are not charged to federally sponsored agreements both as direct costs and as F&A costs

>Reinforced and emphasized in Cost Accounting Standard 502

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• Consistent Treatment of costs (cont’d)

>Costs incurred for the same purpose, in like circumstances

>Must be treated uniformly either as direct costs or F&A costs

>Certain costs normally treated as F&A costs (cannot charge directly to sponsored projects)

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• CAS 502 – This standard is necessary to guard against the overcharging of some cost objectives and to prevent double counting. Double counting occurs most commonly when cost items are charged directly to a cost object…. and like costs are allocated to that cost objective.

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SPS Primer

Administrative AssistantCharge Indirectly

($30,000)

Instruction ResearchAdmin Assist

Charged Directly$30,000

EXT/PS

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• Normally Indirect Costs:

>Salaries of administrative & clerical staff

>Office supplies

>Postage

>Local telephone costs

>Memberships in professional organizations

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Consistent Treatment of Direct and F&A Costs

• Normally F&A (Indirect) Costs:

>Exceptions – extraordinary/unique situations

Circumstance related to a major project clearly different from normal operations of the institution

May charge directly if “unlike circumstances” exist

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• Unlike Circumstances:

>What are these and when do they exist

>What is a “major project”

>OMB addendum to A-21 July 13, 1994

>Provided guidance on unlike circumstances / major projects

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• OMB Clarification:

>Size, nature, and complexity of sponsored projects are considerations in determining unlike circumstances

>Sponsored project requires normally indirect support substantially beyond that normally provided by academic departments

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• OMB Clarification (con’t):

>May be charged directly when the cost:

Can be accurately identified to the project, and

Is identified and properly justified in the proposal budget/narrative, and

The sponsoring agency accepts or does not specifically disapprove the costs

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SPS Primer

Consistent Treatment of Direct and F&A Costs

• Cornell Policy 3.18, Charging of Direct and Facilities and Administrative (Indirect) Costs

• Website: http://www.policy.cornell.edu/vol3_18.cfm