1. Direct and F&A Costing Date Presenter Name Presenter Phone Number Presenter E-mail

2. 2 Recent audit activity DHHS (NIH) OIG audit of Brandeis University Approximately 10% of direct costs charged are being questioned http://oig.hhs.gov/ oas/reports/region 1/10601502.pdfhttp://oig.hhs.gov/ oas/reports/region 1/10601502.pdf

3. 3 Goal for this class To maximize the costs that may be directly charged to Federal sponsored projects and be compliant with OMB Circular A-21

4. 4 Sources of guidance OMB Circular A-21 UT Fiscal Policy 205 Sponsored Grants & Contracts –Sections 11-15 provide UTs interpretation of OMB Circular A-21 costing requirements See Appendix 2 Award document provisions

5. 5 Federal funding A-21 is applicable to Federal & Federal flow-thru awards –UT gets an award directly from a Federal agency such as NSF (National Science Foundation) –UT gets an award from a Federal agency thru a pass-thru organization For example, NASA awards Vanderbilt $1 million. Vanderbilt subcontracts $250,000 to UT to perform a portion of the work. The prime source of funding, NASA, is usually mentioned in the award document. All Federal rules, including A-21, are passed down to UT.

6. 6 OMB Circular A-21 Describes charging practices on Federal & Federal flow-thru awards –Only allowable costs may be charged Certain costs are never allowable –Common sense clauses Charges must be reasonable & allocable Charging practices must be consistent –Some costs are normally considered to be direct costs & some are normally considered to be F&A costs This prevents double charging the Federal government for the same cost

7. 7 Direct or F&A costs? (see Appendix 1 for list) Direct costs –Salaries, staff benefits, supplies, long-distance phone calls, travel, equipment, subcontracts –Exception to basic support costs Due to nature of project technical work F&A costs –Facilities costs Bldgs, equip, electricity, library –Admin costs Basic support cost –Clerical & admin salaries, phone line charges, office supplies

8. 8 What expenses does F&A recover? Facilities –Buildings –Sidewalks –Electricity / fuel –Equipment –Library –Security –Custodial Administrative –Dept clerical & admin staff salaries –Research office –Basic office supplies & expenses –Portion of other admin costs – Dept Head, Dean, system charge, etc.

9. 9 Exceptions Sometimes it is appropriate to directly charge costs that are normally considered to be included in F&A –Major projects as defined by Exhibit C of A-21 See slide # 10 –Unlike circumstances test

10. 10 A-21 Exhibit C Examples of "major project" where direct charging of administrative or clerical staff salaries may be appropriate –This is an important section to help you justify direct charging some costs that are normally considered to be F&A costs –Example: Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars

11. 11 Major projects per A-21

12. 12 Unlike circumstances test The unlike circumstances test is used to determine if the cost may be charged directly rather than in F&A –The actual activities charged directly are not the same as the activities included in UTs F&A rate

13. 13 Direct cost justification form This form should be submitted to the campus / unit research office with the proposal This shows that UT is trying to be compliant

14. 14 Research office approval The campus / unit research office will review the Direct Cost Justification form along with the proposal –Approval by the research office and by the sponsor in the award document budget does not guarantee that the costs will not be later disallowed during audit

15. 15 Deciding factors The campus / unit research office is looking for a justification on the form and in the proposal that meets one of the major project exceptions per A-21 Exhibit C and meets the unlike circumstances test –They will also look for consistency between the justification written on the form and the content of the proposal, including the proposal budget, budget justification, and statement of work

16. 16 Example #1 Dr. Jones is proposing that a sponsor grant UT $100,000 for a seminar. Included in the proposed direct costs are the following charges that are generally considered to be F&A costs: –411000 Admin salaries 50% of secretary $15,000 –421000 Benefits associated with secretary $4,200 –433100 Printing $5,000 –435100 Postage $1,000 –439100 Operating supplies $2,000 The costs fall under the major projects exception –Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars The costs meet the unlike circumstances test –A PIs normal duties would not require such a high level of secretarial support and the other administrative and basic support type of costs

17. 17 Example #2 Dr. Jones has included $5,000 in his proposal budget for a computer, $3,000 for specialized photography software, and $5,000 for a digital camera that he needs for the project. –The computer he intends to buy is much more powerful than is ordinarily needed for desktop computing. The extra processing power and storage are needed to run the special software and digital camera. The computer will be located in a lab and will be used incidentally for non-project related work, such as checking email. The costs meet the unlike circumstances test –The computer and software needed for this project are unlike normal desktop computers in that they must be more powerful and specialized.

18. 18 Training classes 1 Overview of Accounting for Sponsored Projects 2 OMB Circulars & Cost Accounting Standards 3 Understanding F&A Costs 4 Direct Costing 5 Cost Transfers & Closeout 6 Cost Sharing 7 Subcontract Monitoring 8 Advanced Topics 9 Invoicing, Reporting & Cash Receipts 10 Sponsored Projects Reports in IRIS Other – IRIS reporting for sponsored projects

19. 19 Appendix 1 Normal treatment of costs

20. 20 Appendix 2 UT Fiscal Policy Direct Costs and Facilities and Administrative Costs University policy requires that grants and contracts bear the full cost of rendering the service. Full cost includes the direct costs and recovery of facilities and administrative costs at the full rate that has been negotiated with and approved by the federal audit agency for the particular campus or institute rendering the service. Obligations for cost sharing should be limited to amounts that can be justified as appropriate to accomplish the stated objectives of the university. Direct and facilities and administrative costs are defined as follows. Direct Costs When charging expenses to federally (includes federal flow-through) sponsored projects, university faculty and staff must ensure the appropriateness of the charges. The guidelines below are designed to assist faculty and staff in determining the appropriateness of certain charges on either federal awards to UT or awards that involve pass through of federal funds. These are intended to clarify certain details of charges that are allowable as direct costs under the restrictions included in Office of Management and Budget (OMB) Circular A-21. While the explicit language of the Circular should be applied to clarify any situation arising regarding allowable charges, these guidelines may be referred to in justifying charges included in proposals submitted for approval by the appropriate UT research office. These guidelines are not intended to be exhaustive, but do include specific mention of cases that are known to arise and that may not be immediately determinable from A-21. –Allocable. The cost must have a direct benefit and be directly attributable to the project or activity being performed. For example, an investigator purchases a piece of equipment to conduct a sponsored project. This equipment is allocable to that project and can be charged as a direct cost to the project. The investigator also purchases office supplies for general office use. These office supplies are not directly attributable to a specific project and are therefore not allocable and cannot be charged as a direct cost to the project. –Allowable. The cost must be allowed by university policy, sponsor policies, and OMB Circular A-21. For example, an investigator has three lab technicians working on a project and charges their salaries to the project. These are allowable costs to the project and can be charged as direct costs. The investigator takes the three lab technicians out to lunch during the project. This expense is an unallowable cost to the project and cannot be charged as a direct cost. See a list of UNALLOWABLE COSTS on federal and federal flow-through sponsored projects. These costs should never be proposed or charged on a federally-funded sponsored project even though they may be allowable as a standard business practice under the university's fiscal policies. For more detailed information about these unallowable costs, see OMB Circular A-21, Section J.UNALLOWABLE COSTSOMB Circular A-21, Section J

21. 21 Appendix 2 UT Fiscal Policy –Reasonable and Necessary. The cost must be reasonable and necessary for the performance of the project. For example, an investigator purchases lab supplies to complete the work on his project. These supplies are reasonable and necessary to the performance of the project and can be charged as direct costs. The investigator also purchases a new microscope that was on sale at the store. The microscope is not needed for the current project, but may be needed for an upcoming project. This expense is not reasonable and necessary for the performance of the current project and therefore cannot be charged as a direct cost. –Consistently Treated. All costs incurred for the same purpose, in like circumstances, are either direct costs only or Facilities and Administrative (F & A) costs only. The university cannot double-charge the government for similar costs by directly charging a cost to a sponsored project and by including the same type of cost in the F & A rate charged to the sponsored project. For example, a bookkeeper purchases stamps for the department. Investigator A uses five stamps for various mailings related to his project and Investigator B uses eight stamps for various mailings related to her project. If the cost of the stamps is included as a direct cost to Investigator A's or B's sponsored project, and similar costs (stamps) incurred in like circumstances (general purpose) are included in the university's F & A rate, the cost of stamps is not treated consistently. Any expense that does not meet all of these criteria should not be directly charged to a federally sponsored project. The fact that a cost requested in a budget is awarded as requested does not ensure a determination of allowability. The university is responsible for presenting costs consistently and must not include costs associated with its F&A rate as direct costs. See attached EXAMPLES of costs normally considered to be direct costs versus F & A costs. Additional details to provide guidance to faculty and staff follow below.EXAMPLES

22. 22 Appendix 2 UT Fiscal Policy Facilities and Administrative (F & A) Costs Facilities and administrative costs are usually stated as a percentage of modified total direct costs for larger university entities and as a percentage of salaries and wages for smaller entities. Modified total direct costs are the total of all direct costs except for the following cost elements: student maintenance fees (4441XX), cost sharing (4444XX), equipment (461XXX), and subcontracts exceeding $25,000 (4821XX), real estate rental (4413XX), and patient care costs. F&A costs include use allowances, operations and maintenance expenses, general and administrative expenses, departmental administration expenses, sponsored projects administration, library expenses, and student administration and services. Lease and rental expenses, along with utility charges and basic service changes (including phones, network port charges, building maintenance fees, etc.) are allowable as direct expenses if the location of the activity is not owned by the university. Administrative costs such as salaries for clerical positions or items such as office supplies and postage are generally viewed by the federal government as facilities and administrative (F & A) costs. Within limited circumstances, administrative costs may be directly charged to a federally sponsored program. The rules for directly charging these administrative costs are found in OMB Circular A-21 section F.6.b(2) and F.6.b(3), along with Exhibit C.OMB Circular A-21 –OMB Circular A-21 F.6.b(2):"The salaries of administrative and clerical staff should normally be treated as F & A costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. 'Major project' is defined as a project that requires an extensive amount of administrative or clerical support which is significantly greater than the routine level of such services provided by academic departments." –OMB Circular A-21 F.6.b(3): "Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F & A costs."

23. 23 Appendix 2 UT Fiscal Policy OMB Circular A-21 Exhibit C:"Examples of "major projects" where direct charging of administrative or clerical staff salaries may be appropriate. Large, complex programs such as General Clinical Research Centers, Primate Centers, Program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions. Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective clinical records studies). Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars. Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports). Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other research field sites that are remote from campus. Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications."

24. 24 Appendix 2 UT Fiscal Policy If a principal investigator wishes to charge any of the type of expenditures described in 14 above directly to a federally sponsored program (or federal flow-through), the following criteria must be satisfied: The charges must be clearly spelled out in the initial budget submitted to the sponsoring federal agency. An explanation of why these charges should be made directly to the project should be provided, and the relationship of the charges to the scope of the work of the project should be clearly identified in the proposal. The DIRECT CHARGE JUSTIFICATION FORM must be completed and submitted with the proposal for approval by the campus or unit research office.DIRECT CHARGE JUSTIFICATION FORM For clerical and administrative salary costs, it is important to describe how the nature of the work performed differs from general clerical services provided in the department and how this work is an integral part of achieving programmatic goals of the project. Some examples of projects considered to meet the criteria above, and thus allowing the direct charging of clerical and administrative support include: Instances where sponsored projects require the services of administrative and clerical staff, and may be budgeted on federally sponsored projects as direct costs occur when: the services are required by the project scope; the cost can be accurately identified to the project; the approved project budget clearly describes the need for the services; and the expense is justified within "Unlike Circumstances" exception outlined in the OMB Circular A-21, Exhibit C.

25. 25 Appendix 2 UT Fiscal Policy Some specific examples include: Projects for which the scope of the project requires making travel and meeting arrangements for large numbers of participants, such as conferences and seminars, then since administration of arrangements for such participants are beyond the normal scope of activity of university units, such costs are allowable as a direct cost. Projects which serve as a hub, prime contractor or fiscal agent, or are contracted to provide logistics for multi- institutional activities. The scope may include arranging for contracts and agreements and providing business services for other entities, or administering grant programs. Such projects may involve a large number of subcontracts, contracts and purchase orders, which are beyond the scope of activity of the clerical staff or normal university units. Projects which provide data services including data entry, database products and data verification and which require administrative staff with detailed program knowledge in addition to high level clerical skills in order to maintain the data. Computer purchases, and the purchase of computer peripherals (including attached storage devices and printers as well as removable devices such as USB devices) are allowable as direct costs on a sponsored project if they are specifically required for the completion of the project and funding for them is included in the initial budget submitted in the proposal for the project. Thus computers required for data collection or storage, analysis, code development or research for a project are allowable. General purpose computers, for example those used by faculty in carrying out the variety of activities required of them in meeting their responsibilities for teaching, research, and service, are not allowable as direct charges even if such computers will be utilized in part to carry out the activities of a sponsored project.

26. 26 Appendix 2 UT Fiscal Policy Unallowable Costs for Federal and Federal Flow-through Funded Grants and Contracts (per OMB Circular A-21) These costs should never be proposed or charged to a federal or federal flow-through sponsored project. For more detailed information about these unallowable costs, see OMB Circular A-21, Section J. Unallowable expenses include (but are not limited to): –1. Advertising (except some job recruiting) and public relations (except where directly related to the sponsored project) –2. Alcoholic beverages –3. Alumni activities –4. Bad debts –5. Commencement or convocation costs –6. Donations and contributions made to other organizations –7. Entertainment costs –8. Fines and penalties –9. Fund raising –10. Goods or services for personal use, including personal use of vehicles –11. Housing and personal living expenses of current and past officers –12. Interest expense –13. Lobbying activities –14. Losses or cost sharing on other sponsored agreements or contracts –15. Memberships in civic or community organizations, country clubs, social or dining clubs –16. Pre-agreement costs, unless specifically allowed –17. Selling and marketing expenses (except some job recruiting and proposal expenses) –18. Severance pay in excess of UTs normal practices –19. Student activity costs, including publications, clubs, etc. –20. Airfare other than lowest available discount commercial airfare. UTs travel policy FI0705, specifically limits airfare to standard coach fare – no first-class or business fares are allowable.