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COST ACCOUNTING PRINCIPLES Office for Nursing Research Presented by Crystal Welliver March 19, 2013.

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Presentation on theme: "COST ACCOUNTING PRINCIPLES Office for Nursing Research Presented by Crystal Welliver March 19, 2013."— Presentation transcript:

1 COST ACCOUNTING PRINCIPLES Office for Nursing Research Presented by Crystal Welliver March 19, 2013

2 It’s MY research grant. I can buy what I want. Right?

3

4 The federal government dictates what you can spend federal grant monies on and how those charges are allocated.

5 Getting Started: Definitions What the heck do all these acronyms stand for?! OMB? GIM??

6 Definitions OMB: Office of Management and Budget (falls under the administration of the White House) Circulars: Instructions or information issued by OMB to Federal agencies GIM: Grants Information Memorandum; published by the UW Office of Research in conjunction with OSP OMB Circular A21: the Federal Government’s costing policy for educational institutions GIM 23: the costing policy for sponsored agreements at the UW ◦GIM 23 is the UW’s implementation of OMB Circular A21; ◦GIM 23 takes into account the University’s unique needs and requirements.

7 OMB Circular A21: The Basics How Costs are Allocated

8 OMB Circular A21 The rules in A21 are used to determine which costs are allowable under sponsored agreements. These principles also apply to: institutions under sub- grants; cost reimbursement subcontracts; other awards made to institutions under sponsored agreements. “Establishes the principles for determining the costs applicable to research & development, training, and, other sponsored work performed by colleges and universities under grants, contracts, and other agreements with the Federal Government.”

9 OMB Circular A21: Direct Costs Direct Costs: expenses that can be specifically identified with a particular sponsored project. These are costs that can be assigned to such activities relatively easily with a high degree of accuracy. Examples: PI Salaries Post-Doc Salaries Subcontracts Lab Supplies Specialized Equipment Fringe Benefits Travel

10 OMB Circular A21: Indirects Examples: Admin. Staff Salaries General Office Supplies Scientific Journals Office Phone Office Computer Facility Costs (e.g. custodial services, utilities) Library Costs Indirect Costs: expenses incurred for purposes common to all research projects that cannot be identified with and charged directly to each individual research project without an inordinate amount of tracking & accounting. Exceptions can be made for large program grants & research projects that require an extensive amount of clerical and/or admin support… more on this later

11 OMB Circular A21: Interpretation Determining Allowability

12 Guiding Principles for Allowable Costs Costs must be: allowable and conform to any limitations or exclusion on cost types or amounts set forth in these guiding principles or in the sponsored agreement; allocable to sponsored agreements under the principles and methods provided; reasonable; treated with consistency by applying generally accepted accounting principles appropriate to the situation. AllowableAllocableReasonableConsistent

13 1. Allowable Unallowable costs include: Alcoholic Beverages Entertainment Costs Fundraising Activity First-class Airfare Employee Morale Costs More on these later… A cost is allowable if it is permitted as a direct cost under the terms of a specific grant or contract.

14 2. Allocable Is the cost incurred solely to advance the work under a sponsored agreement? If yes, charge to that project. Does it benefit more than one sponsored project? Charge proportionally between the projects (more on this later). Does the cost benefit the overall operations of the UW? Charge as an indirect cost. A cost is allocable to a particular grant or contract if the goods or services involved are able to be directly assigned to the specific grant or contract.

15 3. Reasonable Keep in mind: The cost must be able to withstand public scrutiny. How would it look if details are published in the Seattle Times? A cost may be considered reasonable if: ◦the nature of the goods or services -and- ◦the amount involved reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.

16 4. Consistent Treatment Consistency is important because it: ensures that each cost is allocated only once; prevents overcharging; prevents double-counting. All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only… but cannot be both. Since certain costs, such as salaries of administrative and clerical staff and office supplies are normally treated as F&A costs, these costs cannot be charged directly to federal grants or contracts unless the circumstances related to a particular project are clearly different from the normal operations of the institution.

17 So what does all of this mean?

18 Some costs are ALWAYS allowable as direct charges.

19 Some charges are NEVER allowable. Others exist in a gray area and MAY be allowable…

20 Never Charge to Grants… Advertising – allowable if for recruitment of personnel, procurement of goods & services, disposal of surplus materials, and advertising costs specifically required by a sponsored agreement. Alcoholic Beverages – charge to a discretionary budget; (alcohol may be directly charged to a few sponsored projects if the nature of the research specifically requires the purchase and use of alcohol in the research, and the sponsor explicitly approves the cost). Alumni Activities - Costs incurred for, or in support of, alumni activities & similar services. Bad Debt - including losses (whether actual or estimated) arising from uncollectable accounts and other claims, related collection costs, and related legal costs, are unallowable. Commencement & Convocation Costs

21 Never Charge to Grants… Entertainment - including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities). First-Class Airfare –except when cheaper fares would: require circuitous routing; require travel during unreasonable hours; excessively prolong travel; greatly increase the duration of the flight; result in increased costs that would offset transportation savings; or offer accommodations not reasonably adequate for the medical needs of the traveler. Fundraising & Investment Costs Goods & Services for Personal Use Housing & Personal Living Expenses for Institutional Officers

22 Never Charge to Grants… Lobbying - A few lobbying costs are allowable if specifically related to the performance of a sponsored agreement. Losses on Other Sponsored Agreements Memberships in Civil, Community & Social Orgs - The only allowable membership costs are for a membership in business, technical, or professional organizations. Selling & Marketing Costs of Institutional Products & Services Student Activity Costs - Unless specifically allowed for in the sponsored agreement, costs incurred for intramural activities, student publications, student clubs, and other student activities are unallowable.

23 Sometimes Chargeable to Grants… Administrative & Clerical Salaries - Typically unallowable - however, some costs may be appropriate with justification and agency approval. ◦More on this later… Cell Phones & Service Charges – Cell phones must be used exclusively for the project; unlike circumstances also must exist in order for these telecommunication services to be charged directly to a grant or contract budget.

24 Sometimes Chargeable to Grants… Computers - unallowable except where approved in advance by the agency. Consultants - allowable; A consultant is an individual retained to provide professional advice or services for a fee but usually not as an employee of the requiring organization. Copying Charges, Routine Equipment - allowable as either direct cost or F&A cost - depending on the intended use of the equipment.

25 Sometimes Chargeable to Grants… Food - allowable when: ◦(1) provided by a conference grant (for scientific meetings supported by the conference grant); ◦(2) provided to subjects under study provided that such charges are not duplicated in participant’s per diem or subsistence allowances, if any; ◦(3) such costs are specifically approved as part of the project activity in the NGA. Foreign Travel - In most cases foreign travel is to be listed in the budget or approved by the agency in advance of the trip. Air travel is to be on U. S. carrier. Insurance - usually treated as an F&A cost. Journals & Subscriptions - usually treated as an F&A cost, may be treated as direct costs under special or unique circumstances.

26 Sometimes Chargeable to Grants… Memberships - usually treated as an F&A cost, may be treated as direct costs under special or unique circumstances. Office Supplies - Office supplies are generally not allowable unless you’ve established unlike or exceptional circumstances. ◦Includes toner cartridges, data storage devices Stipends - Payments made to an individual under a fellowship or training grant in accordance with pre-established levels. Telephone Costs - Basic phone is generally an F&A cost. ◦Toll calls may be a direct cost providing the cost can be specifically identified to a sponsored agreement. ◦Off-campus projects may charge phone rental as a direct cost.

27 The above types of costs should be DIRECTLY charged to sponsored agreements when they can be specifically identified to the work performed under those agreements. (GIM 23) Salaries, Wages, Fringe Benefits ◦Faculty ◦Research Associates ◦Pre-doc and Post-doc Fellows ◦Technicians, Lab Assistants, Grad Students ◦Tuition Remission for Grad Students Supplies & Materials ◦Chemicals ◦Laboratory Supplies ◦Computer Software ◦Drugs ◦Books ◦Minor Equipment ◦Uniforms ◦Photographic supplies ◦Tools ◦Animals Other Direct Costs ◦Travel ◦Postage ◦Subcontracts ◦Radioactive Waste Disposal ◦Consulting Services ◦Equipment ◦Animal Care ◦Motor Pool ◦Long distance telephone costs ◦Freight and Express ◦Patient Care and Subject costs ◦Other costs specifically identified and justified in funded proposals ◦Costs that are normally indirect may be charged to non-federally sponsored agreements if permitted by the sponsors policies/practices or are otherwise approved by the sponsor Off-Campus Projects Only ◦Office Supplies ◦Basic Telephone Services ◦Facilities Costs - such as rent, maintenance, security, utilities

28 Unlike or Exceptional Circumstances Pushing the limits of that gray area of allowability!

29 GIM 23: Unlike Circumstances Unlike Circumstances: justifying the treatment of normal indirect costs as direct costs

30 GIM 23: Unlike Circumstances Costs may be charged as directs only if they meet the following requirements: The project has a special need for the item or service involved that is beyond the level of services normally provided. The costs can be specifically identified to the work conducted under the project. The costs are specified in the proposed budget of the sponsored agreement, and the special circumstances requiring direct charging are justified in the proposal. The sponsoring agency accepts the cost as part of the project’s direct cost budget. (That is, the sponsor does not specifically disapprove the cost in the award or in other notice it gives to the University.)

31 How NOT to Justify Unlike Circumstances… The following arguments cannot be used in and of themselves to demonstrate "unlike circumstances": Sponsor has approved the allocation of a particular cost without proper review by the UW; The department does not have sufficient F&A cost money returned to it to support projects; Sponsor limits or will not pay F&A costs; Sponsor is willing to pay for the cost as a direct charge.

32 Unlike Circumstances & Pre-award Costs which should be covered by indirect costs should not be paid out of direct costs without specific approval for “unlike circumstances” from the sponsor. Proposal justifications must explain the purpose of the costs in sufficient detail to enable those responsible for reviewing the proposed budget to make a determination of whether the cost meets the definition of an “unlike circumstance.”

33 Unlike Circumstances & Modular Budgets Modular Budgets If an application includes a modular budget, costs of concern should be justified as part of the “Additional Budget Justification.” This is an internal SoN requirement and will save the PI and budget managers time and energy later.

34 Unlike Circumstances: After-the-Fact Grants with expanded authority may move costs between budget categories without prior authority - unless such a move constitutes a move from indirect to direct costs. Approval must be granted, either in the application itself, or a concurrence letter sent after-the-fact.

35 GIM 23: Helpful Hints Ask five questions to determine allowability to directly charge normally indirect costs: 1. Are there unlike circumstances? 2. Are the unlike circumstances documented in proposal? 3. Are the proposed expenses on the F&A cost list (GIM 23)? 4. May the UW re-budget without sponsor approval? 5. Are the unlike circumstances documented and in the post- award budget file?

36 Administrative Costs & Unlike Circumstances

37 Administrative Salaries and Audits Remember: The salaries of clerical & administrative staff should normally be treated as F&A costs. Because these costs are included in the negotiated F&A rate, direct charging them to a sponsored award means we are charging the sponsor twice for the same cost. This is a cost area that is susceptible to abuse so federal examiners have targeted this as an area to review.

38 Allowable Administrative/ Clerical Salaries Salaries of a technical nature are allowable as direct costs. The same with salaries which involve: extensive data accumulation; data analysis; cataloging or the preparation of large manuals & reports.

39 May not be charged… Responsibilities that fall within normal departmental administrative functions cannot be charged directly to sponsored projects. The costs of administrative work such as routine budget monitoring, filing and other general office tasks are not usually considered allowable direct costs because such work is common across many sponsored projects. See GIM 23 Attachment A for a list of Job Class codes that are considered Administrative and Clerical.

40 Scenarios for Charging Administrative Salaries Scenarios in which direct charging of admin. or clerical staff salaries or expenses may be appropriate: Large, complex programs Extensive data accumulation Coordinating conferences, seminars, travel, etc. Preparing & producing manuals, large reports, etc. Projects requiring project- specific database management

41 Administrative Salaries & Pre-Award To determine whether charging these costs would be appropriate, remember to ask: Did we explicitly budget for these costs in the proposal? Does the proposal include a written justification (i.e. say why the “normally indirect” costs are necessary for project performance)? Is this a “major project” as defined in the previous slide (also Exhibit C of OMB A-21)? -OR- The Sponsor specifically allows the direct charging of administrative/clerical costs due to the type of grant or contract and this is documented in the funding opportunity announcement (FOA).

42 Post-Award: The PI’s Responsibility It is the Principal Investigator’s responsibility to document the roles, duties, and effort devoted to a sponsored project for all personnel. Therefore, the duties of any administrative or clerical position described in the justification to OSP should be reflected in the departmental record as the project is carried out.

43 Post-Award: After-the-Fact If charging an administrative/ clerical salary was unforeseen at the time of proposal but the need to do so arises after time of award, the same criteria for including them in the proposal budget apply. The PI/dept. must send an appropriate justification to OSP for review and to notify GCA to add Flag #2. If an administrative/clerical payroll title is necessary for an individual with research or technical-based effort on the project, notification to OSP is required.

44 Administrative Salaries – FAQs Q. If administrative/clerical salaries were proposed in the application and the sponsor did not specifically disallow them in the award, are they allowable? A. In most cases the answer is probably yes. Check with OSP. Q. What about the treatment of administrative and clerical costs on non-federal awards? A. They are allowable if the sponsors of those projects do not specifically disapprove the cost in the award or in other notices it gives to the University. Q: Is direct charging small percentages of administrative/clerical effort (salaries) among several off-campus sponsored agreements allowable per OMB Circular A-21 guidelines? A: Not generally, A-21 allows the direct charging for large complex projects that require an exceptional level of administrative support. Small percentages of effort would not indicate an exceptional level of administrative support.

45 Other Non-Salary Administrative Costs Items such as office supplies, postage, local telephone costs, and memberships should normally be treated as F&A costs. If you have established unlike circumstances, include justifications in the proposal and in the post-award budget file.

46 Distributing Costs Among Grants There are two methods for allocating an allowable direct cost to two or more grants.

47 Charges split between more than one grant must be split on the basis of proportional benefit or other reasonable method. The division of the expenditure can not be split based on available funding or any other type of synonymous methodology. An expenditure that benefited two or more projects cannot be charged solely to one project because the other project is almost out of funding. Just remember…

48 GIM 23: The Proportional Benefit Rule The proportional benefit rule applies when it is possible to determine the proportional benefit of the cost to each project. The cost is allocated according to the proportion of benefit provided to each project. ◦Example: A department might allocate the cost of laboratory supplies based upon the quantity used (or planned to be used) on each project.

49 The Proportional Benefit Rule & Travel Auditors carefully review travel charges that are split between two or more projects so as to be sure that charges are properly allocated. When maintaining the travel files, it is important to be clear about how the trip specifically benefited each project respectively.

50 GIM 23: The Interrelationship Rule The interrelationship rule applies when it is not possible to determine the proportional benefit to each project because of the interrelationship of the work involved. The cost is distributed on any reasonable basis because the proportional benefit cannot be quantified and identified to the individual projects. ◦Example: The cost of lab supplies might be allocated based upon the allocation of employee salaries to each project.

51 Documenting Split Charges – Part 1 Always document the allocation methodology. ◦Allocation methodologies must be documented and auditable. ◦Documentation should include support for the specific costs allocated and indicate how the allocation methodology is logically related to the cost being allocated. ◦This support should be retained by the department and be made available for review. ◦Always remember to document why measures such as headcount, square footage or hours directly relate to the benefit received.

52 Documenting Split Charges – Part 2 Allocation methodologies need to be reviewed when the project begins and ends to ensure compliance. Allocation methodologies should be reviewed periodically to ensure they are reasonable. Allocate expenditures on a routine basis. Do not wait until the end of the fiscal year or the end of the grant year to allocate expenditures!

53 Use of Grant Resources

54 de minimis Use of Project Equipment Equipment approved & purchased on a federal grant should be used solely for programmatic purposes related to the grant for which it was purchased. This means that “minimal personal use” of laptops, iPads, iPhones, etc. is not allowed per federal regulations.

55 One more thing…

56 What happens to equipment or supplies when the grant ends?

57 It belongs to the University of Washington.

58 Case Studies

59 Case Study #1 Dr. Fisher is writing a proposal and he wants to include administrative personnel to make travel arrangements for 8 project personnel who are based in 6 cities around the world. It is critical to the project that the schedules of these personnel be coordinated so that project personnel can meet at specific times and locations. Should administrative salaries be included in the proposal budget?

60 Case Study #1 Yes, such duties would be considered above and beyond routine administrative support. The PI should describe in the budget justification how this person’s activities will relate to the programmatic objectives of the project and the percentage of time spent on this task.

61 Case Study #2 Dr. Smith asks you to pick up some office supplies and a box of donuts on your way to a lab meeting. She tells you to submit the reimbursement form with the grant’s budget number on it. What do you do?

62 Case Study #2 Entertainment costs, such as donuts, are unallowable. Pay for these with a discretionary fund. Meals are allowable when: (1) they are provided by a conference grant (for scientific meetings supported by the conference grant); (2) they are provided to subjects or patients under study provided that such charges are not duplicated in participant’s per diem or subsistence allowances, if any; (3) such costs are specifically approved as part of the project activity in the NGA. If the office supplies (pens, notepads) are not specifically allocable to the grant, they are considered general office supplies and should not be charged as a direct cost.

63 Case Study #3 Dr. Johnson asks to be reimbursed from his largest grant for the cost of his cell phone. He does not use it for personal purposes; he uses it for telephoning staff in the lab, calls to potential donors to his department and international calls to co-investigators associated with all of his grants. Should the expense be charged to his grant?

64 Case Study #3 No, this is an inappropriate direct cost charge because the cell phone is not specific to one unique research project.

65 Case Study #4 Dr. Jones purchases a much-needed piece of specialized equipment for her research on hypertension. When preparing the purchase request, she realizes that the only budget with enough money is her grant for research on sleep disorders. Because both grants are funded by NIH, she charges the equipment to the sleep disorder grant. Is this appropriate?

66 Case Study #4 No, the purchase must directly benefit the project it is charged to. Dr. Jones must charge the hypertension study, not the sleep study.

67 Case Study #5 Dr. Jaffe has a federally funded research grant specializing in HIV/AIDS research. The project requires a large amount of binders and file folders to keep track of hundreds of subjects and their records. Should the office supplies be purchased as a direct cost to the grant or with indirects?

68 Case Study #6 Charge as a direct cost on the grant because the volume is so great and the data being collected needs to be kept confidential and separated, an unlike circumstance for the purchase of these office supplies exists. Document this unlike circumstance in the proposal budget and maintain documentation in the post-award grant files.

69 Fin


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