Columbia University Medical Center Training Certification Program For Senior Financial Administrators - Session 6 Session 6 - Cost Accounting

Session 7: Cost Accounting Part 1: Industry Overview Direct Costs F&A Costs Cost Accounting Standards Part 2: Columbia University F&A (ICR) and Fringe Benefits Significant Costing Policies & Procedures Service/ Recharge Centers Session 6

Agenda Introduction 10 Mins Goals and Objectives 5 Mins Industry Overview 45 Mins Break 15 Mins Columbia University: Cost Accounting (Part 1) 60 Mins Columbia University: Cost Accounting (Part 2) 75 Mins Summary/ Conclusion TOTAL 240 Mins Session 6 - Cost Accounting May 2005

Session Objectives To understand the cost accounting standards To understand compliance requirements in A-21 To understand direct costs vs. facilities and administration To understand the components of the F&A rate To understand service/ recharge centers Session 6 - Cost Accounting May 2005

Industry Overview: Direct Costs F&A Costs Cost Accounting Standards Part 1 Industry Overview: Direct Costs F&A Costs Cost Accounting Standards Session 7

OMB Circular A-21 Cost Principles for Educational Institutions A. Purpose and Scope B. Definition of Terms C. Basic Considerations D. Direct Costs E. F & A Costs F. Identification and Assignment of F & A Costs G. Determination and Application of F & A Cost Rate H. Simplified Method for Small Institutions I. Reserved – not in use J. General Provisions for Selected Items of Costs K. Certification of Charges Session 6 - Cost Accounting May 2005

OMB Circular A-21 Purpose Used in determining the applicable costs of work performed by colleges and universities under sponsored agreements. Designed to provide that the Federal Government bears its fair share of total costs. Not significantly different from generally accepted accounting principles. Website link: http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html Session 6 - Cost Accounting May 2005

OMB Circular A-21 Definition of Terms Major functions of an institution Instruction, organized research, other sponsored activities and other institutional activities. Sponsored agreement Any grant, contract, or other agreement between the Institution and the Federal Government. Allocation The process of assigning a cost, or a group of costs, to one or more cost objective, in reasonable and realistic proportion to the benefit provided or other equitable relationship Facilities and administrative (F&A) costs Costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity Session 6 - Cost Accounting May 2005

OMB Circular A-21 Definition of Terms MTDC (Modified Total Direct Costs) Consist of all salaries, wages, fringe benefits, materials, supplies, services, travel, and subgrants/subcontracts up to the first $25,000 of each subgrant/subcontract (regardless of the period covered by the subgrant/subcontract). Modified Total Direct Costs exclude equipment, capital expenditures, charges for patient care, tuition remission, rental costs of off-site facilities, scholarships, and fellowships, as well as the portion of each subgrant/subcontract in excess of $25,000. TDC (Total Direct Costs) Include all costs charged to a sponsored program account, excluding Facilities and Administrative Costs. Session 6 - Cost Accounting May 2005

OMB Circular A-21 Basic Considerations Section C.2 Factors affecting allowability of costs: Shall be consistent with policies that apply uniformly to both federally funded and other activities of the organization. Reasonable and allocable. Conform to any limitations or exclusions set forth in the circular or award. Justification for costs must be adequately documented. Session 6 - Cost Accounting May 2005

OMB Circular A-21 Reasonable Costs Section C.3 Is the cost reasonable? A cost is reasonable if it does not exceed that which would be incurred by a prudent person under the circumstances. Is the cost necessary for the overall operation of the University or the performance of the award? Are costs incurred consistent with University policies and procedures? Session 6 - Cost Accounting May 2005

OMB Circular A-21 Allocability Section C.4 A cost is allocable if: It is incurred specifically for the award. It benefits the award and can be distributed in reasonable proportion to the benefits received. It is necessary to the overall operation of University, and is deemed to be assignable in part to sponsored projects. Session 6 - Cost Accounting May 2005

OMB Circular A-21 Allocability Section C.4.d Direct cost allocation principles If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship involved, then the costs may be allocated or transferred to benefited projects on a reasonable basis. Session 6 - Cost Accounting May 2005

OMB Circular A-21 Direct costs Section D. Direct Costs Direct costs are those costs that can be identified specifically with a particular project. These charges represent costs necessary to meet the project’s scientific and technical requirements. The relationship between the charge and the science should be “clear and close” and costs should support the project’s purpose and activity SubContract- Contracting for goods and services under a government prime contract. As a subcontract, the transaction becomes subject to additional requirements imposed on the prime contract by Federal Law as provided by the Federal Acquisition Regulations and Agency Supplements. These additional requirements cover all aspects of the contractual relationship including the decision to buy, selection of the supplier, pricing the contract, terms of the contract, quality, payments and even completion and closeout. Session 6 - Cost Accounting May 2005

OMB Circular A-21 Direct Charging Examples of allowable direct charges include: Salaries, wages, benefits, of PI, research associate, lab technician, graduate research assistant, technical staff Lab supplies or educational supplies Travel Equipment Consultants Tuition & Fees for Grad Research Assistants Subcontracts Animal purchases and per diems Session 6 - Cost Accounting May 2005

OMB Circular A-21 Unacceptable Direct Costing Practices Assigning charges to the sponsored agreement with the largest remaining balance. Charging the budgeted amount rather than charging an amount based on actual usage. Identifying a cost as anything 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 (F&A costs) for sponsored agreements (e.g., secretarial/ clerical, accounting, payroll). Shifting expenses from one grant that’s overspent to another with available funds. Session 6 - Cost Accounting May 2005

OMB Circular A-21 What is an unallowable cost? One that is not eligible for reimbursement by federal sponsors. Contrast with: Permissible by the university Allowable by other sponsors Unallowable Activities: Organized fund raising Lobbying Commencement and convocation General public relations and alumni activities Costs for student activities, e.g., intramural activities, student clubs, student publications, etc. Managing investments solely to enhance income Prosecuting claims against the federal government Session 6 - Cost Accounting May 2005

OMB Circular A-21 Unallowable Expenses Advertising Alcoholic beverages Entertainment Fines and penalties Housing & personal living expenses Memorabilia, promotional materials Moving costs if employee resigns within 12 months Certain recruitment costs (e.g. excessive size ads) Certain travel costs (e.g. first-class) Cash donations to other organizations “Golden Parachute” severance payments Memberships in social, dining, or country clubs and in civic or community organizations Tuition benefits for employee family members Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs What are they? Allowable costs that normally cannot be assigned to a specific project. Examples: Building depreciation Equipment depreciation Supplies Administration (Central) Administrative & clerical salaries and related fringe benefits Postage General purpose computer software and office supplies Local area network costs Memberships & subscriptions Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs Special purposes or circumstances- Exceptions for direct charging Projects that are geographically inaccessible to normal departmental administrative services. Projects that require making travel and meeting arrangements (conferences & seminars) for a large number of participants. Large, complex programs, program projects, environmental research centers, engineering research centers, and other sponsored agreements 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. For example, if a project requires substantial mailing expenses in the performance of the project activities or technical work, postage should be a direct cost of the project. Projects that the principal focus includes the preparation and production of manuals, long reports, books or monographs (Preparing routine progress and technical reports does not mean the project is a “special purpose or circumstance”). Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs Administrative vs. Facilities Administrative Cost Pools (Subject to Cap) General Administration (Central, School) Departmental Administration Sponsored Projects Administration Student Administration and Services Note: Administrative Cap is 26 points of the total rate Facilities Cost Pools (Uncapped) Building Depreciation Equipment Depreciation Interest Operations & Maintenance and Security Session 6 - Cost Accounting May 2005

Cost Accounting Standards (CAS) Direct and indirect costs are governed by Cost Accounting Standards 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 Session 6 - Cost Accounting May 2005

Cost Accounting Standards (CAS) Purposes of CAS CAS are federal law and not administrative directives. Facilitate comparison of costs among sponsoring agencies and contractors. Ensure that costs are accounted for in the same way on proposals and grants/contracts. Ensure that costs are accounted for in the same way from grant to grant over time. Session 6 - Cost Accounting May 2005

Cost Accounting Standards (CAS) Consistence in Estimating, Accumulating, and Reporting Costs Practices Must Be Consistent Department to Grant Proposal to Grant Proposal to Financial Report Session 6 - Cost Accounting May 2005

Cost Accounting Standards (CAS) Consistency in allocating cost incurred for the same purpose. Each type of cost must be allocated once and on only one basis to any cost objective. Costs incurred for the same purpose in like circumstances are either direct costs only or F&A costs only with respect to final cost objectives. Session 6 - Cost Accounting May 2005

Question 1: Salaries of Glass-Washers How would you allocate salaries and supplies of glass - washers who wash test tubes for seven different sponsored projects? A) Charge to the project with the most money. B) Charge all salaries to one project each month and then start over again. C) Count the test tubes used on each project and figure out the proportional share to be charged. D) Charge the expense based on the proportional share of PI’s effort. E) Charge the expense based on the sq. Footage of glass - washers bench area. F) Not chargeable to grant. Session 6 - Cost Accounting May 2005

Question 2: Computer Purchased for Technical Use A principal investigator wants to purchase a computer on project A where it is budgeted. He put through a purchase requisition and a couple of days later he realizes he can also use it for project B. Should he go back and charge project B? Session 6 - Cost Accounting May 2005

Question 3: Photocopying Costs Can a PI charge the costs of photocopying research papers and making slides for use in a technical meeting to the research project? Session 6 - Cost Accounting May 2005

Penalties for Noncompliance Funds for award may need to be returned to sponsoring agency Research on award may be frozen pending investigation Funding by sponsoring agency may cease Legal ramifications Session 6 - Cost Accounting May 2005

BREAK Session 7 - Cost Accounting

Part 2 Columbia University: Cost Accounting Facilities & Administration (F&A) & Fringe Benefits Significant Costing Policies & Procedures Service/ Recharge Centers Session 7

Terminologies All costs are grouped into a number of pools (categories) Direct Costs F&A (ICR) Facilities Administrative Session 6 - Cost Accounting May 2005

Terminologies Direct Costs: Costs that can be identified to a specific project, program, or activity of an institution. Facilities and Administrative Costs (Indirect Costs): Costs that cannot be identified to a specific project, program, or activity but benefit the total institution. Session 6 - Cost Accounting May 2005

Terminologies Direct Cost Pools include: Instruction Sponsored Training Department Research Organized Research (separately budgeted and accounted for) Other Sponsored Activities (not research) Other Institutional Activities (auxiliaries) Session 6 - Cost Accounting May 2005

Terminologies F&A Cost Pools include: Facilities Cost Pools: Building Depreciation Equipment Depreciation Operation and Maintenance Interest Library Session 6 - Cost Accounting May 2005

Terminologies F&A Cost Pools include: Administrative Cost Pools: General Administration Department Administration Sponsored Projects Administration The government has imposed a 26% CAP on Administrative components The cap was imposed for all grantees fiscal years after October 1991. Therefore, applicable at CU starting in Fiscal Year 1992 Session 6 - Cost Accounting May 2005

Terminologies Distribution Base or what is commonly referred to as the MTDC base: The denominator used to compute the F&A rate The base includes: Salaries, wages, and benefits Materials, supplies, and services Travel Subcontract expenditures up to $25,000 each Session 6 - Cost Accounting May 2005

Terminologies The Distribution Base excludes: Equipment Capital expenditures Patient care charges Tuition remission Rental of off-site facilities Scholarships and fellowships Subcontract expenditures in excess of $25,000 These items are excluded in order to avoid inequities in the distribution of F&A costs. Session 6 - Cost Accounting May 2005

Terminologies Facilities and Administrative (F&A) Cost Rate Calculation: F&A Cost Pool = Rate Distribution Base Session 6 - Cost Accounting May 2005

Terminologies Base Year Costs: Used as the basis to negotiate new set of F&A rates. The base year is normally the fiscal year ending prior to the final year covered by the negotiation agreement. Columbia current rates run from July 1, 2004 through June 30, 2007, therefore the future base year will be fiscal year ending June 30, 2006. Session 6 - Cost Accounting May 2005

CU Facilities & Administrative (ICR) Rates Columbia’s rates are: On Campus 61.0% Off Campus 26.0% Off Campus Modified 28.8% Lamont 51.0% These rates are predetermined and are applicable for the period 7/1/04-6/30/07. On-Campus and Off-Campus rates apply to both CUMC and Morningside campuses. Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs On Campus F&A Rates at Peer Institutions FY 2003 Brown 56.0% Chicago 52.5% Columbia 61.0% Dartmouth 58.0% Harvard 63.0% Johns Hopkins 63.5% MIT 63.0% U of Penn 58.5% Princeton 58.0% Stanford 58.0% Washington U 53.0% Yale 63.5% Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs Proposal Preparation / Submission / Negotiation Process MTDC Base Review Cost Sharing Space Inventory O&M Cost Equipment Inventory Building Depreciation Interest on Capital Projects Departmental Administration Library Costs Screening for unallowables F&A Rate Calculation Proposal preparation / Submission / Negotiation Session 6 - Cost Accounting May 2005

F&A Proposal Timeline MTDC Base Review Review of the Modified Total Direct Cost Base is an ongoing process. F&A cost team reviews each new account to determine proper classification This is an important process since the improper classification of projects as sponsored research will have a negative impact on the F&A rate. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Cost Sharing We must identify any mandatory and voluntary cost sharing and add these costs to the MTDC base. Cost sharing has a negative impact on the F&A rate. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Space Inventory The most significant step in the proposal process is to conduct a space inventory survey for the purpose of functionalizing space (i.e. space allocation to research, training, administration, etc.). Space statistics is the primary driver in allocating facilities costs pools, therefore it is important that we be as accurate as possible in functionalizing space, particularly research space. The space survey process is started in July/August of the base year and will take 8-10 months to complete. We hold training sessions on how to conduct the survey. Instruction packets are given to each department with a data sheet for each space owned by the department. We also provide a listing of PI’s and their restricted account numbers. The department must complete the data sheets for each space by annotating: Room occupants Research projects conducted in the room When graduate students occupy space in the room there must be a reasonable allocation of space based on the funding source of the student. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Space Inventory (continued) The facilities component of the University’s F&A rate is approximately 50% of the rate and is most vulnerable to scrutiny by the Federal negotiator. It is important that there is adequate documentation to support the functionalization of the space by room. The F&A cost team reviews each data sheet for reasonableness and accuracy. An important step in this review is to compare occupants effort to space functionalization. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Review of the Space Surveys - federal questions: Did the University’s space survey definitions comply with the definitions outlined in OMB Circular A-21? Did department personnel understand the space definitions and follow the University’s procedures? In other words, the space survey instructions must be of sufficient scope, clear, and complete. Is the space study supported by adequate records? Documentation of space utilization may include: A list of occupants for each room A list of sponsored research projects conducted in a room or sponsored projects by principal investigator Allocation of some space to non-research activities when students are occupants No room 100% research Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Operation and Maintenance (O&M): O&M expenses include: Utilities Janitorial / Custodial services / grounds keeping Physical plant administration Environmental Health and Safety Public safety/security Maintenance & repair O&M is the single largest component of the rate Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Equipment Inventory (for depreciating assets): A wall to wall room by room inventory of all equipment in research intensive space. Equipment linked to space inventory. Next inventory expected in early 2006. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Equipment Depreciation: Equipment inventories are required by Circular A-21 Allocation of equipment depreciation on a room-by-room basis More precise allocation than a building-by-building basis or allocation by department May provide increased recovery Requires defensible equipment inventories by room Property Control Manual Procedures for the control of equipment owned by Columbia Federal government and other sponsors requirements with respect to control over property Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Building Depreciation: Annually, Facilities Management will provide building costs data. Controller updates building depreciation database for calculating the building depreciation expense for FY2006. The depreciation allocated to research will be calculated based on the functionalization of the building. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Interest on Capital Projects: University Budget office provide an updated projects listing for debt financed projects. Interest is calculated for research projects within a building. The interest allocated to research is calculated based on the functionalization of the building. Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Department Administration: Developed from information provided by effort reports and review of department accounts. (e.g. Ledgers 2, 4, 6B, and 6C) Department administration is calculated by department, by school. Salary and wage and other expenses categories must be consistent with Federal guidelines. (e.g. must exclude fundraising, alcohol, etc.) Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Library: Library costs are allocated based on Full Time Equivalents for: Undergraduate students Graduated students Faculty Non-Salaried appointees Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Screening for Unallowables: Every attempt is made to insure unallowable costs are excluded from the cost pools. Some examples include: Entertainment, flowers, liquor Fundraising Lobbying Certain legal costs Public affairs Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs Flowchart of Basic F&A Rate Calculation Session 6 - Cost Accounting May 2005

F&A Proposal Timeline Prepare Proposal Document Prepare supporting documentation as required by “Standard Format” Proposal must be submitted to the Division of Cost Allocation, New York by next base year, e.g. December 31, 2006. Provide addition materials as requested 4-6 month review and negotiation Session 6 - Cost Accounting May 2005

Facilities & Administrative (F&A) Costs Key Drivers of F&A Rates There are a few well-defined drivers of the F&A rate: New Buildings Space functionalization- which is the basis for allocating the space-related components Operation & Maintenance - may be the most significant rate component Depreciation- for recovering the cost of equipment and buildings Interest - properly allocated to buildings The research base – volume of sponsored research Session 6 - Cost Accounting May 2005

CU Fringe Benefit Rates Federal Rate Current negotiated rate 26.4% Type of rate Fixed Period 7/1/04-6/30/05 Other Fringe Rates 4.1% Additional Fringe - not charged to federal projects Recovers fringe costs not included in 26.4% (e.g. Tuition for dependents) Fringe charges applicable only to practice plan salary A-1 16.45% (Pensionable) A-2 1.45% (Non-pensionable) Fringe charges applicable to registered students – 8.15% Session 6 - Cost Accounting May 2005

BREAK Session 7 - Cost Accounting

Significant CU Costing Policies and Procedures Most significant policies and procedures that impact sponsored projects: Columbia Policy Statements 92-1 Segregation of Unallowables 92-3 Administrative and Clerical Salaries 92-4 Office Supplies and Other Admin Expenses 92-5 PI Responsibility for Fiscal Oversight Other Significant Policies Effort Reporting and Cost Transfers Cost Sharing Overdrafts Service/Recharge Centers Session 6 - Cost Accounting May 2005

CU Policy Statements Policy Statement on Segregation of Unallowables (92-1) Covers costs like alcoholic beverages, flowers, airfare in excess of lowest available fare These costs may NOT be charged directly or indirectly to federal awards Although unallowable as charges to federal awards, these may be reimbursed /paid from other sources if they conform to CU policy Use subcode 8500 or individual 85xx subcodes as identified in policy Session 6 - Cost Accounting May 2005

CU Policy Statements Policy Statement on Admin/Clerical Salaries (92-3) Curtails reimbursement of these costs as direct charges to FEDERAL awards OMB Circular A-21 provides that these costs normally are indirect Direct charging may be appropriate under certain circumstances, including: Large complex programs that require significant admin support (e.g., Program Projects) Projects requiring extensive data accumulation/analyses, etc. Projects geographically inaccessible to normal admin services Individuals charged must be those actually engaged in the project PI/Admin responsible for insuring that direct charging is appropriate, whether to Federal OR non-federal projects Session 6 - Cost Accounting May 2005

CU Policy Statements Policy Statement on Office Supplies & Other Admin Expenses (92-4) Curtails reimbursement of these costs as direct charges to FEDERAL awards OMB Circular A-21 provides that these costs normally are indirect Includes costs like office supplies, postage, memberships in prof. societies Direct charging may be appropriate under certain circumstances, including: When the costs relate specifically to the technical substance of the project Where nature of project requires unusually high level of these costs PI/Admin responsible for insuring that direct charging is appropriate, whether to Federal OR non-federal projects Session 6 - Cost Accounting May 2005

CU Policy Statements Policy Statement on PI Responsibilities (92-5) Requires active oversight of the principal investigator, who is often the only source to provide distribution of costs Encourages the use of administrative staff to handle details, but PI is ultimately responsible for financial (as well as programmatic) oversight Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Allocation to Function Research PI’s Effort Instruction Administration Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Instituted in early 1970’s – Government wanted reporting that provided a reasonable comfort level for substantiating salaries charged to research grants. Effort reporting evolved in what you might characterize as a simplistic world of research. Some thirty years later, the complexity, inter-disciplinary, inter-relatedness of research protocols has made the tracking of effort difficult particularly since PI’s tend to work on several grants as well as other duties. Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting What is Effort Reporting? Accounting for salaries and wages Certifying effort On individual sponsored agreements On all other activities (DA, Instruction, PP, Hospital Duty, Cost Sharing) Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Why Do Effort Reporting? Salary and wage charges to sponsored agreements are allowable only if they are supported by an effort reporting system Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Who has to do Effort Reporting? All employees in Academic departments Effort reporting salary is annual compensation for an employee’s appointment whether time is spend on research, teaching, patient care or other activities Excludes compensation from non-university sources (e.g. NYSPI) Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting OMB A-21Requirements Columbia utilizes “plan-confirmation” to satisfy A-21 requirements A system based upon budgeted workload System will reasonably reflect the workload of each employee System will account for 100% of the workload for which the employee is compensated System provide for making necessary changes to the budgeted workload Annual certification that salaries and wages charged to sponsored agreements or other categories are reasonable in relation to the work performed Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Effort Definitions: Sponsored Activities – research, training, and other activities supported by grants and contracts from Federal and other sources. Effort is separately budgeted and accounted for Public Service – Harlem Hospital and similar institutions under affiliation agreements Hospital Duty – Effort devoted to patient care at NYPH where effort is part of base salary Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Effort Definitions (continued): Private Practice – designated as private practice guaranteed and is part of base salary Instruction - teaching, curriculum development, departmental research. Departmental research is activity which is neither separately budgeted or accounted for, and is supported by departmental funds Department Administration – Effort devoted to administrative activities that benefit common or joint objectives of the academic department. Maintenance of department records, budgets Supervision/guidance of administrative support staff Departmental chair or head, etc in administrative matters Preparation of grant & contract proposal Instruction and departmental administration are often funded from the same FAS accounts, including FAS accounts supporting private practice. Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Department Responsibilities Determine initial effort allocation based on assigned workload Submit Salary Accounting Form (SAF) indicating salary to be charged to one or more activities, percentage of effort devoted to the project and period to which effort is attributable Provide breakdown of effort devoted to instruction, private practice and administration Must add to 100% Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Department Responsibilities (Continued) Department must monitor workload distributions Quarterly monitoring “snapshot” reports provided to dept. Department must submit revised salary distribution instructions by submitting an SAF whenever there is a significant change in workload, including: Beginning or end of a sponsored project Shift in effort resulting from new awards Long term change in effort devoted to one or more projects Shift in administrative responsibilities Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Department Responsibilities (Continued) Annual Effort Certification The effort summary is not intended to be a precise measure of an employee’s effort distribution, but rather a reasonable estimate Certification of an employee’s effort is to be verified by a person who has knowledge of that effort Note: Refer to Effort Certification letter, dated October 18, 2004, for guidance on required steps. Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Annual Effort Certification Report Includes all salary transactions recorded in labor for fiscal year ended June 30, 2004 and any cost transfers affecting fiscal year 2004 submitted through September 30, 2004 Effort distribution percentages have been recalculated in consideration of the NIH caps that limit the amount of salary that can be charged to NIH grants Space is provided to record an individual’s effort devoted to lobbying activities Cost sharing, whether mandatory (grant required) or voluntary (PI committed), must be reported. Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Effort Reporting Issues Certifying official must have knowledge of effort performed Effort reports must be certified and returned in a timely manner Overcommitments due to NIH cap and Cost Sharing Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Timeliness of Retroactive Cost Transfers Departments have up to 90 days to process Salary costs must be transferred within 90 days from the date of the payroll transaction Example: Salary for the month of July may be transferred through the end of October Exceptions beyond 90 days require documentation and approval by the Controller’s Office 90-day rule applies to both transfers and clearing suspense accounts Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Retroactive Cost Transfers may NOT be used: To expend available funds remaining on a project. To avoid a cost overrun by charging another unrelated account. To avoid a restriction imposed by law or terms of agreement. Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting Acceptable Reasons for a Retroactive Cost Transfer beyond 90 days: Transfers between continuation grants and new project number was not established when cost was incurred. Pre-award costs, specifically authorized in writing by the sponsor. Pertinent information received from sponsoring agency. Impossible or impractical to allocate charges at time of original entry. RARE Clerical error Session 6 - Cost Accounting May 2005

Other Significant CU Policies Effort Reporting / Cost Sharing Some sponsored projects require that federal grant funds be matched proportionately with non-federal funds or that the University participate to some extent in the cost of the project. In other cases, PI’s volunteer cost sharing. Mandatory cost sharing Is mandated by sponsor; requires dept. to fund a portion of direct costs Voluntary Committed cost sharing Is specifically pledged in the proposal budget or award Requires dept. to fund a portion of direct costs More complex tracking Voluntary uncommitted cost sharing Over and above the time which is committed and budgeted for in a sponsored agreement ( e.g. faculty-donated additional time) Documentation is not required Session 6 - Cost Accounting May 2005

Other Significant CU Policies Grant / Contract Overdrafts Occurs when expenditures exceed budget Modest overdrafts during life of competitive segment generally Permissible on most Federal grants Must not interfere with completion of project Significant overdrafts must be covered on a timely basis Any residual overdraft must be funded within 9 months after end of competitive segment Controller’s Office will transfer any deficit to school Session 6 - Cost Accounting May 2005

What are Service/ Recharge Centers? Operating units that provide good or services to users principally within the University community for a fee (e.g. departments and units) Types of Service/ Recharge Centers: Specialized Service Facilities Highly complex or specialized facility Material effect on the F&A rate for organized research Rates must include both direct and F&A costs Example: Animal care Recharge Centers Not highly “specialized” in nature High dollar volume Examples: Facilities costs, NMR Facility, Printing and Reproduction DNA, Session 6 - Cost Accounting May 2005

Recharge Centers Process for establishing a license to operate a recharge center Determine need. Does a similar center already exist that can be utilized? Prepare projection of costs/revenues Determine units of service and calculate a rate per service Rates must be set for overall breakeven (or dept funded deficit, but NOT a surplus) Rates must be based on cost, not market conditions Factor in depreciation, not cost of equipment to be charged to recharge center Submit to Restricted Funds for review and approval Annual review requirement Review and adjustment of rate(s) required annually. Session 6 - Cost Accounting May 2005

Service/ Recharge Centers Compliance Issues – OIG Findings at Major Research Institutions OIG audits found that service/ recharge centers: Accumulated surplus funds resulting from excess charges Inappropriately transferred surplus funds out of operating accounts for unrelated purposes Cost of capital equipment purchases vs. depreciation?? Session 6 - Cost Accounting May 2005

Wrap Up That was all very interesting (???) But what should I take away from this presentation? F&A (ICR) costs are real costs, and the process for documenting and negotiating them is rigorous Make sure to segregate all unallowable expenses Salary allocations and effort certification are vitally important SAF’s must be processed timely Cost Transfers MUST be severely curtailed Annual effort certification is a serious matter. Signer must have knowledge of activities of faculty/staff Recharge center finances must be monitored and rates adjusted as necessary Session 6 - Cost Accounting May 2005

My Research Joke This scientist is doing research on how the environment affects a frog’s ability to jump…… Session 6 - Cost Accounting May 2005

QUESTIONS? Session 6

Please complete course evaluation form. Session 7 Session 6