1. NYU’s Compliance with A-21, Cost Principles for Educational Institutions
Nancy Daneau, Office of Sponsored Programs
Joanne Goldstein and Michael Miller, Sponsored Programs Accounting

2. What we’ll cover today…..
What do the applicable regulations say?
How does A-21 tie pre- and post award together?
What do I need to be aware of while developing the proposal and budget to ensure the project runs smoothly from inception to close-out?
What steps can I take to mitigate the risk of non-compliance with federal regs, sponsor policy, and NYU’s procedures?
Can NYU avoid material findings in an audit?

3. OMB Circular A-21 Cost Types Direct Costs
Facilities and Administrative (F&A) Costs

4. OMB Circular A-21 (con’t…)
Direct Costs
Costs that can be identified specifically with a particular sponsored project
Salary and Wages
Fringe Benefits
Materials and Supplies
Equipment
Travel
Consulting Costs
Subawards to collaborating institutions for programmatic effort
Procurement subcontracts for supplies or services
Participant Support Costs

5. OMB Circular A-21 (con’t…)
Facilities & Administrative Costs (F&A)
Known as Indirect Costs
Costs incurred for common or joint objectives; therefore cannot be readily attributed to any particular sponsored project
Facilities Component
Depreciation and use (utilities)
Interest on debt associated with buildings
Capital Improvements

6. OMB Circular A-21 (con’t…)
Administrative Cost Components
General Administration (e.g. central units, university-wide service and support)
President/Chancellor’s office personnel, operating costs
Business and Finance personnel, operating costs
Human Resource personnel, operating costs
Departmental Administration
Dean’s office personnel, operating costs
Departmental personnel including clerical and admin support, operating costs
Sponsored Projects
Pre- and post-award office personnel, operating costs

7. OMB Circular A-21 (con’t…)
Student Administration & Services
Admissions, Registrar, Advisors, Health offices
Library Expenses
Books and periodical holdings
Administrative cost component of F&A rate capped, federal government limits reimbursement to 26% of MTDC

8. OMB Circular A-21 (con’t…)
F&A rate negotiated with NYU’s cognizant agency
Dept of Health and Human Services (DHHS)
Current rate is 53.5% MTDC for on campus efforts during period 9/1/07-8/31/08; 26% for off-campus research
Future years:
Bases
Modified Total Direct Cost base
Applies the % rate to proposed total direct costs *less* equipment, tuition remission, fellowships, rental costs, and that amount of each subaward exceeding $25k
Most institutions use this method

9. OMB Circular A-21 (con’t…)
Application of F&A rate
Use rate in effect at time of proposal submission
Stays the same for “life” of sponsored project
Number of years approved by agency at time of award
Change only during submission of a competitive segment (renewal)

10. OMB Circular A-21 (con’t…)
The 4 core cost principles embedded throughout A-21 and the path to successful stewardship of federal funding:
Allowability
Allocability
Reasonableness
Consistent treatment

11. OMB Circular A-21 (con’t…)
Proposed, incurred, and reported costs must be:
Allowable
In accordance with A-21 (section J), sponsor guidelines, and institutional policy
Order of precedence per A-21
Sponsor policy
A-21
Institutional policy
NYU policy may disallow a cost item even if the sponsor approves in order to maintain “consistency” rule
Allocable
Does the project directly benefit?
If multiple projects benefit, cost should be allocated in proportion to benefit

12. OMB Circular A-21 (con’t…)
Proposed, incurred, and reported costs must be:
Reasonable
Is the price/cost fair?
Would a prudent person pay this amount?
Consistent
Like costs must be treated similarly in accordance with institution’s cost accounting practices
Book as either a direct cost or indirect cost
Can’t be direct sometimes and indirect others

13. OMB Circular A-21 (con’t…)
Why is consistency in cost allocations important?
Institutions with sponsored program portfolio in excess of $25M per FY required to disclose cost accounting practices
Form DS-2 filed with cognizant federal agency
Justifies institution’s position on categorizing and charging costs as either direct or indirect
Amendments must be filed any time a change occurs, whether it’s to comply with new standard or a change in practice
If found to be out of compliance with own cost accounting practices, costs will be disallowed and interest charges will accrue
Can have negative impact on F&A rate (rate lowered)

14. Budget Development Allowable Costs (sample major cost categories)
Salaries and Wages for PI(s), technical staff, and other key personnel
Must be calculated using individual’s base salary/rate
Total dollars, equivalent to 100% effort may not exceed annualized salary
For summer months, annualize salary and then multiply by number of months, % effort assigned during summer
Keep in mind NYU and sponsor restrictions on summer support

15. Budget Development (cont’d….)
Exception: Salaries and wages for administrative or clerical support
Generally UNALLOWABLE (infamous F.6.b of A-21) as direct costs *unless* they meet the test of “major project”
Major project defined in Exhibit C of A-21
Program project grants
Engineering or Environmental Research Centers
Projects involving extensive data collection, entry, and analysis
Projects requiring travel arrangements for large numbers of participants (workshop or conference grants)
Projects that take place in a distant geographic location without access to departmental resources
Projects for the purpose of creating a manual or book
Included in departmental administration portion of F&A base

16. Budget Development (cont’d….)
Fringe Benefits
Charged as a percentage of salary and wages (negotiated with NYU’s cognizant agency)
27% for period 9/1/07-8/31/08
For future years:
Materials and Supplies
Necessary to conduct the project and expendable
Lab supplies (beakers, chemicals)
Animals and animal care costs
expenditures for animals allowable only once protocol approved by institutional animal care committee
Parts intended for fabricated equipment items including delivery/transportation charges

17. Budget Development (cont’d….)
Exception: Generally, office supplies, postage, and local telephone costs should *not* be included in the direct cost category
Normally treated as F&A
Unless incurred for major project (F.6.b. of A-21)
Equipment
Items with unit cost of $3,000 or more
Useful life of more than 1 year
“Special Purpose Equipment”
Equipment items used only for research, medical, or scientific activities (e.g. microscopes, spectrometers)
Allowed only with sponsor approval
“General purpose equipment”
Office equipment

18. Budget Development (cont’d….)
Travel
Cost estimates must comply with NYU’s written travel policy (lodging, per diem, mileage, etc.)
Airfare should be at coach rate (no first class) and comply with Fly America Act
Unless extenuating circumstances occur
Circuitous routing that prolongs travel for excessive period
Cost prohibitive
Requires travel during unreasonable hours
Medical needs and requirements cannot be met

19. Budget Development (cont’d….)
Consulting Costs
Consulting rate should be in line with market
Faculty may serve as consultants within their institution and receive remuneration above their regular compensation IF AND ONLY IF
Consultation is across departmental lines or involves separate/remote location, AND
Work performed is in addition to regular dept’l load, AND
Documented in the award with sponsor approval

20. Budget Development (cont’d….)
Subawards
Issued when a substantive portion of the programmatic effort is to be carried out by another organization
Total costs (direct and indirect) for subrecipient(s) are direct cost line item in your proposal & project budget
Requires approval by sponsor
Subcontracts for supplies or services
Issued to vendors who are in business solely to provide supplies or services sought and which perform services on a routine basis in a competitive market

21. Budget Development (cont’d….)
Participant Support
Stipends or subsistence allowances, travel, and registration fees paid to or on behalf of participants or trainees in connection with meetings, conferences, or training projects
If “participants” are employees of an institution, costs may NOT be categorized as participant support
One federal agency (NSF) recently provided clarification re: training offered to public school teachers
If participants trained are employees of the local school district, costs are participant support *if* stipend or training allowance method used and allowances made to the teachers directly
school must have sub-accounts in place to differentiate between salary and stipend payments

22. Budget Development (cont’d….)
Unallowable Costs
Alcoholic beverages
Alumni activities
Bad debts
Commencement or convocation costs
Charitable contributions, donations, remembrances
Development/fundraising costs

23. Budget Development (cont’d….)
Unallowable Costs (cont’d)
Entertainment costs: tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities associated with entertainment
Fines and penalties
Goods or services for personal use of employees (including gifts)
Housing and personal living expenses of University officers
Investment management costs
Lobbying

24. Budget Development (cont’d….)
Unallowable Costs (cont’d)
Cost overruns on other sponsored agreements
Pre-award costs (unless approved by the sponsoring agency or permitted under expanded authorities)
Selling and marketing costs of any products or services of the institution
Student activity costs incurred for intramural activities, student publications, student clubs
Travel: First class tickets (unless extenuating circumstances)

25. A-21: The tie that binds pre- and post award
The proposal and budget have been approved
NYU receives an award notice
Now what?
If the proposal has been developed with A-21 care, financial management of your award will be a SNAP!

26. Project Set-up & Financial Transactions
Important to establish and categorize project correctly within NYU’s financial system
Important to understand fund, expense account and account restrictions to ensure charges are posted properly
Costs must be incurred within the period of performance authorized by the funding agency
Total expenditures must not exceed authorized award amount
Charge sponsored accounts in a timely manner for allowable, allocable, and reasonable costs associated with conduct of the work
Auditors test and look at number of cost transfers processed on sponsored projects to assess “risk” of internal control failure

27. Financial Management Rebudgeting Expanded authorities
Gives NYU authorization to rebudget between direct cost categories of a sponsored project without prior approval
If award not subject to above, re-aligning budget must be in accordance with terms and conditions of sponsor
Usually allowable up to certain dollar amount or %
If exceeds threshold, requires sponsor approval
Watch for restrictions on rebudgeting in and out of specific cost categories (e.g. participant support, equipment, etc.)

28. Financial Management (cont’d…)
Cost Transfers
Defined as an after-the-fact reallocation of costs (labor or non-labor) to a sponsored award
OMB Circular A-21 prohibits the use of cost transfers for the purpose of “convenience,” i.e., a transfer largely for the purpose of using unexpended funds on an award that is ending
NYU must explain and justify the transfer of charges to and from federal and non-federal awards

29. Financial Management (cont’d…)
Appropriate as long as the cost being transferred is allocable, allowable, and reasonable to the account being charged
Justifiable reasons:
Award notice received or processed late so expenditures posted to an unrestricted or other discretionary account until sponsored award account setup
Timelines and completeness of transfer explanations/justifications are integral to supporting allowability and allocability

30. Financial Management (cont’d…)
Most institutions have cost transfer policies
Explains process and requirements for moving labor and non-labor expenditures
Explains process for moving expenditures within ninety (90) days of original posting and after 90 days has passed
NYU policy: Cost Transfer Interim Guidelines:
Justifications for transferring charges required
Varying levels of approvals required
PI or designee < 90 days
Fiscal Officers or designees > 90 days
SPA final approver on all cost transfers

31. Financial Management (cont’d…)
Disallowed costs
If internal review finds unallowable costs, move them immediately
Charge them to a discretionary, unrestricted account
If significant, be forthcoming and notify the sponsor of the problem and steps taken to resolve it
Don’t wait for sponsor or auditor to find!
Full disclosure and asking forgiveness goes a long way

32. Financial Reporting Submission of Invoices Expenditure Reports
Frequency and tied to what?
Monthly, quarterly, semi-annually, annually?
Watch cash flow for those with outstanding A/R
Scheduled or tied to submission of progress reports, deliverables?
Are dollar thresholds set for specific tasks/milestones/deliverables?
Are all reported costs reimburseable (i.e. do they meet the allowable, allocable, and reasonableness tests?)
Expenditure Reports
Interim
Final
Do financial report requirements match standard cost categories at your institution?
Is the accounting for costs transparent so that there is no question as to how costs are categorized?

33. Time and Effort Certification
Required for all individuals assigned to federally funded sponsored projects
Certification must be done at least twice per year
NYU completes certification three times a year
Based on all activities: sponsored and non-sponsored (teaching, administrative, etc.)
Goal is to ensure effort spent matches or exceeds salary charges during a particular period
Salary and Wage (Personnel) charges on sponsored awards must be reasonable for the work performed

34. Time and Effort Certification (cont’d…)
Every individual is responsible for certifying his/her effort
A responsible individual with means to verify work performed should confirm reasonableness
% effort is NOT based on 40 hours, but rather on the individual’s total activity

35. Time and Effort Certification (cont’d…)
Remember:
Per A-21, “in the use of any methods for apportioning salaries, it is recognized that in an academic setting, teaching, research, service and administration are often inextricably intermingled. A precise assessment of factors that contribute to costs in not always feasible, nor is it expected. Reliance, therefore, is placed on estimates in which a degree of tolerance is appropriate”

36. Close-out and Audit on Federal Awards
Institution has ninety (90) calendar days after expiration/termination to complete financial transactions and close-out account
Final financial status reports (FSR) must be submitted by the 90th day or be considered delinquent
Unobligated balances must be returned to the sponsor unless otherwise agreed upon
After final project close-out, Federal sponsor generally has 3 years to do final audit of costs and is entitled to reimbursement of any disallowed costs, even after the fact
Institution subject to A-133, Audits of States, Local Governments, and Non-Profit Organizations if it expends > $500,000 in federal funding (either direct or passed through via subawards)

37. Resources….Links http://www.nyu.edu/cdv/site20/policies/policies.html
Cost Accounting Standards
OMB Circulars
Business Expenses, Expense Reimbursement policies
Purchasing Policies, including Purchasing Card
Asset Management Procedures & Forms

38. Follow up questions….
Contact info.:
Nancy Daneau,
Joanne Goldstein,
Michael Miller,
Thanks for joining us!