1. OMB CIRCULAR A-21 http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html Cost Principles for Educational Institutions OMB CIRCULAR A-21 http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html Cost Principles for Educational Institutions

2. Who Controls?Who Controls? –Circular A-21 –Agency wide regulations –Award specific restrictions –University policies Can be more restrictive than the aboveCan be more restrictive than the above OMB Circular A-21

3. Introduction Introduction General overview General overview Definitions Definitions  Major Functions  Direct Costs  F&A (Indirect)  F&A (Indirect) Direct Costs Direct Costs  Allowable  Major Projects Selected Item of Costs Selected Item of Costs F & A rate F & A rate Cost Accounting Standards (CAS) Cost Accounting Standards (CAS) DS-2 DS-2 Responsibilities Responsibilities OMB Circular A-21

4. Introduction Developed by the Federal Government in theDeveloped by the Federal Government in the early 1970s, modified a number of times, early 1970s, modified a number of times, latest revision 5/10/04 latest revision 5/10/04 Established principles for determining costsEstablished principles for determining costs applicable to grants, contracts, and other applicable to grants, contracts, and other agreements with educational institutions agreements with educational institutions Purpose was to ensure the federalPurpose was to ensure the federal government did not pay more than its fair government did not pay more than its fair share of the total costs of the sponsored share of the total costs of the sponsored agreement. agreement. OMB Circular A-21

5. General Overview - Comprised of 11 sections, 3 exhibits and 3 appendices Sections A, B and C:Sections A, B and C: –deal with purpose, definitions, and basic considerations Section D & ESection D & E –deal with Direct Costs & Facilities & Administrative (F&A) Costs Sections F, G, HSections F, G, H –cover F&A rate development continued OMB Circular A-21

6. General Overview Section ISection I –has not been used Section JSection J –lists specific items of costs and whether allowable or unallowable -- caution -- this section does not state whether an item of cost can be charged as direct or whether it is part of the F&A rate Section KSection K –requires UM to certify we are in compliance with the circular continued OMB Circular A-21

7. General Overview Exhibit AExhibit A –lists universities that must follow A-21, including UM Exhibit BExhibit B –Does not apply to UM Exhibit C – Major Project definitions & examplesExhibit C – Major Project definitions & examples Appendixes A & B cover Cost Accounting Standards (CAS) & the Disclosure Statement (DS2)Appendixes A & B cover Cost Accounting Standards (CAS) & the Disclosure Statement (DS2) Appendix C reflects the documentation required to submit an F&A rate proposalAppendix C reflects the documentation required to submit an F&A rate proposal OMB Circular A-21

8. MAJOR FUNCTIONS OMB Circular A-21 20% 35% 22% Fiscal Year Ending May 31, 2005 Total Revenues $1.5 Billion

9. MAJOR FUNCTIONS Definitions per A-21 are very specific are very specific OMB Circular A-21

10. Definitions - MAJOR FUNCTIONS Organized research - all researchOrganized research - all research & development activities of an institution that are separately budgeted & accounted for, including: & development activities of an institution that are separately budgeted & accounted for, including: –Sponsored research - all research & development activities sponsored by Federal & non Federal agencies and organizations. –Activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research OMB Circular A-21 NIH, NSF, ONR, NASA

11. Definitions - MAJOR FUNCTIONS Instruction means the teachingInstruction means the teaching & training activities of an institution. & training activities of an institution. Also considered part of this major Also considered part of this major function is departmental research. function is departmental research. “ Departmental research means research, development “ Departmental research means research, development and scholarly activities that are not organized research &, and scholarly activities that are not organized research &, consequently, are not separately budgeted and accounted consequently, are not separately budgeted and accounted for. Departmental research, for purposes of A-21, for. Departmental research, for purposes of A-21, is not considered as a major function, but as a part of the is not considered as a major function, but as a part of the instruction function of the institution” instruction function of the institution” OMB Circular A-21 & Deptl.

12. Definitions - MAJOR FUNCTIONS Other sponsored activities (OSA) - programs & projects externally financed by Federal & non Federal agencies & organizations which involve the performance of work other thanOther sponsored activities (OSA) - programs & projects externally financed by Federal & non Federal agencies & organizations which involve the performance of work other than instruction & organized research. instruction & organized research. –Examples: health service projects, IPA agreements with the federal govt. –If financed by UM – Other Institutional Activities (OIA) OMB Circular A-21

13. Definitions - MAJOR FUNCTIONS Other institutional activities (OIA)Other institutional activities (OIA) all activities of an institution, e.g. all activities of an institution, e.g. –Residence halls, dining halls, athletics, hospitals and clinics, patient care, etc. hospitals and clinics, patient care, etc. OIA does not include: OIA does not include: –Instruction, Departmental Research, Organized Research, & Other Sponsored Activities (OSA) –F&A cost activities –specialized service facilities (service centers) OMB Circular A-21

14. MAJOR FUNCTIONS - where used? OMB Circular A-21 University of Miami University of Miami Proposal Transmittal Form Proposal Transmittal Form Type of Project: Type of Project:  Research  Instruction  Research  Instruction  Other Sponsored Agreements  Other Sponsored Agreements  Other ( mainly construction projects )  Other ( mainly construction projects ) UM Space system Functional classification of space - used in the F&A rate development - will be discussed later when we talk about F&A F & A rate Application 1 st to proposal, then to award

15. Definitions - COSTS DIRECTDIRECT –allowable costs incident to the performance of the project Facilities and Administrative (F&A) or Indirect or OverheadFacilities and Administrative (F&A) or Indirect or Overhead –incurred for common or joint objectives &, therefore, cannot be identified readily & specifically with a particular sponsored project, an instructional activity, or any other institutional activity. OMB Circular A-21

16. Definitions – COSTS Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreementsIdentification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreements.

17. Definitions - COSTS DIRECT – examples:DIRECT – examples: –Compensation of employees for performance of work under the sponsored agreement –Costs of materials consumed or expended in the performance of the work –Other items of expense incurred for the sponsored agreement OMB Circular A-21

18. DIRECT COSTS Must beMust be – allowable reasonable reasonable allocable to sponsored agreements allocable to sponsored agreements must be given consistent treatment must be given consistent treatment conform to any limitations or exclusions conform to any limitations or exclusions per A-21 or per the sponsored agreement per A-21 or per the sponsored agreement – incident to the performance of the project OMB Circular A-21

19. DIRECT COSTS -ALLOWABLE Reasonable Reasonable –reflects the action that a prudent person would have taken under the circumstances would have taken under the circumstances Allocable to sponsored agreements Allocable to sponsored agreements –incurred solely to advance the project, OR –benefits both the sponsored agreement & other work of the institution, in proportions that can be approximated through use of reasonable methods OMB Circular A-21

20. DIRECT COSTS – ALLOWABLE, continued Allocable to sponsored agreements, continued Allocable to sponsored agreements, continued –May not be shifted to other sponsored agreements in order to: order to: meet deficiencies caused by overruns (deficits)meet deficiencies caused by overruns (deficits) to avoid restrictions imposed by law or by terms of the sponsored agreement,to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenienceor for other reasons of convenience –sponsored by industry, foreign governments or other sponsors may not be shifted to federally sponsored sponsors may not be shifted to federally sponsored agreements. agreements. OMB Circular A-21

21. DIRECT COSTS–ALLOWABLE, c ontinued Must be given consistent treatment Must be given consistent treatment “An educational institution's practices used in estimating costs in pricing a proposal shall be consistent with the educational institution's cost accounting practices used in accumulating and reporting costs” Meaning use the same standards in preparing the Meaning use the same standards in preparing the proposal budget than when charging costs to the proposal budget than when charging costs to the award. award. OMB Circular A-21

22. DIRECT COSTS–ALLOWABLE, c ontinued Consistency in allocating costs incurred for the same purpose Consistency in allocating costs incurred for the same purpose –Salaries & fringe benefits of administrative & clerical staff & certain general administrative expenses, such as office supplies, postage, local telephone costs, & memberships, should be charged as F&A costs –However, direct charging may be appropriate where a MAJOR PROJECT explicitly budgets for administrative or clerical services AND individuals involved can be specifically identified with the project or activity. OMB Circular A-21

23. Exhibit C – Major Projects Exhibit C – Major Projects Direct charging of administrative or clerical staff salaries may be appropriate. Direct charging of administrative or clerical staff salaries may be appropriate. Examples….. OMB Circular A-21

24. Large, complex programs such as General Clinical Research Centers, Program Projects, &Large, complex programs such as General Clinical Research Centers, Program Projects, & other grants/contracts that entail assembling & managing teams of investigators from a number of institutions. other grants/contracts that entail assembling & managing teams of investigators from a number of institutions. OMB Circular A-21 Exhibit C – Major Projects

25. Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, & reporting (such as epidemiological studies, clinical trials, & retrospective clinical records studies).Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, & reporting (such as epidemiological studies, clinical trials, & retrospective clinical records studies). OMB Circular A-21 Exhibit C – Major Projects

26. Projects that require making travel & meeting arrangements for large numbers of participants, such as conferences & seminars. Projects that require making travel & meeting arrangements for large numbers of participants, such as conferences & seminars. OMB Circular A-21 Exhibit C – Major Projects

27. Projects whose principal focus is the preparation & production of manuals & large reports, books & monographs (excluding routine progress & technical reports).Projects whose principal focus is the preparation & production of manuals & large reports, books & monographs (excluding routine progress & technical reports). OMB Circular A-21 Exhibit C – Major Projects

28. Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, & other research fields sites that are remote from campus.Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, & other research fields sites that are remote from campus. OMB Circular A-21 Exhibit C – Major Projects

29. What do these prior examples have in common? What do these prior examples have in common? Projects that require unusually high levels Projects that require unusually high levels and/or a disproportionate amount of and/or a disproportionate amount of administrative activity associated with large & administrative activity associated with large & complexwork complex work Responsibilities that duplicate normal departmental administrative functions such as proposal preparation, accounting, payroll, purchasing, etc. cannot be charged directly to a sponsored project. OMB Circular A-21 Exhibit C – Major Projects

30. Section J Selected items of cost - Allowable vs Unallowable OMB Circular A-21

31. Section J - Selected items of cost. Only allowable advertising is for:Only allowable advertising is for: –The recruitment of personnel required for the performance by the institution of obligations arising under a sponsored agreement; –The procurement of goods and services for the performance of a sponsored agreement; OMB Circular A-21

32. Section J - Selected items of cost. Alcoholic beverages.Alcoholic beverages. –Costs of alcoholic beverages are unallowable. are unallowable. Compensation for personal servicesCompensation for personal services –Will be covered in a separate session –In no event will charges to sponsored agreements, irrespective of the basis of computation, exceed the proportionate share of the base salary for that period. OMB Circular A-21

33. S ection J - Selected items of cost. Costs of entertainmentCosts of 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) are unallowable. OMB Circular A-21

34. Section J - Selected items of cost. " Equipment"" Equipment" –an article of nonexpendable, tangible personal property having a useful life of more than one year & an acquisition cost of $2,500 or more. “Special purpose equipment" equipment used only for research, medical, scientific, or other technical activities - allowable as direct costs, e.g. microscopes, x-ray machines, surgical instruments, spectrometers. OMB Circular A-21

35. S ection J - Selected items of cost. "Equipment, continued""Equipment, continued" "General purpose equipment""General purpose equipment" Equipment not limited to research, medical, scientific or other technical activities, Equipment not limited to research, medical, scientific or other technical activities, Examples: office equipment & furnishings, modular offices, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction & printing equipment, and motor vehicles. unallowable as direct charges, Examples: office equipment & furnishings, modular offices, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction & printing equipment, and motor vehicles. unallowable as direct charges, except where approved in advance by except where approved in advance by the awarding agency. the awarding agency. OMB Circular A-21

36. Goods or services for personal useGoods or services for personal use –Are unallowable, including cost of coffee for the office, flowers for an employee or family, gifts for an employee, a student or anyone else, etc. –Use object code 3621 in a non grant account OMB Circular A-21 Section J - Selected items of cost.

37. Lobbying - Activities unallowableLobbying - Activities unallowable Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure, through in kind or cash contributions, endorsements, publicity, or similar activity; establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections; any attempt to influence – (i) the introduction of Federal or State legislation; (ii) the enactment or modification of any pending Federal or State legislation through communication with any member or employee of the Congress or State legislature, including efforts to influence State or local officials to engage in similar lobbying activity; or (iii) any government official or employee in connection with a decision to sign or veto enrolled legislation; legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, & analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying. Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure, through in kind or cash contributions, endorsements, publicity, or similar activity; establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections; any attempt to influence – (i) the introduction of Federal or State legislation; (ii) the enactment or modification of any pending Federal or State legislation through communication with any member or employee of the Congress or State legislature, including efforts to influence State or local officials to engage in similar lobbying activity; or (iii) any government official or employee in connection with a decision to sign or veto enrolled legislation; legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, & analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying. OMB Circular A-21

38. Section J - Selected items of cost. Meetings and ConferencesMeetings and Conferences –When the primary purpose is the dissemination of technical information, are allowable, including costs of meals, transportation, rental of facilities, speakers' fees, and other items incidental to such meetings or conferences such meetings or conferences OMB Circular A-21

39. Section J - Selected items of cost. Proposal costsProposal costs –Costs of preparing bids or proposals on potential federally and non federally funded sponsored projects, including the development of data necessary to support the proposals should be treated as F&A costs. OMB Circular A-21

40. Section K - Certification of charges. Section K - Certification of charges. By an authorized official of the university, which reads essentially as follows: "I certify that all expenditures reported (or payment requested) are for appropriate purposes and in accordance with the provisions of the application and award documents." award documents." OMB Circular A-21

41. Facilities & Administrative (F&A) Rate (F&A) Rate OMB Circular A-21

42. F&A RATE –Circular gives guidelines on how to calculate an F&A rate –Rate, once computed is sent to DHHS for review and approval –After audit, negotiation takes place to settle on the approved rates – different by campus –Approved rates are usually in effect for 3 to 4 years. OMB Circular A-21

43. F&A RATE Main rate applies to Organized ResearchMain rate applies to Organized Research Separate rates for OSA, InstructionSeparate rates for OSA, Instruction On campus / off campus rateOn campus / off campus rate Each rate is composed of two components – a Facilities rate and an Administrative rateEach rate is composed of two components – a Facilities rate and an Administrative rate Each component is further composed of multiple ratesEach component is further composed of multiple rates OMB Circular A-21

44. F&A RATE COMPONENTS Facilities component of the rate includes: Facilities component of the rate includes: – Building costs operating & maintaining e.g. cleaning, utilities, operating & maintaining e.g. cleaning, utilities, security security depreciation - cost of acquisition/construction of depreciation - cost of acquisition/construction of buildings over their estimated useful lives buildings over their estimated useful lives interest on external borrowing when principal is interest on external borrowing when principal is used to construct buildings used to construct buildings –Equipment depreciation - cost of acquisition of equipment over its estimated useful life –Libraries – cost of operations OMB Circular A-21

45. F&A RATE COMPONENTS Facilities component of the rate is Facilities component of the rate is derived by: derived by: 1.Obtaining from the department the function(s) carried out in each room – organized research, instruction, etc. – room may have one function or multiple functions. 2.Aggregating on a room by room basis the functional use of each building, e.g. Pope may be 60% organized research, 20% departmental research, 10% instruction, 10% departmental administration. 3.Using the costs for each building (see previous slide) and multiplying by the function % we obtain the costs applicable to organized research. OMB Circular A-21

46. F&A RATE COMPONENTS Administrative component of the rate includes: Administrative component of the rate includes: –General Administration, e.g. operating costs for President, Payroll, Purchasing, Accounts Payable, etc. –Academic Administration, e.g. operating costs for the Provost, Associate/Asst Provosts –Departmental Administration, e.g. operating costs for Dean’s and Chair’s –Sponsored Programs administration, e.g. operating costs for Vice Provost for Research, Sponsored Programs, IRB, Research Compliance. –Student services administration, e.g. operating costs for enrollment, admissions, registrar, etc. OMB Circular A-21

47. F&A RATE COMPONENTS Administrative component of the rate is derived by: Administrative component of the rate is derived by: 1.Obtaining the costs of operating the offices listed on the slide before. 2.Allocating those costs based on the area that receives the benefit, e.g. President – allocated over entire University; Dean – allocated over his/her school; Sponsored Programs – allocated over Organized research and OSA, Student Services – allocated to Instruction. 3.Rate for administrative costs for organized research, OSA and instruction are computed. OMB Circular A-21

48. F&A RATE COMPONENTS LIMITATION ON THE RATE Administrative component of the rate is capped at 26% by A-21, even when the rate computed is higher. Administrative component of the rate is capped at 26% by A-21, even when the rate computed is higher. OMB Circular A-21

49. F&A RATE COMPONENTS, an example: ON CAMPUS Organized Research RATE: Computed Allowed Approved Computed Allowed Approved Facilities 30% 30% 27% Facilities 30% 30% 27% Administrative 31% 26% * 26% * Administrative 31% 26% * 26% * Total 61% 56% 53% Total 61% 56% 53% * capped at 26% by regulation * capped at 26% by regulation OFF CAMPUS Organized Research Rate: 26% OMB Circular A-21

50. F&A RATE COMPONENTS OFF Campus Rate = 26% Coincidence that it is the same as the Administrative part of the F&A rate?Coincidence that it is the same as the Administrative part of the F&A rate?  No coincidence – it does not include the Facilities component of the rate Off campus definitionOff campus definition  Projects conducted in non UM facilities where rent is directly charged to the project. rent is directly charged to the project. Note: projects can only bear one rate (on or off). If more than 50% of the project is performed off campus (rent charged), the off campus rate applies to the entire project. OMB Circular A-21

51. COST ACCOUNTING STANDARDS(CAS) 4 APPLY to EDUCATIONAL INSTITUTIONS OMB Circular A-21

52. COST ACCOUNTING STANDARDS (CAS) – Consistency in estimating, accumulating and reporting costs (CAS 501) and reporting costs (CAS 501). Amounts budgeted in proposal should correspond to actual expenses incurred for the projectAmounts budgeted in proposal should correspond to actual expenses incurred for the project –Consistency in allocating costs incurred for the same purpose (CAS 502). for the same purpose (CAS 502). Administrative costs can not be charged directly to a federal sponsored project.Administrative costs can not be charged directly to a federal sponsored project. OMB Circular A-21

53. COST ACCOUNTING STANDARDS (CAS) –Accounting for unallowable costs (CAS 503) Unallowable costs shall be identified and excluded from any billing, claim, application, or proposal applicable to a Government sponsored agreement.Unallowable costs shall be identified and excluded from any billing, claim, application, or proposal applicable to a Government sponsored agreement. –Use the University’s fiscal year as the cost accounting period (CAS 504) For purposes of developing the F&A rate proposal.For purposes of developing the F&A rate proposal. OMB Circular A-21

54. CAS - DISCLOSURE STATEMENT (DS2) Required for institutions with $25 M or more in federal awards per year – UM qualifiesRequired for institutions with $25 M or more in federal awards per year – UM qualifies –Institutions must disclose their cost accounting practices by filing a Disclosure Statement (DS 2). –DS 2 subject to audit. UM’s was audited in 1999. Rejected, changed and resubmitted in 2001 and 2003 – ☺ approved January 2006. Rejected, changed and resubmitted in 2001 and 2003 – ☺ approved January 2006. –University must file amendments to the DS 2 when disclosed practices are changed to comply with a new or modified standard, or when practices are changed for other reasons. OMB Circular A-21

55. FINANCIAL RESPONSIBILITIES Principal InvestigatorsPrincipal Investigators –Overall management of the sponsored funds –Preparation of appropriate budgets, including budget explanations and where necessary justification of exceptions for major projects. –Ensuring the appropriateness of all charges on sponsored projects – allowable, allocable. –Ensure the consistent application of direct costing practices to federal sponsored projects – no general & admin costs charged to the project UM POLICIES

56. FINANCIAL RESPONSIBILITIES Department AdministratorsDepartment Administrators –Provides day-to-day oversight of financial management as delegated by Principal Investigator. Assist Principal Investigators in ensuring the appropriateness of all charges on sponsored projects.Assist Principal Investigators in ensuring the appropriateness of all charges on sponsored projects. Reviews online and monthly accounting reports and initiates corrections when necessary on a timely basis.Reviews online and monthly accounting reports and initiates corrections when necessary on a timely basis. UM POLICIES

57. FINANCIAL RESPONSIBILITIES Sponsored Programs AdministrationSponsored Programs Administration –Maintain current knowledge of regulations, policies and procedures. –Assist in interpretation of federal regulations, such as OMB Circular A-21. –Review expenditures to ensure compliance with circulars, rules, policies. –Set up accounts, invoice sponsor, record receipt of cash, report as required by award UM POLICIES

58. Federal auditors are currently at: * University of Florida * University of Florida * Duke University * Duke University * Dartmouth College * 2 others * 2 others Once they complete their work, Once they complete their work, other universities will be selected for audit. other universities will be selected for audit. We must all be aware of the audit environment. We must all be aware of the audit environment. More importantly, when it comes to sponsored More importantly, when it comes to sponsored agreements we all bear the responsibility to ensure that: agreements we all bear the responsibility to ensure that: COSTS ARE ALLOWABLE, BENEFIT THE PROJECT COSTS ARE ALLOWABLE, BENEFIT THE PROJECT AND ARE PROPERLY RECORDED & REPORTED AND ARE PROPERLY RECORDED & REPORTED We should do this not because the government may We should do this not because the government may come in to audit...but because we are all accountable come in to audit...but because we are all accountable for the ethical administration of public funds. for the ethical administration of public funds.

59. Next Program will be on Compensation, Effort & OMB Circular A-110 Watch for the announcement Watch for the announcement