cost accounting standards - udel.edu• frequent misconceptions • keys to success define cas >...
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Cost Accounting Standards
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Presenters• Chris Cook
Assistant Provost, Research Office
• Evelyn Zerenner Assistant Vice President,VP Finance Office
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Assumptions• Familiarity with circular A-21• PI or Research Administrator• Basic understanding of spending on
contract or grant awards• Hand out of CAS• Terms & Conditions trump guidelines
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Agenda• Define CAS• Why we care• Basic tenets• Direct vs. Indirect costs • Frequent misconceptions• Keys to success
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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501 Consistency in
Estimating, Accumulating and Reporting
Costs502
Consistency in Allocating
Costs Incurred for the Same Purpose
505 Accounting
for Unallowable
Costs506
Consistency in Using the Same Costs Accounting
Period
Cost Accounting Standards
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Applicability
Federal Agency University Sub-
recipient
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Why should we care? Why do VPFin and RO care??
• Risk• Audit• Controls• Roles & responsibilities
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Non-compliance can also result in:• Disallowed costs = unbudgeted expense to UD • Less leverage in F&A negotiations• Published audit findings
• Other adverse publicity• Loss of credibility
• Loss of delegated authority• More detailed scrutiny by auditors• Loss of future funding opportunities
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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6 Basic Tenets• Direct costs • Indirect costs• Reasonable• Allowable• Allocable• Consistent
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
TRIFECTA
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Basic Tenets
Allocable
Allowable
Reasonable
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Allowable• Budgeted/proposed/approved• T&C’s do not disallow
Allocable
Allowable
Reasonable
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
Definition – “Costs are allowable if they conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items”. (OMB Circular A-21, Sec. C.2.d.)
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Reasonable• Prudent person test• Necessary for the performance of the
project• Consistent with established institutions
practices
Allocable
Allowable
Reasonable
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Is the Cost Reasonable?
Definition - “A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, 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.” (OMB Circular A-21, Sec. C.3.)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Is the Cost Reasonable?Considerations:
• Generally recognized as necessary for operation of institution or performance of sponsored agreement.
• Arm’s length bargaining, restrictions imposed by federal/state laws and regulations or agreement terms and conditions.
• Cost is consistent with institutional policies.Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Allocable• Benefits the project• Cost of one project may not be shifted
to another• Proportional to the relative benefit
received by project
Allocable
Allowable
Reasonable
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Is the Cost Allocable?
Definition - “A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received or other equitable relationship.” (OMB Circular A-21, Sec. C.4.)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Allocable Considerations (cont):• Allocated costs may not be shifted to other sponsored
agreements in order to meet deficiencies caused by overruns…to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience. (OMB Circular A-21 Sec. C.4.b)
• Costs allocable to activities sponsored by industry, foreign governments or other sponsors may not be shifted to federally sponsored agreements.(OMB Circular A-21 Sec. C.4.c)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Consistent• Treat feds like all others• Must apply the tenets consistently
across grants and contracts
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Direct v. Indirect• Don’t charge twice for same cost
Direct
Indirect
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Direct Costs• Costs that can be identified specifically with a
particular sponsored project, instructional activity…or that can be directly assigned to such activities relatively easily with a high degree of accuracy.
• Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.(OMB Circular A-21 Sec. D1)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Indirect Costs• Costs that are incurred for common and joint
objectives and therefore cannot be identified readily and specifically with a particular sponsored activity, instructional activity, or other institutional activity.
(OMB Circular A-21 Sec. E1)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Indirect Costs• Indirect cost rate (reimbursement %) negotiated with
federal government (through ONR)• Examples of cost categories included in indirect cost rate:
– Depreciation and use allowances– Operation and maintenance expenses– General administration and general expenses– Departmental administration expenses– Sponsored projects administration– Library expenses
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Practical Examples• Direct costs
– PI, RA and technician salaries, wages, fringe benefits– Technical and scientific equipment– Laboratory chemicals, gasses, supplies– Long distance telephone charges
• Indirect costs– Administrative and clerical salaries, wages, fringe benefits– Computer software and hardware ***– Office supplies– Basic telephone charges (line charges)
*** May be charged as direct costs if “predominant usage is tied to the specified objectives of the award”
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Treating Indirect Costs as Direct Costs: Unlike Circumstances
Definition: “Generally exists when a sponsored project or activity, due to its size and nature, requires administrative or clerical services, supplies, postage, and/or telecommunication costs that are well beyond the core of departmental support routinely provided for departmental activities.”
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Rotation of charges among projects
Charging projects with largest
remaining balance
Charging budgeted amount instead of
actual
Charging projects before cost incurred
Misrepresenting a cost
(ex: coding copier paper as “lab
supplies”)
Charging costs that are part of normal
Facilities & Administrative
(Indirect) expenses
Charging a project nearing completion without regard to
appropriateness of expenses.
Unacceptable Costing Practices under CAS 502
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Budgeted = ALLOWABLE (false!)
Program officer approved, therefore allowed (audit may
disagree)
Unlike circumstance approved therefore allocable (still must
justify)
Approved once = approved ALWAYS
(false!)
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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EFFECTIVE MONITORING
Frequent & regular
(MONTHLY)
Communicate with Research
Office
Quick action/
follow up
User-friendly consistent reporting
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Monitor with regularity and frequency—monthly
EFFECTIVE MONITORING
Frequent & regular
(MONTHLY)
Communicate with Research
Office
Quick action/
follow up
User-friendly Consistent reporting
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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• Provide consistent data/report for ease and familiarity
• PI monitor using a user-friendly tool • Keep shadow systems to a
minimum
EFFECTIVE MONITORING
Frequent & regular
(MONTHLY)
Communicate with Research
Office
Quick action/
follow up
User-friendly Consistent reporting
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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• Challenge issues appropriately
• Suitable documentation is necessary—do you have the authorized review?
EFFECTIVE MONITORING
Frequent & regular (MONTHLY)
Communicate with Research Office
Quick action/ follow up
User-friendly Consistent reporting
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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• Take action quickly –don’t delay—it makes more work!
• Follow up, follow up, follow up!!!
EFFECTIVE MONITORING
Frequent & regular (MONTHLY)
Communicate with Research Office
Quick action/ follow up
User-friendly Consistent reporting
Define CAS > Why we care > Tenets > Direct v. Indirect > Misconceptions > Keys to success
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Questions?