Office of Management and Budget (OMB) CIRCULAR A-21

Principles for determining costs applicable to grants, contracts, and other agreements

with educational institutions

CReATE ver. 05/13 © 2013 Florida State University. All rights reserved

OMB Circular A-21THE PRIMARY ACCOUNTING REFERENCE FOR

FEDERAL SPONSORED AGREEMENTS

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DHHS Audit Experience

Entrance Conference December 6, 2010 Fieldwork December 6, 2010 – May 26, 2011 Exit Conference May 27, 2011 Draft report received from OIG November 16, 2011 Response to draft submitted January 31, 2012 Final report issued by DHHS OIG July 19, 2012 Response to final report submitted October 9, 2012 Audit Resolution Phase

Awaiting DHHS decision on what division will negotiate the final resolution with FSU 3

A-21: A Brief History

Originally issued in 1958 Significant changes made in 1996:

Raised threshold for capitalizing equipment to $5,000 Established use of Facilities & Administration (F&A)

rate(s) in effect at start of sponsored agreement over life of agreement

Incorporated four Cost Accounting Standards (CAS) Required educational institutions to submit a Disclosure

Statement (DS-2) regarding cost accounting practices Draft Super Circular issued

Combines 7 circulars into one document COGR has issued draft response Responses to OMB due June 2, 2013 4

Why talk about OMB Circular A-21?

SRS and SRAS employees need to refer to OMB Circulars A-21 and A-110 (next presentation) on a daily basis

Every decision on federally funded agreements is guided by these pronouncements

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A-21: Applicability

To all research and development, training and other work funded with federal funds at educational institutions

Principles used only as guide in pricing of fixed price or lump sum agreements The Proposal budget on a fixed price

agreement is subject to audit for compliance with A-21 Basis for requiring a detailed budget on a fixed

price award Actual expenditures on a fixed price

agreement are not subject to audit6

Major Functions

Instruction Teaching and training activities Not research training Departmental research

Not organized research Not separately budgeted Not considered major function

Organized Research Research and development activities Separately budgeted Includes research training 7

Major Functions

Other Sponsored Activities Programs and projects that are service oriented Not instruction or organized research Examples

Head Start program WFSU activities

Other Institutional Activities All activities not otherwise classified

Dorms Dining facilities

F&A costs Specialized Service Facilities 8

A-21: Direct Costs

Can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or 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 direct cost of sponsored agreements, all costs incurred for same purpose in like circumstances must be treated as direct costs of all institutional activities

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Direct Costs – Personnel Costs

Salaries and fringe benefits

Faculty and other non administrative/clerical and student employees working on the sponsored project

Job titles (not all inclusive) Researcher

Lab Assistant/Researcher

Graduate Research Assistant

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Direct Costs – Non Personnel

Other direct costs: Animals Animal care Audio-visual supplies (chemicals, glassware, etc.) Books and periodicals Specialized & technical svcs Consulting services Lab equipment & equipment maintenance Computer equipment and supplies - research purpose Laboratory supplies Long distance telephone Publication costs Rent & other off-campus facilities costs Scientific reprints Subawards Travel Tuition

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Facilities & Administrative (F&A) Costs

Costs incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity

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Computer Purchases

Deemed to be “general purpose equipment” per A-21 J18a(4) Generally unallowable as direct charges

(J18b(1)) Requires approval in advance by awarding

agency Refer to guidance issued in June 2012

http://www.research.fsu.edu/contractsgrants/documents/ITguide.pdf

Included in proposal – adequate justification Not included in proposal – seek approval

Prior to purchase

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A-21: Cost Accounting Standards

CAS 501- Consistency in estimating, accumulating and reporting costs Basis used in estimating costs in proposal

budget, charging costs to sponsored agreement and reporting costs to sponsor must be consistent with one another

CAS 502- Consistency in allocating costs incurred for same purpose All costs incurred for same purpose, in

like circumstances, are either direct costs only or indirect costs only 14

A-21: Cost Accounting Standards

CAS 505 - Accounting for unallowable costs Unallowable costs must be identified in

accounting system or identifiable from departmental records

CAS 506 - Cost accounting period FSU’s fiscal year – July 1, xxxx – June 30, xxxx

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A-21: Disclosure Statement

Large educational institutions $25 million per year or more in federally funded awards

To cognitive agency (DHHS) for review and approval

FSU Disclosure Statement (DS-2) History Submitted – June 1998

FSU submitted revisions – September 2006, April 2009 and

January 2010

Received approval March 2010

Revised capitalization threshold to $5,000 approved with most

recent negotiated F&A rate agreement in July 2012 16

Key FSU Practices

Accounting system description: cash basis

Cost accounting period: 7/1 to 6/30 Capitalization of non-expendable

tangible personal property $5,000/useful life greater than one year

Treatment of costs – direct and indirect declared

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FSU Policies Related to DS-2

Issued a policy on Direct and Indirect Costs of Sponsored Agreements

Issued a policy on Cost Sharing Issued a policy on Unallowable Costs of

Federally Sponsored Projects Policies can be found on Sponsored Research

Web site ( http://www.research.fsu.edu )

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A-21 Cost Principles

Allowability FactorsReasonablenessAllocabilityConsistency of treatmentConformity to limitations or

exclusions

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Reasonableness

1 - Reasonable

Prudent person would have paid the stated

amount for the goods/services

Cost necessary to accomplish objectives of

sponsored award

Restraints or requirements imposed by arm’s-

length bargaining/Federal & State

laws/sponsored award terms & conditions

Due prudence

Consistent with institutional policies20

Researcher requesting reimbursement for purchase of 1,000 pipette tips from vendor with no price agreement with FSU and paid for with personal credit card. Price paid $.50/tip vs. eMarket vendor cost = $.10/tip.

Travel by researcher to Washington to discuss technical issue on sponsored project with sponsoring agency’s program manager. Researcher followed FSU travel rules.

Lunch for researcher and department chair at Governor’s Club to discuss courses for next semester.

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Examples

Answers

Not reasonable – did not follow institutional policies

Reasonable – meets criteria

Not reasonable – not research purpose

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Allocability

2 - Allocable Goods or services involved can be charged

in accordance with relative benefits received Identifiable to a sponsored award Incurred solely to advance work under

sponsored agreement Benefits more than one sponsored

project or other institutional activity, the cost must be shared

Necessary for operation of sponsored and/or other institutional activity 23

Allocability

Equipment specifically authorized under sponsored agreement, is assignable to sponsored agreement regardless of any use that may subsequently be made

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Allocability - Lab Manager

In multi award lab general duties must be

allocated across awards on a reasonable

basis. Examples, Training of students, other researchers in lab

protocols and procedures

Animal care that may not be specific to one project

Performing or supervising others in the preparation

of experiments, equipment maintenance, and lab

inventory

Staying abreast of animal care developments25

Example – Lab Manager

Dr. Gold performs retinal research with zebra fish on 2 R01 NIH awards and conducts some departmental research.

Ms. Seminole trains all students in lab techniques and protocols (10%), orders supplies for the lab (5%), cares for the fish colonies (25%), performs experiments assigned by Dr. Gold (60%)

How allocate?

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Answer

40% general duties Both R01 grants Non sponsored source for the

departmental research % as determined by Dr. Gold

60% directly related to performing experiments allocated (Dr. Gold estimate)

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Example – Salary Charges

Research associate’s salary for month of July 2008 charged to sponsored project for actual work performed on project in January 2008

Research associate’s effort in July 2008 did not pertain to sponsored project

Sponsored project period was 1/1/08 to 12/31/08

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Answer

Charge is unallowable because research associate’s effort in July did not benefit sponsored project

This practice is referred to as “cost substitution” and does not conform to A-21 requirements

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Allocability – General Lab Supplies

In multi award lab general lab supplies (pipettes, gloves, etc.) must be allocated across awards on a reasonable basis. Considerations, Can/will items be used by all awards in lab?

Specialized items?

Is item used for general lab upkeep?

What are the lab supply and ordering practices?

Is there non sponsored research occurring in the lab?

Length of awards using items?

What type of experiments are being conducted?30

Example – General Lab Supplies

Dr. Tomahawk performs sense of smell research with

rats and has 1 R01 NIH and 2 NSF grants all in the

same lab. The aims do not overlap but all of the grants

use similar research techniques and equipment.

The lab manager requests for purchase 5000 pipette

tips ($500), 300 glass test tubes ($150) and 1

gustometer ($6,000) that will be used only on the R01

award.

How should the items purchased be charged to each

award?31

Answer 1

The pipette tips and test tubes should be allocated to all awards: PI estimate % of usage on each award

Charge 100% of gustometer to the R01 award.

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Answer 2

Each researcher works on only 1 award and requests supplies from lab manager monthly: Grad Student A (R01) 2000 pipette tips =

$200 Grad Student B (NSF A) 2000 pipette tips 200

test tubes = $300 Grad Student C (NSF B) 1000 pipette tips and

100 test tubes = $150 Charge 100% of gustometer to the R01

award = $6,00033

Allocability – Service Agreements

In multi award lab service agreements for equipment must be allocated across awards on a reasonable basis. Considerations, When was the equipment purchased? Source of

funding? Source active?

What is the equipment used for? What projects require

the use of the equipment for the svc agmt period

Is there non sponsored research occurring in the lab?

Length of awards using items?

What type of experiments are being conducted?34

Example – Service Agreement

Dr. Tomahawk performs sense of smell research with rats

and has 1 R01 NIH (ends 6/30/2012) and 2 NSF grants

(both end 12/31/2013) all in the same lab. The aims do

not overlap but all of the grants use similar research

techniques and equipment.

There are 5 centrifuges in the lab. The R01 uses the 3

large centrifuges and the 2 NSF awards use the 2 smaller

ones with equal usage.

Each service agreement costs $500 for period 1/1/2012-

12/31/2012

How should the service agreements’ costs be charged to

each award?35

Answer

R01 = $750NSF A = $500NSF B = $500Non sponsored source = $750Total = $2,500

Note rotation among awards generally not acceptable method

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Example – Equipment

Dr. Garnett purchased a microscope costing $10,000 on an NSF-funded project during last month of a one-year grant period. The microscope has a 5 year life.

The microscope was included in the budget approved by the agency.

The equipment was required to complete the analysis phase of research.

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Answer

Charge for this equipment is allowable as it was purchased during grant period.

Even though equipment had five year useful life and was used only one month of grant period, it conforms to A-21 provision “specifically authorized in grant… regardless of

subsequent use”.

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Allocability – Cost Transfer Policy

Effective April 1, 2008; revised July 1, 2010 http://www.research.fsu.edu/contractsgrants/

documents/costtranspolicy.pdf Expenditure transfers to or between

sponsored projects Red flags

Frequent transfers Transfers close to end of project Inadequate documentation to support transfer

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Cost Transfers

Improper cost transfers Cover overruns Spend available balance close to end of project Transfer of unallowable cost from one project to

another Circumvention of award limitation/restriction Charge costs to one project that belong to an

award not yet executed Advance policy enacted for this reason!

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Cost Transfers

Allowable transfers Correct erroneous charge

Allocate portion of charge that applies to the project (e.g.

split purchases)

Cost Transfer Justification Form at

http://www.research.fsu.edu/contractsgrants/forms.html

Must be received by SRAS as follows: Within 90 calendar days from the end of the month in which

the error occurred (personnel and non-personnel)

Retroactive Distribution of Funding Moving salary between or onto projects reallocating original

ePAF distribution as a result of the effort certified is

acceptable justification for salary cost transfers 41

Cost Transfers

Cost transfers not received by SRAS by deadline will only be approved in extenuating circumstances, which does not include: Absences of PI or project administrators Non qualified staff Shortage of staff

SRAS Compliance Committee reviews on weekly basis

SRAS Director approves >$25,000 or > 90 days Monthly reconciliations needed to detect and

correct errors within established timeframes Controller’s Office offers training:

BTFA03 - General Ledger Reconciliation 42

Cost Transfers

Justifications – what not to say! “Charged to NSF grant waiting for NIH

grant to get set up.” “Reconciliations were not performed for 6

months because of support staff turnover.” “There are funds left on Project Aaa and we

want to spend the balance. We charged the costs to Project Bee but now that there is funding left so we need to move the costs.”

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Example – Cost Transfers

A graduate assistant worked and was paid 50% on grant from US Dept. of Agriculture (USDA) and 50% on grant from National Science Foundation (NSF). Each grant was charged 50% of tuition. Since USDA policy does not permit charges for tuition, the PI requested that the tuition charge be transferred from USDA account to NSF account.

Would you approve this cost transfer?? Why or Why not??

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Answer

Tuition charge transferred to NSF account is unallowable because Charge to NSF grant (now at 100%) was

not proportional to effort devoted to NSF grant (50%)

Transfer was made to avoid restriction of USDA policy.

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Example – Cost Transfers

At the start of Fall 2011 semester, Dr. Nole was appointed as follows:E&G funding = 65%NIH P01 award = 20%NSF award = 15%

Dr. Nole certified his Fall 2011 effort report as follows:E&G funding = 65%NIH P01 award = 15% (Error occurred <20%

paid)NSF award = 20%

How do we resolve the effort error?? 46

Answer

An RDF is required to move 5% from the NIH to the NSF award. Allowable because it “trues” up to actual Meets time criterion because as a result of

actual effort Requesting the PI to change his/her effort

certification “to get rid of the error” IS NOT the solution!!!!

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Cost Transfers - NIH Policy

The NIH Grants Policy Statement Cost Transfers to NIH grants by grantees…should be

accomplished within 90 days… Transfers must be supported by documentation that fully

explains how error occurred and certification of correctness of new charge by responsible University official …

Stating that transfer was made “to correct error” or “to transfer to correct project” is not sufficient.

Transfers of costs solely to cover cost overruns are not allowable.

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Cost Transfers - NIH policy

Grantee’s must maintain prescribed documentation of cost transfers and must make it available for audit…

Frequent errors in recording costs may indicate need for accounting system improvements and/or enhanced internal controls.

If such errors occur, grantees are encouraged to evaluate need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence.

NIH also may require a grantee to take corrective action by imposing additional terms and conditions on an award.

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Allocation & DocumentationStandard - Internal Controls

An institution's financial management system must provide that no one person has complete control over all aspects of a financial transaction

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Example – Internal Control

PI (also department chair) prepares TAR for PI’s travel and signs as traveler, PI and PI’s supervisor.

PI prepares travel reimbursement and reconciles departmental accounting records.

Is this appropriate?

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Answer

No This would be an unacceptable practice and

would not meet the criteria of A-21

FSU’s signature requirements on accounting documents prevents an internal control violation such as this from occurring

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Allocation & Documentation Standard - Applicable Credits

Applicable credits must be applied to related expenditures

Typical examples of applicable credits are: purchase discounts, rebates, or allowances; and adjustments of overpayments or erroneous charges

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Example – Applicable Credits

Lab equipment was purchased in July 2011 for $2,000 on Dr. Gold’s R01 grant that ended September 30, 2011.

In September 2011 it was discovered that the vendor overcharged for the equipment by $500.

A credit was received and the department charged the credit to Dr. Gold’s P01 award because it was the only award open.

Is this appropriate?54

Answer

The $500 credit should have been applied against Dr. Gold’s R01 grant that was closed

SRAS is supposed to receive all refund checks when related to sponsored projects

Department submits refund form that includes chartfield information where the original charge was posted

SRAS verifies chartfields to ensure the appropriate sponsored project is credited even if project is closed 55

Limitations on Allowance of Costs

Sponsored agreements may be subject to statutory requirements that limit allowance of costs

When maximum amount allowable under limitation is less than total amount allowed in A-21, amount not recoverable under sponsored agreement may not be charged to other sponsored agreements Must be funded by a non-sponsored source of

funds

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Example – Limitations

PI had an NIH grant and devoted 50% effort to it during month of August 2005PI’s annual salary rate was $190,000/yr,

$15,834/moGrant period was Feb. 05 to Jan. 06Grant was charged $7,917 (50% of

$15,834) for PI’s August salaryNIH had salary rate cap of $180,100/yr or

$15,008/mo for 2005

[Current 2012 NIH Salary Cap is $179,700]

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Answer

Costs of $413 are unallowable because the salary charged to the grant exceeded the sponsoring agency’s “rate of pay” limitation

Maximum amount chargeable to grant for 50% effort was $7,504 (50% of $15,008)

The grant should have been charged $7,504 for effort and amount in excess of the NIH cap ($7,917-$7,504=$413) charged to E&G or another unrestricted funding source

[Current (2012) NIH Salary Cap is $179,700]

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Cost Accounting Standard 502

CAS 502- Consistency in allocating costs incurred for same purpose All costs incurred for same purpose, in

like circumstances, are either direct costs only or indirect costs only

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Cost Accounting Standard (CAS) Exemption

Allowable to charge Administrative costs directly to the sponsored project Exceptional Circumstances

Must be approved in advance of charges normally classified as administrative being charged directly to a project Try to handle at proposal stage

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Exceptional Circumstances – Definition

If the nature of a sponsored project requires an extensive amount of administrative and/or clerical support or goods/services significantly greater than the routine level provided by an academic department, then the effort is deemed an exceptional circumstance and such costs can be accounted for as direct

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Exceptional Circumstances – Other conditions required

Be specifically identifiable to a particular sponsored project

Meet A-21 requirements for reasonableness, allowability and allocability

Be specified in the proposal budget and approved by the sponsoring agency

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Exceptional Circumstances - Documentation Requirements

CAS Form Complete and submit to SRS

Salaries: Title(s), FTE, and salary amount(s) for the

clerical/administrative position(s) What it is about the scope of the project that requires

this extensive effort Other Costs (office supplies, memberships, postage,

local telephone, cell phones, etc.): Description and cost of supplies/services What it is about the scope of the project that requires

these goods/services to further the research or other sponsored activity 63

Exceptional circumstances – Examples

Large, complex programs, such as Clinical Research Centers, program projects, environmental research & engineering research centers & projects that entail assembling & managing teams of investigators from a number of institutions

Projects which involve extensive data accumulation, analysis & data entry, surveying, tabulation, cataloging, searching literature, & reporting, such as epidemiological studies & clinical records

Projects that require making travel & meeting arrangements for large numbers of participants, such as conferences and seminars

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Exceptional circumstances – Examples (cont’d)

Projects whose principal focus is the preparation & production of manuals & large reports, books & monographs (excluding routine progress & technical reports).

Projects that are geographically inaccessible to normal departmental administrative services, such as seagoing research vessels, radio astronomy projects, & other research field sites that are remote from campus.

Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.

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Example - CAS Exemption

Professor Washington is awarded a $5,000,000 (5 year) grant to coordinate Medical teams from all Florida universities to train medical professionals on new geriatric caretaking techniques. Training meetings are to be conducted 4 times per year at different locations across the state.

Professor Washington is requesting a CAS exemption for two administrative positions to coordinate the training teams, organize training conferences including travel arrangements for the University teams and to do outreach to the bring/entice the professionals to participate in the training. These positions were included in the budget approved by the agency.

Approve or Deny???? 66

Example - CAS Exemption

Professor Adams is awarded a $50,000 (1 year) grant to write and produce training materials for the US Dept of Education’s early childhood education program. The materials will be used to train childcare professionals.

Professor Adams is requesting a CAS exemption to charge $25,000 for printing/reproduction of 1,000 manuals. These costs were included in the budget approved by the agency.

Approve or Deny????

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F&A Costs and Rate Agreement

F&A costs defined as those incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity F&A a.k.a. Overhead a.k.a. Indirect Costs

FSU negotiates F&A rates with the FSU’s cognitive agency – Department of Health and Human Services (DHHS) Division of Cost Allocation (DCA)

Negotiations culminate in a Rate Agreement at http://www.research.fsu.edu/contractsgrants/documents/rateagreement.pdf

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F&A Cost Categories

Facilities Building and Equipment Depreciation Interest Operations and Maintenance Library

Administration General Administration Departmental Administration Sponsored Projects Administration Student Services Administration

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F&A Rate Development

Negotiating cycle is every four years Prepare and submit F&A cost allocation proposal

FSU’s current rates negotiated July 2012 Effective through June 30, 2016

Objective of the F&A allocation proposal is to aggregate and distribute F&A costs to the major functions of the institution in proportions reasonably consistent with the nature and extent of their use

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F&A Rate Application

Multiple Rates are allowed: On Campus – comprised of both facility and administrative

costs Off Campus – comprised of administrative costs only (26%) Separate functions – rates for instruction, organized

research, and other sponsored activity Separate rate for NHMFL at FSU

The actual charge to the sponsored project is calculated by multiplying the F&A rate by the distribution base

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Facilities & Administrative Rates

Organized Research On Campus 51.3% (52% effective July 1, 2014) Off Campus 26.0%

National High Magnetic Field Lab (NHMFL) Rate On Campus 70.0% Off Campus 26.0%

F&A Distribution Bases

Federal = Modified Total Direct Cost (MTDC) Exclusions:

Equipment/capital expenditures Patient care Rent Scholarships/fellowships Subcontract amount > $25,000 Tuition Remission

State of Florida = Total Direct Costs (TDC) Exclusion:

Tuition Remission

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Example Calculation

TDC MTDCSalaries $10,000 $10,000Benefits 2,000 2,000Tuition 1,000 1,000Materials and Supplies 2,000 2,000Equipment 5,000 5,000Total Direct Costs $20,000 $20,000F&A Base $19,000 $14,000F&A Rate 10% 51.3%F&A Amount 1,900 7,182Total Project Cost $21,900 $27,182

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F&A Costs Recovered

The F&A costs recovered by the University from charges made to sponsored projects are placed into the Sponsored Research and Development (SRAD) Fund

Presentation on the SRAD recovery and distribution later

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A-21: Selected Items of Cost

A-21 principles must be applied in establishing allowability of cost, whether particular item is treated as direct cost or indirect cost

Fifty-four specific items of costs are addressed in section J.

Other items not specified may be allowable or unallowable

Items specifically stated as “allowable” must meet the “allowability principles”

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Section J. Unallowable Costs

Public Relations

Alcoholic Beverages

Bad Debts

Commencement/Convocation

Contingencies

Entertainment

Improvements to land, buildings, or equip that increase value or life (unless prior agency approval)

Fines/Penalties

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Section J. Unallowable Costs

Goods or Services for personal use

Lobbying

Losses on other awards

Memberships

Preagreement/pre award (unless approved by agency)

Student Activity Fees (unless specifically provided for in award)

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A-21: Certification of Charges/Payment

Required on financial reports and payment requests

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.“

SRAS requests PI signature on final expenditure report or invoice 79

QUESTIONS

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