A Guide for UW-Madison Administrators & Faculty Basics of the Cost Accounting Standards (CAS), OMB Circular A-21, and Cost Principles March 28, 2006 Robert Andresen Carol Hillmer Assistant Director, Post-Award Services Assistant Dean, Research Division Research and Sponsor Programs College of Agricultural and Life Sciences

Overview Cost Accounting Standards (CAS) OMB Circular A-21 Cost Principles Allowable vs. Unallowable Exceptions Questions

Cost Accounting Standards (CAS) What is the CAS Board? What are CAS? Why are there CAS? How are CAS applied to educational institutions?

What is the Cost Accounting Standards Board? The Board is an independent legislatively-established board located within the Office of Federal Procurement Policy (a section of the Office of Management and Budget). The Board issues rules and regulations by which government agencies, contractors, and subcontractors are required to comply. The Board has exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs.

What are Cost Accounting Standards? CAS incorporates three areas of cost accounting: –Measurement of costs –Assignment of cost to cost accounting period –Allocation of cost to cost objectives There are 19 standards, 4 of which apply to educational institutions (see OMB Circular A-21, Subsections C.10-14).

Why are there Cost Accounting Standards? CAS were designed to achieve uniformity and consistency in the measurement, assignment, and allocation of costs. The standards are based on examinations of common cost accounting practices. CAS establish limits and constraints on what is considered appropriate, with the goal of providing consistency and uniformity in cost accounting.

Cost Accounting Standards applied to Educ. Institutions OMB Circular A-21 Subsections C impose 4 of the 19 standards on educational institutions: CAS 501 Consistency in Estimating, Accumulating and Reporting Costs CAS 502 Consistency in Allocating Costs Incurred for the Same Purpose CAS 505 Accounting for Unallowable Costs CAS 506 Cost Accounting Period

Cost Accounting Standards applied to Educ. Institutions CAS 501 Consistency in Estimating, Accumulating and Reporting Costs –Requires that an institution’s practices in estimating costs in pricing a proposal be consistent with the institution's cost accounting practices used in accumulating and reporting costs. –Requires that an institution's cost accounting practices used in accumulating and reporting actual costs for a sponsored agreement be consistent with its practices used in estimating costs in pricing the related proposal or application.

Cost Accounting Standards applied to Educ. Institutions CAS 502 Consistency in Allocating Costs Incurred for the Same Purpose –Requires that all costs incurred for the same purpose, in like circumstances, be treated as either direct costs only or F&A costs only with respect to final cost objectives.

Cost Accounting Standards applied to Educ. Institutions CAS 505 Accounting for Unallowable Costs –Unallowable costs must be identified and excluded from any billing, claim, application, or proposal applicable to a sponsored agreement.

Cost Accounting Standards applied to Educ. Institutions CAS 506 Cost Accounting Period –Educational institutions must use their fiscal year as their cost accounting period.

Overview Cost Accounting Standards (CAS) OMB Circular A-21 Cost Principles Allowable vs. Unallowable Exceptions Questions

OMB Circular A-21 What is OMB Circular A-21? Purpose of OMB A-21 CAS in OMB A-21

What is OMB Circular A-21? OMB is the Office of Management and Budget. Circulars are instructions or information issued by OMB. Circular A-21 addresses Cost Principles for Educational Institutions. Circulars are expected to have a continuing effect of two years or more. Current Circular A-21 was Revised 05/10/04.

Purpose of OMB Circular A-21 Establishes principles for determining costs applicable to grants, contracts, and other agreements with educational institutions. Principles deal with the subject of cost determination. Principles are designed to provide that the Federal Government bear its fair share of total costs, determined in accordance with generally accepted accounting principles, except where restricted or prohibited by law.

Cost Accounting Standards in OMB Circular A-21 In 1996, A-21 implemented CAS for all sponsored agreements. Effective July 1, 1997, UW-Madison implemented its compliance with the CAS required by the OMB.

Cost Accounting Standards in OMB Circular A-21 OMB Circular A-21 Cost Principles for Educational Institutions requires that institutions treat similar costs consistently as either direct costs or F&A costs. OMB expects that certain types of costs will be included in the institution’s F&A cost rate and will not be charged as direct costs to Federal projects.

Overview Cost Accounting Standards (CAS) OMB Circular A-21 Cost Principles Allowable vs. Unallowable Exceptions Questions

Cost Principles Costs are reimbursable by the Federal Government ONLY if they are: Necessary Reasonable Allocable Allowable Consistently treated Permissible If a cost cannot meet this criteria, it is unallowable no matter what it is for.

Necessary Costs applied to the project MUST be necessary to accomplish the scope of work. To be necessary, the cost applied must be absolutely essential to achieve a certain result or results.

Reasonable If the nature of the goods or services acquired or applied to the project reflect the action that a “prudent person” would take under similar circumstances. Emphasis would be upon one acting in good judgment. Not excessive or extreme; fair.

Allocable Cost is incurred solely for advancement of work on the project. Application of cost is in proportions that can be approximated through reasonable methods. Cost is necessary and deemed assignable to the project.

Additional Considerations of Allocability Costs allocable to a particular sponsored agreement may not be shifted to other sponsored agreements to meet deficits caused by overruns or other fund considerations, to avoid restrictions, or for other reasons of convenience. Costs allocable to activities sponsored by industry, foreign governments or other sponsors may not be shifted to federally-sponsored agreements.

Additional Considerations of Allocability When equipment is purchased as authorized under a sponsored agreement, the costs are assignable to the sponsored agreement regardless of the use that may be made of the equipment after the end of the project.

Allowable Allowability of costs is defined specifically in OMB Circular A-21 Section J General Provisions of the cost principles. A-21 Section J – see handout summarizing allowability of costs

Consistently Treated Like costs must be treated the same in like circumstances … consistently. Costs may be treated as direct costs only or as F&A costs only.

Permissible Costs must be permissible under the law AND/OR Costs must be permissible under terms/conditions of the award

Overview Cost Accounting Standards (CAS) OMB Circular A-21 Cost Principles Allowable vs. Unallowable Exceptions Questions

Allowable vs. Unallowable Costs OMB Circular A-21 Section J defines 54 specific categories of costs and assigns them to the categories of allowable and unallowable. Section J instructs grantees on the acceptable treatment of allowable costs as either direct costs or F&A costs.

Allowable Costs Section J instructs that an allowable cost may be: –normally treated as a direct cost; –normally treated as an F&A cost; or –normally treated as an F&A cost, except in “unlike” circumstances under which it may be treated as a direct cost. Note that such “unlike” circumstances must be documented during the institutional CAS review and approval process.

Unallowable Costs Section J instructs that an institution is required to separately track and account for all unallowable costs to ensure that they are not charged to Federal awards either as direct costs or as part of the institution’s F&A cost rate calculations. –Examples: Alcoholic Beverages, Alumni Activity, Commencement Costs, Bad Debts, etc. Costs that are named in Section J as unallowable are unallowable in any circumstance.

CAS 502 – Impact on Allowability Requires that all costs incurred for the same purpose, in like circumstances, be treated as either direct costs only or F&A costs only with respect to final cost objectives. Prohibits double direct charging of the same cost to multiple projects. Prohibits charging as a direct cost any cost for which other costs incurred for the same purpose, in like circumstances, have been included in any F&A cost pool to be allocated to that or any other final cost objective.

Costs Normally Treated as Indirect Costs (F&A) Administrative and Clerical Salaries Telecommunications -- Local Telephone Service Including phone equipment such as telephones, cell phones, pagers, fax machines, and line charges Postage Including U.S. Postal Service, Federal Express, UPS Dues and Memberships Office Supplies

Costs Normally Treated as Indirect Costs (F&A) Subscriptions, Books, and Periodicals General Purpose Equipment Non-research equipment which may be used for general office purposes such as desktop computers, laptop computers, printers, fax machines, copy machines, and office furniture. General computer services, networking costs, or other DoIT services Staff recruitment and relocation

Overview Cost Accounting Standards (CAS) OMB Circular A-21 Cost Principles Allowable vs. Unallowable Exceptions Questions

Is a Cost Eligible for a CAS Exception? A cost normally treated by UW-Madison as an F&A cost may be appropriate as a direct cost on a Federally sponsored project if: –The cost is necessary, reasonable, allocable, allowable, and permissible under the law, terms/conditions of the award, and the circumstances are “unlike.” –“Unlike” circumstances may be determined by the nature of the project, such as those detailed in Exhibit C of OMB Circular A-21.

Exhibit C: OMB Circular A-21 Major Project Examples Large, complex programs that entail assembling and managing teams of investigators –Examples: General Clinical Research Centers (GCRC), Primate Centers, Program Projects, Environmental or Engineering Research Centers. Projects involving extensive data accumulation, analysis/entry, surveying, tabulation, cataloging, reporting –Examples: Epidemiological Studies, Clinical Trials.

Exhibit C: OMB Circular A-21 Major Project Examples Projects whose principal focus is preparation and production of manuals, reports, books –Excludes: Routine Progress and Technical Reports. Individual projects requiring project-specific database management or individualized manuscript preparation

Exhibit C: OMB Circular A-21 Major Project Examples Projects which require extensive travel or meeting arrangements –Examples: Conference or Seminar Awards. Projects that are geographically inaccessible to normal department administrative services –Examples: Radio Astronomy Projects, Remote Field Sites. NOTE: These examples are not exhaustive, nor are they always appropriate as instances when assessment of administrative/clerical salaries would be allowed.

Administrative and Clerical Salaries Administrative and clerical salaries should normally be treated as F&A costs per A-21 F.6.b.2. It may be appropriate to charge administrative and clerical salaries to a Federal award under the following circumstances: –A major project (as defined in OMB A-21 Exhibit C) or activity explicitly budgets for administrative or clerical services; and –Employees involved can be specifically identified with the project or activity; and –Costs are incurred in unlike circumstances, i.e., the actual activities direct charged are not the same as the actual activities normally included in the institution's F&A cost pool.

Telecommunications Costs Long distance phone calls are normally treated as direct costs under Section F.6.b.1. Local phone service and phone equipment are normally treated as F&A costs by UW- Madison per A-21 F.6.b.3.

Telecommunications Costs It may be appropriate to charge local and equipment costs to a Federal award under the following circumstances: –A pager may be necessary for a clinical trial in order to allow the study coordinator to remain in immediate contact with the PI for the safety of patients. –A fax machine and line may be justifiable if it is dedicated to the project and is necessary to ensure confidentiality of transmitted patient information. –Monthly telephone line charges may be justifiable if the telephone line is fully dedicated to the project and used for no other purposes.

Postage Postage costs which include U.S. Postal Service, Federal Express, and UPS should normally be treated as F&A costs per A-21 F.6.b.3. It may be appropriate to charge such costs to a Federal award under the following circumstances –Costs of shipping biological samples in dry ice to a collaborator may be allowable as direct costs due to “unlike” circumstances. –Costs associated with mailings involving data collection/survey costs, also may be allowable as direct costs due to “unlike” circumstances.

Postage Conversely, cost of sending the proposal, revisions, periodic or annual reports, or related correspondence to the funding agency should not be charged as direct costs to a sponsored project. Section J.34. Proposal Costs specifies that costs of preparing proposals should normally be treated as F&A costs. No “unlike” circumstance exists.

Dues and Memberships Dues and Membership fees should normally be treated as F&A costs per A-21 F.6.b.3. It may be appropriate to charge such costs to a Federal award under the following circumstances: –A investigator will attend a specific meeting or conference to present finds of their research under a specific award. The registration costs to attend include membership fees. A non-member option of attendance is more costly than the registration including membership. –The RFP under which application was made requires investigator attendance at a specific meeting. Meeting attendance requires the individual to hold a current membership.

Office Supplies Office Supply costs should normally be treated as F&A costs. Office supplies such as paper, envelopes, pens, staples, etc. are normally treated as F&A by UW-Madison per A-21 F.6.b.3. It may be appropriate to charge such costs to a Federal award under the following circumstances: –A large epidemiological survey project may require paper, envelopes, etc. to produce and mail surveys to study participants. –An outreach project may require paper and pens as part of the training component defined within the scope of the project.

Subscriptions, Books, and Periodicals Subscription, Book, and Periodical costs should normally be treated as F&A costs per A-21.F.8. It may be appropriate to charge such costs to a Federal award under the following circumstances: –An outreach project may require specific books as part of the training component to be available for use and reference at traveling training sites defined within the scope of the project. –However, subscriptions or books specifically purchased for a general laboratory reference library would not be allowable.

General Purpose Equipment General purpose equipment such as desktop computers, laptop computers, printers, office furniture and vehicles are normally treated as F&A costs. Under J.16.b.1, such charges are unallowable as direct charges, except where approved in advance by the sponsored agency. Some agencies have waived prior approval requirements under FDP/Expanded Authorities. However, CAS 502 requires consistent treatment as F&A costs except in “unlike” circumstances.

General Purpose Equipment CAS requires consistent treatment of similar costs in like circumstances. Since general purpose equipment costs are normally treated as F&A by UW-Madison, CAS exceptions for direct charging these items may be approved only in “unlike” circumstances: –For example, a desktop computer might be necessary, dedicated and justifiable for a project that requires large amounts of statistical or data analysis. –A laptop computer might be necessary, dedicated and justifiable for a study of microbial contamination of fresh produce in which data will be collected and entered into a database using the laptop in a remote agricultural site during harvest of produce.

General computing, networking costs, other DoIT services General computer services, networking costs, or other DoIT services should normally be treated as F&A costs. It may be appropriate to charge such costs to a Federal award under the following circumstances: –The award is for a large clinical research center (a major project). Networking costs would need to be fully dedicated to the center to be allowable. –NOTE: Networking costs for the vast majority of Principal Investigators would NOT be allowable in that their role is NOT fully dedicated 100% to any one specific award.

Staff Recruitment and Relocation Staff Recruitment and Relocation costs should normally be treated as F&A costs. It may be appropriate to charge such costs to a Federal award under the following circumstances: –Expertise of an unusual nature is required on a specific project. Advertisement costs may be allowable if the recruitment costs are normal in nature -- costs incurred must be pursuant to a well managed recruitment program, the advertisement is promoted in keeping with standard recruiting methods (see A-21 J.42.), and the opportunity being recruited must be required to fulfill the needs of the project.

CAS Exception Review & Approval Investigators should provide clear justification in Federal project budgets for direct cost items that normally are treated as F&A costs. The fact that the sponsoring agency allows such costs to remain in the awarded budget may not be interpreted as approval for these items as CAS exceptions. School/College Dean’s Offices review and approve CAS exceptions on sponsored project budgets. This institutional approval is required by A-21.

Is a Cost Eligible for a CAS Exception? At the time a proposal is being submitted, items which would normally be treated as F&A costs, may be included in the budget request as a CAS Exception. To do so: The project scope of work would need to qualify as a project under which exceptions could be granted. The budget/narrative would need to clearly detail the exceptional nature of the item. Approvals would need to be granted by the School/College Dean’s Office and included as an approved CAS Exception with the proposal routed to RSP at time of submission.

Is a Cost Eligible for a CAS Exception? When an exception was not properly identified and approved within the proposal at time of submission, an exception can be requested at time of occurrence during the award. Request must be made through a campus exception approval process. –Departments/Centers need to submit a formal request justifying the purchase in question. The request will require Dean’s Office approval prior to purchase – and may in certain instances require agency review and approval.

Is a Cost Eligible for a CAS Exception? –Request should include: Principal investigator name Project grant number (i.e., 144-____) Agency name Project title Detail regarding specific item(s) to be purchased (i.e., description and amount) Full justification of why the item(s) is required and why a CAS exception would be appropriate –Request can route in hardcopy or via . If by , needs to be sent from PI or on behalf of PI by an appropriate designee. –Route to School/College Dean’s Office. Dean’s Office will review and if acceptable, route forward to RSP.

Is a Cost Eligible for a CAS Exception? –RSP assists in reviewing terms/conditions, consulting with departments and College/School’s Dean’s Offices, and making recommendations for granting exceptions. –Such approvals should accompany purchase requests and be retained in the award file to document the CAS exception. –NOTE: approvals should be requested and granted prior to a purchase proceeding or an expenditure being applied to an award. –ATTENTION: The fact that the sponsoring agency allows such costs to remain in the awarded budget may not be interpreted as approval for these items as CAS exceptions.

CAS Applied to Non-Federal Awards General Principles of A-21 apply. –More exceptions than on the Federal side. Many Non-Federal Sponsors prohibit direct charging of certain types of costs. Full Indirect Cost Recovery vs. Partial (or No) Recovery. Bottom Line: It Depends.

What if I have Questions? Campus contacts/experts: Research and Sponsored Programs Post-Award: Charles Hoffman or- Barbara Keenan School/College Post-Award Dean’s Offices or School/College Business Services Offices

What if I have Questions? Website references A-21: RSP: Slides: