Vanderbilt University Medical Center Vanderbilt University Medical Center Cost Accounting Standards October 2002

Vanderbilt University Medical Center Vanderbilt University Medical Center Mission To bring the full measure of human knowledge, talent and compassion to bear on the healing of sickness and injury and the advancement of health and wellness….. through preeminent programs in patient care, education, and research.

Vanderbilt University Medical Center Vanderbilt University Medical Center In order to achieve our research mission, we accept government grants and contracts. In accepting these grants and contracts, Vanderbilt agrees to abide by the regulations governing the use of these funds.

Vanderbilt University Medical Center Regulations Include:  OMB Circular A-110 (Grant Administration)  OMB Circular A-21 (Cost Principles)  OMB Circular A-133 (Audit Standards)  Cost Accounting Standards (CAS 501, 502, 505 and 506)  Other regulations, as applicable

Vanderbilt University Medical Center OMB Circular A Grant Administration Rules  Defines reporting requirements  Defines acceptable forms of cost sharing/matching  Defines methods of handling program income  Defines when prior approvals are required for revisions of budget or program plans  Defines accounting standards and procedures for equipment acquired with federal funds  Defines procurement standards and procedures

Vanderbilt University Medical Center OMB Circular A-21 - Cost Principles  Defines rules for Direct and Facilities & Administrative Costs  Provides principles for determining the allowability, allocability and reasonableness of costs  Sets forth effort reporting requirements

Vanderbilt University Medical Center OMB Circular A Audit Standards Provides standards for consistency and uniformity in the auditing of states, local governments and non-profit organizations expending federal funds.

Vanderbilt University Medical Center Cost Accounting Standards CAS 501, 502, 505 and 506 Developed to regulate the consistency in:  estimating, accumulating and reporting costs (CAS 501)  allocating costs incurred for the same purpose in like circumstances (CAS 502)  accounting for unallowable costs (CAS 505)  cost accounting periods (CAS 506)

Vanderbilt University Medical Center What is the purpose of the Cost Accounting Standards? To promote consistency and to keep the government from being “DOUBLE DIPPED”

Vanderbilt University Medical Center What does this mean? Consistency Vanderbilt should consistently follow its disclosed accounting practices In other words, we must consistently follow the rules.

Vanderbilt University Medical Center How do we achieve consistency? By being knowledgeable about Vanderbilt’s accounting practices and the regulations defining direct costs. By asking questions when you’re not sure how to handle specific circumstances.

Vanderbilt University Medical Center What are the criteria to identify direct costs?  Reasonable  Allocable  Allowable  Treated consistently

Vanderbilt University Medical Center Reasonable “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, Section C.3)

Vanderbilt University Medical Center Allocable Costs incurred for the benefit of only one project or costs that can easily be assigned to multiple projects which benefit.

Vanderbilt University Medical Center Consistent Costs must be treated consistently with similar costs incurred in like circumstances. (See pages of VU Guidelines for Budgeting and Charging Direct Costs for additional information. Examples to follow.)

Vanderbilt University Medical Center Allowable Costs allowable according to the award agreement, Generally Accepted Accounting Principles (GAAP) and other applicable regulations. (See pages of VU Guidelines for Budgeting and Charging Direct Costs for additional information.)

Vanderbilt University Medical Center Let’s review consistency in detail and take a look at some specific examples of Vanderbilt’s accounting practices.

Vanderbilt University Medical Center Definition of Consistency 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.

Vanderbilt University Medical Center Consistency Identification with the sponsored work, rather than the nature of the goods and services is the determining factor in distinguishing direct costs from indirect costs of sponsored agreements. In other words, it doesn’t matter what it is. What matters is how it is used.

Vanderbilt University Medical Center Consistency - Indirect Costs Items normally considered indirect costs on sponsored projects:  Salaries of persons engaged in routine departmental or administrative work.  Supplies for routine departmental or administrative activities.  Other costs, such as travel, repairs, fees, local and long distance telephone expenses, copying and postage.  General office items with multi-functional use, such as computers, staplers, filing cabinets, chairs, etc.

Vanderbilt University Medical Center Now, let’s take a look at some specific examples.

Vanderbilt University Medical Center CAS Consistency Scenario - Supplies PI:I’m a new professor and I need to meet with you about my supply needs. Charge them to my grants. DA:Let me see what type of grant funds you have. What are the supplies and how will they be used? PI:Well, all of my grants require paper and general supplies. I even put it in my proposal on my research grant and the agency approved it. DA:Yes, but if the costs are not consistent with VU’s direct charge guidelines, they cannot be charged to the grant. PI:I know about the guidelines. What about the paper for my survey responses from the 500 participants. Can that be charged direct? DA:Yes, because it is necessary for the conduct of the research. Let’s make sure that we clearly document the reason for our purchase in our grant file.

Vanderbilt University Medical Center CAS Consistency Summary - Supplies (i.e. paper, file folders, pencils, diskettes)

Vanderbilt University Medical Center CAS Consistency Scenario - Software PI:Can you use your procurement card to purchase a copy of the newest version of Microsoft Office for me? I like to do my own progress reports and need the new functionality. Charge it to my federal grant. DA:It doesn’t sound specific to your grant. It is not an allowable direct charge to your federal grant because it is not allocable to the project. It is a general use item and is considered an administrative cost by the sponsor. PI:Well, I also have to buy AutoCAD. I need it to do some of my analysis. It costs a fortune!! DA:That can go to your federal grant because it is needed to do the work. Let’s be sure to clarify this clearly in our grant files.

Vanderbilt University Medical Center CAS Consistency Summary - Software

Vanderbilt University Medical Center CAS Consistency Scenario - Postage PI:I need to buy some stamps. Charge them to my research grant. DA:How do you plan to use them? PI:Several things – I get requests to mail out reprints and have to send other correspondence about my work, and I put stamps in the lab for the students to use. DA:I’m sorry but none of those are allowable charges to your federal grant. They are general use charges which are administrative charges. PI:What about the samples I have to mail to my collaborators on my federal project? DA:You can charge the postage to send those. They are a “specified” deliverable required by the grant, and VU treats these as direct costs. We need to put a clear description of this situation in our grant file to describe exactly what is being mailed.

Vanderbilt University Medical Center CAS Consistency Summary - Postage

Vanderbilt University Medical Center CAS Consistency Scenario - Membership/Subscriptions The following criteria must be met for these types of charges to be charged directly to a federal research project:  Demonstration of the need for the journal in order to conduct the research; demonstration of the need to attend the conference in order to conduct the research  Indication that another copy of the journal is not available  Demonstration that the cost of the membership in the society supplying the journal or sponsoring the meeting is less than the cost of buying the journal on a stand-alone basis or attending the meeting as a non-member.

Vanderbilt University Medical Center CAS Consistency Summary - Membership/Subscriptions

Vanderbilt University Medical Center CAS Consistency Scenario - Administrative Support PI:I need to hire someone to take over all of the administrative duties on my four grants. I can’t juggle them all. DA:It does sound like you need help, but you know, you can’t charge that to your grants. The government expects VU to provide administrative support. PI:But my spouse has a person on her project. Why can’t I? I’ll write my program officer to get approval. DA:You still couldn’t charge your research grant. It isn’t compliant with VU’s direct charge guidelines. Your spouse’s project has an administrative core, so it is allowable for that project. PI:What about the data entry I have on my grants? I can’t do that too. DA:It could be reasonable to charge someone performing that work. Let’s document it carefully in our grant files and process a budget revision.

Vanderbilt University Medical Center CAS Consistency Summary - Administrative Support

Vanderbilt University Medical Center CAS Consistency Scenario - Copying PI:I need to get a code for the departmental copier. Charge it to my research grant. DA:Okay, but remember that you will need to get another code to use for your general and administrative copying. PI:You mean I have to separately identify the grant-specific copying from the general administrative copying? DA:Yes. Only copying costs that are directly related to fulfilling the scope of work for your grant can be charged directly. Copying that is general in nature must be charged elsewhere.

Vanderbilt University Medical Center CAS Consistency Summary - Copying

Vanderbilt University Medical Center CAS Consistency Summary - Machine Service Contract

Vanderbilt University Medical Center So where do you fit into the picture? What is everyone’s role?

Vanderbilt University Medical Center Roles and Responsibilities - Principal Investigator  Determines financial charges that are allocable to the sponsored project  Attests to the allowability and reasonableness of all expenditures when initiated  Participates with department administrator in identifying cost sharing  Initiates and proposes resolution of cost overruns on projects  Identifies and allocates any program income  Ensures compliance with all applicable financial regulations and reports instances of non-compliance to appropriate compliance office

Vanderbilt University Medical Center Roles and Responsibilities - Department Administrator  Processes and reviews transactions on sponsored programs to ensure that the transaction is reasonable, is within the time frame of the project, that it has been reasonably allocated and that the cost is treated consistently  Reviews financial reports for sponsored projects  Prepares requests for cost transfers  Processes documents to record program income  Provides information for compliance with effort reporting requirements  Provides information for closing documents  Reports instances of financial noncompliance

Vanderbilt University Medical Center Roles and Responsibilities - Department Chair  Serves as a resource for principal investigators  Maintains local oversight for the allowability and reasonableness of all project expenditures  Provides oversight on all aspects of program income  Ensures financial compliance with applicable regulations for sponsored projects  Reports instances of noncompliance to the appropriate compliance office