OMB Circular A-21 Cost Principles for Educational Institutions

Purpose: Gives instruction to federal agencies affected by the circulars; federal agencies are required to implement by passing requirements on to institutions. Effect : Sets minimum standards applicable to institutions

Responsibility for compliance to standards set by OMB A-21belongs to:  Principal Investigator  Office of Sponsored Projects, and  Other Administrative Offices  Payroll  Purchasing  Property Control  Risk Management and Insurance  Counsel’s Office  Any office dealing with a Sponsored Project

What the Cost Principles Do  Requires a cost to: Be allowable Be allocable Be reasonable (prudent person test) Be treated consistently Be necessary to perform the program Be permissible under the law

Section J of OMB A-21: provides specific rules on cost allowability.  Sub-sections 1 through 54: provides principles to be applied in establishing the allowability of costs.  Specifies approval requirements, documentation and other provisions, for some costs.  Determination of allowability in each case should be based on the treatment provided for similar or related items of cost.  When there is a discrepancy between the provisions of a sponsored agreement and the provisions, the agreement should govern.

How is allowability determined? Allowable: Under the agreement, regulations, and public laws Reasonable: A prudent person would have purchased this item and paid this price Allocable: They can be assigned to the activity on some reasonable basis Consistently Treated: Like costs must be treated same in like circumstances

If a cost cannot meet the criteria listed in the previous slide, it is unallowable, no matter what it is for.

EXAMPLES of Unallowable Costs: cannot be charged against Federal agreements, used as cost sharing (match) or used as part of Indirect (F&A) cost base Unallowable Activities (something you do) -organized fund raising -lobbying -general public relations& alumni activities -student activities -managing investments solely to enhance income

Unallowable Objects (something you buy, or a line item) -advertising -alcoholic beverages -entertainment -fines & penalties -moving costs if employee resigns within twelve months -certain recruitment costs

OMB A-21 Constantly Changes - to tighten rules on allowability and allocation of costs. - to promote greater standardization in treatment of costs. OSP assists in identifying what costs are allowable, or unallowable under A-21.