1. Costing and Cost Transfers John Caruso Campus Relations Manager, Sponsored Projects Administration

2. Audience This course is intended for “department administrative staff”—including department administrators, division managers, department fiscal managers, department effort coordinators, etc.

3. Costing Basics As a condition of receiving award funds from federal sponsors, OHSU is required to follow basic government regulations and Cost Accounting Standards (CAS) Agency regulations include the following:  OMB Circular A-21  2 CFR Part 215 (formerly OMB Circular A-110)  OMB Circular A-133  CAS 501, 502, 505 and 506

4. Circular A-21 Defines the rules for “Direct” and “Indirect” (Facilities & Administrative) costs Provides principles for determining if costs are allowable, allocable, and reasonable Sets forth standards for Effort Reporting

5. Circular 2 CFR Part 215 Defines reporting requirements Sets forth acceptable forms of cost sharing Defines methods for handling program income Explains when prior approvals are required for revisions to budget or program plans Defines procurement standards and procedures Sets forth accounting standards for equipment

6. Circular A-133 Provides the standards for consistency and uniformity in the auditing of states, local governments, and non-profit organizations receiving and expending federal funding

7. Cost Accounting Standards CAS 501, 502, 505 and 506 were developed to create consistency in the following areas:  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)

8. Purposes of CAS Cost Accounting Standards are designed to help promote consistency and fairness It is essential to consistently follow OHSU’s disclosed accounting practices on costs:  http://www.ohsu.edu/research/rda/spa/direct.shtml http://www.ohsu.edu/research/rda/spa/direct.shtml

9. Direct Costs Cost Accounting Standards reduce the risk of “double dipping” or charging expenditures as both “direct” and “indirect” costs Department administrators need to understand OHSU accounting practices and be familiar with the regulations defining “direct” costs

10. Charging Direct Costs Sponsor funds are available Costs are allocable Costs are reasonable Costs are allowable Like costs are treated consistently

11. Sponsor Funds Available Appropriate direct cost items should be charged to sponsor funds Expenditures must be between award start and end dates Funds must remain unspent and uncommitted If sponsor funds are unavailable, costs may be identified as Cost Sharing

12. Allocable To be allocable as a direct cost, the expenditure must benefit only one project, or must be easily and proportionally assigned to multiple projects that benefit

13. Reasonable To be reasonable, costs must pass the “prudent person test” Would the local press make a story out of the costs you are charging to taxpayer funds? If so, you might want to think again.

14. Allowable For costs to be allowable on a federally sponsored award, “they must conform to any limitations or exclusions set forth in these [federal] principles or in the sponsored agreement as to types or amounts of cost items” (OMB Circular A- 21, C.2.d)

15. Consistent “Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or F&A costs. 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, D.1)

16. Consistent Certain items are generally considered “indirect” (F & A) costs—unless a direct relationship to a specific sponsored project can be established  Salaries of departmental staff  Office supplies  Telephone expenses  Photocopying and postage  Etc

17. Responsibilities Principal Investigators, department administrators, and Sponsored Projects Administration (SPA) have specific roles and responsibilities related to the proper handling of costs

18. PI Responsibilities The Principal Investigator (PI) is ultimately responsible for justifying the appropriateness of all direct costs budgeted and charged on sponsored projects, and must abide by the following:  overall government regulations  agency guidelines  terms and conditions specific to the individual award  OHSU’s policies and guidelines

19. Dept Admin Role The role of departmental administrators is to be a resource to PI’s:  Advising on proper direct cost budgeting and charging practices  Helping with regular reports and review of expenditures  Maintaining copies of relevant documents (award terms and conditions, OMB Circulars, OHSU policies, etc)

20. Role of Dean/Director The Dean/Director must ensure that guidance is provided to PI’s and departmental administrators on the criteria to be used in budgeting and charging direct costs The Dean/Director is also responsible for making sure mechanisms are in place to ensure accountability for budgeting and charging costs

21. SPA Responsibilities SPA is responsible for providing guidance and assistance to PI’s and departmental administrators in the proper charging of direct costs SPA also oversees and assists with cost transfers

22. Cost Transfers Cost Transfer: the process for moving an item of expenditure between sponsored projects, expenditure types, or different types of funds Cost Transfers need justification, documentation, and approval

23. Cost Transfer Overview Rules governing Cost Transfers Necessary approvals Walk through of OHSU Adjustment Form Cost Transfers and Audits Strategies for Prevention of Cost Transfers Examples

24. Avoid the Need All project costs should be appropriately charged to accounts according to accepted accounting principles as well as OHSU policies and the regulations applicable to sponsoring agencies Ideally, completed transactions should not need correction

25. Transfer When Necessary However, in certain circumstances, changes are required to move expenses— Cost Transfer  Between projects  Between expenditure types  Between different types of funds Cost Transfers need all of the following: justification, documentation, and authorization

26. Federal Requirements The Federal Government questions the propriety of Cost Transfers on federally funded projects Cost Transfers can cast doubt on a grantee’s accounting system and internal controls The Government expects documentation and an authorization process for all Cost Transfers on federally assisted projects

27. Federal Requirements There are situations when Cost Transfers are appropriate:  To correct a clerical or bookkeeping error  When work on a project has started, but the official notification of the award is delayed  To move payroll off suspense

28. Federal Requirements Under no circumstances may a Cost Transfer be made with the sole intent of using up the unexpended balance in a federal account.

29. SPA Procedure The Principal Investigator (or Dept Admin) initiates the OHSU Adjustment Form as soon as possible (within 90 days of expense being charged) The PI provides all information on the Form—note that “to correct error” is not sufficient cause The Department Chair/Division Head reviews the Form, and forwards it to SPA if approved

30. SPA Procedure SPA reviews the OHSU Adjustment Form for  Allowability  Acceptability  Propriety of charges If the request does not meet these criteria, it will be returned to the PI If the request is approved, SPA forwards the form for processing

31. Acceptable Reasons Correction of error—but be more specific Charges benefit more than one program (distribution of costs based on benefits received) Programs involve closely related work

32. Unacceptable Reasons To reduce overruns if the transfer is from one federal project to another For reasons of convenience To use unspent money in a project Because the bookkeeper was on leave, etc

33. Walk Through of Form Make Cost Transfers using the OHSU (“Transfer Between”) Adjustment Form: http://ozone.ohsu.edu/ais/docs/adjustment Form.xls http://ozone.ohsu.edu/ais/docs/adjustment Form.xls There are also online instructions to this form: http://ozone.ohsu.edu/ais/docs/adjustment Instructions.doc http://ozone.ohsu.edu/ais/docs/adjustment Instructions.doc

34. Audits Cost Transfers can be a “red flag” to auditors Auditors examine  Frequency  Justification  Remedies

35. Audit Questions Are Cost Transfers supported by documentation which adequately explains and justifies why the transfers were made? Are Cost Transfers caused by work which is supported by more than one funding source? Are there Cost Transfers between projects which are in an overrun condition to those with unexpended balances?

36. Audit Questions Are Cost Transfers which represent corrections of clerical errors made promptly after discovery? Are Cost Transfers dated? Is an explanation provided that fully explains how the error occurred?

37. Strategies for Prevention Formal policies and related procedures governing Cost Transfers Compliance training sessions Awareness of the risks involved in making inappropriate transfers Review of account balances, open orders, etc, three months prior to close out

38. Cost Transfer Case Study #1 An OHSU employee transfers expenses from one account to another and annotates the cost transfer “to correct an accounting error” Is this an appropriate justification? Why or why not?

39. Case Study #1 If it was an accounting error, the transfer must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organization official Transfers made solely to cover cost overruns are not allowable

40. Cost Transfer Case Study #2 You are asked by a PI to stop at an office supply store on your way to work and pick up a few items. The PI also asked you to get donuts for the lab meeting that morning. When you arrive at work, the PI tells you that all the items should be charged to the grant Your Department Administrator tells you that these purchases must come from departmental funds. Why?

41. Case Study #2 If the supplies are not specifically allocable to the grant, they are considered general office supplies and should not be charged as a “direct” cost to the grant account Entertainment, such as food, is unallowable under the provisions of A-21

42. Cost Transfer Case Study #3 Dr. Miller purchases a much needed piece of specialized equipment for her research on hypertension. When preparing the purchase request, she realizes that the only account with enough money is her grant for research on sleep disorders. Because both grants are funded by NIH, she charges the equipment to the sleep disorder grant. Is this acceptable?

43. Case Study #3 The cost principles address four tests to determine allowability of costs: Allocability Reasonableness Consistency Conformance

44. Allocable A cost is allocable to a specific grant if it is incurred solely in order to advance work under the grant and is deemed assignable, at least in part, to the grant

45. Reasonable A cost may be considered reasonable if the nature of the goods or services 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

46. Consistent Grantees must be consistent in assigning costs. Although costs may be charged as either “direct” costs or F&A costs, depending on their identifiable benefit to a particular project or program, they must be treated consistently for all work of the organization under similar circumstances, regardless of the source of funding

47. Conformance Conformance with limitations and exclusions as contained in the terms and conditions of award—varies by type of activity, type of recipient, and other variables on individual awards

48. Cost Transfer Summary Cost Transfer is the process of moving an expenditure between research projects, expenditure types, or different types of funds Cost Transfers should be an exception, not a standard means of operating Cost Transfers need justification, documentation, and approval

49. Course Summary This course has examined the importance of Cost Accounting Standards in the successful management of federal award funds With proper planning and regular review, costs should be charged correctly the first time When necessary, cost transfers can be used to correct errors, as long as they include proper justification, documentation and authorization

50. Some Useful Websites Grants Page/OER homepage:  http://grants.nih.gov/grants/oer.htm http://grants.nih.gov/grants/oer.htm NIH Grants Policy Statement (12/03)  http://grants.nih.gov/grants/policy/nihgps_2003/ index.htm http://grants.nih.gov/grants/policy/nihgps_2003/ index.htm NIH Guide for Grants and Contracts:  http://grants.nih.gov/grants/guide/index.html http://grants.nih.gov/grants/guide/index.html

51. Cost Transfers Questions?