1. 1 SPS Primer SPS Primer Workshop Cost Accounting Considerations When Preparing Budgets for Sponsored Proposals Division of Financial Affairs

2. 2 SPS Primer Table of Contents OMB Circular A-21 What the cost principles do? What are reasonable, allowable, and allocable? What are unallowable and excludable costs? What are total costs? What are direct costs? What are F&A costs? Consistent treatment of costs

3. 3 SPS Primer OMB Circular A-21 The Office of Management and Budget circular contains the cost principles for determining costs applicable to grants, contract, and other agreements with educational institutions. Addresses both “Direct” and “Facilities and Administrative” (F&A) costs. In existence since 1958 Revised periodically http://www.whitehouse.gov/omb/circulars/a021/a021_2004.html

4. 4 SPS Primer What the Cost Principles Do? Requires a cost –Be allowable –Be allocable –Be reasonable –Be treated consistently –Be necessary to perform the program –Be permissible under the law

5. 5 SPS Primer What the Cost Principles Do? Identify full cost of federal programs Provide that the federal government bears its fair share of total costs Requires uniform acceptance by all federal agencies of allowable costs except where: –The cost is restricted or prohibited by law –Cost is prohibited by appropriation limitations

6. 6 SPS Primer What are Reasonable, Allowable, and Allocable Costs?

7. 7 SPS Primer REASONABLE –“Prudent Person Test” Generally Recognized as Necessary Arm’s Length Transaction Act with due prudence –Consistent with Established University Policies –Translation – Wear your taxpayer hat Allowability Factors

8. 8 SPS Primer ALLOWABLE –Conforms to specific sponsored agreement guidelines. –Conforms to Cornell policy. –Conforms to federal guidelines established in Office of Management and Budget Circular A- 21 (Section J). Allowability Factors

9. 9 SPS Primer ALLOCABLE - Charged (or assigned) in accordance with the benefit received. – Incurred to advance the work under the sponsored agreement (direct). – Necessary for the overall operation of the institution and is assignable in part to the sponsored agreement (indirect). Allowability Factors

10. 10 SPS Primer What are Federal Unallowable Costs?

11. 11 SPS Primer Federal Unallowable Costs? Costs that may not be charged to a federal sponsored activity because it is either expressly disallowed under A-21 or because it is not allocable in accordance with A-21. –Cannot be charged directly or indirectly through the F&A rate –Cannot be used as cost sharing

12. 12 SPS Primer Federal Unallowable Costs Common examples: >J1 – Advertising & Public Relations Costs >J3 – Alcoholic beverages >J4 – Alumni Activities >J6 – Bad Debts >J8 – Commencement & Convocation Costs >J15 – Donations & Contributions >J17 – Entertainment Costs

13. 13 SPS Primer Federal Unallowable Costs Common examples (con’t): >J19 – Fines & Penalties >J20 – Fund Raising & Investment Costs >J28 – Lobbying >J29 – Losses on other Sponsored Agreements >J33 – Personal Memberships or subscriptions not related to employment >J46 – Selling and Marketing

14. 14 SPS Primer What are Excludable Costs?

15. 15 SPS Primer Excludable Costs Excludable costs are those generally not included in the calculation & application of the F&A rate. Attempts to avoid inequitable assessment of F&A costs – guidelines included in A-21

16. 16 SPS Primer What are Total Costs?

17. 17 SPS Primer Total Costs TOTAL COSTS = DIRECT COSTS + F&A COSTS Total costs of a sponsored agreement is comprised of the allowable direct costs incident to its performance, plus an allocable share of the allowable F&A costs… less applicable credits… (A-21,C.1)

18. 18 SPS Primer What are Direct Costs?

19. 19 SPS Primer Direct Costs Costs that 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 easily with a high degree of accuracy. (A-21, D.1) Must be allowable, allocable, and reasonable

20. 20 SPS Primer Direct Costs Examples of Costs that can be directly assignable to one program: Salaries and Wages of: Principal Investigator Research Associates & Assistants Laboratory Technicians Associated Fringe Benefits

21. 21 SPS Primer Direct Costs Examples of Costs that can be directly assignable to one program: Equipment Project related materials and supplies Project related travel Subcontract Costs

22. 22 SPS Primer What are Facilities and Administrative Costs?

23. 23 SPS Primer Costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project or institutional activity (A-21, B.4). F&A costs are synonymous with “indirect” costs. Facilities & Administrative Costs

24. 24 SPS Primer F&A Costs consist of: Building & Equipment Depreciation Interest Expense Operations and Maintenance (O&M) Libraries General Administration College and Department Administration Student Services Sponsored Programs Administration Facilities & Administrative Costs

25. 25 SPS Primer Consistent Treatment of Direct and Facilities and Administrative (F&A) Costs

26. 26 SPS Primer Consistent Treatment of Direct and F&A Costs Consistent Treatment of costs >Specifically required by Circular A-21 >Assures same types of costs are not charged to federally sponsored agreements both as direct costs and as F&A costs >Reinforced and emphasized in Cost Accounting Standard 502

27. 27 SPS Primer Consistent Treatment of Direct and F&A Costs Consistent Treatment of costs (cont’d) >Costs incurred for the same purpose, in like circumstances >Must be treated uniformly either as direct costs or F&A costs >Certain costs normally treated as F&A costs (cannot charge directly to sponsored projects)

28. 28 SPS Primer Consistent Treatment of Direct and F&A Costs CAS 502 – This standard is necessary to guard against the overcharging of some cost objectives and to prevent double counting. Double counting occurs most commonly when cost items are charged directly to a cost object…. and like costs are allocated to that cost objective.

29. 29 SPS Primer

30. 30 SPS Primer Consistent Treatment of Direct and F&A Costs Normally Indirect Costs: > Salaries of administrative & clerical staff >Office supplies >Postage >Local telephone costs >Memberships in professional organizations

31. 31 SPS Primer Consistent Treatment of Direct and F&A Costs Normally F&A (Indirect) Costs: > Exceptions – extraordinary/unique situations Circumstance related to a major project clearly different from normal operations of the institution May charge directly if “unlike circumstances” exist

32. 32 SPS Primer Consistent Treatment of Direct and F&A Costs Unlike Circumstances: >What are these and when do they exist >What is a “major project” >OMB addendum to A-21 July 13, 1994 >Provided guidance on unlike circumstances / major projects

33. 33 SPS Primer Consistent Treatment of Direct and F&A Costs OMB Clarification: >Size, nature, and complexity of sponsored projects are considerations in determining unlike circumstances >Sponsored project requires normally indirect support substantially beyond that normally provided by academic departments

34. 34 SPS Primer Consistent Treatment of Direct and F&A Costs OMB Clarification (con’t): >May be charged directly when the cost: Can be accurately identified to the project, and Is identified and properly justified in the proposal budget/narrative, and The sponsoring agency accepts or does not specifically disapprove the costs

35. 35 SPS Primer Consistent Treatment of Direct and F&A Costs Cornell Policy 3.18, Charging of Direct and Facilities and Administrative (Indirect) Costs Website: http://www.policy.cornell.edu/vol3_18.cfm