NYUs Compliance with A21, Cost Principles for Educational Institutions

1
NYUs Compliance with A-21, Cost Principles for
Educational Institutions

• Nancy Daneau, Office of Sponsored Programs
• Joanne Goldstein and Michael Miller, Sponsored
  Programs Accounting

2
What well cover today..

• What do the applicable regulations say?
• How does A-21 tie pre- and post award together?
• What do I need to be aware of while developing
  the proposal and budget to ensure the project
  runs smoothly from inception to close-out?
• What steps can I take to mitigate the risk of
  non-compliance with federal regs, sponsor policy,
  and NYUs procedures?
• Can NYU avoid material findings in an audit?

3
OMB Circular A-21

• Cost Types
• Direct Costs
• Facilities and Administrative (FA) Costs

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OMB Circular A-21 (cont)

• Direct Costs
• Costs that can be identified specifically with a
  particular sponsored project
• Salary and Wages
• Fringe Benefits
• Materials and Supplies
• Equipment
• Travel
• Consulting Costs
• Subawards to collaborating institutions for
  programmatic effort
• Procurement subcontracts for supplies or services
• Participant Support Costs

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OMB Circular A-21 (cont)

• Facilities Administrative Costs (FA)
• Known as Indirect Costs
• Costs incurred for common or joint objectives
  therefore cannot be readily attributed to any
  particular sponsored project
• Facilities Component
• Depreciation and use (utilities)
• Interest on debt associated with buildings
• Capital Improvements

6
OMB Circular A-21 (cont)

• Administrative Cost Components
• General Administration (e.g. central units,
  university-wide service and support)
• President/Chancellors office personnel,
  operating costs
• Business and Finance personnel, operating costs
• Human Resource personnel, operating costs
• Departmental Administration
• Deans office personnel, operating costs
• Departmental personnel including clerical and
  admin support, operating costs
• Sponsored Projects
• Pre- and post-award office personnel, operating
  costs

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OMB Circular A-21 (cont)

• Student Administration Services
• Admissions, Registrar, Advisors, Health offices
• Library Expenses
• Books and periodical holdings
• Administrative cost component of FA rate capped,
  federal government limits reimbursement to 26 of
  MTDC

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OMB Circular A-21 (cont)

• FA rate negotiated with NYUs cognizant agency
• Dept of Health and Human Services (DHHS)
• Current rate is 53.5 MTDC for on campus efforts
  during period 9/1/07-8/31/08 26 for off-campus
  research
• Future years http//www.nyu.edu/osp/policies/basi
  cinfo.php
• Bases
• Modified Total Direct Cost base
• Applies the rate to proposed total direct costs
  less equipment, tuition remission, fellowships,
  rental costs, and that amount of each subaward
  exceeding 25k
• Most institutions use this method

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OMB Circular A-21 (cont)

• Application of FA rate
• Use rate in effect at time of proposal submission
• Stays the same for life of sponsored project
• Number of years approved by agency at time of
  award
• Change only during submission of a competitive
  segment (renewal)

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OMB Circular A-21 (cont)

• The 4 core cost principles embedded throughout
  A-21 and the path to successful stewardship of
  federal funding
• Allowability
• Allocability
• Reasonableness
• Consistent treatment

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OMB Circular A-21 (cont)

• Proposed, incurred, and reported costs must be
• Allowable
• In accordance with A-21 (section J), sponsor
  guidelines, and institutional policy
• Order of precedence per A-21
• Sponsor policy
• A-21
• Institutional policy
• NYU policy may disallow a cost item even if the
  sponsor approves in order to maintain
  consistency rule
• Allocable
• Does the project directly benefit?
• If multiple projects benefit, cost should be
  allocated in proportion to benefit

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OMB Circular A-21 (cont)

• Proposed, incurred, and reported costs must be
• Reasonable
• Is the price/cost fair?
• Would a prudent person pay this amount?
• Consistent
• Like costs must be treated similarly in
  accordance with institutions cost accounting
  practices
• Book as either a direct cost or indirect cost
• Cant be direct sometimes and indirect others

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OMB Circular A-21 (cont)

• Why is consistency in cost allocations important?
• Institutions with sponsored program portfolio in
  excess of 25M per FY required to disclose cost
  accounting practices
• Form DS-2 filed with cognizant federal agency
• Justifies institutions position on categorizing
  and charging costs as either direct or indirect
• Amendments must be filed any time a change
  occurs, whether its to comply with new standard
  or a change in practice
• If found to be out of compliance with own cost
  accounting practices, costs will be disallowed
  and interest charges will accrue
• Can have negative impact on FA rate (rate
  lowered)

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Budget Development

• Allowable Costs (sample major cost categories)
• Salaries and Wages for PI(s), technical staff,
  and other key personnel
• Must be calculated using individuals base
  salary/rate
• Total dollars, equivalent to 100 effort may not
  exceed annualized salary
• For summer months, annualize salary and then
  multiply by number of months, effort assigned
  during summer
• Keep in mind NYU and sponsor restrictions on
  summer support

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Budget Development (contd.)

• Exception Salaries and wages for administrative
  or clerical support
• Generally UNALLOWABLE (infamous F.6.b of A-21) as
  direct costs unless they meet the test of
  major project
• Major project defined in Exhibit C of A-21
• Program project grants
• Engineering or Environmental Research Centers
• Projects involving extensive data collection,
  entry, and analysis
• Projects requiring travel arrangements for large
  numbers of participants (workshop or conference
  grants)
• Projects that take place in a distant geographic
  location without access to departmental resources
• Projects for the purpose of creating a manual or
  book
• Included in departmental administration portion
  of FA base

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Budget Development (contd.)

• Fringe Benefits
• Charged as a percentage of salary and wages
  (negotiated with NYUs cognizant agency)
• 27 for period 9/1/07-8/31/08
• For future years http//www.nyu.edu/osp/policies/
  basicinfo.php
• Materials and Supplies
• Necessary to conduct the project and expendable
• Lab supplies (beakers, chemicals)
• Animals and animal care costs
• expenditures for animals allowable only once
  protocol approved by institutional animal care
  committee
• Parts intended for fabricated equipment items
  including delivery/transportation charges

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Budget Development (contd.)

• Exception Generally, office supplies, postage,
  and local telephone costs should not be
  included in the direct cost category
• Normally treated as FA
• Unless incurred for major project (F.6.b. of
  A-21)
• Equipment
• Items with unit cost of 3,000 or more
• Useful life of more than 1 year
• Special Purpose Equipment
• Equipment items used only for research, medical,
  or scientific activities (e.g. microscopes,
  spectrometers)
• Allowed only with sponsor approval
• General purpose equipment
• Office equipment
• Allowed only with sponsor approval

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Budget Development (contd.)

• Travel
• Cost estimates must comply with NYUs written
  travel policy (lodging, per diem, mileage, etc.)
• Airfare should be at coach rate (no first class)
  and comply with Fly America Act
• Unless extenuating circumstances occur
• Circuitous routing that prolongs travel for
  excessive period
• Cost prohibitive
• Requires travel during unreasonable hours
• Medical needs and requirements cannot be met

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Budget Development (contd.)

• Consulting Costs
• Consulting rate should be in line with market
• Faculty may serve as consultants within their
  institution and receive remuneration above their
  regular compensation IF AND ONLY IF
• Consultation is across departmental lines or
  involves separate/remote location, AND
• Work performed is in addition to regular deptl
  load, AND
• Documented in the award with sponsor approval

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Budget Development (contd.)

• Subawards
• Issued when a substantive portion of the
  programmatic effort is to be carried out by
  another organization
• Total costs (direct and indirect) for
  subrecipient(s) are direct cost line item in your
  proposal project budget
• Requires approval by sponsor
• Subcontracts for supplies or services
• Issued to vendors who are in business solely to
  provide supplies or services sought and which
  perform services on a routine basis in a
  competitive market

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Budget Development (contd.)

• Participant Support
• Stipends or subsistence allowances, travel, and
  registration fees paid to or on behalf of
  participants or trainees in connection with
  meetings, conferences, or training projects
• If participants are employees of an
  institution, costs may NOT be categorized as
  participant support
• One federal agency (NSF) recently provided
  clarification re training offered to public
  school teachers
• If participants trained are employees of the
  local school district, costs are participant
  support if stipend or training allowance method
  used and allowances made to the teachers directly
• school must have sub-accounts in place to
  differentiate between salary and stipend payments

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Budget Development (contd.)

• Unallowable Costs
• Alcoholic beverages
• Alumni activities
• Bad debts
• Commencement or convocation costs
• Charitable contributions, donations, remembrances
• Development/fundraising costs

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Budget Development (contd.)

• Unallowable Costs (contd)
• Entertainment costs tickets to shows or sporting
  events, meals, lodging, rentals, transportation,
  and gratuities associated with entertainment
• Fines and penalties
• Goods or services for personal use of employees
  (including gifts)
• Housing and personal living expenses of
  University officers
• Investment management costs
• Lobbying

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Budget Development (contd.)

• Unallowable Costs (contd)
• Cost overruns on other sponsored agreements
• Pre-award costs (unless approved by the
  sponsoring agency or permitted under expanded
  authorities)
• Selling and marketing costs of any products or
  services of the institution
• Student activity costs incurred for intramural
  activities, student publications, student clubs
• Travel First class tickets (unless extenuating
  circumstances)

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A-21 The tie that binds pre- and post award

• The proposal and budget have been approved
• NYU receives an award notice
• Now what?
• If the proposal has been developed with A-21
  care, financial management of your award will be
  a SNAP!

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Project Set-up Financial Transactions

• Project set-up
• Important to establish and categorize project
  correctly within NYUs financial system
• Important to understand fund, expense account and
  account restrictions to ensure charges are posted
  properly
• Costs must be incurred within the period of
  performance authorized by the funding agency
• Total expenditures must not exceed authorized
  award amount
• Charge sponsored accounts in a timely manner for
  allowable, allocable, and reasonable costs
  associated with conduct of the work
• Auditors test and look at number of cost
  transfers processed on sponsored projects to
  assess risk of internal control failure

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Financial Management

• Rebudgeting
• Expanded authorities
• Gives NYU authorization to rebudget between
  direct cost categories of a sponsored project
  without prior approval
• If award not subject to above, re-aligning budget
  must be in accordance with terms and conditions
  of sponsor
• Usually allowable up to certain dollar amount or
  
• If exceeds threshold, requires sponsor approval
• Watch for restrictions on rebudgeting in and out
  of specific cost categories (e.g. participant
  support, equipment, etc.)

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Financial Management (contd)

• Cost Transfers
• Defined as an after-the-fact reallocation of
  costs (labor or non-labor) to a sponsored award
• OMB Circular A-21 prohibits the use of cost
  transfers for the purpose of convenience, i.e.,
  a transfer largely for the purpose of using
  unexpended funds on an award that is ending
• NYU must explain and justify the transfer of
  charges to and from federal and non-federal awards

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Financial Management (contd)

• Appropriate as long as the cost being transferred
  is allocable, allowable, and reasonable to the
  account being charged
• Justifiable reasons
• Award notice received or processed late so
  expenditures posted to an unrestricted or other
  discretionary account until sponsored award
  account setup
• Timelines and completeness of transfer
  explanations/justifications are integral to
  supporting allowability and allocability

30
Financial Management (contd)

• Most institutions have cost transfer policies
• Explains process and requirements for moving
  labor and non-labor expenditures
• Explains process for moving expenditures within
  ninety (90) days of original posting and after 90
  days has passed
• NYU policy Cost Transfer Interim Guidelines
  http//www.nyu.edu/cdv/site20/cservice/spa.html
• Justifications for transferring charges required
• Varying levels of approvals required
• PI or designee lt 90 days
• Fiscal Officers or designees gt 90 days
• SPA final approver on all cost transfers

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Financial Management (contd)

• Disallowed costs
• If internal review finds unallowable costs, move
  them immediately
• Charge them to a discretionary, unrestricted
  account
• If significant, be forthcoming and notify the
  sponsor of the problem and steps taken to resolve
  it
• Dont wait for sponsor or auditor to find!
• Full disclosure and asking forgiveness goes a
  long way

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Financial Reporting

• Submission of Invoices
• Frequency and tied to what?
• Monthly, quarterly, semi-annually, annually?
• Watch cash flow for those with outstanding A/R
• Scheduled or tied to submission of progress
  reports, deliverables?
• Are dollar thresholds set for specific
  tasks/milestones/deliverables?
• Are all reported costs reimburseable (i.e. do
  they meet the allowable, allocable, and
  reasonableness tests?)
• Expenditure Reports
• Interim
• Final
• Do financial report requirements match standard
  cost categories at your institution?
• Is the accounting for costs transparent so that
  there is no question as to how costs are
  categorized?

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Time and Effort Certification

• Required for all individuals assigned to
  federally funded sponsored projects
• Certification must be done at least twice per
  year
• NYU completes certification three times a year
• Based on all activities sponsored and
  non-sponsored (teaching, administrative, etc.)
• Goal is to ensure effort spent matches or exceeds
  salary charges during a particular period
• Salary and Wage (Personnel) charges on sponsored
  awards must be reasonable for the work performed

34
Time and Effort Certification (contd)

• Every individual is responsible for certifying
  his/her effort
• A responsible individual with means to verify
  work performed should confirm reasonableness
• effort is NOT based on 40 hours, but rather on
  the individuals total activity

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Time and Effort Certification (contd)

• Remember
• Per A-21, in the use of any methods for
  apportioning salaries, it is recognized that in
  an academic setting, teaching, research, service
  and administration are often inextricably
  intermingled. A precise assessment of factors
  that contribute to costs in not always feasible,
  nor is it expected. Reliance, therefore, is
  placed on estimates in which a degree of
  tolerance is appropriate

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Close-out and Audit on Federal Awards

• Institution has ninety (90) calendar days after
  expiration/termination to complete financial
  transactions and close-out account
• Final financial status reports (FSR) must be
  submitted by the 90th day or be considered
  delinquent
• Unobligated balances must be returned to the
  sponsor unless otherwise agreed upon
• After final project close-out, Federal sponsor
  generally has 3 years to do final audit of costs
  and is entitled to reimbursement of any
  disallowed costs, even after the fact
• Institution subject to A-133, Audits of States,
  Local Governments, and Non-Profit Organizations
  if it expends gt 500,000 in federal funding
  (either direct or passed through via subawards)

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Resources.Links

• Cost Accounting Standards
• http//www.nyu.edu/cdv/site20/policies/policies.ht
  ml
• OMB Circulars
• http//www.nyu.edu/cdv/site20/policies/policies.ht
  ml
• Business Expenses, Expense Reimbursement policies
• http//www.nyu.edu/cdv/site20/policies/policies.ht
  ml
• Purchasing Policies, including Purchasing Card
• http//www.nyu.edu/purchasing.services/restricted/
  policies.html
• Asset Management Procedures Forms
• http//www.nyu.edu/asset/procedures.html

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Follow up questions.

• Contact info.
• Nancy Daneau, nancy.daneau_at_nyu.edu
• Joanne Goldstein, joanne.goldstein_at_nyu.edu
• Michael Miller, michael.miller_at_nyu.edu
• Thanks for joining us!