What Departmental Administrators Need to Know about Post-Award and Cost Analysis

1

• What Departmental Administrators Need to Know
  about Post-Award and Cost Analysis

2
Schedule for the Session

• Agenda

3
Schedule for the Session

• Format for todays session, content mini case
  studies
• The Facilities and Administrative Rate
• The Root of All Intrigue

4
Schedule for the Session

• The Regulations Governing Financial Compliance
• OMB A-21, OMB A-110, Cost Accounting Standards

5
Schedule for the Session

• Effort Reporting/Cost Sharing - Matching
• Cost Transfers

6
Schedule for the Session

• The Ultimate Test The A-133 Audit and Other
  Audits
• Questions Answers

7
The Facilities and Administrative Rate (FA)

8

• The Root of all Intrigue
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• R12n?1???12R

9
Financial Compliance is multifaceted and should
have a wide impact on how we think about every
single transaction we post
10

• Compliance touches everything - lets begin with
  looking at the mechanics of the Facilities and
  Administrative Rate (FA) as much of compliance
  has a basis here

11
The FA rate calculation sets the stage for
todays discussion

• The FA Organized Research Rate is expressed as a
  percentageIndirect costs of research
  FADirect costs of research

12
The FA rate calculation sets the stage for
todays discussion

• 125 million in unrestrictedincome to Harvard
  annually
• 85 million in unrestricted to UNC Chapel Hill
  annually

13
A Direct Cost is one that

• Can be identified specifically with a particular
• sponsored project
• instructional activity or

14
A Direct Cost is one that

• other institutional activity with a high degree
  of accuracy
• PI salary, lab supplies, and scientific equipment
  are examples of direct costs

15
Conversely, an Indirect cost is

• Incurred for common or joint objectives and
  therefore cannot be identified readily and
  specifically with a particular sponsored project,
  instructional activity or other institutional
  activity

16
Conversely, an Indirect cost is

• Examples library, facilities,maintenance,
  ResearchAdministration, Cost Analysis

17
See Supplemental Handout 1
18
A-21 provides definitions of the activities

• Organized research RD activities that are
  separately budgeted and accounted for to perform
  data collection, analysis, evaluation, and
  reporting in the context of hypothesis testing

19
A-21 provides definitions of the activities

• examples wet and dry lab research
• R01
• Program project grants

20
A-21 definitions

• Other sponsored activity programs financed by
  federal and nonfederal agencies involving work
  other than research or instruction examples

21
A-21 definitions

• - publications, conferences andsymposia
• - travel programs, preservation/maintenance/cata
  loging of collections, archives,equipment
  grants, public presentations

22
A-21 definitions

• Instruction all teaching and training
  activities of an institution
• Departmental research research funded with
  departmental funds not separately budgeted and
  accounted for example

23
A-21 definitions

• research funded with University funds
• research funded with gift money
• for A-21 purposes, Instruction Departmental
  Research are classified together

24
The question to be answered with the A-21
function code is

• What are we using the funds for?
• Not, what is the source of the funds?
• These can be different!!

25
The question to be answered with the A-21
function code is
26
See Supplemental Handout 2
27
As you can see

• Each direct function has a rate
• Org Res Rate FA of research
• direct costs of research
• Instruction FA of instruction
• direct costs of instruction

28
As you can see

• Other Sponsored Activities
• FA of other sponsored
• DC of other sponsored
• Other Institutional Activity FA of OIA
• DC of OIA

29
See Supplemental Handout 3
30
See Supplemental Handout 4

• FA Case Study

31
FA Costs

• Methods of Distribution Within Universities
• All FA recovery goes directly to Dean/Division
  for Internal Distribution

32
FA Costs

• Methods of Distribution Within Universities
• FA recovery goes to Departments based on
  Research Volume

33
FA Costs

• Methods of Distribution Within Universities
• Percentage of FA recovery goes to Central
  Administration and then Departments receive a
  certain percentage of each research projects FA
  recovery
• Other Non-formulaic ways

34
How do we collect FA recovery?Cash Management

• Types of Sponsor Reimbursement
• Cash with award - Cash is sent when the award is
  given to the Institution

35
How do we collect FA recovery?Cash Management

• Types of Sponsor Reimbursement
• Letter of Credit - Reimbursed by the Federal
  Reserve Bank for expenditures during the month

36
How do we collect FA recovery?Cash Management

• Types of Sponsor Reimbursement
• Automatic Payments - Cash automatically received
  on a monthly/quarterly (etc.) basis

37
How do we collect FA recovery?Cash Management

• Types of Sponsor Reimbursement
• Billings - Payment received after invoice is sent
  to the sponsor based on expenses or
  deliverables

38
OMB CIRCULAR A-21

• COST PRINCIPLES FOR EDUCATIONAL INSTITUTIONS

UNIVERSITY
39
OMB Circular A-21

• Guidelines are both specific to certain costs
  applicable to sponsored research (e.g. - direct
  costs) and general (open to interpretation) in
  other areas such as Facilities Administrative
  (F A) costs

40
OMB Circular A-21

• Successful applications of these cost principles
  requiresdevelopment of mutual understanding
  between representatives of universities and of
  the Federal Government as to their scope,
  implementation and interpretation

41
OMB Circular A-21Section A

• Section gives the objectives of the Circular,
  general guidelines for the institution and the
  Government, and the application guidelines (what
  types of sponsored research this Circular applies
  to)

42

OMB Circular A-21Section B

• Definitions of terms
• Instruction
• Organized Research
• Other Sponsored Activities
• Other Institutional Activities

43
OMB Circular A-21Section C

• Basic Considerations - Allowable direct cost and
  its share of allocable FA costs
• Allowability of Costs
• Reasonable Costs

44
OMB Circular A-21Section C

• Basic Considerations - Allowable direct cost and
  its share of allocable FA costs
• Allocable Costs
• Guidelines for credits, limitations and
  unallowable costs

45
OMB Circular A-21Section D

• General guidelines on the definition of direct
  cost
• Identified specifically with a sponsored project,
  an instructional activity, or any other
  institutional activity

46
OMB Circular A-21Section D

• General guidelines on the definition of direct
  cost
• Application to sponsored agreements

47
OMB Circular A-21Section E

• Facilities Administrative Costs
• Definition of FA costs
• Cost Groupings
• Distribution Methods
• Order of Distribution

48
OMB Circular A-21Section F

• Definitions and Distribution Methods
• Facilities Costs
• Depreciation and Use Allowances

49
OMB Circular A-21Section F

• Operations Maintenance
• Interest on Debt

50
OMB Circular A-21Section F

• Library Expenses

51
OMB Circular A-21Section F

• General Administration
• Departmental Administration

52
OMB Circular A-21Section F

• Sponsored ProjectAdministration

53
OMB Circular A-21Section F

• Student Administration Services

54
OMB Circular A-21Section G

• Determination and Application of FA Costs
  Rate(s)
• FA Cost Pools - further clarification
• Distribution Basis (Modified Total Direct
  Cost-MTDC)

55
OMB Circular A-21Section G

• Determination and Application of FA Costs
  Rate(s)
• 3 Types of Rates - Predetermined, Fixed with
  Carry-forward, Provisional Final Rates

56
OMB Circular A-21Section G

• Determination and Application of FA Costs
  Rate(s)
• Limitation of 26 administrative allowance

57
OMB Circular A-21Section J

• General Provisions for selected items of Cost
  (see attached)
• Provides principles to be applied in establishing
  the allowability of direct and F A costs

58
OMB Circular A-21Section J

• Differences between Circular and Research
  agreement - the agreement governs

59
OMB Circular A-21Section K

• No FA cost proposal will be accepted without a
  certification as to the allowability of all costs
  within the claim
• Certification of FA Costs
• Must be signed by VP or Chief Financial Officer

60
OMB Circular A-21Exhibit A

• List of Colleges and Universities subject to
  Section J.12.F

61
OMB Circular A-21Exhibit A

• Institutions in this list must expend or reserve
  for expenditure the portion of FA costs related
  to depreciation and use allowance for improvement
  of research facilities within the next five years
  

62
OMB Circular A-21Appendix A

• Cost Accounting Standards for Educational
  Institutions
• CAS 9905.501 - Consistency in Estimating,
  Accumulating Reporting Costs

63
OMB Circular A-21Appendix A

• Cost Accounting Standards for Educational
  Institutions
• CAS 9905-502 - Consistency in Allocating Costs
  Incurred for the Same Purpose
• CAS 9905.505 - Accounting for Unallowable Costs

64
OMB Circular A-21Appendix A

• Cost Accounting Standards for Educational
  Institutions
• CAS 9905.506 - Costs Accounting Period

65
OMB Circular A-21Appendix B

• Sample CASB Disclosure Statement
• (DS-2)

66
See Supplemental Handout 5

• Allocation, Allocation, Allocation Case Study

67
OMB Circular A-110

• Grants and Agreements with Institutions of Higher
  Education, Hospitals, and Other Non-Profit
  Organizations

68
OMB Circular A-110

• Purpose - This Circular sets for the standards
  for obtaining consistency and uniformity among
  Federal agencies in the administration of grants
  to and agreements with institutions of higher
  education, hospitals and other non-profit
  organizations

69
OMB Circular A-110

• Subpart A - General
• Purpose, definitions, deviations, sub-awards

70
OMB Circular A-110

• Subpart B - Pre-Award Requirements
• Pre-award policies, forms for applying for
  Federal assistance, debarment and suspension,
  special award considerations, certifications and
  representations

71
OMB Circular A-110

• Subpart C - Post-Award Requirements
• Financial and Program Management

72
OMB Circular A-110

• Purpose and standards for F P M, payments,
  cost sharing, matching, program income,
  revision of budgets, allowable costs,
  non-federal audits

73
OMB Circular A-110

• Property Standards
• Insurance coverage, real property, Federally
  owned and exempt equipment, supplies, intangible
  property, property trust relationships

74
OMB Circular A-110

• Subpart C - Post-Award Requirements (cont.)
• Procurement Standards

75
OMB Circular A-110

• recipients responsibilities, competition,
  procurement procedures, cost and price analysis,
  records, contract administration and provisions

76
OMB Circular A-110

• Subpart C - Post-Award Requirements (cont.)
• Reports and records
• Monitoring and reporting program performance,
  financial reporting and record retention

77
OMB Circular A-110

• Termination and Enforcement

78
OMB Circular A-110

• Subpart D - After the Award Requirements
• Closeout procedures, adjustments, collections of
  amounts due
• Appendix A
• Contract Provisions

79
See Supplemental Handout 6

• A-110 Scenario

80
History of Cost Accounting Standards (CAS)
CAS
81
History of Cost Accounting Standards (CAS)

• Cost Accounting Standards Board
• Created as an Act of Congress
• Applied to Defense Contracts
• Public Law 91-379 (1970)

82
History of Cost Accounting Standards (CAS)

• Cost Accounting Standards Board
• Created as an Act of Congress
• Grew out of the perceptions that contractors were
  manipulating costs

83
History of Cost Accounting Standards (CAS)

• Cost Accounting Standards Board
• -Remember the 500 hammer and250 toilet seat?

84
History of Cost Accounting Standards (CAS)

• Without details, costs could not be adequately
  linked from the proposal to invoices to the
  final report

85
CAS for Educational Institutions

• In 1978, educational institutions were exempted
  from CAS
• OMB Circular A-21 was understood to contain
  required guidance

86
CAS for Educational Institutions

• In 1994, CAS was applied to them
• Consequence of unallowable cost problem
• Remember a certain Research University in a
  certain Western state?

87
CAS for Educational Institutions

• In 1994, CAS was applied to them
• Congress decided that A-21 alone was not enough
  regulatory guidance for universities

88
CAS for Educational Institutions

• CAS requires four Standards and a Disclosure
  Statement
• 501 Consistency in estimating, accumulating and
  reporting costs

89
CAS for Educational Institutions

• CAS requires four Standards and a Disclosure
  Statement
• 502 Consistency in allocating costs incurred for
  the same purpose

90
CAS for Educational Institutions

• CAS requires four Standards and a Disclosure
  Statement
• 505 Accounting for unallowable costs

91
CAS for Educational Institutions

• CAS requires four Standards and a Disclosure
  Statement
• 506 Consistency in using the same cost
  accounting period

92
CAS for Educational Institutions

• CASB-Disclosure Statement
• FYI--Defense Contractors follow 19 CAS Standards!

93
Link between CAS 501 and Cost Sharing

• OMB A-110 defines Cost Sharing as any project
  cost not borne by the sponsor!
• Could be anything identified and quantified in
  the narrative or the budget that will support the
  project not paid for by the original sponsor

94
CAS 501 Impacts Cost Sharing

• Cost Sharing is often a direct cost!

95
Organized Research Cost Sharing CAS 501

• When faculty propose effort on organized research
  projects, even though they are not charging their
  salary, their effort related to the project is
  known as committed cost sharing and must be
  accounted for to the extent it was committed

96
Organized Research Cost Sharing CAS 501

• Recall we said earlier that faculty salary is a
  direct cost, hence, this cost sharing needs to
  end up in the OR base for FA calculation purposes

97
Cost Sharing

• Also may include
• Grant or contract over-expenditures identified at
  the end of the project

98
Cost Sharing

• Also may include
• Pre-planned change in project scope resulting in
  increased effort with no additional sponsored
  funding

99
Cost Sharing

• Also may include
• Faculty salary effort over the NIH salary cap

100
See Supplemental Handout 7

• Cost Sharing Case Study

101
CAS 502
102
CAS 502

• Requires consistency in the way the same type of
  cost is allocated in the FA rate
• The same type of cost cannot be both a direct
  cost and an indirect cost

103

• Costs Defined as Direct in A-21 and in a typical
  Disclosure Statement
• PI salary
• Technician salary
• Lab supplies
• Research equipment
• Technical consultants
• related to the projects

104
Costs Defined as FA in A-21 and in a typical
Disclosure Statement

• Department administrator salary
• postage
• Memberships
• Office supplies

105
CAS 502

• Just to make the situation slightly more
  confusing, A-21, Section F6B, allows certain FA
  costs to be charged directly to an award if three
  circumstances exist

106
CAS 502
107
CAS 502

• The cost can be specifically identified with the
  project with a high degree of accuracy and
• The project has characteristics that make it one
  of different purpose and circumstance and

108
CAS 502

• The cost is identified in the budget and approved
  by the sponsor

109
CAS 502

• What does different purpose and circumstance
  mean?
• It means, by definition, the projects purpose
  uses an inordinate or disproportional amount of
  administrative costs

110
CAS 502

• for example, a project whose primary purpose is
  to collect survey data by mail would use an
  inordinate amount of postage! Hence, in this
  case, this administrative cost (postage) would
  be charged to this award

111
CAS 502

• This does not mean that
• All administrative costs on this award can be
  directly charged to this award or
• Postage can be a direct charge on all awards

112
CAS 502

• This does not mean that
• Remember--postage must be identified in the
  budget and approved by the sponsor

113
CAS 502

• Other examples of different purpose and
  circumstance

114
CAS 502

• A project whose primary means of data collection
  will be performed through travel in different
  countries would likely require a disproportional
  amount of administrative effort to deal with

115
CAS 502

• Travel plans
• Currency issues

116
CAS 502

• There are other examples we cannot nor should we
  define--think of the relationship between the
  administrative effort and the nature of the
  project

117
CAS 502

• These are the rules for federally supported
  projects?
• Now what do we see in practice?
• Rotation of charges among projects

118
CAS 502

• Now what do we see in practice?
• Charging projects with largest remaining balance
• Charging budgeted amount, not actual cost
• Charging projects in advance of when cost is
  incurred

119
CAS 502

• Describing a cost as something other than what it
  is
• e.g., office supplies as lab supplies
• adding a tax to proposal costs

120
CAS 502
121
CAS 502

• What about nonfederal projects that often
• Do not pay full or even partial FA
• May require what we know as indirect costs be
  charged directly to the project

122
CAS 502
123
See Supplemental Handout 8

• CAS 502 Case Study

124
CAS 505

• Requires an accounting of unallowable costs
• In the OR base and in the FA pools
• Examples
• Alcohol (GA, OM, DA)

125
CAS 505

• Examples
• Flowers, gifts
• Bad debt expense
• Parking tickets (OM)
• Lobbying costs

126
CAS 505
Mr. Clean
127
CAS 505

• These have to be excluded if we want to stay out
  of the newspaper headlines and comply with CAS!
• We will scrub for unallowables by object code
  as we prepare the rate

128
The Disclosure Statement DS-2

• Written description of all of our accounting
  practices
• Divided into seven sections
• Much detail is required

129
The Disclosure Statement DS-2

• The DS-2 becomes a road map for auditors
• CFO signs under penalty of perjury

130
Summary of Key Issues

• CAS has made recovery of costs much more
  difficult and the requirement of including cost
  sharing in the OR base has been a disincentive
  to Federal Government - University Research
  partnership

131
Summary of Key Issues

• Cost Sharing lowers the rate (higher base, lower
  rate)

132
Summary of Key Issues

• Many non-reimbursed administrative costs are
  incurred to ensure we are doing things
  correctly! (Administrative costs capped in FA
  rate at 26)

133
Lets talk more about Effort Reporting

• Required by OMB Circular A-21 (Section J.8)
• Alternatives
• Plan-Confirmation System
• After-the-fact Activity Records
• Multiple Confirmation Records

134
Cost Sharing

• Sharing of project costs by the institution
• more than a token amount (i.e. more than 1)
• normally on grants not on contracts
• allowable methods academic year effort, cash,
  equipment

135
Matching

• Major institutional commitment to the project
• primarily takes place on equipment grants, but
  others as well
• usually ranges from 1/3 to 1/2 of total costs
• allowable methods generally cash

136
Cost Sharing/ Matching

• Non-Federal Contribution/Participation to a
  Federally Sponsored Agreement (OMB Circular
  A-110, Section 23)

137
Cost Sharing/ Matching

• Mandatory - Required by the sponsor as a
  condition for making an award
• Voluntary - Not required by the sponsor but may
  become a legally binding commitment if reflected
  in proposal budget

138
COST SHARING/MATCHING

• What can be included
• Real Dollars
• Contributed Effort
• Equipment
• Other Non-Labor Costs

139
Cost Sharing/ Matching

• In-Kind Contributions
• Must withstand same allowability test as if
  charged directly to the project

140
Cost Sharing/ Matching

• Costs used for this purpose
• Must be verifiable
• Not counted toward more than one Federal program
• Necessary and reasonable

141
Cost Sharing/ Matching

• Costs used for this purpose
• Allowable
• Not funded by other Federal funds unless
  specifically authorized

142
See Supplemental Handout 9Cost Sharing/Effort
Reporting Case Study
143
Cost Transfers

• Purpose
• Allow for reassignment of costs to a sponsored
  program from another source of fund (account)

144
Cost Transfers

• Policy
• Written justification and approval needed for
  reassignment of expenses

145
Cost Transfers

• Appropriate - If transfer is for
• correction of error
• charges benefit more than one program
  (distribution of costs based on benefits
  received)

146
Cost Transfers

• Appropriate - If transfer is for
• programs involve closely related work

147
Cost Transfers
148
Cost Transfers

• Not Appropriate
• To reduce overruns if transfer is from one
  federal program to another
• For reasons of convenience
• To use unspent money in a project

149
Cost Transfers

• Transfers should be processed
• in accordance with institutional policies and
  procedures, inclusive with conditions cited in
  the award
• in a timely manner

150
Cost Transfers

• Transfers should be processed
• for older transfers, high level approval
  sometimes required

151
See Supplemental Handout 10

• Cost Transfer Case Study

152
The Ultimate Test The Audit!

• Different Types of Audits
• Contract close out audit (CIA, ONR)

153
The Ultimate Test The Audit!

• Different Types of Audits
• FA Audit - Division of Cost Allocation, HHS
  Inspector General, or Office of Naval Research,
  Defense Contract Audit Agency

154
The Ultimate Test The Audit!

• Different Types of Audits
• A-133 Audit - Direct Cost Audit required annually
  for institutions receiving over 300K in funds
  for federally sponsored programs

155
The Ultimate Test The Audit!

• What are these audits about?

156
(No Transcript)
157
What. . . is A-133?

• An Office of Management and Budget (OMB) Circular
  requiring an annual external audit of non-profits
  receiving federal funds

158
What. . . is A-133?

• Sample of federal awards and their direct cost
  transactions are selected for audit to determine
  if expenditures and procedures were appropriate
  (i.e., in accordance with sponsor
  terms/conditions and University policies)

159
A-133 WHAT are they looking for?

• Direct attribution (linkage between cost and
  purpose of the project) must be established and
  demonstrated through supporting documentation

160
A-133 WHAT are they looking for?

• A readily identifiable causal-beneficial
  relationship (i.e., test tubes were purchased for
  a wet lab experiment involving fluid analysis)
  must exist between costs and the project

161
A-133 WHAT are they looking for?
162
A-133 WHAT are they looking for?

• Other testing includes effort reporting, control
  testing, cost transfers, program income,
  financial and non-financial reporting,
  sub-recipient monitoring,

163
A-133 WHAT are they looking for?

• Davis-Bacon Act, Service Centers, Student
  Financial Aid, and indirect cost rate application

164
A-133 WHY . . . do we care?

• All federal and more non-federal sponsors look at
  A-133 as a report card of how we spend their
  money

165
A-133 WHY . . . do we care?

• Findings are reported to federal government and
  become public record, distributed to all federal
  agencies through a clearing house

166
Bottom Line?

• Research Administration is a multifaceted, high
  risk business
• need clarity on roles and responsibilities to
  understand who should be doing what
• Training is critical

167
See Supplemental Handout 11

• Audit Scenario

168
Questions?Comments?Nasty Remarks?