1 NYU’s Compliance with A-21, Cost Principles for Educational Institutions Nancy Daneau, Office of Sponsored Programs Joanne Goldstein and Michael Miller,

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NYU’s Compliance with A-21, Cost Principles for Educational Institutions

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

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What we’ll 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 NYU’s procedures?

Can NYU avoid material findings in an audit?

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OMB Circular A-21

Cost Types Direct Costs Facilities and Administrative (F&A) Costs

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OMB Circular A-21 (con’t…)

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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Facilities & Administrative Costs (F&A) 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

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Administrative Cost Components General Administration (e.g. central units, university-wide service

and support) President/Chancellor’s office personnel, operating costs Business and Finance personnel, operating costs Human Resource personnel, operating costs

Departmental Administration Dean’s 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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Student Administration & Services Admissions, Registrar, Advisors, Health offices

Library Expenses Books and periodical holdings

Administrative cost component of F&A rate capped, federal government limits reimbursement to 26% of MTDC

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F&A rate negotiated with NYU’s 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/basicinfo.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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Application of F&A 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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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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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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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

institution’s cost accounting practices Book as either a direct cost or indirect cost

Can’t be direct sometimes and indirect others

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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 institution’s position on categorizing and charging

costs as either direct or indirect Amendments must be filed any time a change occurs,

whether it’s 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 F&A 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 individual’s 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 (cont’d….)

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 F&A base

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Fringe Benefits Charged as a percentage of salary and wages (negotiated

with NYU’s 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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Exception: Generally, office supplies, postage, and local telephone costs should *not* be included in the direct cost category Normally treated as F&A 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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Travel Cost estimates must comply with NYU’s 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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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 dept’l load, AND Documented in the award with sponsor approval

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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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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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Unallowable Costs Alcoholic beverages Alumni activities Bad debts Commencement or convocation costs Charitable contributions, donations,

remembrances Development/fundraising costs

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Unallowable Costs (cont’d) 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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Unallowable Costs (cont’d) 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 NYU’s 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 (cont’d…)

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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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

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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 < 90 days Fiscal Officers or designees > 90 days SPA final approver on all cost transfers

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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 Don’t 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

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Time and Effort Certification (cont’d…)

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 individual’s total activity

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Time and Effort Certification (cont’d…)

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 > $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.html

OMB Circulars http://www.nyu.edu/cdv/site20/policies/policies.html

Business Expenses, Expense Reimbursement policies http://www.nyu.edu/cdv/site20/policies/policies.html

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, [email protected] Joanne Goldstein, [email protected] Michael Miller, [email protected]

Thanks for joining us!

Documents

1 NYU’s Compliance with A-21, Cost Principles for Educational Institutions Nancy Daneau, Office of Sponsored Programs Joanne Goldstein and Michael Miller,