Cost Accounting Standards

Cost Accounting Standards

The University of Alabama

April 28, 2000

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Today’s Questions

Why did the government promulgate cost accounting standards?

Why should UA departments follow them? What standards apply? What are they likely to mean to your department? What are the new or revised policies? Where can you seek guidance?

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What are the Cost Accounting Standards (CAS)?

Designed for defense contractors In 1978, educational institutions were exempted

from CAS OMB Circular A-21 was understood to contain required guidance

Then CAS was applied to them Consequence of overhead “scandals” of early 1990s

Staggered implementation FY 2000 for UA

CAS led to refinement of other policies

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Today’s Questions

Why did the government promulgate cost accounting standards


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Grant-related settlements in $$MM

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Cost sharing,

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Alloc. betwn awards

Phys. presence

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Today’s Questions



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New CAS requires four Standards and a Disclosure Statement

501: Consistency in Estimating, Accumulating, and Reporting Costs

502: Consistency in Allocating Costs Incurred for the same purpose

505: Accounting for Unallowable Costs 506: Consistency in Using the Same Cost Accounting

Period CASB Disclosure Statement Will be audited by Office of the Inspector General

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CAS in Brief

The CAS theme is consistency Consistency difficult to enforce

Between the proposal and what's actually charged and reported

In cost treatment among departments

UA principal investigators and administrators should: Become familiar with the rules Identify inconsistencies

A-21

CAS

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What is CAS 501?

Consistency in Estimating, Accumulating, and Reporting Costs

Practices for estimating costs must be consistent with practices used in accumulating and reporting costs during contract performance

Should be able to compare budget with actual costs for any "significant" type of cost

Consistency from Proposal to proposal Proposal to award Department to department

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What is CAS 502?

Consistency in allocating costs incurred for the same purpose

Each type of cost must be allocated on only one basis to any contract or other cost objective

If a grant is charged directly for a cost, the same type of costs cannot be charged to that project, or any other project, through the indirect cost rate

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The "double screen" behind CAS 502

Chemical Engineering Department

Charges copying indirectly

ChemistryDepartment

Charges copying directly

Chemistry grants pay twice

1. Directly for Chemistry copies2. Indirectly for part of ChE copies

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CAS 505: Unallowable costs

Must be removed from grants and indirect cost pools Unallowable as direct or indirect costs

Alcohol Fund raising, etc.

Types of costs unallowable as direct costs Salaries of administrative staff Office supplies Postage and local telephone Memberships

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Today’s Questions



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How might CAS 501 affect UA departments?

Cost sharing Effort reporting Categories of costs

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Cost Sharing Definition

Financial support contributed by the University to sponsored projects.

Two categories: 1) Mandatory 2) Voluntary

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Mandatory Cost Sharing

Required by legislation or by the sponsor Identified in RFP/RFA or funding opportunity as a condition for an

award, or

Quantified in proposal by investigator; e.g., 5% effort with no salary dollars

Becomes mandatory upon award Effort report needs to show 5% as coming from a non-federal

source

Should be captured in a specific cost share account for the grant

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Voluntary cost sharing

Not required by sponsor Occurs as project proceeds Account for in general cost share accounts

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Voluntary Cost Sharing and Effort Reporting

Effort not committed in the project budget But it occurs and If charged to accounts that do not reach the organized

research base...

CAS problem Inconsistent treatment

Treated differently because of fundingNot because of difference in purpose and/or circumstance

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Cost Sharing and Effort Reporting

Award Budget--

Personnel:J. Jones 25% $25,000 B. Smith 5% -0-

Award AccountingPersonnel:J. Jones 25% $25,000 B. Smith 5% -0-

B. Smith spends 5% of his or her effort on the project as budgeted, no matter what is charged. Result: cost sharing that must be recorded

Budget and propose

Accumulate and report

CAS 501

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When a contract or grant goes over budget

Cost share accounts will be used to absorb the excess cost.

The excess charge will be funded from The department operating account or Another account designated by the department when the

award is received.

If an unallowable charge is made to a contract or grant or cost share account, the unallowable charge will be transferred to the department account.

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CAS 501: Budget costs consistently or at a consolidated level

Award Budget:Less detail

Lab supplies:- Diodes- Resistors - ChemicalsSupplies:- Specialized software

Award Accouting:More detail

Budget and propose

Accumulateand Report

Lab Supplies

Supplies

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CAS 502 Issues

Direct and indirect costs Departmental administrative costs Multiple funded programs Equipment as a direct charge

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Consistent treatment--one extreme case

If one PI charges one stamp to one grant

You must remove all postage from the indirect-cost rate

(Or charge the stamp elsewhere)

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Definition of direct and indirect cost categories

Direct costs Subcodes: per policy Cost bases

InstructionOrganized researchOther sponsored activity

Indirect costs General administration Departmental administration Operating and maintenance costs Library Sponsored research administration

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Today’s Questions



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What are the new or revised policies?

Cost policy Cost sharing Cost transfers Effort certification Grant and contract policy Spending policy

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Criteria for charging a direct cost per policy

Support the project’s purpose and activity Represent those costs necessary to meet the project’s

scientific and technical requirements Be included in the awarded budget, or the cost must be

permitted within rebudgeting authority granted by the sponsor.

The cost must not be restricted by the sponsor.

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Unacceptable direct costing practices

Rotation of charges among sponsored agreements by month without establishing that the rotation schedule credibly reflects the relative benefits to each sponsored agreement

Assigning charges to the sponsored agreement with the largest remaining balance

Charging the budgeted amount rather than charging an amount based on actual usage

Assigning charges to a sponsored agreement in advance of the time the cost is actually incurred

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Unacceptable practices, cont.

Identifying a cost as something other than what it actually is, such as classifying a supply as an item of equipment

Charging expenses exclusively to sponsored agreements when the expense has supported non-sponsored agreement activities

Assigning charges that are part of normal administrative support (indirect costs) for sponsored agreements (e.g., accounting, payroll).

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Allocation of a direct cost to two or more projects

Direct assignment Proportional benefit

Credible documentation.

Interrelatedness Documentation by PI Source A-21 c(4)(d)(2)

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Multiple Funding Sources - Projects as proposed

Project Admin Asst Technician

Federal A 25% 25%

Federal B 25% 25%

Non-federal 25% 50%

State funds 25%

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Multiple Funding Sources - Projects as awarded

Project Admin Asst Technician

Federal A 25% 25%

Federal B 0% 25%

Non-federal 25% 50%

State funds 25%

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When one sponsor won't pick up a certain cost:

Consequence

Proposal not = PI intention

Not allowable there

Should be counted as cost sharing

Alternative

Rebudget to project after award

Charge to another source

Charge to the departmental budget

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With these awards departments can charge normally indirect to direct

Industrial/Commercial. Based on the agreement between the sponsor and the University.

Foundations and Non-For-Profit Agencies and Associations.

Based on the agreement between the sponsor and the University.

State Sponsored Agreements. State agency regulations govern

Training Grants. “Institutional allowance”

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Charging normally indirect to direct, cont.

Geographically inaccessible projects. Projects that take place in remote site(s).

Projects that require travel and meeting arrangements for large numbers of participants.

Projects involving large, complex programs Complexity goes well beyond the normal departmental support Program project grants, center grants, (EPSCOR)

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Charging normally indirect to direct, cont.

Projects which involve extensive data management. Mailing expense

Projects whose principle focus includes extensive reports

Other Sponsored Activities (not Research or Instruction) public service, workshops, community development

Specific costs incurred for a different purpose

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Recharges: per grant and contract policy

Billing rates are based on cost and Must be applied uniformly to all users. Billing rates may not be based on what others in the

industry charge for similar services. In some cases it may be necessary to establish rates at

less than full cost, but under no circumstances may rates exceed cost over the accepted operating cycle (five years).

No capital equipment acquisitions are allowed in the operating account

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Cost transfers: per separate policy

Timely Appropriate

Reasonable Allowable Allocable Consistently treated

Adequate documentation Responsibility for compliance

PI Contract and Grant Accounting

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Documentation of Cost Transfers per policy

The cost must be identified with activity in the sponsored agreement to which the cost is charged

Documentation that links the cost incurred to the sponsored agreement activity should be done by someone who is in a position to know the sponsored agreement activity (normally the PI)

Documentation must be maintained for a period of three years

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Documentation

Basic regulation Direct costs are those costs that can be identified specifically

with a particular sponsored project...or that can be assigned [to such activity] relatively easily and with a high degree of accuracy

Goal is to document the transaction in a way that demonstrates these

Per A-21 c(4)(d) this is the responsibility of the principal investigator

The institution's documentation requirements ... (e.g., signature or initials of the principal investigator or designee or use of a password) will normally be considered sufficient.

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Equipment as a direct charge should:

Have clear and close relationship to award

Not be used in similar way to equipment treated as indirect

Not be purchased at end of award

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Conclusions

There are risks in non-compliance with costing regulations at UA

When costs are charged to a grant, the relationship to the science should be clear and close

Charging practices should be in line with UA policies and procedures. This will:

Avoid damaging inconsistency Help UA negotiate a fair overhead rate

Each project should be managed: In conjunction with departmental administrator To avoid questionable transactions

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Today’s Questions



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Where to seek guidance:

Contract and Grant Accounting Office (205) 348-5592 Telephone

(205) 348-5339 FAX

Office of Sponsored Programs (205) 348-5152 Telephone

(2050 348-8882 Fax

Policy guidelines Faculty Handbook: Post-Award Policies & Procedures at

www.ua.edu/cgfac.html

UA Spending Policieswww.bama.ua.edu/~finacct/spendweb.html

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Questions and Discussion

Documents

Cost Accounting Standards