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OSP Fundamentals Series

Fundamentals: Introduction to Unallowable Costs at MIT

Presented by:

The Office of Sponsored Programs

The Office of the Vice President for Finance

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What We’ll Talk About

•  What the words “Allowable” and “Reimbursable” mean as they pertain to costs at MIT

•  Specific activities and costs that are unallowable at MIT

•  Treatment of unallowable costs by:

–  The Office of Cost Analysis

–  The Office of the Vice President for Finance

–  You

•  Resources and next steps

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Unallowable Costs: What It Means for You

•  Everyone who initiates and/or approves financial transactions at MIT needs to be able to accurately determine:

–  Is the cost eligible for reimbursement per MIT policy?

–  Is the cost allowable per Federal policy (Circular OMB A-21 or Uniform Guidance, as applicable)

What is the appropriate:

•  Cost object?

•  G/L account?

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Reimbursable

•  Costs are “Reimbursable” when they adhere to MIT policies –  In a nutshell:

•  Spend prudently •  Avoid conflicts of interest

– Don’t accept gifts or gratuities from vendors – Don’t choose a vendor based on personal interest

or gain •  Abstain from purchasing items for personal use

–  Always allocate costs to the appropriate cost objects and GL accounts

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Allowable

•  Costs are “Allowable” when they adhere to federal rules governing research.

OMB (U.S. Office of Management and Budget) Circular A-21:

•  “Provides specific guidelines for determining costs applicable to research and development, training, and other sponsored work performed by colleges and universities under grants, contracts, and other Agreements with the Federal Government.”

•  Prohibits charging certain “unallowable” costs to federally sponsored agreements

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Four Principles of OMB A-21

Allocable Reasonable Consistently Treated

Allowable

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Section J of Circular A-21

•  Provides principles to be applied when determining the allowability of certain costs.

•  Specifies that in case of a discrepancy between the principles listed in Section J and a specific sponsored agreement, the sponsored agreement should always govern.

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards

(Uniform Guidance or UG)

•  Most Federal agencies implemented their new policies related to the release of the Uniform Guidance on December 26, 2014.

•  Locates all OMB Circulars into Title 2 of the CFR (i.e. – consolidation of 8 OMB Circulars into Title 2 of the CFR)

•  Just like OMB Circular A-21, which it is replacing, the UG provides cost guidelines and prohibits charging unallowable costs to federally sponsored agreements.

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Four Principles of the Uniform Guidance

Allocability Reasonableness Consistency Conformance

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UG Subpart E – Cost Principles (Section 200.4xx)

•  Just like Section J of A21, the UG Subpart E provides principles to be applied when determining the allowability of certain costs.

•  Also specifies that in case of a discrepancy between the principles listed in Subpart E and a specific sponsored agreement, the sponsored agreement should always govern.

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TREATMENT OF UNALLOWABLE COSTS

What you should know about…

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Unallowable Costs & the Office of Cost Analysis

•  Office of Cost Analysis –  Negotiates F&A, EB, Research Vacation and Lab

Allocation rates with ONR –  Supplies documentation for audit by DCAA –  Point of contact for DCAA and other federal and non-

federal sponsored program audits

•  Unallowable costs must be excluded from rate calculations! –  We identify and exclude unallowable costs by G/L and/or

cost object

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Cost Objects

•  An activity at MIT is identified in our accounting system as a Cost Object (account number)

•  Cost objects tell us if an activity relates to instruction, research, both instruction and research, or another Institute activity

•  We isolate unallowable activities using cost objects

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MIT’s Big Cost Buckets •  Instruction

–  Admissions, Registrar, student services –  Teaching & learning activities –  Fellowships

•  Other Institute Activities –  Housing, Dining, MIT Press, Alumni Assn., Tech Review, other

activities

•  Sponsored Research –  Organized research projects, both federal and non-federal

•  Facilities & Administration –  Central & campus administration –  Department heads, Lab directors, dept. headquarters –  Buildings, grounds & equipment – maintenance, depreciation –  Libraries

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Instruction & Other Institute Activities

•  Rules and regulations governing spending derived from MIT’s Policies and Procedures

•  Expense reimbursement for education is broad, including such items as food and beverages at a meeting, flying business class, a holiday party

•  Costs that are permitted by MIT Policies & Procedures are “reimbursable”

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Federally sponsored research

•  Rules and regulations for spending money derive from OMB’s Circular A-21 or the Uniform Guidance which provide “specific guidelines for determining costs applicable to research”

•  Costs eligible to be reimbursed by the federal government are “allowable”

•  NOTE: A-21 and Uniform Guidance rules apply to both direct costs (sponsored research accounts) and indirect costs (accounts in the F&A cost pools such as department headquarters)

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Sponsored research with non-federal sponsors

•  Rules and regulations for spending money derives from both OMB’s Circular A-21 and MIT Policy and Procedures –  Basic principles of OMB A-21 still apply. –  Expense reimbursement for industry research is often

broader than for federally sponsored research

•  We say these expenses are “allowable” per the contract with the sponsor which takes precedence over A-21

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Facilities & Administration

•  Accounts such as department headquarters and other General Institute Budget (GIB) accounts may be included in MIT’s F&A cost pools, recoverable from sponsored research projects via the F&A rate.

•  Unallowable costs in the F&A pools are identified by GL account and excluded from recovery.

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GL Accounts

•  GL Account / Cost Element –  Groups costs by type or purpose:

•  Salaries & wages •  Materials & services •  Equipment •  Tuition •  Revenue & Transfers

–  No matter the activity, whether education, research or other purposes, it is vital to use the correct G/L account

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Unallowable GL Accounts

•  The term unallowable pertains to federal rules governing research.

•  Certain costs are unallowable on federally sponsored research

•  No matter where the money is spent, the cost must be assigned to the appropriate unallowable GL account. –  Exception: costs that are specifically allowed per

contractual agreement with the sponsor

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Unallowable Costs on Federally Sponsored Projects Best Practices

•  Be familiar with the terms of the award agreement

•  Be aware of which set of cost principles apply (A-21 or UG)

•  When in doubt consult: –  OMB Circular A-21:

https://www.whitehouse.gov/omb/circulars_a021_2004/ –  Uniform Guidance:

https://www.federalregister.gov/articles/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards

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Best Practices Continued

–  MIT OSP Uniform Guidance information: http://osp.mit.edu/grant-and-contract-administration/sponsored-programs-basics/ombs-uniform-guidance

–  MIT Office of Sponsored Accounting Policies and Procedures: http://vpf.mit.edu/index.php/site/sponsored_accounting/policies_procedures

–  A-21 Prior Approvals: http://www.nsf.gov/bfa/dias/policy/fedrtc/priorapproval_oct08.pdf

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Best Practices Continued

–  Uniform Guidance Prior Approvals: See specific federal agency implementation.

–  Your OSP Contract Administrator

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Unallowable Costs & VPF Offices: Accounting, Travel, Property, Procurement

•  The Vice President for Finance Office is going to tell you about those special GLs and their impact on MIT’s accounting –  John Larkin, Accounts Payable –  Andrea Siegel, Travel –  Dale Twomey, Sponsored Accounting –  Ryan McAlarney, Property –  Rositha Durham, Procurement

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ACCOUNTS PAYABLE Unallowable costs and

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GLs That Are Reimbursable But Unallowable

•  421000 - Meetings Food and Beverages •  421205 - Alcoholic Beverages •  420318 - Recreation Related Expense •  420166 - Entertainment •  420302 - Promotional Items and Memorabilia •  420304 - Public Relations •  420306 - Publicity •  420319/420321 - Prizes and Awards •  421584 - Membership and Dues-Social •  420254 - Non-Reimbursable Expense

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Items of Particular Interest

•  MIT Memorabilia •  Personal Expenses •  Prizes and Awards •  Flowers/Floral Arrangements •  Catering/Food •  Contributions/Donations

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Accounts Payable Best Practices

•  Please remember to separate the meal and alcohol charges when submitting a request for reimbursement or PO invoice to A/P.

•  All independent personal services, prizes/awards and honoraria payments are taxable.

•  For prize/award payments to non-US citizens there is a mandatory 30% withholding on the amount submitted on the RFP.

•  When approving PO invoices please indicate the receipt date of goods and/or services.

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TRAVEL Unallowable costs and

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Unallowable Travel

•  GL420080 - Domestic Travel Unallowable •  GL420090 - Foreign Travel Unallowable These G/L accounts are for travel costs which are reimbursable under MIT’s Travel Policy but which are not recoverable from the Federal government.

In the Concur system expenses map to G/L’s automatically based on the following:

•  Trip Classification (Foreign vs. Domestic) •  Trip Purpose •  Expense Type

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Unallowable Travel Expenses, cont’d

Unallowable Trip Purposes in Concur Please note if the Trip Purpose in the Report Header is Unallowable the entire trip/every single expense in the report will map to the designated unallowable Travel G/L based on whether the trip is classified as foreign or domestic.

•  Resource Development •  Retreat •  Prospective Student Visit •  President Travel •  Fundraising

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Unallowable Travel Expenses, cont’d Unallowable Expense Types in Concur These can be either main line items in the report or itemizations within a line item and will always map to the designated unallowable Travel G/L based on whether the trip is classified as foreign or domestic in the Report Header.

•  Alcohol •  Gift •  Upgrade Fee •  Airfare Difference (Itemization) •  Entertainment – Other •  Non-Recoverable Expenses •  Misc. Promotional Expense •  Tips/Gratuities

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Unallowable Travel Expenses, cont’d

Best Practices: Sample Trip •  Trip Purpose: Conference •  Cost Object: Sponsored Project funded by the government •  NYU and Columbia are subcontractors and MIT is the prime

contractor on the sponsored project. •  The MIT professor went to a conference in New York for the latest

information on the science used in the sponsored research. •  The MIT professor had lunch with his NYU and Columbia

collaborators to discuss their project. They had alcohol with their meal.

•  The professor watched a movie in his room at the hotel. There was a charge for it.

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The movie is itemized. It is not reimbursable and therefore is marked personal.

The alcohol is itemized and it’s cost is charged to a discretionary account.

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SPONSORED ACCOUNTING Unallowable costs and

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Impact of Unallowable Costs on Sponsored Accounting

•  Billings: Cost Reimbursable & Letter of Credit o  Not billed to sponsor but remains on account

•  Journal document approvals o  Routed to Allowables for approval à majority rejected o  If approved routed to WBS for approval

•  Removal/reclassification of unallowable charges o  Implement monthly/quarterly review

•  Audits and Final Reporting o  Closeout of WBS accounts and submission of final financial

reports to sponsors significantly delayed

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Recorded Project Overrun

•  Recorded Project Overrun (420314) This G/L account is used to remove an overrun on a sponsored program in accordance with Institute policy. Project overruns may be recorded to selected general accounts (cost centers) or fund accounts (internal orders) using this G/L account on both sides of a journal voucher transaction.

It is unallowable to transfer an overrun on one project to a different sponsored research project.

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PROPERTY OFFICE Unallowable costs and

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Equipment and Allowability

Capital/Minor •  Depends on the contract/

grant’s terms and conditions •  Common clauses:

–  All equipment purchases require prior approval

–  Budgeted equipment may be purchased

–  “No Clause”

Fabricated Equipment -  Integral components of fab

are allowable -  Some third party costs

(e.g., machine shop) are allowable if 100% dedicated to fab

-  Unallowable: Salaries, food, travel, lab supplies, anything not directly related to the fab

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Best Practices for Property

New Acquisitions

•  Familiarize yourself with equipment terms and conditions on sponsored research awards

•  Help facilitate tagging of new acquisitions

•  Notify Property Office of any equipment moves, equipment trade-ins, disposal plans, etc.

•  ASK QUESTIONS

Fabricated Equipment

•  Check parent WBS terms and conditions

•  Check proposal budgets for unallowable costs

•  Monitor spending/progress on fabs during construction

•  Double check fab accounts just prior to closeout

•  ASK QUESTIONS

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Notable Unallowable Equipment Cases

•  DLC buys servers on subaward without getting the required prior approval; post-purchase approval initially granted by Georgia Tech. The next day, the prime sponsor overrules GT and disallows the server purchases.

•  Result? MIT is docked $17K (value of servers) on the final payment from GT.

•  PI builds a fabrication after sponsor rejects request to rebudget for this fabrication.

•  Result? Fab is disallowed by sponsor five years after award ends. DLC writes ~$18K check to reimburse government for unallowable cost of fab.

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PROCUREMENT Unallowable costs and

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1.  What do I need to purchase

2.  Do I need an approval(s) to purchase this item(s)

3.  Where do I go to purchase these supplies

4.  What methods are available to purchase supplies

5.  Where do I go to find MIT’s preferred suppliers

6.  Who do I call or email should I need help

7.  Intro to Procurement full presentation: •  http://vpf.mit.edu/static/pdf/Intro_to_Procurement_Training_Presentation_April_2015.pdf

By the Numbers: who, what…

Please remember, we are a resource to assist you.

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Purchasing Methods: 3 Options

Preferred methods of purchasing products and services

1.  Electronic Catalogs (eCat) via Atlas o  Electronic ordering/invoicing direct to vendors

2.  External Purchase Requisitions (via Atlas) o  All other general and high-dollar purchases

3.  MIT Procurement Card (ProCard) o  Approved items <$3000, one-time purchases from

vendors

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Equipment GL Account Coding Expense Cost GL Designation GL Account Equipment

(Capitalized cost) $5000 or More Major Equipment 421818

Equipment (Expensed)

$1000 - $4999 Minor Equipment 421827

Computer Supplies <$1000 Computer Supplies/Peripherals

421900

Office Supplies <$1000 Office Supplies 420258

Laboratory Supplies <$1000 Materials and Services/Laboratory

Supplies

420226/420214

Equipment Maintenance/Repairs

All Equipment Repairs

Maintenance & Repairs

420220

Equipment:Anyitemthatwilllastmorethanayear,isopera2onallycompleteandcanbeiden2fiedasstand-aloneisconsideredequipment.Purchasesfromthefollowingproductcategoriesarenormallyconsideredequipment:furniture,computer,laboratory,scien;ficandtestequipment,officeandserviceequipment.Thedifferencebetweencapital(Major)andMinorequipmentisdeterminedbycost.ComputerequipmentatMITiscontrolledbypropertyrecordbeginningatacostof$1000orgreater.

DetailedProcedureat:hLp://vpf.mit.edu/site/property(Policy&Procedure2.0,CodingofEquipmentPurchases).Pleasedirectques;onsaboutthesedesigna;onstoJo-AnneChute(8-8448orjchute@mit.edu).

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Training Resources

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What Do You Need to Do ?

•  Be aware of OMB Circular A-21 rules •  Code transactions with correct Cost Object and G/L account •  Review accounting statements for errors •  Ask for help when you’re not sure

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Who to Contact for Help Area Contact Email Phone

Accounts Payable John Larkin jlarkin@mit.edu

Journal Vouchers Journal-vouchers@mit.edu 3-2764

Payroll Payroll Service Center payroll@mit.edu 3-4255

Property Jo-Anne Chute Michael McCarthy Ryan McAlarney

jchute@mit.edu mmccarth@mit.edu mcalarne@mit.edu

8-8448 3-2779 8-8472

Sponsored Accounting Tim Vacha Dale Twomey

vacha@mit.edu dalet@mit.edu

8-8483 3-2496

Travel Andrea Siegel amsiegel@mit.edu 4-5289

Sourcing and Procurement Procurement Help email/phone Rositha Durham Ann Julian David Petricone

procurement@mit.edu rdurham@mit.edu amjulian@mit.edu petricon@mit.edu

3-7241 3-2741 3-8350 3-8393

Cost Analysis

John Donahue Sarah Brady

jpd@mit.edu sbrady@mit.edu

8-7950 2-3297

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QUESTIONS