UAF CAS AND DISCLOSURE STATEMENT WORKSHOP

Transcription

1 UAF CAS AND DISCLOSURE STATEMENT WORKSHOP BUTROVICH BUILDING, BOR ROOM 109 Thursday, January 26, 2006 AGENDA 9:00 9:10 Overview and History 9:10 9:20 Definitions 9:20 10:00 Cost Accounting Standards 10:00 10:15 Break 10:15 11:00 Identifying Compliance Issues Through the Accounting System

2 Cost Accounting Standards & Compliance Issues Ginger Baker UA Statewide Systems Office Office of Cost Analysis January 26, 2006 Agenda History of CAS Definitions Cost Accounting Standards Compliance Issues Overview and History Cost Accounting Standards (CAS) Result of government concern over Contractor pricing Accounting practices of defense contractors Lack of consistency

3 Overview and History Feasibility Study Creation of Cost Accounting Standards Board (CASB) CASB created CAS 19 commercial standards Implemented standards in 1980 Overview and History Initially Applied to negotiated defense contracts > $100,000 Threshold increased to $500,000 in 1988 and applied to all federal contracts Educational institutions were exempted from CAS Overview and History CASB dissolved CASB reestablished Permanent, independent board Office of Federal Procurement Policy in OMB

4 Overview and History Significant F&A cost concerns and scandals at Universities CAS coverage extended to colleges and universities in Standards Disclosure required if certain thresholds are exceeded Overview and History 1996 Amendment to A-21 Emphasis on consistency among and within institutions Incorporates the four cost accounting standards Disclosure statement requirements Circular A-21, C.14 Extends coverage of A-21 to all sponsored agreements at colleges and universities Contracts and grants regardless of award amount Overview and History 2003 Government s focus is on Consistency and standardization Institutions must be proactive in identifying compliance problems

5 Overview and History 2005 OMB Circular A-21 Moved to Part 220 in 2 CFR (2 CRF 220) Chapter 2 of Subtitle A, Title 2 Definitions A lot of words! Definitions Cost objective A specific or major function of the institution, a particular service or project, sponsored agreement, or a facilities and administrative (F&A) cost activity OMB Circular A-21, Section B.2.3. Two categories Direct F&A (Indirect)

6 Definitions Direct cost Those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to these activities relatively easily with a high degree of accuracy. OMB Circular A-21, Section D.1. Definitions F&A costs (Indirect Costs) Those costs incurred for common or joint objectives and therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. OMB Circular A-21, Section E.1. Definitions Allowable Costs Costs that are reasonable, allocable to sponsored agreements under principles and methods outlined A-21, given consistent treatment through application of those principles and methods, conform to any limitations or exclusions in A-21 or in the sponsored agreement as to types or amounts of cost items. OMB Circular A-21, C.2.

7 Definitions Unallowable cost Any cost, which, under the provisions of any pertinent law, regulation, or sponsored agreement, cannot be included in prices, cost reimbursements, or settlements under Government sponsored agreement to which is is allocable. CAS (4) Definitions Reasonable Nature of goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made. OMB Circular A-21, C.2. Definitions Allocable A cost is allocable if It is chargeable or assignable to a particular cost objective according to the relative benefit received or other equitable relationship. OMB Circular A-21, Section C.4.a.

8 Definitions Specifically, a cost is allocable to sponsored agreements if the cost Is incurred to advance the work under the sponsored agreement; Benefits sponsored and other work Proportions can be reasonably estimated; or Is necessary for the overall operation of the institution OMB Circular A-21, Section C.4.a. Definitions Allocation Process of assigning a cost, or a group of costs, to one or more cost objective, in reasonable and realistic proportion to the benefit provided or other equitable relationship. OMB Circular A-21, Section B.2.3. Definitions Cost accounting practice Any disclosed or established accounting method or technique which is used for allocation of cost to cost objectives, assignment of cost to cost accounting period, or measurement of cost CAS

9 Cost Accounting Standards Consistency, Consistency, Consistency!!!! CAS Perspective OMB CIRCULAR A-21 (2 CFR 220) University to comply COST ACCOUNTING with existing STANDARDS standards CAS 501 CAS 502 CAS 505 CAS 506 Required Describes how University Business is Conducted Must Include DISCLOSURE STATEMENT (DS-2) Cost Accounting Standards OMB Circular A-21 (2 CFR 220) Section C.10 C.13 Appendix A Four standards CAS 501 CAS 502 CAS 505 CAS 506

10 Cost Accounting Standards Designed to achieve uniformity and consistency in the Measurement, Assignment, and Allocation of costs to government contracts Developed by the government in the interest of the government Cost Accounting Standards Cost Accounting Standards vs. Cost Principles (A-21) CAS addresses measurement, assignment, and allocation A-21 addresses cost allowability Costs that are not accounted for in accordance with CAS are unallowable Cost Accounting Standards Circular A-21 and CAS affect the accounting of funds from all funding sources due to F&A Cost sharing

11 Cost Accounting Standards F&A University funds are included in the calculation of the F&A rate charged the federal government on sponsored agreements Cost Accounting Standards Distorted F&A cost rate Incorrect assignment and allocation of costs Results in an over or under recovery of F&A costs each time a project is billed for F&A Accumulated over recovery can result in repayment to the government University funds sacrificed Cost Accounting Standards Cost sharing University funds are included in total project costs funded by the federal government Incorrect assignment of costs in rate calculation Unallowable costs Must be accounted for and reported

12 CAS 501 Consistency in estimating, accumulating and reporting costs CAS 501 Purpose Estimating practices for a proposal are consistent with cost accounting practices used in accumulating and reporting costs Comparable transactions are treated alike Cost estimates are reliable Improved cost control Enhanced accountability CAS 501 Fundamental requirements Estimate costs same way that expenses are accumulated and reported Accumulate and report costs consistent with cost estimating procedures Actual costs may be recorded in more detail than those provided in proposal estimates, but not vice versa

13 CAS 501 Techniques for application Comparability Must be able to compare costs estimated in proposal with actual costs Consistency Direct or indirect Assignment to F&A cost pools Allocation methodologies CAS 501 Examples of consistent practice Example 1 Proposal estimate Average direct labor rate by category Actual Actual labor recorded by the individual Example 2 Proposal estimate Individual costs are estimated and identified to project in budget Actual Costs are charged directly to the project as incurred CAS 501 Examples of inconsistent practice Proposal estimate PI effort proposed on a research project is the anticipated effort required to successfully perform the project Actual Effort devoted to the project is charged to the restricted fund to the extent of available funding. Effort devoted to the project, but paid from general funds, is charged to an instruction account

14 CAS 502 Consistency in allocating costs incurred for the same purpose CAS 502 Purpose Each type of cost is allocated only once and on only one basis to any contract or other cost objective Criteria for allocating costs to sponsored agreements is same for all similar cost objectives Prevent overcharging, double counting, or double dipping CAS 502 Fundamental requirements All costs incurred for the same purpose in like circumstances are either direct or indirect only If a sponsored agreement is charged directly for a cost, no other similar costs incurred for the same purpose, in like circumstances, can be in the F&A cost pools and subsequently the F&A rate (and vice versa)

15 CAS 502 Techniques for application Apply to estimates used in proposals and to actual costs Describe in DS-2 which cost items are direct which are indirect Describe criteria of dissimilar circumstances and/or different purposes for hybrid costs CAS 502 Examples of costs not incurred for same purpose Test equipment costs Special - charged directly General purpose - normally indirect Accounting treatment disclosed CAS 502 Example of costs incurred for same purpose Purchasing support Indirect cost Sponsored project requires disproportionate amount of subcontract administration Costs cannot be charged both directly and indirectly

16 CAS 502 Costs incurred in preparing and submitting proposal Renewal proposal Existing award s specific requirement Direct cost of existing contract Existing award has no specific requirement Indirect cost of department New Proposals Indirect cost of department CAS 502 Fire protection 10 general firefighters Indirect cost New contract requires 3 firemen at fixed post 24 hours due to high risk materials Direct cost Circular A-21, Section F.6.b Dept administration expenses special care should be exercised to ensure that costs incurred for the same purpose, in like circumstances, are treated consistently as either direct costs or F&A costs.

17 Circular A-21, Section F.6.b Normally direct Technical staff salaries, lab supplies, telephone toll charges, animals and care costs, computer costs travel costs, and specialized shop costs Identifiable to particular project Circular A-21, Section F.6.b Normally F&A Administrative & clerical salaries Office supplies Postage Local telephone costs Memberships Circular A-21, Section F.6.b Potential different circumstances Nature of activity is not the same Direct charging of administrative & clerical salaries may be appropriate where a major project or activity Explicitly budgets for administrative or clerical services AND Individuals can be specifically identified with project or activity

18 Circular A-21, Section F.6.b Major project is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments. Circular A-21, Exhibit C Criteria Inappropriate to charge these costs directly to a specific sponsored agreement if, in similar circumstances, the costs of performing the same type of activity for other sponsored agreements is included in department administration costs. CAS 505 Accounting for Unallowable Costs

19 CAS 505 Purpose Facilitate the negotiation, audit, administration and settlement of sponsored agreements by establishing the guidelines covering Identification of unallowable costs Consistent cost accounting treatment of all costs, including unallowable costs Does not address which costs are allowable CAS 505 Fundamental requirements Two types Costs expressly unallowable by sponsor, laws, or rules Costs directly associated with unallowable costs Identify and exclude all costs from any billing, claim, application or proposal that are Expressly unallowable OR Mutually agreed to be unallowable CAS 505 All unallowable costs are subject to the same cost accounting principles as allowable costs Allocable

20 CAS 505 Fully allocate overrun costs to agreements Cost overruns must be identified Amount over ceiling Not thru specific identification of particular cost items CAS 505 Techniques for application Documentation required as support for proposals, billings, or claims must be adequate to Identify unallowable costs through specific account codes and program codes Identify cost accounting treatment of the unallowable costs CAS 505 A-21, Section J Examples of unallowables Advertising Alumni activities Bad debt Dependent/spouse tuition waivers Alcoholic beverages Donations

21 CAS 506 Cost Accounting Period CAS 506 Purpose Provide criteria for the selection of cost accounting time periods for F&A rate development Enhance objectivity, consistency, and verifiability, and promote uniformity and comparability in sponsored agreement measurements CAS 506 Fundamental requirement Use fiscal year, except Costs of indirect function which exists for part of fiscal year may be allocated to cost objectives of same period Another annual period may be used if an established practice at institution Recharge activities may have a different year

22 CAS 506 Same accounting period used for both F&A pool and direct base costs Same accounting period used for both F&A pool and direct base costs CAS 506 Techniques for Application Government can agree to allow institution to use a fixed annual period other than its fiscal year 10 minute break!

23 Case Study - CAS Compliance From Cradle to Grave January 26, 2006 The Principal Investigator Associate Professor Newtou College of Useful Information Department of Germane Data The Sponsor

24 The Pre-Proposal Long Title: The Habitat Analysis of Chocoholics in Various Eco-systems Within the State of Alaska Short Title: Chocoholics and Their Habitats OOPS Not routed, PI was a bad boy! The Pre-Proposal Budget Year One Estimate Salaries $ 125,000 Supplies 25,000 Equipment 500,000 Facilities & Administrative 47.5% MTDC 118,750 Other 100,000 Total Year One $ 868,750 Year Two thru Four Estimate 1,128,000 Total Budget Estimate $ 2,004,000 The Sponsor ONR Science & Technology Human Systems - Cognitive, Neural, & Biomolecular Science and Technology Division ONR Program Officer, Dr. Iv Ben Hereforever, encourages submission of a formal Research Proposal indicating projects of this type when/if approved require the College cost share 1/3 of the project PI has received the Dean s approval to submit a formal proposal with the budget to include Match/Cost Share 2 : 1

25 The PI s Proposed Budget Year One ONR CUI/DGD Salaries & Benefits: Dr. Newtou PI 32,500 Betty Boop Admin Asst 1,000 Research Associates (2) 46,500 Grad Students Salary & Tuition 15,000 45,000 Supplies: Laptops 2,000 6,000 Software 500 3,000 Project Supplies 16,000 Big Fancy Testing Equipment 333, ,000 Facilities & Administrative 47.5% MTDC 118,750 Travel: In-State 20,000 National Conference 3,000 Services: Postage 500 Phone Charges 6,000 Other 70,500 Total Year One $ 576,750 $ 292,000 The Revised Proposed Budget Year One ONR CUI/DGD Salaries & Benefits: Dr. Newtou PI 32,500 Research Associates (2) 46,500 Grad Students Salary & Tuition 13,000 13,000 26,000 Student Aid-Tuition 2,000 6,000 Supplies: Laptops 2,000 6,000 Software 500 3,000 Project Supplies 14, Big Fancy Testing Equipment 250, ,000 Facilities & Administrative 47.5% MTDC 103,590 12,511 Travel In-State 20,000 National Conference 3,000 Services: Postage 500 Phone Charges 6,000 Other 73,511 Total Year One $ 577,675 $ 288,850 The Revised Proposed Budget (con.) Year Two thru Four ONR CUI/DGD Salaries $ 182, ,900 Tuition 18,600 Supplies 49,600 F&A 47.5% MTDC 237, ,750 Travel 74,199 Services 193,301 48,500 Total Two thru Four $ 737,500 $ 368,750 Year One 577, ,850 Total Proposal Budget $ 1,315,175 $657,600

26 Proposal Submitted to ONR Proposal and Proposal Budget in Banner, Category Code = 2 Applied Research Proposed Budget is now Compliant with A-21, A-110, CASB, UAF s DS-2 Dr. Iv Ben Herefourever acknowledges receipt of proposal and has forwarded to Grants Officer for approval and funding Dean is unwilling to set up assumption ONR Awards CUI Business Office prepares Budget Request Form for Banner setup Department Orgs/Prog Codes Org Code: CUI DGD Instruction Default Program Code: 9010IN - CUI Instruction Org Code: CUI DGD Instr Support Default Program Code: 9010ID - CUI Instr Support Org Code: CUI DGD AnnGranters Rsch Ppr Default Program Code: 9010IR - CUI Dept Res Org Code: CUI DGD Spnsrd Instr Default Program Code: 9010IN - CUI Instruction ONR Awards (con.) CUI Business Office prepares Budget Request Form for Banner setup (con.) Department Orgs/Prog Codes Org Code: Default Program Code: 9010IN Org Code: Default Program Code: 9010ID Org Code: Default Program Code: 9010IR Org Code: Default Program Code: 9010IN NEW Org Org Code: CUI DGD Spnsrd Research Default Program Code: 9010RO - CUI Spnsrd Res

27 Banner Grant Setup Complete Grants & Contracts has entered the budget Equipment requisitions have been submitted to Purchasing Grad Students have been hired & paperwork submitted to HR Etc. Project has been moving along and now we are at fiscal year end and Central Administration has done a compliance review Compliance Review Potential Problems A. Betty Boop charged salary to the Match/Cost Share Fund B. Account Code 3662 Allowable Dues & Mbrships (pera21) has the following: 1. $500 Assn of Educated Individuals 2. $100 Chamber of Commerce 3. $200 Rotary Club 4. $150 Chocolate News & World Review C. Grad Students Travel to Barrow for interviews charged to Acct Code AK General & Admin Compliance Review Potential Problems (con.) D. PI s travel to workshop in Las Vegas coded to account code US General & Admin E. Transaction activity totaling $200 in account code Catering Sp Events/Cerem F. Laptops were charged to account code Computer Supplies G. Computer software was coded to account code Stationery/Office Supplies

28 Compliance Review Comments/Corrections A. Betty Boop charged salary to the Match/Cost Share Fund move to unrestricted fund 10xxxx B. Account code 3662 Allowable Dues & Mbrships (pera21) has the following: 1. $500 Assn of Educated Individuals OK, is in budget narrative 2. $100 Chamber of Commerce move to account code Unallowable Dues&Mbrships (per A21) in unrestricted fund 10xxxx 3. $200 Rotary Club move to account code Unallowable Dues&Mbrships (per A21) in unrestricted fund 10xxxx 4. $150 Chocolate News & World Review move to account code Periodical Subs & Books C. Grad Students Travel to Barrow for interviews charged to account code 2010 move to account code Alaska Field Work Compliance Review Comments/Corrections (con.) D. PI s travel to workshop in Las Vegas coded to account code 2110 move to account code 2122 US Research Workshop/Symposium E. Account code 3008 has transaction activity totaling $200 research transactions, move charges relevant to project to account code Restricted Fund Catering, move irrelevant to unrestricted fund 10xxxx F. Laptops were charged to account code 4014 move to account code 4015 Project Supplies G. Computer supplies were coded to account code 4010 supplies purchased for dept move to unrestricted fund 10xxxx, move supplies specific to the project to account code 4015 Project Supplies Recommendations Become Familiar with Circulars A-21, A-110, CASB and UA s Disclosure Statement Review transaction detail on a regular basis Those Browser literate share expertise with those who are not Exchange reviews, new eyes see new things Educate Faculty in small doses If you don t know, ask Financial Services They are your MAU s Central Administration & they are there to help

29 Please complete feedback sheets. Thanks for coming!

30 Overview and History History of the Cost Accounting Standards In general, the Cost Accounting Standards were the result of concerns about pricing and accounting practices of defense contractors and the lack of consistency o Amendments - Defense Production Act o Government Accounting Office (GAO) Study to determine feasibility of Establishing & applying cost accounting standards Greater uniformity in cost accounting Negotiating & administering procurement contracts Recommendations CAS o Feasible - greater uniformity and consistency o Should not be limited to Defense contracts o Benefits vs. costs o Eliminate alternative practices Contractor should be required to maintain records 1970 o Congress created CASB Tasked to increase uniformity and consistency CASB created CAS 19 commercial standards Implemented standards in 1980 Applied to negotiated defense contracts in excess of $100, o Educational Institutions were exempted from CAS 1980 o CASB dissolved o Congress decided CASB had served it s purpose so it dissolved the board 1988 o CASB reestablished Permanent, independent board Five member board CASB has authority to make, promulgate, amend, and rescind cost accounting standards and regulations Office of Federal Procurement Policy in OMB o Increased contract threshold to $500,000 o Extended coverage to all Federal contracts I:\Training\CAS\UAF CAS \History of the CAS.doc 1

31 o F&A cost concerns o Scandals Some institutions were charging costs that were unallowable to federal awards 1994 o CAS coverage extended to colleges and universities Universities structured accounting systems to collect certain types of costs directly and indirectly Variance of F&A rates among institutions was too high and unexplainable Cost accounting practices were not comparable 1995 o Four standards o Negotiated Federal contracts and subcontracts greater than $500,000 o CAS Exemptions Negotiated contracts and subcontracts less than $500,000 Sealed bid contracts Contracts and subcontracts with small businesses or foreign governments or foreign concerns Contracts and subcontracts in which prices are set by law Firm fixed price contracts Contracts and subcontracts performed outside U.S. o Disclosure Statement required if meet certain thresholds 1996 o Amendment to A-21 Emphasis on consistency among and within institutions Incorporates the four cost accounting standards Disclosure Statement Requirements Circular A-21, C.14 Extends coverage of A-21 to all sponsored agreements Contracts and grants regardless of award amount 2003 o Government focus is on Consistency and standardization Institutions must be proactive in identifying compliance problems o Consistency and standardization improves government s ability to control through Existing regulations Standardized F&A cost rate proposal format Simplifies federal audit procedures I:\Training\CAS\UAF CAS \History of the CAS.doc 2

32 Direct and Indirect Costs January 26, 2006 Allowability Under OMB Circular A-21, all costs recovered on a sponsored project either directly or indirectly (F&A costs) must be allowable. A cost must meet specific criteria to be considered allowable. A cost must be: Reasonable (A-21, Section C.3) Allocable (A-21, Section C.4) Given consistent treatment (CAS) Conform to any limitations or exclusions in A-21 or the terms and conditions of the sponsored agreement, if applicable Note, costs may be considered unallowable under federal rules but allowable under state or UA regulation. Many of these federal unallowable expenses are a reasonable and necessary expense for UA. An expense that in unallowable under OMB Circular A-21 may still be incurred but UA must be able to clearly identify these federally unallowable costs in our accounting information so that UA can treat these costs appropriately for the F&A rate development process. UA uses the program codes associated with the organization code and specific account codes to identify most of these expenses and activities. Circular A-21, Section J. includes some items of cost that the federal government has specifically identified as unallowable. If there is a discrepancy between Circular A-21 and the specific sponsored agreement then the sponsored agreement governs. In addition, failure by the Circular to mention a particular item of cost does not imply that the cost is either allowable or unallowable. Review Section J for treatment of similar or related costs to determine the allowability of the particular cost. See handout on unallowable costs. Direct Costs Direct costs must meet the following criteria: Identified specifically with research, instruction, other sponsored activity, or any other institutional activities With relative ease With a high degree of accuracy Not be expressly disallowed in the sponsored agreement, if applicable When an institution has determined that a particular type of cost is a direct cost all costs incurred for the same purpose, in like circumstances, must be treated as a direct cost of all activities. 1 of 7

33 Indirect Costs Indirect costs are: General institutional costs Incurred for common and joint objectives Not identified readily and specifically to a particular direct activity Indirect costs include: Operations and maintenance of buildings and grounds Depreciation on buildings Capital improvements and equipment Central and department administrative expenses Department administrative expenses are incurred to support normal core operations of a unit Sponsored project administration Library costs Student administration and services Indirect Costs Considered Direct Costs Certain type costs are often incurred for both direct and indirect purposes. Costs incurred for the same purpose, in like circumstances, must be consistently treated as direct or indirect. Cost normally charged as indirect may be charged as direct cost if purpose and circumstances for which the costs are incurred are different. Each activity must be evaluated on a case-by-case basis to determine if it represents cost will be incurred for a different purpose or in an unlike circumstance. Direct charging of department administration costs may be appropriate where: Services are required by scope of project and Cost satisfies direct cost criteria Approved budget clearly describes need for the services While not final determining factors in making a determination of whether a cost that is normally an indirect cost should be treated as a direct cost, consider project: Size Nature Complexity 2 of 7

34 Other key factors include: Specific type and nature of services required are extensive and go beyond the normal departmental baseline support, or Nature of work performed is functionally different from the general business activities of clerical and administrative personnel Examples of sponsored awards where it may be appropriate to charge indirect-type costs as direct costs: Large, complex programs, such as Program Projects or research centers, and other grants and contracts that require assembling and managing teams of investigators from a number of institutions. Extensive data accumulation, analysis and tabulation, Preparation and production of manuals, large reports or books, Extensive travel and meeting arrangements for large numbers of participants, Management of a project in locations that are remote from campus, Individual projects requiring project-specific database management; individualized graphs or manuscript preparation; human or animal protocol, other project-specific regulatory protocols; and multiple project-related investigator coordination and communications. Administrative costs associated with these types of major projects incurred to provide support in excess of the normal baseline support provided by the F & A rate are charged as direct costs. These costs are not incurred for the same purpose or circumstance as the common costs. Non-federal Agreements Indirect-type costs may be charged as direct costs to non-federal agreements when not expressly prohibited by the sponsor. It is understood that this is technically noncompliant with OMB-A21, however, federally sponsored agreements are not adversely impacted financially due to a lower F & A rate as these costs are included in the appropriate base. 3 of 7

35 Distinguishing Between Direct and Indirect Costs Direct Costs Salaries, wages and related fringe benefits of faculty, technicians, scientists, research assistants, postdoctoral associates, other technical and programmatic personnel who are necessary to meet the objectives of the activity/project Supplies and materials including noncapitalized equipment; project supplies; teaching supplies; professional, technical, and scientific supplies; computer software; field camp supplies; stockroom supplies; maintenance and repair commodities; periodical subscriptions and books; and other miscellaneous supplies or materials readily identifiable to project. Supplies purchased with sponsored project funds should be in quantities that are consumed during the normal course of the project and clearly identifiable to the project. Note, project supplies cannot be charged to a project via journal voucher from a supply cabinet usage log unless the supply cabinet meets the criteria for an authorized recharge center. Travel associated with research, public service, instruction, or other sponsored activity. Telephone including long distance nonrecurring charges, cellular telephone charges, remote and locations with telephones solely dedicated to a single identifiable project Indirect Costs Salaries, wages and related fringe benefits for administrative or clerical activities including secretarial assistance, procurement of materials & services, general accounting & bookkeeping, proposal preparation for new awards, payroll and human resource tasks. Also includes faculty and professionals performing administrative tasks. Office Supplies and computer Supplies including pens, paper, printer cartridges, envelopes, and software that support general operations. Administrative travel Local telephone usage and base telephone rental costs are indirect costs for oncampus telephones. Subcontract, Sub agreements, Sub awards 4 of 7

36 Direct Costs Services including external professional or consulting services and recharge center charges on an actual utilization of services and cost basis. Maintenance agreements related to project dedicated research equipment. Short-term equipment rentals for items directly related to project. Reproduction, duplicating, and copying costs that are clearly identifiable to the project can be accounted for as direct costs by utilizing a copier or usage log, printer services invoice, etc. Capitalized scientific and technical equipment Indirect Costs General copying costs. General purpose equipment Modification of facilities or equipment required for a specific project. Postage required for special handling of materials. For example, postage for materials that required weighing or special handling or postage to mail a survey that is integral to a sponsored project Postage for materials requiring only a firstclass stamp is an indirect cost. Miscellaneous expenses such as participant expenses or fees Routine operations and maintenance type expenses incurred for maintenance, protection, and preservation of university buildings and grounds. 5 of 7

37 Account Codes Usage The following list of account codes have been segregated into account codes that are normally used to charge direct costs and account codes normally used to charge indirect costs. Account codes not listed are used either way depending on the circumstances. Account Codes Normally Direct Cost , Account Codes Normally Indirect Costs Faculty Labor Account Codes Administrative Labor Account 1501 Codes Alaska Workshop/Symposium Non-Admin 2010 Alaska General and Administration 2025 Alaska Program/Field Work 2110 US General Administration 2060 Alaska Faculty/Staff UA Instruction 2122 US Workshop/Symposium Non- Admin 2210 Canada General Administration 2310 Foreign General Administration 2125 US Program/Field Work 2222 Canada Workshop/Symposium Non-Admin 2225 Canada Program/Field Work 2322 Foreign Workshop/Symposium Non-Admin 2325 Foreign Program/Field Work 2440 Recruitment of Student Athletes 3441 Telephone Rental Charges Sub-agreement Account Codes 3444 Postage 3031 Research Subject Payments 3662 Dues and Memberships Charges for testing or service centers Utilities Account Codes 4011 Teaching Supplies 4010 Stationary/Office Supplies 6 of 7

38 Account Codes Normally Direct Costs 4012 Professional, Technical, and Scientific Supplies Account Codes Normally Indirect Costs 4325 Utility Supplies 4015 Project Supplies 5221 Furniture and Furnishings 4020 Animals for Research 5229 Medical, Safety, and Fire Equipment 4021 Food for Animals 5329 Mainframe Computers 4075 Field Camp Supplies 5330 Telecommunication Equipment 4076 Ship Supplies 5336 Office Equipment 5310 Livestock Library Equipment Account Codes 5331 Educational Equipment 5551 Modular Furniture 5332 Research Equipment 5337 Farm Equipment 7 of 7

39 OMB Circular A-21 Listing of Costs that are Unallowable Either as a Direct or Indirect Charge to Federal Sponsored Agreements Effective June 9, 2004 Unallowable cost means any cost which, under the provision of any pertinent law, regulation, or sponsored agreement, cannot be included in prices, cost reimbursements, or settlements under a government sponsored agreement to which is is specifically identified. The federal government is unwilling to pay for any unallowble cost as a direct expense under a sponsored agreement or as an indirect expense through the F&A rate charged to each sponsored agreement. UA is not prohibited from incurring unallowable costs, but cannot recover them from federal sponsors directly or indirectly. It is critical that UA be able to identify unallowable costs and activities so that UA can assure the federal government that no unallowable costs or activities are included in the indirect costs allocated to the direct bases through the Facilities and Administrative Forward Pricing rate proposal development process. The following information is from OMB Circular A-21. Section J. General provisions for selected items of cost. This section of the circular provides principles to be applied in establishing the allowability of certain items involved in determining cost. These principles apply regardless of whether the costs is an indirect or a direct cost. If a particular expense is not mentioned then determination of allowability is based on the treatment provided for similar or related items of cost. This information is not to be considered a substitute for the language in OMB Circular A-21. Employees should read the specific A-21 referenced section when trying to determine if a particular cost is unallowable. The provisions of a particular sponsored agreement govern when there is a discrepancy in the treatment of a particular cost. Acronyms: F&A - Facilities and Administrative Cost (indirect, overhead) OSA - Other Sponsored Activity OIA - Other Institutional Activity Method of Identification F&A Treatment for Unallowable Costs UA Acct Program Other A-21 Type Description Pool Pool Base Expenses and Activities Code Code Type Reference Expenses Activities 3501 All J1 Advertising Expenses Specifically unallowable, but allowable for (1) recruitment of personnel required for the performance by the institution, if necessary to meet the requirements of the sponsored agreement Excluded Expenses remain in the All Z J1 Public Relations Activities Rely on MAU Grant & Contract Office 8115 All J3 Alcoholic Beverage Expenses Specifically unallowable except (1) costs specifically required by sponsored agreement; (2) costs of communicating with public and press pertaining to specific accomplishments which result from performance of sponsored agreements; (3) costs of conducting communication and liaison necessary to keep public informed on matters of public concern such as notices of awards, financial matters, etc.. J2 Advisory Councils Costs incurred by advisory councils are allowable if authorized by the sponsoring agency. OIA Base Sponsored activities remain in Instruction, Research, OSA, or OIA base. Expenses remain in the Specifically unallowable Excluded Expenses remain in the All Z J4 Alumni Activity Specifically unallowable OIA Base Sponsored activities remain in Instruction, Research, OSA, or OIA base. 1 of 5 11/30/2004

40 OMB Circular A-21 Listing of Costs that are Unallowable Either as a Direct or Indirect Charge to Federal Sponsored Agreements Effective June 9, 2004 Method of Identification F&A Treatment for Unallowable Costs UA Acct Code Program Code Type Other A-21 Reference Type Description Pool Expenses Pool Activities Base Expenses and Activities 8235 All J6 Bad Debt Expense Specifically unallowable Excluded Expenses remain in the All GS J8 Commencement and Allowable cost if included in student services administration pool. Convocation Costs 1986 and 1987 Assume None J10f(3)(a) Specific Pension Costs All J10f(2) Dependent and Spouse Tuition Waivers Rely on MAU HR & Grant & Contract Offices 3119 All W-2 Information Assume None J10f(4) J10g Sabbatical Leave Costs Personal Use of UA Vehicles Assume None J11 Contingency Provisions Letter to General Counsel Increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 days after each quarter of the year to which such costs are assigned. Excluded Student Services Admin Pool Sponsored activities remain in Instruction, Research, OSA, or OIA base. Expenses remain in the Specifically unallowable Excluded Expenses remain in the Allowable provided the institution has a uniform policy on sabbatical leave for persons engaged in instruction and persons engaged in research. Expenses remain in the Institution furnished automobile costs for personal use are unallowable. Excluded Expenses remain in the J10h Severance Pay Costs incurred in excess of the institution's normal severance pay policy applicable to all persons employed by the institution upon termination of employment are unallowable. J13 Certain Legal Expenses Specifically unallowable except for self-insurance, pensions, severance & post-retirement health costs according to A-21. Defense and prosecution of criminal and civil proceedings, claims appeals and patent infringement. Costs incurred by the institution for defense of suits brought by its employees or ex-employees are unallowable if the institution was found liable or settled. Costs of legal, accounting, consultant services and related costs incurred with defense against government claims or appeals, or the prosecution of claims or appeals against the government are unallowable. Costs of legal, accounting, consultant and related costs, incurred in connection with patent infringement litigation, are unallowable unless otherwise provided for in the sponsored agreements. Excluded Excluded Excluded Expenses remain in the Expenses remain in the Expenses remain in the 2 of 5 11/30/2004

41 OMB Circular A-21 Listing of Costs that are Unallowable Either as a Direct or Indirect Charge to Federal Sponsored Agreements Effective June 9, 2004 Method of Identification F&A Treatment for Unallowable Costs UA Acct Code Program Code Type Other A-21 Reference Type Description Pool Expenses Pool Activities Base Expenses and Activities Does not Apply J14h Depreciation Reserves Doesn't apply to UA since it only applies to the top 99 schools listed in OMB Circular A-21. Depreciation reserves: Institutions shall expend currently, or reserve for expenditure within the next five years, the portion of indirect cost payments made for depreciation under sponsored research agreements, to acquire, repair, renovate, or improve buildings or equipment directly used for organized research. N/A N/A 8502 and 8115 All J15 Donations or Contributions 8115 All J17 Entertainment Expenses Unallowable regardless of recipient Excluded Expenses remain in the Entertainment costs including amusement, diversion, and social activities and any costs directly associated with such costs are unallowable. 5XXX All J18 Equipment Pool capital expenditures are excluded since they are recovered through depreciation. All capital expenditures for general purpose equipment and special purpose equipment are unallowable as direct charges, except where approved in advance by the sponsoring agency. These costs are excluded from all MTDC bases All J19 Fines and Penalties Fines and penalties costs resulting from failure of the institution to comply with federal, state, local or foreign laws and regulations are unallowable unless specifically approved by a federal agency & 4038 Z J20 Fund Raising and Investment Costs 3119 All J22 Goods and Services for Personal Use Letter to CFOs J23 Housing and Personal Living Expenses Letter to Space Mgmt. J24 Idle Facilities & Idle Capacity Fund raising, and investment management costs are unallowable except for costs related to the physical custody and control of monies and securities. Cost of goods and services for personal use of the institution's employees are unallowable regardless of whether the cost is reported as taxable income to the employees. Costs of housing (including utilities, depreciation, maintenance, etc.), housing allowances, and personal living expenses for the institution's current or past officers are unallowable regardless of whether the cost is reported as taxable income to the employees. Costs of idle facilities are generally unallowable. See J24b for determining allowable idle facilities costs. Excluded Excluded Excluded Expenses remain in the Excluded from MTDC Expenses remain in the Excluded OIA Base Expenses remain in the Excluded Expenses remain in the Excluded Excluded Expenses remain in the Expenses remain in the Letter to Risk Mgmt. J25 Insurance and Indemnification Costs Insurance costs to protect against defects in the institution s materials or workmanship are unallowable. Excluded Expenses remain in the 3 of 5 11/30/2004

42 OMB Circular A-21 Listing of Costs that are Unallowable Either as a Direct or Indirect Charge to Federal Sponsored Agreements Effective June 9, 2004 Method of Identification UA Acct Code Program Code Type Other A-21 Reference 8340, 8341 Z & , 2190 & 3040 Lease Purchase Analysis and Cash Flow Analysis Type Description Pool Expenses J26 Interest Interest costs are unallowable except for interest expenses paid to external parties for assets (buildings and equipment) used to support sponsored agreements. Additional specific criteria exist in OMB Circular A-21, J.26.b that must be satisfied in order for interest expenses to be allowable. Z J28 Lobbying Unallowable lobbying costs and activities are defined broadly to include costs associated with any attempt to influence governmental (federal, state, local, etc.) elections and legislation. Legislative liaison activities are unallowable if the activity is carried on in support of or in preparation of unallowable lobbying activities. Executive lobbying costs incurred in attempting to apply any influence that induces or tends to induce either directly, indirectly, an employee or officer of the Executive Branch of the Federal Government to give consideration or to act regarding a sponsored agreement or a regulatory matter on any basis other than the merits of the matter. In general, lobbying expenses may not be paid for with funds from sponsored agreements unless specifically authorized by statute. F&A Treatment for Unallowable Costs Pool Base Expenses and Activities Activities Excluded OIA Base Expenses remain in the Excluded OIA Base Expenses remain in the 8661 Rely on MAU Grant and Contract Office J29 Losses on Other Sponsored Agreements or Contracts 3663 All J33 Memberships, Subscriptions, and Professional Activity Costs Rely on MAU Grant and Contract Office Letter to General Counsel, Rely on MAU Procurement & GCS Offices J36 J37 Costs in excess of income (overruns) under any sponsored agreement or contract are unallowable. Cost of membership in any civic, community, social, dining or country club or organization are unallowable. Preagreement Costs Cost incurred prior to the effective date of the sponsored agreement are unallowable unless approved by the sponsored agency. Professional Services Costs Determine allowability for legal professional services costs in conjunction with J.13. Other professional services are allowable if the criteria listed in J37b are met. Excluded Excluded Excluded Excluded Expenses remain in the Expenses remain in the Expenses remain in the Expenses remain in the 4 of 5 11/30/2004

43 OMB Circular A-21 Listing of Costs that are Unallowable Either as a Direct or Indirect Charge to Federal Sponsored Agreements Effective June 9, 2004 Method of Identification F&A Treatment for Unallowable Costs UA Acct Code Program Code Type Other A-21 Reference Type Description Pool Expenses Pool Activities Base Expenses and Activities Assume None J42 Recruiting Costs Recruiting costs for help wanted advertising, special emoluments, fringe benefits, and salary allowances incurred to attract professional personnel from other institutions that do not conform with the established practices of the institution, are unallowable. Assume None J43 Rental Cost of Buildings and Equipment Allowable, in general, but there are specific rules to ensure that costs are fair and that capitalizable leases are not expensed. Rely on MAU Intellectual Property & GCS Offices Rely on MAU Grants & Contracts Office J44 J45 Royalties and Other Costs for Use of Patents Scholarships and Student Aid Costs 3501 Z J46 Selling and Marketing Asume None Recharge Policy P-112 Z J48 Student Activity Costs Rely on MAU Grant and Contract Office Rely on MAU Grant and Contract Office Costs must be necessary for proper performance of sponsored agreement and applicable to the tasks or processes undertaken as part of the agreement unless the Federal Government has a license or right to free use of the patent, patent is invalid, patent is unenforceable, or patent has expired. There is additional criteria in determining reasonableness where royalties may have been arrived at as a result of less-than-arm's-length bargaining, see J44b. Unallowable unless the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. Costs of selling and marketing any products or services of the institution are unallowable unless allowed under J1c- Allowable Advertising or J38 - Proposal Costs J47 Specialized Service Specialized service facilities charges should be designed to recover not Facilities more than the aggregate cost of the services over a long-term period agreed to by the institution and the cognizant federal agency. Costs incurred for intramural activities, student publications, student clubs and other student activities, are unallowable, unless specifically provided for in the sponsored agreement. J53 Travel Costs Airfare travel costs in excess of the lowest available commercial discount airfare or customary standard coach airfares are unallowable except in special circumstances. J50 Termination Costs Termation of sponsored agreements generally lead to the incurrence of costs or to the special treatment of costs, which would not have occurred if the agreement has not been terminated. See this section of OMB Circular A- 21when terminating a sponsored project to determine the appropriate treatment of costs. Excluded Excluded Excluded OIA Base OIA Base Expenses remain in the Expenses remain in the Sponsored activities remain in Instruction, Research, OSA, or OIA base. Sponsored activities remain in Instruction, Research, OSA, or OIA base. Expenses remain in the Expenses remain in the 5 of 5 11/30/2004