Today s Topics. Cost Principles. Federal Guidance. Guidance Resources. Purpose of Cost Principles. Cost Principles Overview 5/7/2015

Transcription

1 Cost Principles Presented by: Contracts and Grants Accounting James Ringo Today s Topics Making good decisions about costs Allowable Allocable Reasonable, necessary Consistent Distinguishing direct vs. indirect costs Allocating costs among multiple projects Requirements for cost transfers Requirements for effort reporting 1 2 Federal Guidance Guidance Resources Old guidance A-21 Cost Principles A-110 Uniform Administrative Requirements for Grants A-133 Audits Replaced by Uniform Guidance (2 CFR 200) Code of Federal Regulations: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (AKA Uniform Guidance) UCD Guide to Research Compliance content/uploads/ucdavis_guide_to_research_compliance_ pdf 3 4 Purpose of Cost Principles Cost Principles Overview 5 Establishes principles for determining whether costs are applicable to grants and contracts Federal Government will bear its fair share of total costs Written to establish principles for federal agencies Definitions Basic Considerations - Allowable, Allocable, Reasonable, Consistent Direct costs Facilities & Administrative costs Application of F&A rates General Provisions for Selected Items - Effort reporting 1

2 200.1 Definitions Basic Considerations Composition of costs Major functions of an institution Instruction (and departmental research) Organized research Other sponsored activities Other institutional activities Allocation Facilities and administration costs Costs for a sponsored project are comprised of the following: Allowable direct costs Allocable portion of F&A costs Basic Considerations Factors Affecting Allowability Basic Considerations Reasonable Costs Factors to consider in determining whether costs are allowed for a sponsored project or grant Reasonable, necessary Allocable Consistent treatment Conformance to limitations or exclusions Necessary cost Arm s-length bargaining Prudent person test Conforms to Federal law, State law, terms & conditions of award Consistent with University policy Basic Considerations Allocable Costs Basic Considerations Allocable costs 11 Charged in proportion to benefit to the project, or Incurred solely to advance the project, or Benefits both the project and the institution, in proportions that can be reasonably approximated Expense occurred within the project period A valid and documented allocation methodology was applied 12 Costs allocable to a particular sponsored agreement may not be shifted to another sponsored agreement because of overruns, to avoid restrictions, or for other reasons of convenience Costs allocable to activities sponsored by industry, foreign governments or other sponsors may not be shifted to federallysponsored agreements 2

3 Basic Considerations Allocation and Documentation Basic Considerations Conformance to Limitations 13 Cost Principles Costs are allowable, allocable, and reasonable Internal Control No one person has complete control over all aspects of a financial transaction. Direct Cost Allocation Principles Proportional benefit, reasonable basis Documentation Retain documentation as specified in Uniform Guidance 14 Costs must obey limits or exclusions specified in the award contract or by the agency If a cost is allocable to a particular award but is limited or not allowed, that cost may not be charged to another sponsored agreement Basic Considerations Consistency Basic Considerations Consistency Comparable transactions are treated alike If a certain cost is charged directly to one project, that type of cost must be charged directly to all projects If you can t charge the cost directly to all projects, do not charge the cost directly to any project Consistent classification as direct costs or F&A costs Use same classifications to estimate, accumulate, and report costs Consistent use of period for estimating, accumulating, and reporting costs All unallowable costs shall be identified and excluded from any billing, claim, or proposal Exercise #1 Exercise #2 You have a research grant from the National Science Foundation to study changing climate patterns. The project includes participating in a conference in Chicago. A graduate student in your lab has been invited to present a paper at this conference. There are no prohibitions against travel on the grant. Are the student's travel costs allowable? Your student will present his paper and interact with colleagues from other academic institutions. The trip will benefit the project. Are the student s travel costs allocable to the project?

4 Exercise #3 At the conference, your student has dinner with a friend and orders wine. Is the cost of the wine an allowable expense on the sponsored project? Can UC Davis reimburse the student for his portion of the dinner expense other than the wine? Exercise #4 Your student was feeling rather good after his presentation and decided to celebrate in a BIG way. He brings back receipts showing that the cost of his final dinner in Chicago, exclusive of the wine, was $135 per person. Is the meal expense reasonable? Exercise #5 Exercise #6 Dr. Smith s NASA grant ends on 06/30/2015. On 06/01/2015, Dr. Smith notices she has $5,000 of supplies budgeted but not spent, so she asks her staff to order $5,000 worth of supplies to use on the project. The supplies are ordered on 06/25/2015 and a lien appears on the June ledger. The supplies are received on 07/03/2015. Are the supplies allocable? Are they allowable? Dr. Gonzalez $50,000 DOD grant ends on 08/31/2015. On 08/01/2015, he notices there is a remaining balance of $35,000, so he asks you to order a $30,000 piece of equipment. What issues should you discuss with Dr. Gonzalez? What is a valid allocation methodology? Methodology Example #1 23 Only charge costs that directly benefit a project Charge costs in proportion to the benefit to each project Document the method used to allocate costs Apply the methodology consistently 24 Dr. Forester is working on three sponsored research projects. An invoice for lab supplies costing $500 is received. The staff keeps records of the supplies usage and calculates that project A uses 50% of the lab supplies, project B uses 30% and project C uses 20%. Project A = 50% x $500 = $250 Project B = 30% x $500 = $150 Project C = 20% x $500 = $100 Is this a valid methodology? 4

5 Methodology Example #2 Methodology Example #3 Dr. Wong is working on three sponsored research projects. An invoice for lab supplies costing $500 is received. The supplies are used to perform 60 similar tests on all three projects and costs are allocated according to the number of tests performed: 20 for project A, 30 for project B and 10 to project C. Project A = 20/60 x $500 = $167 Project B = 30/60 x $500 = $250 Project C = 10/60 x $500 = $83 Is this a valid methodology? Dr. Singh rents off-campus lab space for work on two sponsored research projects. The rent for the lab is $10,000. The lab charges are allocated according to the square footage utilized by each project, 40% to project A and 60% to project B. Project A = 40% x $10,000 = $4,000 Project B = 60% x $10,000 = $6,000 Is this a valid methodology? Methodology Example #4 Methodology recap Dr. Callahan is working on two sponsored research projects. There are long distance phone charges of $150 which are allocated according to staff hours spent on each project, 25% to project A and 75% to project B. Project A = 25% x $150 = $37.50 Project B = 75% x $150 = $ Is this a valid methodology? Use a reasonable method for allocating costs Keep documents in the project files explaining how charges were split and why Be consistent in the method used for a particular type of expense Direct vs. Indirect costs Different names for indirect costs Direct costs can be identified specifically with a particular sponsored project or activity with a high degree of accuracy Indirect costs are incurred for common objectives and cannot be identified readily and specifically with a particular project Departments must use consistency in applying costs to projects Facilities and Administrative costs F&A costs Indirect costs Overhead costs

6 Examples of Direct Costs Examples of F&A Costs Salaries and benefits Some equipment Materials and supplies Consultant costs Subcontract costs Phone charges - long distance Services rendered by specialized service centers Travel Patient care costs Other Administrative salaries and benefits Fixed phone costs Lab space General purpose equipment Computers and basic software Building maintenance Office supplies Copying costs Telephone costs Local service, equipment rental Memberships Professional journals Custodial services Charging Costs F&A Rate Negotiation F&A Rates are negotiated with the institution s cognizant agency U.S. Dept of Health and Human Services (DHHS), Division of Cost Allocation (DCA) Mike Legrand, Director of Costing Policy and Analysis, UC Davis Establishing an F&A rate F&A Rate Types All University costs are reviewed and categorized as direct costs, facilities costs, or administrative costs Rate proposal involves documenting F&A costs completely and accurately in order to recover the maximum costs possible from the final F&A rate Indirect Costs / Direct Costs = proposed F&A rate Pre-determined Provisional This information applies only to how the F&A charges appear on the ledgers. Guidance for the rates to be used on proposals should come from the Sponsored Programs Office as we near the end of each rate agreement

7 Pre-determined rates Pre-determined rate example 37 Use the negotiated pre-determined rates in effect at the time the initial award begins to apply to charges on the ledger throughout the life of the agreement. Life means each competitive segment Competitive segment means the years approved for funding at the time of award 38 Pre-determined rates are in effect according to the chart below A three year competitive award for organized research starting 9/1/2013, would apply the rates as follows to charges on the ledger: % % % % Year Pre determined rate Award period X X X X Pre-determined rates Pre-determined rate example #2 39 If the pre-determined rates do not extend through the life of the agreement at the time the award starts, then the last predetermined rate shall be applied to charges on the ledger through the end of the agreement Agreements will not be adjusted in future years when a new negotiated rate is established 40 A pre-determined rate of 57% is in effect through 6/30/2018 No new rate agreement is in effect On 3/1/2018, an award for organized research is executed with funding for three years The 57% rate will be charged on the ledger for the full three years, even if a higher rate is later established Year Pre determined rate 57.0 Award period X X X X Provisional rates Provisional rate example 41 When a new award is executed and only a provisional rate is in effect, the provisional rate is applied to charges on the ledger until a new rate is established Once a new pre-determined rate is established, the new rate(s) must be applied to charges on the ledger for the entire award period May require adjustments (up or down) 42 The pre-determined rate of 57% ends on 6/30/2018, at which time a provisional rate of 57% will be used A three year award for organized research executed on 7/1/2018 would apply the 57% provisional rate to charges on the ledger until a new pre-determined rate is negotiated Once a new pre-determined rate is established, the new rates will be applied retroactively Year Provisional rate 57.0 Award period X X X 7

8 UC Davis F&A rates for Methods of Applying F&A Rate Organized research On-campus 55.5% Off-campus 26.0% Instruction On-campus 50.0% Off-campus 26.0% Other sponsored activities On-campus 38.0% Off-campus 24.5% CNPRC Core grant 22.7% Research 54.4% Method determines which expense types are subject to F&A charges Common methods Modified Total Direct Cost Total Direct Cost Total Cost KFS ICR Types Modified Total Direct Cost (MTDC) Method 45 Type Code A B C D E J Indirect Cost Recovery Type Name Salaries and Wages Total Direct Cost Total Direct Cost less Equipment, T & F No Indirect Cost Salaries and wages and Benefits Modified Total Direct Cost 46 Under MTDC, only some categories of expenses are assessed F&A costs Indirect costs are calculated on Salaries and wages Fringe benefits Materials and supplies Services Travel Sub-contracts (first $25,000 of each sub-contract) Modified Total Direct Cost (MTDC) Method Other methods of calculating F&A 47 Indirect costs are NOT calculated on Equipment Capital expenditures Patient care Participant support costs (new Uniform Guidance) Tuition and fee remission Rental costs Scholarships and fellowships Sub-contracts (amounts over $25,000 of each subcontract) 48 Total Direct Costs (TDC) All expenses directly charged to the award are subject to indirect costs All direct dollars * indirect rate Total Costs (TC) All expenses, including indirect costs, are subject to indirect costs See slide 55 8

9 How the F&A rate works (MTDC) How the F&A rate works (TDC) Indirect costs are assessed based on the direct charged dollars in expense categories subject to the F&A rate Budget with 50% F&A rate, MTDC PI Salary & benefits 10,000 (subject to F&A) Equipment 5,000 (not subject to F&A) F&A cost 5,000 (10,000 X 50%) Total cost 20,000 Indirect costs are assessed based on the direct charged dollars in expense categories subject to the F&A rate Budget with 10% F&A rate, TDC PI Salary & benefits 10,000 Equipment 5,000 Total direct costs 15,000 (subject to F&A) F&A cost 1,500 (15,000 X 10%) Total cost 16, How the F&A rate works (TC) How the F&A rate works (TC) 51 Indirect costs are assessed based on the direct charged dollars in expense categories subject to the F&A rate Budget with 20% F&A rate, TC PI Salary & benefits 10,000 Equipment 5,000 Total direct costs 15,000 Total project costs = 15,000 / (80%) = 18,750 F&A cost = 18,750 15,000 = 3,750 Effective F&A rate (ledger) = 3,750 / 15,000 = 25% 52 What the ledger will look like: Budget with 20% F&A rate, TC Effective rate 25%, TDC PI Salary & benefits 10,000 Equipment 5,000 Total direct costs 15,000 (subject to F&A) F&A cost 3,750 (15,000 X 25%) Total cost 18,750 Time for a break? Treatment of Costs This section provides principles for establishing allowability of 55 categories of costs Costs may be allowable, but only as F&A charges you cannot charge them directly to an award The following slides will discuss only costs with relation to direct-charging

10 Advertising Advertising is allowable as a direct charge ONLY for recruitment of personnel procurement of goods & services disposal of scrap or surplus materials other specific purposes necessary to meet the requirements of a contract or grant Alcoholic beverages Alcoholic beverages are unallowable costs Communication Computing Devices 57 Telephone costs for long distance and fax charges are allowable as a direct charge Basic line and equipment charges and local service are not generally allowable as a direct charge Charges for cell phones, Blackberries, pagers, and data lines are not generally allowable as a direct charge In rare cases, where needed as a requirement of the award, these costs may be direct charged 58 Computers and peripherals under $5000 per unit may be charged as supplies if the following criteria are met: They are essential and allocable to the project The project does not have reasonable access to other devices or equipment that can achieve the same purpose Items costing more than $5,000 per unit must be treated as equipment Copying Entertainment Copying is not generally allowable as a direct charge May be direct charged if there is a need for a significant amount of duplicating and the cost has been clearly justified and approved by the sponsor Costs of entertainment, including amusement, diversion, and social activities, and any related costs (such as tickets to events, meals, lodging, rentals, transportation and gratuities) are unallowable

11 Equipment Equipment maintenance agreements 61 General purpose equipment is not generally allowable as a direct charge In rare cases, may be direct charged where the equipment is needed for a specific project and is not used for any other purpose Specifically identified to and benefits the project Justified and approved by the sponsor Acquisition cost includes attachments, accessories, shipping, and installation 62 Costs for necessary maintenance, repair or upkeep of property to keep it in efficient operating condition are allowable as a direct charge for specialized equipment used solely for the project Not allowable if adding to the permanent value or prolonging the equipment life (see capital expenditures) Maintenance agreement costs are otherwise not generally allowable as a direct charge Food and beverages Food and beverages Food and beverages are allowable as a direct charge when: Sponsor does not explicitly prohibit Meeting is for the dissemination of technical information Meal allows continuity of a formal meeting The meeting or activity is significant and integral to the goals of the project Per DOJ guidelines, expenses for food and/or beverages and provided at meetings or conferences must satisfy three tests: The cost of the food and/or beverages is reasonable. The food and/or beverages are incidental to a work-related event. The food and/or beverages provided are not related directly to a social event Wash Post article 1 Wash Post article 2 Laboratory supplies Meeting and conferences Laboratory supplies are allowable as a direct charge if easily allocable to a specific project Only materials and supplies actually used for the project may be directly charged Use and document a valid methodology for allocating supplies costs They are not allowable as a direct charge if not easily identified with a specific project Meeting and conferences are not generally allowable as a direct charge They can be direct charged ONLY when the primary purpose of the meeting is the dissemination of technical information, and Justified and approved by the sponsor

12 Memberships and subscriptions Memberships in civic, community or social organizations are allowable only with prior approval (this would be extremely rare). Costs for institutional memberships in business, technical and professional organizations are not generally allowable as a direct charge Memberships and subscriptions Memberships are allowable as a direct charge ONLY if membership is required by a specific project and there is justification and agency approval If multiple projects are involved, cost should be allocated in proportion to benefit to each project Memberships and subscriptions Office supplies 69 Costs for subscriptions to business, professional, and technical periodicals allowable, but generally treated as an indirect expense In rare cases, may be direct charged only if subscription is required by a specific project and there is justification and agency approval Consider whether the periodical is available without a subscription, such as online or in the library 70 Office supplies are rarely allowable as a direct charge May be direct charged ONLY where the amount used on a project is significantly greater than normal and the cost is justified and approved by the sponsor Postage Participant Support Costs 71 Ordinary and routine postage costs and mail stop charges, including the mailing of proposals, are not generally allowable as a direct charge Costs for mailing proposals are not generally allowable as a direct charge Postage costs are allowable as a direct charge ONLY if the costs are extraordinary and have been justified and approved in the budget 72 Allowable as a direct charge with prior approval Includes stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) Project must include an education or outreach component Exempt from indirects (change from A-21) 12

13 Rental costs Travel Rental costs of buildings and equipment are allowable as a direct charge if approved by the sponsor Must be reasonable with consideration to market conditions and available alternatives When charging building leases as a direct cost, the off-campus F&A rate applies Travel is allowable as a direct charge but may be limited or prohibited by the particular award or agency Use actual cost (or per diem where allowed) Follow institutional policy and state policy Lowest available discount airfare (coach or equivalent) Some agencies don t allow foreign travel Fly America Act Short-term visa costs Unallowable costs 75 Short-term visas are allowable as a recruiting cost, if clearly identified as directly connected to work performed on a Federal award must be critical and necessary (directly benefit) the project and be allowable by the agency J-1 and H-1B are generally allowable if conditions are met. Renewals are not allowable 76 Costs of legal proceedings Housing and personal auto for executives Lobbying Selling and marketing costs Alumni activities Fundraising and development Losses on other awards Ongoing advertising and PR activities Compensation-personal services Administrative or Clerical Salaries 77 In general, salaries and benefits for employees working on sponsored projects are allowable as a direct charge Employee must be engaged in tasks that can be identified readily and specifically with the project s scope of work Pay must be reasonable for the services rendered Employee must have an appointment at the University 78 Administrative and Clerical Salaries are generally not allowable as a direct charge Direct charging may be appropriate where Administrative/clerical services are integral to the project Individuals can be specifically identified with the project Explicitly included in the approved budget or have prior written approval Not also recovered as indirect costs. 13

14 Programmatic salary costs Compensation for personal services 79 Programmatic salaries are allowable as a direct charge where costs are related to protocol development and maintenance managing substances/chemicals, managing and securing project specific data coordination of research subjects, and Must be contributing and directly related to the scope of work No extra pre-approval requirements 80 Compensation for personal services includes salaries, wages, and benefits. Costs are allowable as a direct charge to the extent that the total compensation Conforms to institutional policy Is consistently applied Is supported by effort reporting What is effort reporting? What is effort? Effort reporting is the method we use to certify to federal sponsors that an employee gave effort in proportion to the amount of salary charged to each award. Effort reports are required for anyone with committed effort (whether direct-charged or cost-shared) on federal or federal flowthrough awards Effort is the amount of time spent on a particular activity in relation to the total amount of time spent working for the University Effort is associated with employee s University appointment. It does not include activities conducted on personal time such as outside consulting What is effort? Who receives an effort report? Effort always equals 100%. It is not based on hours worked 35 hours/week = 100% 80 hours/week = 100% Employee left UC Davis mid-year = 100% Employee started at UC Davis mid-year = 100% Any employee whose salary (or any portion of salary) was charged to a federally sponsored award, including awards with federal flow-through funding Any employee with a cost sharing commitment on a federal or federal flowthrough award Any PI (ERS automatically generates though certification may not be required)

15 When do we certify effort? What is effort reporting compliance? 85 New annual periods follow the federal fiscal year October 1 through September 30 Effort reports are released for certification 45 days after the end of the reporting period (November 15) Effort reports must be certified within 120 days of the end of the period (January 28) 86 Compliance = 100% timely certification A compliant effort report is Certified timely, within 120 days Certified by someone with first-hand knowledge of ALL the activities of the employee during the period or a suitable means of verifying those activities (i.e. timecards or log sheets) Certified once, with no changes to the level of effort for each federal project after certification What are the risks of non-compliance? Who can certify effort? 87 Cost Disallowances Withholding of Payments Withholding of Future Awards Designation as High Risk Organization Special Monitoring Corrective Action Plans PIs and Faculty must sign their own A PI should NOT certify for another faculty member, even line certification Other Self-Certifiers based on title code, must sign their own effort reports All other employees may self-certify if they have first-hand knowledge of their activities, else must be signed by the PI or a responsible official with first-hand knowledge or a suitable means of verification Who is a responsible official? What is the level of tolerance? 89 Has been delegated authority by the PI Has comprehensive and first-hand knowledge of all the activities of the employee Has suitable means of verification that effort was performed according to the distribution of payroll expense Can knowledgeably complete the form with reasonable accuracy 90 A degree of tolerance is appropriate per A-21 UC Policy: reports should be certified as is if effort can reasonably estimated to be within +/- 5 percentage points of the percentages shown on the effort report If effort report shows 15% and the faculty member believes the actual effort is between 15 and 20%, he/she should certify the report Same if actual effort is between 10 and 15% 15

16 Effort Reporting Exercise #1 Effort Reporting Exercise #2 If effort on a federal project is not certified in a timely manner, those payroll charges may be unallowable. True or False? A certifier reviews an effort report in ERS and determines that the effort given is approximately equal to the payroll charges as shown. The estimated actual effort is 50% and the payroll charges equal 52%. What is the correct action? Effort Reporting Exercise #3 Effort Reporting Exercise #4 Principal Investigators must certify effort for all employees who worked on their projects, even other faculty members. True or False? PI Yang is 100% funded on his NIH award. He spends 150 hours preparing a proposal for a project sponsored by American Heart Association. What are the issues? Effort Reporting Resources Wrap up 95 Effort Reporting Website & Training Effort Reporting Coordinator Nick Gosaie (530) nsgosaie@ucdavis.edu Effort Reporting Supervisor Debra Henn (530) dshenn@ucdavis.edu 96 16

17 Test your knowledge #1 Test your knowledge #2 According to the cost principles, which of the following costs is allowable? A. lobbying B. entertainment C. losses on other awards D. payments to subjects An institution has an indirect cost rate of 40%. A research project is budgeted at $125,000 in direct costs including an item of equipment at $25,000 which is the only item excluded from the indirect cost base. What is the total cost for the project? A. $135,000 B. $150,000 C. $165,000 D. $175, Test your knowledge #3 Test your knowledge #4 Indirect costs can best be described as: A. costs for equipment related to a research project B. costs that cannot be readily and specifically identified with a particular sponsored project C. costs for support personnel and subcontracts D. costs that can be identified specifically with the particular research project Which of the following is NOT an indirect cost? A. Project travel B. Utilities C. Facility maintenance D. Department administrative costs Test your knowledge #5 Why cost principles are important to you According to the cost principles, costs incurred prior to the effective date of the agreement are A. unallowable B. unallowable unless approved by the sponsoring agency C. allowable only if approved by the project director D. allowable only if approved by OMB Sets rules for charging costs to awards Allowable Allocable Reasonable Consistent Defines direct versus indirect costs Gives guidance on charging for 54 categories of expenses Non-compliance can lead to: Disallowed costs Reduction in funding Termination of award Designation as an exceptional institution Sanctions Suspension Debarment Criminal penalties

18 Points to Remember Points to Remember Know the rules: Expenses can only be direct charged if they specifically benefit the project, are necessary and are identifiable. Treat like costs the same way all the time. Be prepared to provide documentation that supports your action. For example: Proposal Approved budget with specific language Agency approval Allocation methodology Other materials or facts that support your decision to treat differently The End Questions? Please fill out an evaluation before leaving Information about what you liked best or least and what you would add, change or drop is especially helpful Thank you for coming!

19 05/07/2015 Resources for information on Costing Policy OMB Uniform Guidance OMB Circular A-21 Guide to Research Compliance Effort Reporting System (ERS) Effort Reporting Help ERS Briefing for Principal Investigators ERS Briefing for Departmental Coordinators 19

20 05/07/