Guidance & Directive N: ORC-05 Subject Authrity University f Central Flrida Guidance & Directive Direct Cst Charging Date f Adptin/Revisin: September 2006 OMB Circulars A-21 and A-110; CASB Disclsure Statement (DS-2) Applicability Administratin f Spnsred Prjects 1.0 Statement and Purpse The Federal Office f Management and Budget Circular A-21, Cst Principals fr Educatinal Institutins (OMB A-21), Sectin D prvides guidance t be used in determining allwable direct csts f wrk perfrmed by clleges and universities under spnsred agreements. The purpse f this directive is t prvide guidance t University staff t ensure cmpliance with Federal, State and University regulatins gverning the cnsistent treatment f direct csts t spnsred prjects. Lack f prper dcumentatin t substantiate direct csts charged t spnsred prjects culd result in questined csts during an audit. 2.0 General Infrmatin 2.1 OMB A-21 describes 4 factrs that can affect the allwability f a cst as it relates t spnsred prjects: 2.1.1 Csts must be reasnable - A cst is cnsidered reasnable if the nature f the gds r services acquired and the amunt invlved reflects the actin that a prudent persn wuld have taken under the circumstances prevailing at the time the decisin was made t incur the cst. 2.1.2 Csts must be allcable t spnsred agreements under the principles and methds f Circular A-21 - A cst is allcable t a particular spnsred prject if the gds r services invlved are chargeable r assignable t the prject in accrdance with the relative benefits received. 2.1.3 Csts must be treated cnsistently - Csts incurred fr the same purpse in like circumstances must be treated cnsistently as either direct r indirect csts. Where the University treats a particular type f cst as a direct cst n spnsred agreements, all csts incurred fr the same purpse in like circumstances must be treated as direct csts fr all activities f the institutin. 9/26/2006 Page 1 f 10
3.0 Definitins 2.1.4 Csts must cnfrm t limitatins r exclusins set frth in OMB A-21 r in the spnsred agreement as t types r amunts f cst items. 3.1 Allcatin The prcess f assigning a cst, r a grup f csts, t ne r mre cst bjectives, in reasnable and realistic prprtin t the benefit prvided r ther equitable relatinship. 3.2 Departmental Authrizatin List (DAL) List f departmental persnnel with crrespnding authrity t charge t spnsred prjects. 3.3 Direct Cst Thse csts that can be identified specifically with a particular spnsred prject, an institutinal activity, r any ther institutinal activity, r that can be directly assigned t such activities relatively easily with a high degree f accuracy. 3.4 PI Principal Investigatr n a grant, cntract r cperative agreement. This persn bears the primary respnsibility fr csts charged t that agreement. 4.0 Duties and Respnsibilities 4.1 Principal Investigatr Ensure that csts are allwable and allcable t spnsred prjects. Ensure the crrect use f expense classificatin accunt cdes when initiating expenditure requests thrugh the PepleSft system. 4.2 Department Chair Review and apprve the prpsed budget. Establish effective prcesses and cntrls that will ensure cmpliance with this guidance and the University s plicies and prcedures related t direct cst charging. Assign an individual t functin as a pint f cntact between the Department and ORC. 4.3 Dean Review and apprve the prpsed budget. Prvide general versight and prblem reslutin. Ensure cmpliance with this guidance and the University s plicies and prcedures related t Direct Cst Charging. 4.4 Office f Research & Cmmercializatin (ORC) Review and apprve the prpsed budget t ensure cmpliance with Federal, State and University regulatins and the prvisins f spnsred prjects. Maintain, mdify and implement Direct Cst Charging guidance and prcedures. Assist with develpment f educatin and training prgrams fr emplyees invlved in the Direct Cst Charging prcess. Mnitr cmpliance with this guidance and the University s plicies and prcedures related t Direct Cst Charging, and reprt findings t the assciated Departments. Reprt questinable practices and recurring prblems t the Dean, Department Chair, Vice President fr Research, Prvst and Vice President f Academic Affairs, and University President. 4.5 Prcurement Prcure gds and services in accrdance with University plicies and prcedures, and spnsred agency regulatins as applicable. 9/26/2006 Page 2 f 10
4.6 Finance and Accunting Prcess direct csts in accrdance with University plicies and prcedures. Invice the spnsring agency and prepare fiscal reprts as required by Federal r State guidance and/r the grant r cntract agreement. Crdinate with ORC t ensure that infrmatin cntained in the DS-2 (Disclsure Statement) is cnsistent with Direct Cst Charging guidance. 5.0 Prcedures 5.1 PIs must identify direct csts in the prpsal budget prir t submissin t the spnsring agency. Direct csts must meet the requirements described in OMB A-21 and the spnsred agreement t be cnsidered allwable. The fllwing guidance is als prvided t assist in identifying apprpriate expense classificatins. Expenses that d nt meet the tests f allwability cannt be charged t spnsred prjects. 5.1.1 Direct Cst Checklist: http://www.research.ucf.edu/spnsredprgrams/prpsal/budget/direct_checklist.htm 5.1.2 Allwable Csts: http://www.research.ucf.edu/spnsredprgrams/prpsal/budget/allwablecsts.htm 5.2 The direct charging f administrative r clerical staff salaries, r nn-salary administrative expenses may be permitted if a prject meets the definitin f a majr prject as defined in OMB A-21, Exhibit C. In these instances, the PI can submit a CAS Majr Prject Exemptin frm t ORC fr review and apprval. See CAS Exemptins guidance fr further details. 5.3 Only UCF persnnel included n the DAL may authrize charges t spnsred prjects. Persnnel authrizing direct charges t spnsred prjects must adhere t the guidance discussed in 5.1 abve and limitatins r restrictins specific t the spnsred award. 5.4 Csts shall nt be psted t clsed r therwise unfunded spnsred prjects. Persnnel Actin Frms (PAFs) used t dcument persnnel assignments (budgeted percentage f effrt by accunt/prject number) shuld be signed by the PI and apprved by the Department Chair r Dean prir t submissin t the Human Resurces ffice. See guidance related t Effrt Reprting fr further details. 5.5 On a mnthly basis, PIs (in cnjunctin with Department Administratrs, where applicable) must review and mnitr budget and expense reprts fr their spnsred prjects. Regular mnitring f spnsred prject expenses is an imprtant internal cntrl element that may assist in mitigating future audit findings. 5.6 Department Administratrs and/r PI s shuld prvide dcumented evidence f review and apprvals f mnthly prject csts t ORC. 9/26/2006 Page 3 f 10
5.7 Direct csts charged t spnsred prjects in excess f the award amunt result in a cst verrun r deficit spending. Cst verruns must be mved t a departmental (nn-spnsred) accunt in accrdance with Federal requirements and UCF guidance. See additinal guidance related t Cst Transfers. 5.8 ORC must review and apprve prpsal budgets which utline direct cst charges t spnsred prjects. ORC shuld als review and update, as necessary, any direct cst guidance used by UCF persnnel t ensure cmpliance with Federal guidelines and the prvisins f grant agreements. 5.9 The Cmpliance Office shuld mnitr Direct Cst Charging guidance issued by ORC t ensure cnsistency with applicable OMB circulars and UCF s published DS-2. The Cmpliance Office shuld als cnduct independent mnitring f spnsred prject csts t ensure cmpliance with Federal guidelines and the prvisins f grant agreements. 5.10 If an allwable cst benefits tw r mre prjects r activities (mutually beneficial) in prprtins that can be determined withut undue effrt r cst, the cst shuld be allcated t the prjects based n the prprtinal benefit. If a cst benefits tw r mre prjects r activities in prprtins that cannt be determined because f the interrelatinship f the wrk invlved, the csts may be allcated r transferred t benefited prjects n any reasnable basis. Sme examples f reasnable allcatin methds wuld include the use f square ftage, FTEs/percentage f effrt, activity hurs r utputs. 5.11 The fllwing direct csting practices shuld be avided as they d nt meet OMB A-21 standards fr a "high degree f accuracy" in the assignment f csts t spnsred agreements: 5.11.1 Rtating charges amng prjects. 5.11.2 Assigning charges t the spnsred agreement with the largest remaining balance. 5.11.3 Charging the budgeted amunt rather than charging an amunt based n actual usage. 5.11.4 Assigning charges t a spnsred agreement befre the cst is actually incurred. 5.11.5 Identifying a cst as smething ther than what it actually is, such as classifying an item f equipment as a supply. 5.11.6 Charging expenses exclusively t spnsred agreements when the expense has supprted nn-spnsred agreement activities. 5.11.7 Assigning charges that are part f nrmal administrative supprt (indirect csts) fr spnsred agreements (e.g. printing and cpying charges, telephne charges). 9/26/2006 Page 4 f 10
6.0 Recrds Retentin Financial recrds, supprting dcuments, statistical recrds, and all ther recrds fr all Federal and State spnsred prjects must be retained fr at least three (3) years frm the date f submissin f the final expenditure reprt r, fr awards that are renewed quarterly r annually, frm the date f the submissin f the quarterly r annual financial reprt. Additinal recrds retentin requirements must cnfrm t the award and/r plicy f the specific spnsring agency. Where dcumentatin cannt be prvided as t the allwability, allcability and reasnableness f any prject expense, including but nt limited t expenses incurred late in the prject perid, the spnsr may deny them. In this case, the PI, Department r Cllege will be expected t cver the expense frm unrestricted surces. Refer t 45 CFR 74.53 and CFR 92.42 fr further guidance n recrds retentin requirements. 9/26/2006 Page 5 f 10
Direct Cst Charging Cmpliance Reference 1. Risk Identified: There is n plicy t require the mnitring f direct charges t spnsred prjects. Business Managers wh supprt varius faculty members may prvide faculty with expenditure reprts n a peridic basis (mnthly); hwever, there is n requirement fr faculty t review the reprts r respnd t the Business Managers that they cncur r disagree with the reprted expenditures. Faculty wh are nt supprted by Business Managers may pse a higher risk f nncmpliance if they are nt familiar with A-21 requirements. Strategy t Mitigate Risk: Develp plicy/prcedure fr mnitring csts charged t spnsred prjects, at a minimum, n a mnthly basis. Prcedures shuld describe the required timeframes fr review and apprval f csts charged t spnsred prjects and the methd f cmmunicating thse results. Guidance Addressing Risk: Frm Direct Cst Charging guidance: Only UCF persnnel included n the DAL may authrize charges t spnsred prjects. Persnnel authrizing direct charges t spnsred prjects must adhere t the guidance discussed in 5.1 and limitatins r restrictins specific t the spnsred award. Frm Direct Cst Charging guidance: On a mnthly basis, PIs (in cnjunctin with Department Administratrs, where applicable) must review and mnitr budget and expenditure reprts fr their spnsred prjects. Regular mnitring f spnsred prject expenditures is an imprtant internal cntrl element that may assist in mitigating future audit findings. Cntrl(s) Mitigating Risk: Preventative: Restrictins have been established in PepleSft t prevent certain types f csts (bject cdes) frm being charged t spnsred prjects. Detective: Department Administratrs and/r PI s review and mnitr budget and expenditure reprts fr spnsred prjects. 2. Risk Identified: PI s d nt necessarily initiate direct cst charges n spnsred prjects due t limited authrizatins n the Departmental Authrizatin List (DAL). The ptential exists fr an invice t pst t a prject fr which the PI f that prject has nt reviewed r apprved. Once an invice is apprved fr payment, there are n cntrls in place t mnitr the allwability r applicability f that charge t the spnsred prject (with the exceptin f equipment r travel purchases.) Direct charges shuld als be mnitred t ensure prper cut ff in rder t determine whether csts charged were within the allwable funding perid f the award. Overall, mnitring f the allwability f charges t ensure cmpliance with A-21 is limited. Strategy t Mitigate Risk: PI s/faculty ultimately respnsible fr tracking expenses charged t their respective spnsred prjects shuld be authrized n the DAL in rder t minimize the pprtunity fr prject csts 9/26/2006 Page 6 f 10
t be psted t an accunt fr which that PI/faculty member has nt reviewed and apprved. This may mitigate the ptential fr inapprpriate csts as stated in the Ntice f Award/650 Frm. A cmpliance review f psted invices (pssibly n a sample basis) culd assist the University in identifying the use f imprper/incrrect accunt cdes and ptentially unallwable csts psted t spnsred agreements. Guidance Addressing Risk: See Guidance Addressing Risk related t Item #1 abve. Cntrl(s) Mitigating Risk: Detective: The University s effrt reprting system (ECRT) identifies actual payrll distributin charged t a cst share accunt by emplyee. The emplyee must certify that the identified actual payrll distributin is accurate and, if nt accurate, must identify the accurate amunt f effrt t allcate t the cst share accunt. ECRT stres the electrnic certificatin. Detective: The Cmpliance Office shuld als cnduct independent mnitring f spnsred prject csts t ensure cmpliance with Federal guidelines and the prvisins f grant agreements. 3. Risk Identified: In the cmpletin f Persnnel Activity Frms (PAF s), Human Resurces may nt be required t validate available funds in the apprpriate spnsred prject accunts (when applicable), and ORC apprval f thse PAF s in nt required. As the payrll system des nt interface with the general ledger, there is an increased risk f charging an inapprpriate grant, unfunded grant r clsed grant as a result. Strategy t Mitigate Risk: ORC apprvals n PAF s culd mitigate the pssibility f charging persnnel services t clsed r therwise unfunded spnsred prjects The requirement f centralized review and recnciliatin f effrt reprts by ORC shuld be implemented. Actual effrt reprting shuld be recnciled t the budget and majr differences investigated t ascertain whether agency apprval is required t substantiate the difference and t supprt cmpliance with award terms and cnditins. Guidance Addressing Risk: Frm Effrt Reprting guidance: Each PI and Department Administratr is respnsible fr mnitring the timely submissin f time and effrt certificatins and cmpliance with negtiated levels f cmmitted effrt using the ECRT system. Frm Effrt Reprting guidance: Mdificatins t time and effrt cmmitments may require spnsr ntificatin/pre-apprval and frmal mdificatin in the award dcuments. Fr nnfederal spnsred prjects, the PI must cnfrm t the terms and cnditins f the particular cntractual agreement. Fr federal cntracts and grants, the PI must cnfrm t OMB A-110 which requires prir written apprval frm the awarding agency fr either f the fllwing circumstances invlving changes in PI cmmitment: a reductin in time devted t the prject f 25% r mre frm the prpsed and awarded level; and/r an absence frm the prject fr mre than three mnths. Frm Direct Cst Charging guidance: Csts shall nt be psted t clsed r therwise unfunded spnsred prjects. Persnnel Actin Frms (PAFs) used t dcument persnnel 9/26/2006 Page 7 f 10
assignments (budgeted percentage f effrt by accunt/prject number) shuld be signed by the PI and apprved by the Department Chair r Dean prir t submissin t the Human Resurces ffice. See guidance related t Effrt Reprting fr further details. 9/26/2006 Page 8 f 10
Cntrl(s) Mitigating Risk: Preventative: The University s effrt reprting system (ECRT) alerts emplyees when their effrt certified varies 25% r mre frm the cmmitted level f effrt (by accunt number). Detective: ORC receives persnnel actin frm (PAF) activity lg by pay perid frm Human Resurces n a bi-weekly basis and maintains a database with this infrmatin. This lg allws ORC t mnitr changes in all salary distributin fr all spnsred prjects and recgnize if a retractive PAF has been prcessed fr a prir semester (in which effrt has already been certified). Preventative: ORC will send a Budget Transfer Frm t Finance and Accunting requesting that funds be transferred frm the apprpriate Departmental E&G accunt t the spnsred prject cst share accunt (thereby eliminating reliance upn the PI t timely submit the Budget Transfer, which increases the risk f them charging matching csts t their Departmental E&G accunt). 4. Risk Identified: The Direct Cst Checklist, develped by ORC and psted n UCF s website, is used by departmental accunting ffices t assign bject cdes t expenses f spnsred prjects. This checklist is nt reviewed and updated regularly t ensure cnsistency with reprted infrmatin in the DS-2, which is cmpleted by Finance & Accunting. Strategy t Mitigate Risk: ORC shuld crdinate with F&A t recncile any differences between infrmatin cntained in the checklist with infrmatin reprted in the DS-2 t ensure cnsistent applicatin f direct charges t spnsred agreements. Guidance Addressing Risk: Frm Direct Cst Charging guidance: Rles and Respnsibilities f Finance and Accunting include crdinate with ORC t ensure that infrmatin cntained in the DS-2 (Disclsure Statement) is cnsistent with Direct Cst Charging guidance. Cntrl(s) Mitigating Risk: Detective: The Cmpliance Office shuld mnitr Direct Cst Charging guidance issued by ORC t ensure cnsistency with applicable OMB circulars and UCF s published DS-2. 5. Risk Identified: The allcatin f mutually beneficial direct csts may nt be allcated t grants using reasnable allcatin methds. Fr example, charge cdes utilized by a department fr cpy charges (r a cell phne bill fr a faculty member) may be billed 100% t a spnsred prject althugh all cpies and/r phne calls made did nt relate exclusively t that prject. Instead, charge cdes are rtated (mnthly) s as nt t cntinually charge ne prject. Strategy t Mitigate Risk: Develp a methdlgy and plicy/prcedures fr allcating mutually beneficial direct csts t grants. Plicy/prcedures shuld include review and apprval requirements, allcability f charges per A-21, savings ptential due t ecnmies f scale and acceptable allcatin methds. Fr example, cell phne bills culd either be itemized r allcated t prjects using bases such as salary dllars charged (as dcumented in time and effrt reprts.) 9/26/2006 Page 9 f 10
Guidance Addressing Risk: Frm Direct Cst Charging guidance: If an allwable cst benefits tw r mre prjects r activities (mutually beneficial) in prprtins that can be determined withut undue effrt r cst, the cst shuld be allcated t the prjects based n the prprtinal benefit. If a cst benefits tw r mre prjects r activities in prprtins that cannt be determined because f the interrelatinship f the wrk invlved, the csts may be allcated r transferred t benefited prjects n any reasnable basis. The fllwing direct csting practices shuld be avided as they d nt meet OMB A-21 standards fr a "high degree f accuracy" in the assignment f csts t spnsred agreements: Cntrl(s) Mitigating Risk: Rtating charges amng prjects. Assigning charges t the spnsred agreement with the largest remaining balance. Charging the budgeted amunt rather than charging an amunt based n actual usage. Assigning charges t a spnsred agreement befre the cst is actually incurred. Identifying a cst as smething ther than what it actually is, such as classifying an item f equipment as a supply. Charging expenses exclusively t spnsred agreements when the expense has supprted nn-spnsred agreement activities. Assigning charges that are part f nrmal administrative supprt (indirect csts) fr spnsred agreements (e.g. printing and cpying charges, telephne charges). Rles and Respnsibilities f Finance and Accunting include crdinate with ORC t ensure that infrmatin cntained in the DS-2 (Disclsure Statement) is cnsistent with Direct Cst Charging guidance. Detective: Department Administratrs and/r PI s shuld prvide dcumented evidence f review and apprvals f mnthly prject csts t ORC. Detective: The Cmpliance Office shuld als cnduct independent mnitring f spnsred prject csts t ensure cmpliance with Federal guidelines and the prvisins f grant agreements. 9/26/2006 Page 10 f 10