ISO 202 Take 2

1
ISO 202(Take 2)

• Kelly Tallaksen
• [phone]
• oconn044_at_umn.edu

2
How do OMB A-21 and CAS affect ISO Activities at
the University?
OMB Circular A-21
Federal CAS
University Policy 3.2.1
Objective Reduce Risk!!
3
Federal CAS (Cost Accounting Standards)

• Applicable to institutions receiving federal
  funds
• Incorporated into OMB Circular A-21
• 4 Key Standards
• 501 consistency in estimating, accumulating and
  reporting costs
• 502 consistency in allocating costs incurred for
  the same purpose
• 505 accounting for unallowable costs
• 506 cost accounting period

4
CAS 501Consistency in Estimating, Accumulating
and Reporting Costs by Educational Institutions

• Same practices in estimating costs
• Award budgets
• Accounting systems
• Reporting to sponsors
• Includes classification of costs
• Direct
• Indirect

5
CAS 502Consistency in Allocating Costs Incurred
for the Same Purpose by Educational Institutions

• Allocate each cost only once and only on one
  basis
• costs incurred for the same purpose in like
  circumstances should be consistently treated as
  direct or indirect
• Example
• Unlike circumstances
• Changes nature of expense from indirect to direct
• Still must meet direct charging criteria
• Example admin/clerical salaries

6
CAS 505Accounting for Unallowable Costs
Educational Institutions

• Identify unallowable costs in accounting records
• Differences in funding sources does not matter

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CAS 506Cost Accounting Period Educational
Institutions

• Must use fiscal year
• Promotes uniformity/consistency

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OMB Circular A-21

• Incorporates CAS Standards
• and more!!

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OMB Circular A-21

• General Allowability Concepts
• Reasonableness
• prudent person test
• Necessity
• Arms-length
• Consistent w/institutions practices
• Allocability
• Sole incurrence
• Necessary to operations
• Direct vs. Indirect (consistency)

10
OMB Circular A-21

• Section J General Provisions for Selected Items
  of Cost
• 2 Pieces
• Allowable Costs in General
• Specific ISOs

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OMB Circular A-21

• J47 Specialized Service Facilities
• Key Point
• The costs of such servicesmust be charged
  directlybased on actual usage of the services on
  the basis of a schedule of ratesthat does not
  discriminate against federally-supported
  activities

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OMB Circular A-21

• J9 Communication costs
• J11 Contingency provisions
• J14 Equipment (Depreciation)
• J17 Entertainment Costs
• J32 Meetings and Conferences
• J24 Idle Facilities / Capacity
• J26 Interest
• J39 Publication Costs
• J46 Selling and Marketing

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University Policy 3.2.1 (Selling Goods and
Services to University Departments)

• Establishing an ISO
• Requirements
• Procedures
• Internal vs. External Customer
• Rate Review Process
• Additional Cost Principle Historical Basis

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What is an ISO?

• University Policy
• Activity that provides goods/services
• At approved rates
• On a regular and continuing basis
• Predominantly to University departments
• Incidentally to the general public
• BUT.

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What is an ISO?

• Any department selling internally, especially to
  customers paying with federal funds, must follow
  all applicable rules and policies
• OMB Circular A-21 provides principles for
  associating costs to federal funds/contracts as
  either direct or indirect charges. Because it
  covers cost principles, there are no provisions
  to make a profit on these charges. Because it
  covers both direct and indirect charges, you need
  to comply with this policy even if you dont sell
  to federal accounts.

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ISO Set-Up
Business Plan
Org Request
Approvals
Rate Development
Begin Operations
Sales Approval Questionnaire
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ISO Set-Up Business Plan

• What type of service is being offered?
• Answer the 5 Ws (and 1 H)
• What types of service CAN we have?
• specialized services
• Unlike circumstances
• OK scientific instrument repair service
• Not OK general desktop computer support

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ISO Set-UpRate Development

• Consistent Charging
• Allowable Costs
• Volumes

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Rate Development Consistent Charging

• EVERYONE MUST BE TREATED THE SAME!!!!
• Volume Discounts?
• Service Lines?
• Unfunded vs. Funded projects?

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Rate Development Consistent Charging

• Audit Issues (HHS-OIG) FINES/PENALTIES
• 1/12/94 universities did not bill all users for
  services or billed certain users at a reduced
  rate
• 3/26/96 one service center provided a discount
  to its largest customer
• 3/5/97 3 of 15 universities allowed recharge
  centers to bill users at different rates for the
  same services

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Rate Development Allowable Costs - General
A-21, Section J.
22
Rate DevelopmentAllowable Costs - Equipment

• Depreciation Only!!
• Cost basis / funding sources
• Useful life
• Inventory Services / PAMS
• Tracks all equipment activity
• Consistency principle (CAS 501)
• Plant Funds
• Policy 3.2.1.5 Establishing Reserve Funds
• Org request to set up
• Timing ? Replenishment

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Rate DevelopmentVolumes
MUST BE BASED ON ACTUAL USAGE

• GOOD
• Per hour worked
• Per item repaired
• Per (server) storage space used
• Per time connected to server

• BAD
• Per FTE
• Per computer

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ISO Monitoring
Accounting Services
Department
Audits
Budget Office
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ISO Monitoring Department

• Annually is best
• Key points
• Margins
• Budget vs. Actual
• Nature of activity
• Volumes
• Correction of Surpluses/Deficits
• KEY charging users at cost
• gt 15 correct in current year
• lt 15 build into subsequent years rates

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ISO Monitoring Budget Office

• Type of service
• Understand rate changes
• May direct certain U-wide ISOs in their rate
  development
• Subsidies

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ISO Monitoring Department of Audits

• Annual / long-term audit plan
• Will look at ISO activity if appropriate
• Billing processes
• Rate development

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ISO Monitoring Accounting Services

• ISO Set-Up
• Annual Review Process
• Planning
• Expectations from Departments
• Review Issues
• Common Compliance Issues
• Final Product

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ISO Monitoring Accounting Services
Review Issues

• Unallowable Costs
• Transfer Codes
• Fund/Function Code
• All allowable costs in rates
• Rate Volumes
• Depreciation

• Margins
• Costs in other FAOs
• External Sales
• Budget vs. Actual and Rate Development
• Internal Audit Reports
• Customer base and rate type

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ISO Monitoring Accounting Services
Common Compliance Issues

• Not charging all customers the same rates
• Volume not reflecting actual usage
• Purchasing equipment directly on the ISO account
• Including other unallowable costs in rates
  (and/or on the CUFS account)
• Incorrect fund/function

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ISO Day-to-Day Accounting

• Internal vs. External sales
• Internal rates lt or to External rates
• Separation of activity (Policy 3.2.1.2 Record
  Keeping)
• Billing (IV Processing)
• Transaction Justification Standards (Policy
  3.1.2 Documentation Financial/Accounting
  Transactions Job Aid)
• ISO is responsible for the billing process
• Bill within 45 days
• In some cases, buyer department can refuse charges

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RESOURCES

• University Policies
• http//www.fpd.finop.umn.edu/groups/ppd/documents/
  index/FINcontents.cfm
• OMB Circular A-21
• http//www.whitehouse.gov/omb/circulars/a021/a021.
  html
• Commonly Asked Questions
• http//process.umn.edu/groups/controller/documents
  /faq/accounting_dept_isofaq.cfm

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QUESTIONS???
Ryan Gourde, Accounting Services (4-3876)