AN INTRODUCTION TO 2 CFR 220 OMB CIRCULAR A21

1
AN INTRODUCTION TO 2 CFR 220 (OMB CIRCULAR A-21
)

• OGCA Research Administration Education Program,
  2009

2
BACKGROUND

• A-21 Cost Principles for Educational Institutions
  has been around a long time
• 1947 ONR Blue Book
• 1958 BOB reissued as A-21
• 1973 Transferred from BOB to OMB
• 1973 Transferred from OMB to GSA
• 1979 Transferred from GSA to OMB
• More than 20 revisions since that date
• 2006- Codified in the Code of Federal Regulations
  (CFR) became 2 CFR 220

3
A-21 ISSUED AS PRINCIPLES

• Marked difference between the earlier documents
  and current versions
• Supposed to be principles
• research and instruction inextricably
  intertwined, especially at the graduate level
• but is actually a curious mixture of principles
  and processes
• Once codified, the principles and processes
  became regulation.

4
APPLICABILITY

• To assistance awards
• Grants and cooperative agreements
• Via authority of OMB to issue instructions to the
  agencies
• To procurement awards
• Contracts
• Via incorporation as Part 31.3 in the
• Federal Acquisition Regulations
• Not to Other Transactions

5
GRANT

• The appropriate agreement to be used whenever
• The principal purpose is the transfer of money,
  property, services or anything of value to the
  recipient in order to accomplish a public purpose
• No substantial involvement anticipated between
  the government and the recipient

6
COOPERATIVE AGREEMENT

• The principal purpose is the transfer of money,
  property, services or anything of value to the
  recipient in order to accomplish a public purpose
• Substantial involvement anticipated between the
  government and the recipient

7
CONTRACT

• The appropriate agreement to be used whenever
• The principal purpose is to acquire services for
  the direct benefit of the government
• Substantial involvement is anticipated between
  the government and the recipient

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PURPOSE AND EFFECT OF OMB CIRCULARS

• Purpose
• Instruction to federal agencies
• Agencies required to implement
• Not directly applicable to recipients only
  applicable through agency implementation
• Effect
• Provide guidance
• Maximum requirements for government
• Minimum standards for institutions

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WHICH CIRCULARS APPLY TO WHICH ORGANIZATIONS?
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2 CRF 220 OVERVIEW

• Establishes principles for determining costs
  applicable to federal grants, contracts, and
  other sponsored agreements with educational
  institutions
• Defines often-used terms
• Defines methods of FA cost calculation
• Defines allowable and unallowable costs (the
  J-section)
• Includes cost accounting standards
• Examples of major project for
  clerical/administration charging

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2 CFR 220 SECTIONS

• Purpose and scope
• Definition of terms
• Basic considerations
• Direct costs
• FA Costs
• Identification and Assignment of FA Costs
• Determination and Application of FA Cost Rate or
  Rates
• Simplified Method for Small Institutions
• General Provisions for Selected Items of Cost
• Certification of charges
• Exhibits and Appendices

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KEY DEFINITIONS

• Major functions of an institution
• Instruction
• Including departmental research
• Sponsored instruction and training
• Departmental research
• Organized research
• Includes research training
• University research
• Other sponsored activities
• Other institutional activities

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BASIC CONSIDERATIONS

• Costs must be
• Reasonable
• Allocable
• Note Section C.4.d
• Consistently treated

14
REASONABLE COSTS

• Reasonable and necessary
• Prudent person rule
• Is cost necessary for performance of project?
• Are costs incurred consistent with institutional
  policies?

15
ALLOCABLE COSTS

• Are costs
• Assignable to a cost objective in accordance with
  benefits received
• Incurred to advance work under the project
• Remember C.4.d

16
CONSISTENT COSTS

• Are costs consistently treated?
• In other words, costs cannot be treated in some
  circumstances as direct costs and, in like
  circumstances, also treated as indirect (FA)
  costs

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COST ACCOUNTING 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

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Potential CAS Problem (501)

• Cost sharing
• Effort included in proposal as research
  (estimate) but recorded in accounting system as
  instruction (actual)
• Inconsistent use of terminology
• Research proposal budgets chemicals but
  accounting system charges materials and supplies

19
Potential CAS Problem (502)

• Department charges costs directly that are also
  in the FA rate (administrative and clerical)
• Issue of telephone equipment costs
• .normally charged indirectly

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THE ISSUE OF COST SHARING

• OMB Clarification Memo on Cost Sharing
• Mandatory
• Voluntary committed
• Voluntary uncommitted
• www.whitehouse.gov/omb/memoranda/m01-06.pdf

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The Issue of Administrative and Clerical Costs
(F.6.b)

• Particularly problematic in ensuring that costs
  incurred for the same purpose in like
  circumstances are treated alike. Example given
  in regulations identifies examples of
• Direct costs technical salaries, laboratory
  supplies, travel
• Normally indirect administrative and clerical
  salaries (except for major projects), office
  supplies, postage, local telephone costs

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FA COST CALCULATION (Direct)

• Direct costs research base (funds spent on
  research)
• Total direct costs expenditures on all organized
  research programsmust include
• Externally sponsored research projects
• Internally sponsored research projects
  (separately budgeted and accounted for)
• Cost sharing (mandatory and voluntary committed)

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FA COST CALCULATION (Indirect)

• Prescribed pools
• Facilities (building and equipment
  depreciation/use allowance, operations and
  maintenance, interest)
• Administration (general admin, department admin,
  sponsored projects admin) (limited to 26 points
  in the rate)
• Library

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FA RATE CALCULATION

• FA Expenses Divided by Original Research Base
• FA Rate (expressed as )
• Example
• FA 34 million
• Base 65 million
• RATE 52

25
DISTRIBUTION BASE

• Modified total direct costs (MTDC) all salaries
  and wages, fringe benefits, materials and
  supplies, services, travel and subawards up to
  the first 25,000 of each
• Excluded from base equipment, capital
  expenditures, patient care, tuition remission,
  rental costs, scholarships, fellowships and
  subawards in excess of 25,000

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RATE TYPES

• Predetermined
• Fixed rates with carryforward provisions
• Provisional rates
• Fixed rates for the life of the sponsored
  agreement

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The Issue of Fixed Rate for Life of Award

• Federal agencies shall use the negotiated rates
  for FA costs in effect at the time of the
  initial award throughout the life of the
  sponsored agreement
• Life means each competitive segment of a
  project.
• If negotiated rate agreement does not extend
  through life of agreement at time of initial
  award, negotiated rate for last year of sponsored
  agreement shall be extended through the life of
  that agreement.

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WHO NEGOTIATES THE RATES?

• DHHS OR ONR depending on which agency provides
  more funds to the educational institution for the
  most recent three years

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THE J SECTION Selected Items of Cost

• Total of 54 items identified
• Items for discussion
• J3 Alcoholic beverages
• J10 Compensation for personal services
• Entertainment
• Equipment
• Memberships, subscriptions, professional
  activities

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THE J SECTION Selected Items of Cost
(continued)

• Selected items of cost
• J32 Meetings and conferences
• J38 Proposal costs
• J45 Scholarships and student aid costs
• J47 Specialized service facilities
• J53 Travel costs

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WHERE ARE THE AUDIT VULNERABILITIES?

• Effort Reporting
• Cost Sharing
• Cost Transfers
• Subawards

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QUESTIONS?

• Contact information
• Maren Boyack
• Grant Management Officer
• 474-6073