Cost Accounting Standards

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Cost Accounting Standards

• The University of Alabama
• April 28, 2000

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Todays Questions

• Why did the government promulgate cost accounting
  standards?
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

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What are the Cost Accounting Standards (CAS)?

• Designed for defense contractors
• In 1978, educational institutions were exempted
  from CAS
• OMB Circular A-21 was understood to contain
  required guidance
• Then CAS was applied to them
• Consequence of overhead scandals of early 1990s
• Staggered implementation
• FY 2000 for UA
• CAS led to refinement of other policies

4
Todays Questions

• Why did the government promulgate cost accounting
  standards
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

5
Grant-related settlements in MM
6
Todays Questions

• Why did the government promulgate cost accounting
  standards
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

7
New CAS requires four Standards and a Disclosure
Statement

• 501 Consistency in Estimating, Accumulating, and
  Reporting Costs
• 502 Consistency in Allocating Costs Incurred for
  the same purpose
• 505 Accounting for Unallowable Costs
• 506 Consistency in Using the Same Cost
  Accounting Period
• CASB Disclosure Statement
• Will be audited by Office of the Inspector General

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CAS in Brief

• The CAS theme is consistency
• Consistency difficult to enforce
• Between the proposal and what's actually charged
  and reported
• In cost treatment among departments
• UA principal investigators and administrators
  should
• Become familiar with the rules
• Identify inconsistencies

A-21 CAS
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What is CAS 501?

• Consistency in Estimating, Accumulating, and
  Reporting Costs
• Practices for estimating costs must be consistent
  with practices used in accumulating and reporting
  costs during contract performance
• Should be able to compare budget with actual
  costs for any "significant" type of cost
• Consistency from
• Proposal to proposal
• Proposal to award
• Department to department

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What is CAS 502?

• Consistency in allocating costs incurred for the
  same purpose
• Each type of cost must be allocated on only one
  basis to any contract or other cost objective
• If a grant is charged directly for a cost, the
  same type of costs cannot be charged to that
  project, or any other project, through the
  indirect cost rate

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• The "double screen" behind CAS 502

Chemical Engineering Department Charges copying
indirectly
Chemistry Department Charges copying directly
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CAS 505 Unallowable costs

• Must be removed from grants and indirect cost
  pools
• Unallowable as direct or indirect costs
• Alcohol
• Fund raising, etc.
• Types of costs unallowable as direct costs
• Salaries of administrative staff
• Office supplies
• Postage and local telephone
• Memberships

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Todays Questions

• Why did the government promulgate cost accounting
  standards
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

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How might CAS 501 affect UA departments?

• Cost sharing
• Effort reporting
• Categories of costs

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Cost Sharing Definition

• Financial support contributed by the University
  to sponsored projects.
• Two categories
• 1) Mandatory
• 2) Voluntary

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Mandatory Cost Sharing

• Required by legislation or by the sponsor
• Identified in RFP/RFA or funding opportunity as a
  condition for an award, or
• Quantified in proposal by investigator e.g., 5
  effort with no salary dollars
• Becomes mandatory upon award
• Effort report needs to show 5 as coming from a
  non-federal source
• Should be captured in a specific cost share
  account for the grant

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Voluntary cost sharing

• Not required by sponsor
• Occurs as project proceeds
• Account for in general cost share accounts

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Voluntary Cost Sharing and Effort Reporting

• Effort not committed in the project budget
• But it occurs and
• If charged to accounts that do not reach the
  organized research base...
• CAS problem
• Inconsistent treatment
• Treated differently because of funding
• Not because of difference in purpose and/or
  circumstance

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• Cost Sharing and Effort Reporting

B. Smith spends 5 of his or her effort on the
project as budgeted, no matter what is charged.
Result cost sharing that must be recorded
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When a contract or grant goes over budget

• Cost share accounts will be used to absorb the
  excess cost.
• The excess charge will be funded from
• The department operating account or
• Another account designated by the department when
  the award is received.
• If an unallowable charge is made to a contract or
  grant or cost share account, the unallowable
  charge will be transferred to the department
  account.

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• CAS 501 Budget costs consistently or at a
  consolidated level

Award Budget Less detail
Award Accouting More detail

• Lab Supplies
• Supplies

Lab supplies - Diodes - Resistors -
Chemicals Supplies - Specialized software
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CAS 502 Issues

• Direct and indirect costs
• Departmental administrative costs
• Multiple funded programs
• Equipment as a direct charge

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Consistent treatment--one extreme case

• If one PI charges one stamp to one grant
• You must remove all postage from the
  indirect-cost rate
• (Or charge the stamp elsewhere)

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Definition of direct and indirect cost categories

• Direct costs
• Subcodes per policy
• Cost bases
• Instruction
• Organized research
• Other sponsored activity
• Indirect costs
• General administration
• Departmental administration
• Operating and maintenance costs
• Library
• Sponsored research administration

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Todays Questions

• Why did the government promulgate cost accounting
  standards
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

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What are the new or revised policies?

• Cost policy
• Cost sharing
• Cost transfers
• Effort certification
• Grant and contract policy
• Spending policy

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Criteria for charging a direct cost per policy

• Support the projects purpose and activity
• Represent those costs necessary to meet the
  projects scientific and technical requirements
• Be included in the awarded budget, or the cost
  must be permitted within rebudgeting authority
  granted by the sponsor.
• The cost must not be restricted by the sponsor.

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Unacceptable direct costing practices

• Rotation of charges among sponsored agreements by
  month without establishing that the rotation
  schedule credibly reflects the relative benefits
  to each sponsored agreement
• Assigning charges to the sponsored agreement with
  the largest remaining balance
• Charging the budgeted amount rather than charging
  an amount based on actual usage
• Assigning charges to a sponsored agreement in
  advance of the time the cost is actually incurred

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Unacceptable practices, cont.

• Identifying a cost as something other than what
  it actually is, such as classifying a supply as
  an item of equipment
• Charging expenses exclusively to sponsored
  agreements when the expense has supported
  non-sponsored agreement activities
• Assigning charges that are part of normal
  administrative support (indirect costs) for
  sponsored agreements (e.g., accounting, payroll).
  

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Allocation of a direct cost to two or more
projects

• Direct assignment
• Proportional benefit
• Credible documentation.
• Interrelatedness
• Documentation by PI
• Source A-21 c(4)(d)(2)

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Multiple Funding Sources - Projects as proposed
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Multiple Funding Sources - Projects as awarded
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When one sponsor won't pick up a certain cost

• Consequence
• Proposal not PI intention
• Not allowable there
• Should be counted as cost sharing

• Alternative
• Rebudget to project after award
• Charge to another source
• Charge to the departmental budget

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With these awards departments can charge normally
indirect to direct

• Industrial/Commercial.
• Based on the agreement between the sponsor and
  the University.
• Foundations and Non-For-Profit Agencies and
  Associations.
• Based on the agreement between the sponsor and
  the University.
• State Sponsored Agreements.
• State agency regulations govern
• Training Grants.
• Institutional allowance

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Charging normally indirect to direct, cont.

• Geographically inaccessible projects.
• Projects that take place in remote site(s).
• Projects that require travel and meeting
  arrangements for large numbers of participants.
• Projects involving large, complex programs
• Complexity goes well beyond the normal
  departmental support
• Program project grants, center grants, (EPSCOR)

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Charging normally indirect to direct, cont.

• Projects which involve extensive data management.
• Mailing expense
• Projects whose principle focus includes extensive
  reports
• Other Sponsored Activities (not Research or
  Instruction)
• public service, workshops, community development
• Specific costs incurred for a different purpose

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Recharges per grant and contract policy

• Billing rates are based on cost and
• Must be applied uniformly to all users.
• Billing rates may not be based on what others in
  the industry charge for similar services.
• In some cases it may be necessary to establish
  rates at less than full cost, but under no
  circumstances may rates exceed cost over the
  accepted operating cycle (five years).
• No capital equipment acquisitions are allowed in
  the operating account

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Cost transfers per separate policy

• Timely
• Appropriate
• Reasonable
• Allowable
• Allocable
• Consistently treated
• Adequate documentation
• Responsibility for compliance
• PI
• Contract and Grant Accounting

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Documentation of Cost Transfers per policy

• The cost must be identified with activity in the
  sponsored agreement to which the cost is charged
• Documentation that links the cost incurred to the
  sponsored agreement activity should be done by
  someone who is in a position to know the
  sponsored agreement activity (normally the PI)
• Documentation must be maintained for a period of
  three years

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Documentation

• Basic regulation
• Direct costs are those costs that can be
  identified specifically with a particular
  sponsored project...or that can be assigned to
  such activity relatively easily and with a high
  degree of accuracy
• Goal is to document the transaction in a way that
  demonstrates these
• Per A-21 c(4)(d) this is the responsibility of
  the principal investigator
• The institution's documentation requirements ...
  (e.g., signature or initials of the principal
  investigator or designee or use of a password)
  will normally be considered sufficient.

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Equipment as a direct charge should

• Have clear and close relationship to award
• Not be used in similar way to equipment treated
  as indirect
• Not be purchased at end of award

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Conclusions

• There are risks in non-compliance with costing
  regulations at UA
• When costs are charged to a grant, the
  relationship to the science should be clear and
  close
• Charging practices should be in line with UA
  policies and procedures. This will
• Avoid damaging inconsistency
• Help UA negotiate a fair overhead rate
• Each project should be managed
• In conjunction with departmental administrator
• To avoid questionable transactions

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Todays Questions

• Why did the government promulgate cost accounting
  standards
• Why should UA departments follow them?
• What standards apply?
• What are they likely to mean to your department?
• What are the new or revised policies?
• Where can you seek guidance?

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Where to seek guidance

• Contract and Grant Accounting Office
• [phone] Telephone[phone] FAX
• Office of Sponsored Programs
• [phone] Telephone[phone] Fax
• Policy guidelines
• Faculty Handbook Post-Award Policies
  Procedures at
• www.ua.edu/cgfac.html
• UA Spending Policies
• www.bama.ua.edu/finacct/spendweb.html

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• Questions and Discussion