Procedures for Implementing Consistent Treatment of Costs
As a recipient of federal awards, The University of Texas Medical Branch (UTMB) is obligated to comply with numerous rules and regulations issued by several federal agencies. These agencies include the Office of Management and Budget (OMB) and the Cost Accounting Standards Board (CASB) which set forth broad policies governing sponsored project financial administration, as well as numerous individual agencies that award sponsored projects. In recent years OMB has become concerned with the costing practices and increased indirect cost recoveries of universities and has made several revisions to OMB Circular A-21, "Cost Principles for Educational Institutions." In addition, the Cost Accounting Standards Board (CASB) that has generally provided cost accounting standards for firms in the private sector, has also shown concern. Currently there are nineteen cost accounting standards for private firms performing federally sponsored projects. Colleges and universities must comply with four of these standards that deal with consistent treatment of costs. UTMB is required to file a disclosure statement to the CASB to disclose our accounting practices, policies and procedures for assigning costs to federally sponsored programs, and to attest to the consistency of those practices.
To ensure the consistent treatment of costs incurred by UTMB departments and charged directly or indirectly to federally sponsored programs, UTMB has incorporated the following four OMB Circular A-21 cost accounting principles in its accounting practices. These principles apply except to the extent they are modified by federal awarding agencies via program regulations, policy statements, guidelines, instructions, etc.
It is the responsibility of individual investigators, department heads, and administrators to understand and follow the regulations and procedures described below.
1. Indirect Costs (Facilities and Administration Costs)
To facilitate the understanding of what costs can be charged to federally sponsored projects and what costs must be recovered through the indirect cost rate, a definition of indirect costs and a brief description of indirect costs included in the indirect cost rate follows:
OMB Circular A-21, Section E. 1. defines indirect costs as "those costs that are incurred for joint or common objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity."
The indirect cost rate includes the following cost components:
- Depreciation - Depreciation on non-federally funded portions of buildings
- Equipment Depreciation - Depreciation on non-federal equipment only
- Operations and Maintenance - Consists of facility costs such as electricity, steam, chilled water, plant operations, general maintenance and repairs, health and safety, grounds maintenance, security, etc.
- General Administration - Includes costs for accounting, budget, payroll, human resources, purchasing & receiving, etc.
- Sponsored Projects Administration - Research Administrative Services Office administration, accounting and reporting
- Library - Includes general costs incurred in the operation of a campus library
- Student Administration - Not generally allocated to sponsored programs
- Departmental Administration - Includes Dean's office, Faculty Administrative salaries, administrative and clerical salaries, office supplies, and other non-salary costs that will be addressed later
2. Direct Costs
Section D.1. of OMB Circular A-21 states "Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs. When an institution treats a particular type of cost as a direct cost of sponsored projects, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution."
Costs charged to a sponsored project must support the project’s purpose and activity and must be necessary to meet its scientific and technical requirements. Administrative costs may not normally be charged to sponsored projects. However, such costs may be charged to sponsored projects under limited and specific conditions.
3. Allowable Direct Charges
Direct costs charged to sponsored projects must also be allowable as defined by OMB Circular A-21. The regulations state that allowable direct costs must be "reasonable," "allocable," "consistently treated as direct charges," and "not specifically designated as unallowable." A cost must meet all of the following conditions before it may be directly charged to a sponsored project.
- The cost must be reasonable and necessary for the performance of the project. This means that a prudent person performing the project work would spend funds in this manner. Failure to document a cost could result in a disallowance of a legitimate charge.
- The cost must be allocable to the project. Projects may share costs. However, if the cost is of benefit to more than one project, an individual project may only be charged for that portion of the cost that represents the benefit directly received by that project. If the cost benefits both a sponsored project and other work, only the proportion of the cost that benefits the sponsored project may be charged to that project.
- A cost charged directly to a federally sponsored project must be consistently treated in like circumstances as a direct charge for all other federally funded projects at UTMB. A cost item may not be charged as a direct cost on some sponsored projects and as an indirect cost on other sponsored projects.
- A federally sponsored project may not be charged for any item or service that is specifically defined as unallowable in either an OMB Circular, agency guidelines, or the agency award. (e.g. liquor)
- According to the Basic Considerations Section of OMB Circular A-21, "Any costs allocable to a particular sponsored agreement under the standards provided in this Circular may not be shifted to other sponsored projects in order to meet deficiencies caused by overruns or other fund considerations to avoid restrictions imposed by law or by terms of the sponsored agreement or for other reasons of convenience."
- Below are some examples of unacceptable charging practices to federally funded projects:
- Charging costs to sponsored projects arbitrarily or for the purpose of simplified budget management
- Charging sponsored projects a tax to pay for functions that do not directly benefit the project or do not reflect the actual cost and usage of the function by the sponsored project
- Charging costs to sponsored projects with the largest remaining balance
- Charging costs to only sponsored projects when the costs also support non-sponsored activities
- Rotation of charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each grant
- Charging the budgeted amount rather than an amount based on actual usage
- Charging sponsored projects for costs before the cost is actually incurred
- Identifying a cost as something other than what it actually is in order to charge it to a federally funded project
- Charging routine administrative costs to a federally funded project
- Charging projects for shared costs equally among the total number of users rather than for an amount based on actual usage
- Charging a project for 100% of an expenditure where the expenditure life extends beyond the end of the grant funding period
- Charging projects that are ending with costs without regard to the appropriateness of the costs to that particular project for the purpose of expending all the funds.
All costs may be direct charged to non-federal sponsored projects as long as they have been approved by the awarding sponsor. UTMB has designated non-federal sponsored agreement as "unlike circumstances."
4. Departmental Administrative Costs
Section F.6.b of OMB Circular A-21 revised as of May 8, 1996 states: "In developing the departmental administration cost pool, special care should be exercised to ensure that costs incurred for the same purpose in like circumstances are treated consistently as either direct or indirect costs. For example, salaries of technical staff, laboratory supplies, telephone toll charges, animals, animal care costs, computer costs, travel costs, and specialized shop costs shall be treated as direct costs wherever identifiable to a particular cost objective. Direct charging of these costs may be accomplished through specific identification of individual costs to benefiting cost objectives, or through recharge centers or specialized service facilities, as appropriate under the circumstances. The salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as indirect costs."
This section of the regulation addresses departmental administrative costs and helps to identify the specific types of costs that generally should be charged either as a direct or indirect cost to federally funded projects.
ACCOUNTING PRACTICES AND PROCEDURES
The following are the accounting practices and procedures for assigning expenditures to federally sponsored programs as direct or indirect costs. Our practices and procedures are based on the federal requirements discussed above. These procedures will provide the framework for consistently charging costs throughout UTMB. It is the responsibility of individual investigators, department heads, and administrators to comply with these procedures for direct charging federally sponsored programs. UTMB’s accounting practices for charging academic departmental costs (direct and indirect) to federal projects are outlined in the following sections.
- A. Salaries and Wages
- 1. Clerical and Administrative Salaries and Wages
- 2. Faculty and Other Salaries
- B. Non-Salary Expenditures
A. SALARIES AND WAGES
1. Clerical and Administrative Salaries and Wages
As stated in OMB Circular A-21, clerical and administrative salaries should generally be assigned to Federal sponsored projects as indirect costs. The regulation establishes the principle that the salaries of administrative and clerical staff should usually be treated as indirect costs. However, the regulation does suggest that direct charging of these costs may be appropriate where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support that is significantly greater than the routine level of such services provided by academic departments. The costs must meet the federal criteria for direct charging -- i.e., "be identified specifically with a particular sponsored project... relatively easily with a high degree of accuracy." Also, the special circumstances requiring direct charging of the administrative and clerical services would need to be justified to the satisfaction of the awarding agency in the grant application or contract proposal.
The following examples illustrate circumstances where direct charging the salaries of administrative or clerical staff may be appropriate.
- Large, complex programs, such as general clinical research centers, primate centers, program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions. The dollar value of a project cannot alone be the determining factor in defining a "large" or "major" project.
- Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical records studies.
- Projects that require making travel and meeting arrangements for large numbers of participants, such as conducting conferences and seminars.
- Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
- Projects that are geographically inaccessible to normal departmental administrative services, such as seagoing research vessels, radio astronomy projects, and other research field sites that are remote from the campus.
- Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocol; Institutional Review Board (IRB) and multiple project-related investigator coordination and communications.
- Extraordinary and extensive administrative support related specifically to a particular sponsored project that is significantly greater than the routine level provided by academic department administrative and clerical staff may be budgeted and charged to sponsored projects and include the following: ·
- Grant managers performing extraordinary and extensive administrative support · Programmatic project effort
- Extraordinary and extensive data entry
- Research data gathering
- Research data cleaning
- Conducting interviews required by the project
- Laboratory technician activities
- Telephone surveys required by the project
- Computer programming
- Extraordinary and greater than the routine budget creation and maintenance
- Extraordinary effort in grant related transcription
- Writing manuscripts for publication (not data entry)
- Develop materials for presentations
- Large conference planning and organization required by the project
- Research training
- Clinical and patient activities:
- Scheduling patient visits
- Physical exams
- Blood drawing
- Height and weight measurement
The following represents administrative and clerical activities that normally may not be charged to grants or contracts:
- Secretarial assistance
- Proposal preparation and typing applications for awards
- Procurement of material and services
- Departmental administrators (general departmental duties)
- Payroll activities
- Accounting and budgeting activities
- Processing vouchers
- Routine travel related planning
- Routine data entry
- Routine telephone answering
- Routine database maintenance
- Typing of newsletters and brochures
- Data correction and organization
- Routine processing and tracking of purchase orders
- Routine word processing or typing
These examples are not exhaustive nor are they intended to imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples. Further, federal representatives have indicated that RO1 basic research awards, in general, do not represent major projects and do not generally require a significant level of administrative and clerical staff effort to be charged to the awards.
Where direct charges for administrative and clerical salaries are made to federal awards the investigator must be prepared to demonstrate that their activities go well beyond the core of normal administrative services that a department is expected to provide in support of research at UTMB. Just because an agency approves administrative and clerical costs as direct charges to a federal project does not "per se" make them appropriate. The federal agencies are relying on UTMB to follow this costing policy (as disclosed in our disclosure statement) before requesting charges. Also, care must be exercised to assure that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for instructional, patient care and other institutional activities. Questions about UTMB accounting practices for departmental salaries should be referred to the Office of Sponsored Programs.
2. Faculty and Other Salaries
Salaries and wages paid at the University's approved rates are allowable costs to federal projects as long as they meet the direct cost requirements, are identifiable to a particular cost objective, and reflect the level of effort expended on the project and documented by the University’s effort reporting system. Fringe benefits in accordance with established University policies are allowable and are charged to projects based on actual fringe benefit costs.
In describing a system to track effort on federal projects OMB Circular A-21 states the following:
"In the use of any method for apportioning salaries, it is recognized that, in an academic setting, teaching, research, and service administration are often inextricably intermingled. A precise assessment of factors that contribute to costs is not always feasible, nor is it expected. Reliance, therefore, is placed on estimates in which a degree of tolerance is appropriate."
UTMB has elected to use the Personnel Activity Reporting (PAR) System as its method to document effort performed on Federal Projects. In regard to the PAR system, OMB Circular A-21 stipulates the following requirements:
- "Certification reports will reflect the distribution of activity expended by employees covered by the system.
- The reports will reflect an after-the-fact reporting of the percentage distribution of activity of employees. Charges may be made initially on the basis of estimates made before the services are performed, provided that such charges are promptly adjusted if significant differences are indicated.
- Reports will reasonably reflect the activities for which employees are compensated by the institution. To confirm that the distribution of activity represents a reason-able estimate of the work performed by the employee during the period, the reports will be signed by the employee, principal investigator, or reasonable official(s) having first-hand knowledge of the work performed or using suitable means of verification that the work was performed.
- The system will reflect activity applicable to each sponsored agreement and to each account in instruction, general administration, and other institutional activities."
The PAR is a supplement to the payroll system and provides the basis for certifying that salaries are charged to accounts in accordance with the relative activity applicable to various programs and projects. The PAR constitutes the primary basis for reimbursement to the University by the federal government of salaries charged to sponsored research, sponsored instruction, and other sponsored activities. The PAR also provides the means of identifying cost sharing activity on sponsored programs.
The information reported on each monthly PAR reflects the actual (not budgeted) effort of each employee, as well as it can be estimated or measured. Monthly PAR reports are prepared for all employees who are paid from sponsored project accounts, either totally or partially.
B. NON-SALARY EXPENDITURES
Section F.6.b. of OMB Circular A-21 states "Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as indirect costs."
The cost items listed in this section are some of the more common costs incurred for sponsored programs at The University of Texas Medical Branch and are provided as guidance only. Failure to mention a particular item of cost is not intended to imply that it is either allowable or unallowable. For expenditures that are used to support multiple projects, those projects should normally be charged an appropriate amount based on use. For a list of common expenditures, and whether they may or may not be charged to federally sponsored programs, see Attachment A. If you have any questions about the allowability of any cost on your project, please contact the Office of Sponsored Programs (OSP).
The only advertising costs that can be charged to federally sponsored projects are those which are solely for (1) the recruitment of personnel required for the performance by the institution of obligations arising under the sponsored agreement; (2) the procurement of goods and services for the performance of the sponsored agreement; (3) the disposal of scrap or surplus materials acquired in the performance of the approved agreement; and (4) other specific purposes necessary to meet the requirements of the sponsored agreement. Any other advertising costs are non-allowable to federally sponsored projects.
Costs for alumni activities are unallowable and may not be charged to federally sponsored projects.
Costs incurred for alcohol, amusement, social activities, entertainment, and any items relating thereto, such as meals, lodging, rentals, transportation, and gratuities are unallowable and may not be charged to federally sponsored projects. Special care should be followed to ensure that entertainment costs are not charged to federal projects.
Equipment and Other Capital Expenditures
UTMB’s definition of capital equipment is "an article of nonexpendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit." Our definition is in compliance with federal costing regulations. When the University acquires equipment using Federal funds, it must assure that all purchases or leases are necessary, beneficial, and non-duplicative.
- Approval to Purchase or Lease
Since approval criteria on the purchase or lease of capital expenditures vary between the different awarding agencies, approval will be obtained based on such awarding agency requirements. For further information, contact the Office Sponsored Programs.
Fines and Penalties
Costs resulting from violations of, or failure to comply with, Federal, State, and local laws and regulations (including University regulations) are unallowable and may not be charged to federally sponsored projects, except when incurred as a result of compliance with specific provisions of the sponsored agreement, or instructions in writing from the contract officer or equivalent.
Costs of insurance required or approved pursuant to sponsored projects are allowable and may be charged to the federally sponsored projects.
Costs incurred for interest on borrowed capital are unallowable and may not be charged to federally sponsored projects except for equipment, with prior approval from the sponsoring agency.
Losses on Other Sponsored Projects or Contracts
Any excess of costs over income of a sponsored agreement or contract of any nature is unallowable and may not be charged to another sponsored agreement or contract.
Maintenance and Repair Costs
Costs incurred for necessary maintenance, repairs or upkeep of property (including government property unless other wise provided for) which neither add to the permanent value of the property nor appreciably prolong its intended life but keep it in efficient operating condition, are allowable and may be charged to sponsored projects. The cost must be incurred within the grant period. If a maintenance agreement cost or a repair cost is charged to more than one sponsored agreement the cost must be allocated to the various projects based on the benefit directly received by each agreement. An equal percentage charge of this cost to each agreement or some other similar allocation method is not allowable unless the amount charged to each agreement represents the benefit directly received by each agreement.
Costs incurred for purchased materials and supplies used in the performance of the sponsored agreement are allowable and may be charged to sponsored projects (this does not include office supplies).
Costs for memberships in technical and professional organizations may not be charged to federally sponsored projects. These costs are included in the Departmental Administration indirect cost pool. Memberships that come as part of a subscription are allowable as a direct charge to federally sponsored projects as long as the subscription is specifically approved in the project's budget and the scientific information in the subscription is the primary reason for the expenditure. (See Also Subscriptions)
Office supplies normally may not be charged to federally sponsored projects. These costs must be treated as indirect costs and must be included in the Departmental Administration indirect cost component. Office supplies may be charged to federally sponsored projects only when the supplies are purchased for the sole direct technical benefit of the work required by the sponsored agreement. This does not include office supplies used in routine administrative work.
Photocopy costs can be charged to federally sponsored projects only when the photocopies directly and specifically benefit the contract or grant to which the charge is made. Photocopy costs for routine administrative activities are indirect costs and may not be charged to federally sponsored projects.
Federal funds may not be used for any type of partisan political activity by any person or organization involved in the administration of federally sponsored programs. "Political activities" include, but are not limited to, lobbying, publications, or other materials intended for influencing legislation.
Postage or Delivery/Courier Costs
Ordinary and routine postage costs may not be charged to federally sponsored projects. These costs must be included in the Departmental Administration indirect cost rate component. Federally sponsored projects with an extraordinary high demand for postage may be charged with these costs only if the postage is related to the specific work of the federally sponsored projects and only if the cost is included in the budget narrative and approved by the awarding agency. Delivery/courier costs can be charged to projects if approved in the project budget.
Printing and Publications
Printing and publication costs are allowable and may be charged to federally sponsored programs.
Project Proposal/Application Costs
The costs of preparing proposals and applications for acquiring federal funding - including typing, copying, mailing, long distance telephone charges, etc. may not be charged to federally sponsored projects. These costs must be included in the Department Administration indirect cost rate component.
Public Relations Costs
Public relations costs pertaining to specific research or scientific accomplishments are allowable and may be charged to sponsored projects only when these costs result from performance of the sponsored agreement and when these costs are specifically approved by the sponsoring agency. All other public relations costs are unallowable.
Special arrangements and alteration costs incurred specifically for the sponsored project are allowable and may be charged to federally sponsored projects when the work has been approved in advance by the sponsoring agency.
Reprint costs may not be charged to a federally sponsored agreement unless the costs occur during the specific grant period and can only be charged to the specific grant to which the costs relate. It is unallowable to charge reprint costs to an unrelated sponsored agreement because the costs were incurred after the specific agreement to which the costs related has ended.
Student Aid Costs
Costs of scholarships, fellowships, and other student aid are allowable and may be charged to sponsored projects only when the purpose of the sponsored agreement is to provide training to selected participants and only when the charge is approved by the sponsoring agency.
Activity Costs (General Fees)
Costs incurred for intramural activities, student publications, student clubs, and other student activities are unallowable and may not be charged to sponsored projects; unless specifically provided for in the projects.
Costs for subscriptions to professional and technical periodicals are allowable and may be charged to federally sponsored projects. However, the subscription period must fall within the timeframe of the agreement and the subscription must be related to the performance of the sponsored agreement. The cost of the subscription must be allocated among all of the activities that receive a benefit from the subscription, i.e., instruction, patient care, etc.
Costs incurred for local telephone services, telephone equipment, cellular telephones, pagers, and fax lines are indirect costs and may not be charged to federally sponsored projects. These costs must be included in the Departmental Administration indirect cost rate component. Long distance toll charges may be charged to federally sponsored projects when a charge can be specifically identified with a project.
Travel costs are allowable when they are directly attributable to specific work under a sponsored project and are approved in the sponsored project. Foreign travel costs are allowable only when the travel has received specific prior approval from the funding agency.
Costs of meetings and conferences are allowable and may be charged to sponsored projects when the primary purpose is the dissemination of technical information. This includes costs of meals, transportation, rental of facilities, and other items incidental to such meetings or conferences.
All travel costs charged to federally sponsored projects must comply with UTMB and State Travel regulations.
If you have questions about these procedures call your representative in the Office of Sponsored Programs, ext. 21582, or Nancy Gast, Department of Cost Reimbursements, ext. 21438.
Last modified: 10/05/2004