Basics of US Cost Accounting Standards

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					A Guide for UW-Madison Administrators & Faculty

                      Basics of the
             Cost Accounting Standards (CAS),
                  OMB Circular A-21, and
                     Cost Principles
                                  March 28, 2006

              Robert Andresen                             Carol Hillmer
   Assistant Director, Post-Award Services     Assistant Dean, Research Division
     Research and Sponsor Programs           College of Agricultural and Life Sciences
Overview

• Cost Accounting Standards (CAS)

• OMB Circular A-21

• Cost Principles

• Allowable vs. Unallowable

• Exceptions

• Questions
Cost Accounting Standards (CAS)

• What is the CAS Board?

• What are CAS?

• Why are there CAS?

• How are CAS applied to educational institutions?
 What is the Cost Accounting Standards Board?

• The Board is an independent legislatively-established board
  located within the Office of Federal Procurement Policy (a
  section of the Office of Management and Budget).

• The Board issues rules and regulations by which government
  agencies, contractors, and subcontractors are required to
  comply.

• The Board has exclusive authority to make, promulgate, and
  amend cost accounting standards and interpretations
  designed to achieve uniformity and consistency in the cost
  accounting practices governing the measurement, assignment,
  and allocation of costs.
What are Cost Accounting Standards?


• CAS incorporates three areas of cost accounting:

   – Measurement of costs

   – Assignment of cost to cost accounting period

   – Allocation of cost to cost objectives

• There are 19 standards, 4 of which apply to
  educational institutions (see OMB Circular
  A-21, Subsections C.10-14).
Why are there Cost Accounting Standards?

• CAS were designed to achieve uniformity and
  consistency in the measurement, assignment, and
  allocation of costs.

• The standards are based on examinations of
  common cost accounting practices.

• CAS establish limits and constraints on what is
  considered appropriate, with the goal of providing
  consistency and uniformity in cost accounting.
Cost Accounting Standards applied to Educ. Institutions


OMB Circular A-21 Subsections C.10-14 impose 4 of
 the 19 standards on educational institutions:

• CAS 501 Consistency in Estimating, Accumulating
  and Reporting Costs

• CAS 502 Consistency in Allocating Costs Incurred
  for the Same Purpose

• CAS 505 Accounting for Unallowable Costs

• CAS 506 Cost Accounting Period
Cost Accounting Standards applied to Educ. Institutions

• CAS 501 Consistency in Estimating, Accumulating
  and Reporting Costs

   – Requires that an institution’s practices in
     estimating costs in pricing a proposal be
     consistent with the institution's cost accounting
     practices used in accumulating and reporting
     costs.

   – Requires that an institution's cost accounting
     practices used in accumulating and reporting
     actual costs for a sponsored agreement be
     consistent with its practices used in
     estimating costs in pricing the related
     proposal or application.
Cost Accounting Standards applied to Educ. Institutions

• CAS 502 Consistency in Allocating Costs Incurred for
  the Same Purpose

  – Requires that all costs incurred for the same
    purpose, in like circumstances, be treated as
    either direct costs only or F&A costs only with
    respect to final cost objectives.
Cost Accounting Standards applied to Educ. Institutions

• CAS 505 Accounting for Unallowable Costs

  – Unallowable costs must be identified and excluded
    from any billing, claim, application, or proposal
    applicable to a sponsored agreement.
Cost Accounting Standards applied to Educ. Institutions

• CAS 506 Cost Accounting Period

  – Educational institutions must use their fiscal year
    as their cost accounting period.
Overview

• Cost Accounting Standards (CAS)

• OMB Circular A-21

• Cost Principles

• Allowable vs. Unallowable

• Exceptions

• Questions
OMB Circular A-21

• What is OMB Circular A-21?

• Purpose of OMB A-21

• CAS in OMB A-21
What is OMB Circular A-21?

• OMB is the Office of Management and Budget.

• Circulars are instructions or information issued by
  OMB.

• Circular A-21 addresses Cost Principles for
  Educational Institutions.

• Circulars are expected to have a continuing effect of
  two years or more.

• Current Circular A-21 was Revised 05/10/04.
Purpose of OMB Circular A-21

• Establishes principles for determining costs
  applicable to grants, contracts, and other
  agreements with educational institutions.

• Principles deal with the subject of cost
  determination.

• Principles are designed to provide that the
  Federal Government bear its fair share of total
  costs, determined in accordance with generally
  accepted accounting principles, except where
  restricted or prohibited by law.
Cost Accounting Standards in OMB Circular A-21

• In 1996, A-21 implemented CAS for all sponsored
  agreements.

• Effective July 1, 1997, UW-Madison implemented
  its compliance with the CAS required by the OMB.
Cost Accounting Standards in OMB Circular A-21

• OMB Circular A-21 Cost Principles for Educational
  Institutions requires that institutions treat similar costs
  consistently as either direct costs or F&A costs.

• OMB expects that certain types of costs will be
  included in the institution’s F&A cost rate and will not
  be charged as direct costs to Federal projects.
Overview

•   Cost Accounting Standards (CAS)

•   OMB Circular A-21

•   Cost Principles

•   Allowable vs. Unallowable

•   Exceptions

•   Questions
Cost Principles

•   Costs are reimbursable by the Federal
    Government ONLY if they are:

             Necessary
             Reasonable
             Allocable
             Allowable
             Consistently treated
             Permissible

•   If a cost cannot meet this criteria, it is
    unallowable no matter what it is for.
Necessary

• Costs applied to the project MUST be necessary to
  accomplish the scope of work.

• To be necessary, the cost applied must be absolutely
  essential to achieve a certain result or results.
Reasonable

• If the nature of the goods or services acquired or
  applied to the project reflect the action that a “prudent
  person” would take under similar circumstances.

• Emphasis would be upon one acting in good
  judgment.

• Not excessive or extreme; fair.
Allocable

• Cost is incurred solely for advancement of work on
  the project.

• Application of cost is in proportions that can be
  approximated through reasonable methods.

• Cost is necessary and deemed assignable to the
  project.
 Additional Considerations of Allocability


• Costs allocable to a particular sponsored
  agreement may not be shifted to other sponsored
  agreements to meet deficits caused by overruns or
  other fund considerations, to avoid restrictions, or
  for other reasons of convenience.

• Costs allocable to activities sponsored by industry,
  foreign governments or other sponsors may not be
  shifted to federally-sponsored agreements.
Additional Considerations of Allocability

• When equipment is purchased as authorized
  under a sponsored agreement, the costs are
  assignable to the sponsored agreement
  regardless of the use that may be made of the
  equipment after the end of the project.
Allowable

• Allowability of costs is defined specifically in OMB
  Circular A-21 Section J General Provisions of the
  cost principles.



• A-21 Section J – see handout summarizing
  allowability of costs
Consistently Treated

• Like costs must be treated the same in like
  circumstances … consistently.

• Costs may be treated as direct costs only or as F&A
  costs only.
Permissible

• Costs must be permissible under the law

AND/OR

• Costs must be permissible under terms/conditions of
  the award
Overview
• Cost Accounting Standards (CAS)

• OMB Circular A-21

• Cost Principles

• Allowable vs. Unallowable

• Exceptions

• Questions
Allowable vs. Unallowable Costs

• OMB Circular A-21 Section J defines 54
  specific categories of costs and assigns them
  to the categories of allowable and unallowable.

• Section J instructs grantees on the acceptable
  treatment of allowable costs as either direct
  costs or F&A costs.
 Allowable Costs

• Section J instructs that an allowable cost may be:

   – normally treated as a direct cost;

   – normally treated as an F&A cost; or

   – normally treated as an F&A cost, except in “unlike”
     circumstances under which it may be treated as a
     direct cost.
      • Note that such “unlike” circumstances must
        be documented during the institutional CAS
        review and approval process.
Unallowable Costs

• Section J instructs that an institution is required to
  separately track and account for all unallowable
  costs to ensure that they are not charged to Federal
  awards either as direct costs or as part of the
  institution’s F&A cost rate calculations.

   – Examples: Alcoholic Beverages, Alumni Activity,
     Commencement Costs, Bad Debts, etc.

• Costs that are named in Section J as
  unallowable are unallowable in any
  circumstance.
CAS 502 – Impact on Allowability

• Requires that all costs incurred for the same
  purpose, in like circumstances, be treated as either
  direct costs only or F&A costs only with respect to
  final cost objectives.

• Prohibits double direct charging of the same cost to
  multiple projects.

• Prohibits charging as a direct cost any cost for which
  other costs incurred for the same purpose, in like
  circumstances, have been included in any F&A cost
  pool to be allocated to that or any other
  final cost objective.
Costs Normally Treated as Indirect Costs (F&A)


• Administrative and Clerical Salaries

• Telecommunications -- Local Telephone Service
      Including phone equipment such as telephones, cell
      phones, pagers, fax machines, and line charges

• Postage
      Including U.S. Postal Service, Federal Express, UPS

• Dues and Memberships

• Office Supplies
Costs Normally Treated as Indirect Costs (F&A)

• Subscriptions, Books, and Periodicals

• General Purpose Equipment
  Non-research equipment which may be used for general
  office purposes such as desktop computers, laptop
  computers, printers, fax machines, copy machines, and
  office furniture.

• General computer services, networking costs, or
  other DoIT services

• Staff recruitment and relocation
Overview

• Cost Accounting Standards (CAS)

• OMB Circular A-21

• Cost Principles

• Allowable vs. Unallowable

• Exceptions

• Questions
Is a Cost Eligible for a CAS Exception?
• A cost normally treated by UW-Madison as an F&A
  cost may be appropriate as a direct cost on a
  Federally sponsored project if:

  – The cost is necessary, reasonable, allocable,
    allowable, and permissible under the law,
    terms/conditions of the award, and the
    circumstances are “unlike.”

  – “Unlike” circumstances may be determined by the
    nature of the project, such as those detailed
    in Exhibit C of OMB Circular A-21.
Exhibit C: OMB Circular A-21 Major Project Examples

• Large, complex programs that entail assembling and
  managing teams of investigators
   – Examples: General Clinical Research Centers (GCRC),
     Primate Centers, Program Projects, Environmental or
     Engineering Research Centers.

• Projects involving extensive data accumulation,
  analysis/entry, surveying, tabulation, cataloging,
  reporting
   – Examples: Epidemiological Studies, Clinical Trials.
Exhibit C: OMB Circular A-21 Major Project Examples

• Projects whose principal focus is preparation and
  production of manuals, reports, books

  – Excludes: Routine Progress and Technical Reports.

• Individual projects requiring project-specific
  database management or individualized manuscript
  preparation
Exhibit C: OMB Circular A-21 Major Project Examples

• Projects which require extensive travel or meeting
  arrangements
   – Examples: Conference or Seminar Awards.

• Projects that are geographically inaccessible to
  normal department administrative services
   – Examples: Radio Astronomy Projects, Remote Field Sites.

• NOTE: These examples are not exhaustive, nor are
  they always appropriate as instances when
  assessment of administrative/clerical
  salaries would be allowed.
Administrative and Clerical Salaries
• Administrative and clerical salaries should normally
  be treated as F&A costs per A-21 F.6.b.2. It may be
  appropriate to charge administrative and clerical
  salaries to a Federal award under the following
  circumstances:
   – A major project (as defined in OMB A-21 Exhibit C) or
     activity explicitly budgets for administrative or clerical
     services; and

   – Employees involved can be specifically identified with the
     project or activity; and

   – Costs are incurred in unlike circumstances, i.e.,
     the actual activities direct charged are not the
     same as the actual activities normally included
     in the institution's F&A cost pool.
Telecommunications Costs
• Long distance phone calls are normally
  treated as direct costs under Section
  F.6.b.1.

• Local phone service and phone equipment
  are normally treated as F&A costs by UW-
  Madison per A-21 F.6.b.3.
Telecommunications Costs
• It may be appropriate to charge local and
  equipment costs to a Federal award under the
  following circumstances:
  – A pager may be necessary for a clinical trial in order to
    allow the study coordinator to remain in immediate
    contact with the PI for the safety of patients.

  – A fax machine and line may be justifiable if it is
    dedicated to the project and is necessary to ensure
    confidentiality of transmitted patient information.

  – Monthly telephone line charges may be justifiable if the
    telephone line is fully dedicated to the project and
    used for no other purposes.
Postage

• Postage costs which include U.S. Postal Service,
  Federal Express, and UPS should normally be
  treated as F&A costs per A-21 F.6.b.3.

• It may be appropriate to charge such costs to a
  Federal award under the following circumstances

  – Costs of shipping biological samples in dry ice to a
    collaborator may be allowable as direct costs due to
    “unlike” circumstances.

  – Costs associated with mailings involving data
    collection/survey costs, also may be allowable
    as direct costs due to “unlike” circumstances.
Postage
• Conversely, cost of sending the proposal,
  revisions, periodic or annual reports, or
  related correspondence to the funding
  agency should not be charged as direct costs to
  a sponsored project.
  Section J.34. Proposal Costs specifies that costs
  of preparing proposals should normally be
  treated as F&A costs. No “unlike” circumstance
  exists.
Dues and Memberships
• Dues and Membership fees should normally be
  treated as F&A costs per A-21 F.6.b.3.

• It may be appropriate to charge such costs to a
  Federal award under the following circumstances:
   – A investigator will attend a specific meeting or conference
     to present finds of their research under a specific award.
     The registration costs to attend include membership fees.
     A non-member option of attendance is more costly than the
     registration including membership.

   – The RFP under which application was made requires
     investigator attendance at a specific meeting. Meeting
     attendance requires the individual to hold a current
     membership.
Office Supplies
• Office Supply costs should normally be treated as
  F&A costs. Office supplies such as paper,
  envelopes, pens, staples, etc. are normally treated
  as F&A by UW-Madison per A-21 F.6.b.3.

• It may be appropriate to charge such costs to a
  Federal award under the following circumstances:

   – A large epidemiological survey project may require
     paper, envelopes, etc. to produce and mail surveys to
     study participants.

   – An outreach project may require paper and
     pens as part of the training component
     defined within the scope of the project.
Subscriptions, Books, and Periodicals
• Subscription, Book, and Periodical costs should
  normally be treated as F&A costs per A-21.F.8.

• It may be appropriate to charge such costs to a
  Federal award under the following
  circumstances:

   – An outreach project may require specific books as
     part of the training component to be available for use
     and reference at traveling training sites defined within
     the scope of the project.

   – However, subscriptions or books specifically
     purchased for a general laboratory reference
     library would not be allowable.
 General Purpose Equipment
• General purpose equipment such as desktop
  computers, laptop computers, printers, office furniture
  and vehicles are normally treated as F&A costs.

• Under J.16.b.1, such charges are unallowable as
  direct charges, except where approved in advance by
  the sponsored agency. Some agencies have waived
  prior approval requirements under FDP/Expanded
  Authorities.

• However, CAS 502 requires consistent treatment as
  F&A costs except in “unlike” circumstances.
General Purpose Equipment
• CAS requires consistent treatment of similar costs
  in like circumstances. Since general purpose
  equipment costs are normally treated as F&A by
  UW-Madison, CAS exceptions for direct charging
  these items may be approved only in “unlike”
  circumstances:
  – For example, a desktop computer might be necessary,
    dedicated and justifiable for a project that requires large
    amounts of statistical or data analysis.

  – A laptop computer might be necessary, dedicated and
    justifiable for a study of microbial contamination of
    fresh produce in which data will be collected and
    entered into a database using the laptop in a
    remote agricultural site during harvest of
    produce.
General computing, networking costs, other DoIT services
• General computer services, networking costs, or other
  DoIT services should normally be treated as F&A costs.

• It may be appropriate to charge such costs to a Federal
  award under the following circumstances:
  – The award is for a large clinical research center (a major
    project). Networking costs would need to be fully dedicated to
    the center to be allowable.

  – NOTE: Networking costs for the vast majority of Principal
    Investigators would NOT be allowable in that their role is NOT
    fully dedicated 100% to any one specific award.
Staff Recruitment and Relocation
• Staff Recruitment and Relocation costs should
  normally be treated as F&A costs.

• It may be appropriate to charge such costs to a
  Federal award under the following circumstances:
   – Expertise of an unusual nature is required on a specific
     project.
      • Advertisement costs may be allowable if the recruitment costs are
        normal in nature -- costs incurred must be pursuant to a well
        managed recruitment program, the advertisement is promoted in
        keeping with standard recruiting methods (see A-21 J.42.), and the
        opportunity being recruited must be required to fulfill the needs of
        the project.
CAS Exception Review & Approval
• Investigators should provide clear justification in
  Federal project budgets for direct cost items that
  normally are treated as F&A costs.

• The fact that the sponsoring agency allows such
  costs to remain in the awarded budget may not be
  interpreted as approval for these items as CAS
  exceptions.

• School/College Dean’s Offices review and
  approve CAS exceptions on sponsored
  project budgets. This institutional approval
  is required by A-21.
Is a Cost Eligible for a CAS Exception?

At the time a proposal is being submitted, items which
  would normally be treated as F&A costs, may be
  included in the budget request as a CAS Exception.
  To do so:

• The project scope of work would need to qualify as a
  project under which exceptions could be granted.

• The budget/narrative would need to clearly detail the
  exceptional nature of the item.

• Approvals would need to be granted by the
  School/College Dean’s Office and included
  as an approved CAS Exception with the
  proposal routed to RSP at time of
  submission.
Is a Cost Eligible for a CAS Exception?
When an exception was not properly identified and
 approved within the proposal at time of
 submission, an exception can be requested at
 time of occurrence during the award.

• Request must be made through a campus
  exception approval process.

   – Departments/Centers need to submit a formal request
     justifying the purchase in question. The request will
     require Dean’s Office approval prior to purchase – and
     may in certain instances require agency review and
     approval.
Is a Cost Eligible for a CAS Exception?

  – Request should include:
     Principal investigator name
     Project grant number (i.e., 144-____)
     Agency name
     Project title
     Detail regarding specific item(s) to be purchased (i.e.,
     description and amount)
     Full justification of why the item(s) is required and why a
     CAS exception would be appropriate

  – Request can route in hardcopy or via email. If by email,
    email needs to be sent from PI or on behalf of PI by an
    appropriate designee.

  – Route to School/College Dean’s Office.
    Dean’s Office will review and if acceptable,
    route forward to RSP.
Is a Cost Eligible for a CAS Exception?
  – RSP assists in reviewing terms/conditions, consulting with
    departments and College/School’s Dean’s Offices, and
    making recommendations for granting exceptions.

  – Such approvals should accompany purchase requests
    and be retained in the award file to document the CAS
    exception.

  – NOTE: approvals should be requested and granted prior
    to a purchase proceeding or an expenditure being applied
    to an award.

  – ATTENTION: The fact that the sponsoring agency allows
    such costs to remain in the awarded budget may not be
    interpreted as approval for these items as CAS
    exceptions.
CAS Applied to Non-Federal Awards

• General Principles of A-21 apply.

  – More exceptions than on the Federal side.

• Many Non-Federal Sponsors prohibit direct
  charging of certain types of costs.

• Full Indirect Cost Recovery vs. Partial (or No)
  Recovery.

• Bottom Line: It Depends.
What if I have Questions?

• Campus contacts/experts:

  Research and Sponsored Programs Post-Award:
   Charles Hoffman 2-0253 choffman@rsp.wisc.edu
   -or-
   Barbara Keenan 2-2588 bkeenan@rsp.wisc.edu

• School/College Post-Award Dean’s Offices or
  School/College Business Services Offices
What if I have Questions?

• Website references

  A-21:    http://www.whitehouse.gov/omb/grants/grants_circulars.html


  RSP:     http://www.rsp.wisc.edu

  Slides: http://www.rsp.wisc.edu/training

				
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