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What Departmental Administrators Need to Know about Post-Award and Cost Analysis

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What Departmental Administrators Need to Know about Post-Award and Cost Analysis


Schedule for the Session

  • Agenda


Schedule for the Session

  • Format for today’s session, content mini case studies

  • The Facilities and Administrative Rate

    • The Root of All Intrigue


Schedule for the Session

  • The Regulations Governing Financial Compliance

    • OMB A-21, OMB A-110, Cost Accounting Standards


Schedule for the Session

  • Effort Reporting/Cost Sharing - Matching

  • Cost Transfers


Schedule for the Session

  • The Ultimate Test: The A-133 Audit and Other Audits

  • Questions & Answers


The Facilities and Administrative Rate (F&A)


The Root of all Intrigue:

R_________________________

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Financial Compliance is multifaceted and should have a wide impact on how we think about every single transaction we post


  • Compliance touches everything - let’s begin with looking at the mechanics of the Facilities and Administrative Rate (F&A) as much of compliance has a basis here


The F&A rate calculation sets the stage for today’s discussion

  • The F&A Organized Research Rate is expressed as a percentage:Indirect costs of research = F&A%Direct costs of research


The F&A rate calculation sets the stage for today’s discussion

  • =$125 million in unrestrictedincome to Harvard annually

  • = $85 million in unrestricted to UNC Chapel Hill annually


A “Direct” Cost is one that

  • Can be identified specifically with a particular

    • sponsored project

    • instructional activity or


A “Direct” Cost is one that

  • other institutional activity with a high degree of accuracy

  • PI salary, lab supplies, and scientific equipment are examples of direct costs


  • Conversely, an “Indirect” cost is

    • Incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, instructional activity or other institutional activity


    Conversely, an “Indirect” cost is

    • Examples: library, facilities,maintenance, ResearchAdministration, Cost Analysis


    See Supplemental Handout #1


    A-21 provides definitions of the activities

    • Organized research = R&D activities that are separately budgeted and accounted for to perform data collection, analysis, evaluation, and reporting in the context of hypothesis testing;


    A-21 provides definitions of the activities

    • examples: wet and dry lab research

      • R01

      • Program project grants


    A-21 definitions

    • Other sponsored activity = programs financed by federal and nonfederal agencies involving work other than research or instruction; examples:


    A-21 definitions

    - publications, conferences andsymposia

    - travel programs, preservation/maintenance/cataloging of collections, archives,equipment grants, public presentations


    A-21 definitions

    • Instruction = all teaching and training activities of an institution

    • Departmental research = research funded with departmental funds not separately budgeted and accounted for; example:


    A-21 definitions

    • research funded with University funds

    • research funded with gift money

    • for A-21 purposes, Instruction & Departmental Research are classified together


    The question to be answered with the A-21 function code is:

    • What are we using the funds for?

    • Not, what is the source of the funds?

    • These can be different!!


    The question to be answered with the A-21 function code is:


    See Supplemental Handout #2


    As you can see:

    • Each direct function has a rate:

    • Org Res Rate = F&A of research

    • direct costs of research

    • Instruction = F&A of instruction

    • direct costs of instruction


    As you can see:

    • Other Sponsored Activities =

    • F&A of other sponsored

    • DC of other sponsored

    • Other Institutional Activity = F&A of OIA

    • DC of OIA


    See Supplemental Handout #3


    See Supplemental Handout #4

    F&A Case Study


    F&A Costs

    Methods of Distribution Within Universities

    • All F&A recovery goes directly to Dean/Division for Internal Distribution


    F&A Costs

    Methods of Distribution Within Universities

    • F&A recovery goes to Departments based on Research Volume


    F&A Costs

    Methods of Distribution Within Universities

    • Percentage of F&A recovery goes to Central Administration and then Departments receive a certain percentage of each research project’s F&A recovery

    • Other Non-formulaic ways


    How do we collect F&A recovery?Cash Management

    Types of Sponsor Reimbursement:

    • Cash with award - Cash is sent when the award is given to the Institution


    How do we collect F&A recovery?Cash Management

    Types of Sponsor Reimbursement:

    • Letter of Credit - Reimbursed by the Federal Reserve Bank for expenditures during the month


    How do we collect F&A recovery?Cash Management

    Types of Sponsor Reimbursement:

    • Automatic Payments - Cash automatically received on a monthly/quarterly (etc.) basis


    How do we collect F&A recovery?Cash Management

    Types of Sponsor Reimbursement:

    • Billings - Payment received after invoice is sent to the sponsor based on expenses or deliverables


    OMB CIRCULAR A-21

    COST PRINCIPLES FOR EDUCATIONAL INSTITUTIONS

    UNIVERSITY


    OMB Circular A-21

    • Guidelines are both specific to certain costs applicable to sponsored research (e.g. - direct costs) and general (open to interpretation) in other areas such as Facilities & Administrative (F & A) costs


    OMB Circular A-21

    • Successful applications of these cost principles requiresdevelopment of mutual understanding between representatives of universities and of the Federal Government as to their scope, implementation and interpretation


    OMB Circular A-21Section A

    • Section gives the objectives of the Circular, general guidelines for the institution and the Government, and the application guidelines (what types of sponsored research this Circular applies to)


    OMB Circular A-21Section B

    • Definitions of terms :

      • Instruction

      • Organized Research

      • Other Sponsored Activities

      • Other Institutional Activities


    OMB Circular A-21Section C

    • Basic Considerations - Allowable direct cost and its share of allocable F&A costs

      • Allowability of Costs

      • Reasonable Costs


    OMB Circular A-21Section C

    • Basic Considerations - Allowable direct cost and its share of allocable F&A costs

      • Allocable Costs

      • Guidelines for credits, limitations and unallowable costs


    OMB Circular A-21Section D

    • General guidelines on the definition of direct cost

      • Identified specifically with a sponsored project, an instructional activity, or any other institutional activity


    OMB Circular A-21Section D

    • General guidelines on the definition of direct cost

      • Application to sponsored agreements


    OMB Circular A-21Section E

    • Facilities & Administrative Costs

      • Definition of F&A costs

      • Cost Groupings

      • Distribution Methods

      • Order of Distribution


    OMB Circular A-21Section F

    • Definitions and Distribution Methods

      • Facilities Costs:

        • Depreciation and Use Allowances


    OMB Circular A-21Section F

    • Operations & Maintenance

    • Interest on Debt


    OMB Circular A-21Section F

    • Library Expenses


    OMB Circular A-21Section F

    • General Administration

    • Departmental Administration


    OMB Circular A-21Section F

    • Sponsored ProjectAdministration


    OMB Circular A-21Section F

    • Student Administration & Services


    OMB Circular A-21Section G

    • Determination and Application of F&A Costs Rate(s)

      • F&A Cost Pools - further clarification

      • Distribution Basis (Modified Total Direct Cost-MTDC)


    OMB Circular A-21Section G

    • Determination and Application of F&A Costs Rate(s)

      • 3 Types of Rates - Predetermined, Fixed with Carry-forward, Provisional & Final Rates


    OMB Circular A-21Section G

    • Determination and Application of F&A Costs Rate(s)

      • Limitation of 26% administrative allowance


    OMB Circular A-21Section J

    • General Provisions for selected items of Cost (see attached)

    • Provides principles to be applied in establishing the allowability of direct and F & A costs


    OMB Circular A-21Section J

    • Differences between Circular and Research agreement - the agreement governs


    OMB Circular A-21Section K

    • No F&A cost proposal will be accepted without a certification as to the allowability of all costs within the claim

    • Certification of F&A Costs

    • Must be signed by VP or Chief Financial Officer


    OMB Circular A-21Exhibit A

    • List of Colleges and Universities subject to Section J.12.F


    OMB Circular A-21Exhibit A

    • Institutions in this list must expend or reserve for expenditure the portion of F&A costs related to depreciation and use allowance for improvement of research facilities within the next five years


    OMB Circular A-21Appendix A

    Cost Accounting Standards for Educational Institutions

    • CAS 9905.501 - Consistency in Estimating, Accumulating & Reporting Costs


    OMB Circular A-21Appendix A

    Cost Accounting Standards for Educational Institutions

    • CAS 9905-502 - Consistency in Allocating Costs Incurred for the Same Purpose

    • CAS 9905.505 - Accounting for Unallowable Costs


    OMB Circular A-21Appendix A

    Cost Accounting Standards for Educational Institutions

    • CAS 9905.506 - Costs Accounting Period


    OMB Circular A-21Appendix B

    Sample CASB Disclosure Statement

    (DS-2)


    See Supplemental Handout #5

    Allocation, Allocation, Allocation Case Study


    OMB Circular A-110

    Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations


    OMB Circular A-110

    • Purpose - This Circular sets for the standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals and other non-profit organizations


    OMB Circular A-110

    • Subpart A - General

      • Purpose, definitions, deviations, sub-awards


    OMB Circular A-110

    • Subpart B - Pre-Award Requirements

      • Pre-award policies, forms for applying for Federal assistance, debarment and suspension, special award considerations, certifications and representations


    OMB Circular A-110

    • Subpart C - Post-Award Requirements

      • Financial and Program Management


    OMB Circular A-110

    Purpose and standards for F & P M, payments, cost sharing, matching, program income, revision of budgets, allowable costs, non-federal audits


    OMB Circular A-110

    • Property Standards

      • Insurance coverage, real property, Federally owned and exempt equipment, supplies, intangible property, property trust relationships


    OMB Circular A-110

    • Subpart C - Post-Award Requirements (cont.)

      • Procurement Standards


    OMB Circular A-110

    • recipients responsibilities, competition, procurement procedures, cost and price analysis, records, contract administration and provisions


    OMB Circular A-110

    • Subpart C - Post-Award Requirements (cont.)

      • Reports and records

        • Monitoring and reporting program performance, financial reporting and record retention


    OMB Circular A-110

    • Termination and Enforcement


    OMB Circular A-110

    • Subpart D - After the Award Requirements

      • Closeout procedures, adjustments, collections of amounts due

    • Appendix A

      • Contract Provisions


    See Supplemental Handout #6

    A-110 Scenario


    History of Cost Accounting Standards (CAS)

    CAS


    History of Cost Accounting Standards (CAS)

    • Cost Accounting Standards Board

      • Created as an Act of Congress:

        • Applied to Defense Contracts

        • Public Law 91-379 (1970)


    History of Cost Accounting Standards (CAS)

    • Cost Accounting Standards Board

      • Created as an Act of Congress:

        • Grew out of the perceptions that contractors were manipulating costs


    History of Cost Accounting Standards (CAS)

    • Cost Accounting Standards Board

      -Remember the $500 hammer and$250 toilet seat?


    History of Cost Accounting Standards (CAS)

    • Without details, costs could not be adequately linked from the proposal to invoices to the final report


    CAS for Educational Institutions

    • In 1978, educational institutions were exempted from CAS

      • OMB Circular A-21 was understood to contain required guidance


    CAS for Educational Institutions

    • In 1994, CAS was applied to them

      • Consequence of “unallowable cost” problem

        • Remember a certain Research University in a certain Western state?


    CAS for Educational Institutions

    • In 1994, CAS was applied to them

      • Congress decided that A-21 alone was not enough regulatory guidance for universities


    CAS for Educational Institutions

    • CAS requires four Standards and a Disclosure Statement

      • 501: Consistency in estimating, accumulating and reporting costs


    CAS for Educational Institutions

    • CAS requires four Standards and a Disclosure Statement

      • 502: Consistency in allocating costs incurred for the same purpose


    CAS for Educational Institutions

    • CAS requires four Standards and a Disclosure Statement

      • 505: Accounting for unallowable costs


    CAS for Educational Institutions

    • CAS requires four Standards and a Disclosure Statement

      • 506: Consistency in using the same cost accounting period


    CAS for Educational Institutions

    • CASB-Disclosure Statement

    • FYI--Defense Contractors follow 19 CAS Standards!


    Link between CAS 501 and Cost Sharing

    • OMB A-110 defines Cost Sharing as any project cost not borne by the sponsor!

    • Could be anything identified and quantified in the narrative or the budget that will support the project not paid for by the original sponsor


    CAS 501 Impacts Cost Sharing

    • Cost Sharing is often a direct cost!


    Organized Research Cost Sharing CAS 501

    • When faculty propose effort on organized research projects, even though they are not charging their salary, their effort related to the project is known as committed cost sharing and must be accounted for to the extent it was committed


    Organized Research Cost Sharing CAS 501

    • Recall we said earlier that faculty salary is a “direct cost,” hence, this cost sharing needs to end up in the OR base for F&A calculation purposes


    Cost Sharing

    • Also may include:

      • Grant or contract over-expenditures identified at the end of the project


    Cost Sharing

    • Also may include:

      • Pre-planned change in project scope resulting in increased effort with no additional sponsored funding


    Cost Sharing

    • Also may include:

      • Faculty salary effort over the NIH salary cap


    See Supplemental Handout #7

    Cost Sharing Case Study


    CAS 502


    CAS 502

    • Requires consistency in the way the same type of cost is allocated in the F&A rate

    • The same type of cost cannot be both a “direct cost” and an “indirect cost”


    Costs Defined as Direct in A-21 and in a typical Disclosure Statement

    • PI salary

    • Technician salary

    • Lab supplies

    • Research equipment

    • Technical consultants

    • related to the projects


    Costs Defined as F&A in A-21 and in a typical Disclosure Statement

    • Department administrator salary

    • postage

    • Memberships

    • Office supplies


    CAS 502

    • Just to make the situation slightly more confusing, A-21, Section F6B, allows certain F&A costs to be charged directly to an award if three circumstances exist:


    CAS 502


    CAS 502

    • The cost can be specifically identified with the project with a high degree of accuracy and

    • The project has characteristics that make it one of “different purpose and circumstance” and


    CAS 502

    • The cost is identified in the budget and approved by the sponsor


    CAS 502

    • What does “different purpose and circumstance” mean?

    • It means, by definition, the project’s purpose uses an inordinate or disproportional amount of administrative costs


    CAS 502

    • for example, a project whose primary purpose is to collect survey data by mail would use an inordinate amount of postage! Hence, in this case, this administrative cost (postage) would be charged to this award


    CAS 502

    • This does not mean that:

      • All administrative costs on this award can be directly charged to this award or

      • Postage can be a direct charge on all awards


    CAS 502

    • This does not mean that:

      • Remember--postage must be identified in the budget and approved by the sponsor


    CAS 502

    • Other examples of “different purpose and circumstance”


    CAS 502

    • A project whose primary means of data collection will be performed through travel in different countries would likely require a disproportional amount of administrative effort to deal with:


    CAS 502

    • Travel plans

    • Currency issues


    CAS 502

    • There are other examples we cannot nor should we define--think of the relationship between the administrative effort and the nature of the project


    CAS 502

    • These are the rules for federally supported projects?

    • Now what do we see in practice?

      • Rotation of charges among projects


    CAS 502

    • Now what do we see in practice?

      • Charging projects with largest remaining balance

      • Charging budgeted amount, not actual cost

      • Charging projects in advance of when cost is incurred


    CAS 502

    • Describing a cost as something other than what it is

      • e.g., office supplies as lab supplies

      • adding a “tax” to proposal costs


    CAS 502


    CAS 502

    • What about nonfederal projects that often:

      • Do not pay full or even partial F&A

      • May require what we know as “indirect costs” be charged directly to the project


    CAS 502


    See Supplemental Handout #8

    CAS 502 Case Study


    CAS 505

    • Requires an accounting of unallowable costs

      • In the OR base and in the F&A pools

    • Examples:

      • Alcohol (G&A, O&M, DA)


    CAS 505

    • Examples:

      • Flowers, gifts

      • Bad debt expense

      • Parking tickets (O&M)

      • Lobbying costs


    CAS 505

    Mr. Clean


    CAS 505

    • These have to be excluded if we want to stay out of the newspaper headlines and comply with CAS!

    • We will “scrub” for unallowables by object code as we prepare the rate


    The Disclosure Statement DS-2

    • Written description of all of our accounting practices

    • Divided into seven sections

    • Much detail is required


    The Disclosure Statement DS-2

    • The DS-2 becomes a road map for auditors

    • CFO signs under penalty of perjury


    Summary of Key Issues

    • CAS has made recovery of costs much more difficult and the requirement of including cost sharing in the OR base has been a disincentive to Federal Government - University Research partnership


    Summary of Key Issues

    • Cost Sharing lowers the rate (higher base, lower rate)


    Summary of Key Issues

    • Many non-reimbursed administrative costs are incurred to ensure we are doing things correctly! (Administrative costs capped in F&A rate at 26%)


    Let’s talk more about: Effort Reporting

    • Required by OMB Circular A-21 (Section J.8)

    • Alternatives:

      • Plan-Confirmation System

      • After-the-fact Activity Records

      • Multiple Confirmation Records


    Cost Sharing

    • Sharing of project costs by the institution

    • more than a token amount (i.e. more than 1%)

    • normally on grants: not on contracts

    • allowable methods: academic year effort, cash, equipment


    Matching

    • Major institutional commitment to the project

    • primarily takes place on equipment grants, but others as well

    • usually ranges from 1/3 to 1/2 of total costs

    • allowable methods: generally cash


    Cost Sharing/ Matching

    • Non-Federal Contribution/Participation to a Federally Sponsored Agreement (OMB Circular A-110, Section 23)


    Cost Sharing/ Matching

    • Mandatory - Required by the sponsor as a condition for making an award

    • Voluntary - Not required by the sponsor but may become a legally binding commitment if reflected in proposal budget


    COST SHARING/MATCHING

    • What can be included:

      • Real Dollars:

        • Contributed Effort

        • Equipment

        • Other Non-Labor Costs


    Cost Sharing/ Matching

    • In-Kind Contributions

  • Must withstand same allowability test as if charged directly to the project


  • Cost Sharing/ Matching

    • Costs used for this purpose:

      • Must be verifiable

      • Not counted toward more than one Federal program

      • Necessary and reasonable


    Cost Sharing/ Matching

    • Costs used for this purpose:

      • Allowable

      • Not funded by other Federal funds unless specifically authorized


    See Supplemental Handout #9Cost Sharing/Effort Reporting Case Study


    Cost Transfers

    Purpose

    • Allow for reassignment of costs to a sponsored program from another source of fund (account)


    Cost Transfers

    Policy

    • Written justification and approval needed for reassignment of expenses


    Cost Transfers

    Appropriate - If transfer is for:

    • correction of error

    • charges benefit more than one program (distribution of costs based on benefits received)


    Cost Transfers

    Appropriate - If transfer is for:

    • programs involve closely related work


    Cost Transfers


    Cost Transfers

    Not Appropriate:

    • To reduce overruns if transfer is from one federal program to another

    • For reasons of convenience

    • To use unspent money in a project


    Cost Transfers

    Transfers should be processed:

    • in accordance with institutional policies and procedures, inclusive with conditions cited in the award

    • in a timely manner


    Cost Transfers

    Transfers should be processed:

    • for older transfers, high level approval sometimes required


    See Supplemental Handout #10

    Cost Transfer Case Study


    The Ultimate Test: The Audit!

    • Different Types of Audits

    • Contract close out audit (CIA, ONR)


    The Ultimate Test: The Audit!

    • Different Types of Audits

    • F&A Audit - Division of Cost Allocation, HHS Inspector General, or Office of Naval Research, Defense Contract Audit Agency


    The Ultimate Test: The Audit!

    • Different Types of Audits

    • A-133 Audit - Direct Cost Audit required annually for institutions receiving over $300K in funds for federally sponsored programs


    The Ultimate Test: The Audit!

    • What are these audits about?


    What. . . is A-133?

    • An Office of Management and Budget (OMB) Circular requiring an annual external audit of non-profits receiving federal funds


    What. . . is A-133?

    • Sample of federal awards and their direct cost transactions are selected for audit to determine if expenditures and procedures were appropriate (i.e., in accordance with sponsor terms/conditions and University policies)


    A-133 WHAT are they looking for?

    • Direct attribution (linkage between cost and purpose of the project) must be established and demonstrated through supporting documentation


    A-133 WHAT are they looking for?

    • A readily identifiable causal-beneficial relationship (i.e., test tubes were purchased for a wet lab experiment involving fluid analysis) must exist between costs and the project


    A-133 WHAT are they looking for?


    A-133 WHAT are they looking for?

    • Other testing includes effort reporting, control testing, cost transfers, program income, financial and non-financial reporting, sub-recipient monitoring,


    A-133 WHAT are they looking for?

    Davis-Bacon Act, Service Centers, Student Financial Aid, and indirect cost rate application


    A-133 WHY . . . do we care?

    • All federal and more non-federal sponsors look at A-133 as a ‘report card’ of how we spend their money


    A-133 WHY . . . do we care?

    • Findings are reported to federal government and become public record, distributed to all federal agencies through a clearing house


    Bottom Line?

    • Research Administration is a multifaceted, high risk business

    • need clarity on roles and responsibilities to understand who should be doing what

    • Training is critical


    See Supplemental Handout #11

    Audit Scenario


    Questions?Comments?Nasty Remarks?


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