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Cost Accounting Standards (CAS) Affects New Awards Granted prior to 12/26/2014.
For awards issued after visit Uniform Guidance.

Federal Regulations on Treatment of Costs

The following policies have been clarified due to the implementation of Cost Accounting Standards (CAS) by educational institutions. While many of these policies have been in place for some time, it is important to have comprehensive written policies and procedures which address CAS.

CAS Applicability

CAS will apply to sponsored awards that meet any one of the following criteria:

  1. All federal awards (including federal fixed price awards)
  2. All awards that contain any federal flow-through money. If you discover the project is being funded with federal flow-through money after the award period has started, any unallowable direct charges need to be removed from the account
  3. The terms and conditions of the proposal or award documents reference OMB Circular A-21 or Cost Accounting Standards
  4. Any sponsored project whose funds are being used as cost sharing on a CAS covered project. Only the individual cost(s) being used as cost sharing will be subject to the definitions of direct charges and “unlike circumstances.”
  5. The sponsor is paying the University’s full negotiated facilities and administrative (indirect) cost rate (unless the project meets the University’s definition of a non-federal “Fixed Price” project).

Awards not covered under CAS administration are still subject to the requirements listed in the award as well as all University and State guidelines. Just because an award is not under CAS administration does not mean expenditures unrelated to the award can be charged. All expenditures on an award must be reasonable, allocable and allowable.

Awards not covered under CAS administration that are also not “Fixed Price” awards (see PRR website) include either audit clauses and/or financial reporting requirements. These clauses allow for the review of supporting documentation for all expenditures. The supporting documentation should validate the relationship between the expenditure and the purpose of the award.

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Definition of Costs

The cost principles as defined in OMB Circular A-21 provide the basis for determining the procedures used to identify direct costs. Costs incurred to support a project are treated as direct costs and are charged to sponsored projects when the costs can be specifically identified to the project with relative ease and with a high degree of accuracy.

F&A costs are general institutional expenditures that are incurred for common or joint objectives benefiting instruction, research, or public service and therefore cannot be readily identified with a particular sponsored project. These costs are allocated to sponsored projects in accordance with OMB circulars through the application of the University’s F&A Cost Rate.

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How costs are charged to Sponsored Projects

General criteria for determining how costs are charged to Sponsored Projects

The proper classification (direct vs. indirect) of any charge should be determined based on a logical thought process. This process can be described in four steps as follows:

  1. Review – Regulations, Policies, Procedures applicable to the project. This would include internal or institutional regulations policies and procedures (for example, NC State’s Disclosure Statement and the Administrative Policies and Procedures) as well as any external regulations, policies, or procedures (for example, A-21 and other relevant federal circulars, sponsor terms and conditions, and specific award terms
    and conditions).
  2. Judgment – Based on the review of specific facts and circumstances, a judgment is made by the institution’s appropriate personnel as to the proper allocation (direct vs. indirect).
  3. Justification – Appropriate level of justification disclosed in the proposal narrative or “Narrative Budget Justification” page (or a justification is prepared when the need arises during the life of the project that could not have been anticipated in the proposal process).
  4. Agency Approval – Of budget based on justification in the proposal and reliance on the fact that the institution made an informed decision based on the particular facts and circumstances.

There are some cost objectives that can be direct or F&A depending on the facts and circumstances of the individual project. The questions that should be asked to determine if it can be charged direct are:

  1. Does the cost provide a direct benefit to the purpose or objective of the project as opposed to a cost that is “needed” to complete the project but is incidental to the purpose?

For example, 10 (ten) three ring binders in Project A are “needed” to organize lab notes. The purpose of the project is to measure the effect of MMX processing on DOS based software. For Project B, 10 (ten) 3 ring binders are needed to organize class materials for a workshop. One of the stated objectives in the project is to present a three month workshop to the top 10 Biology teachers in Wake County on ethics in genetic research.

The ten binders in Project A are needed to complete the project, but do not provide a direct benefit to the purpose or objective of the project. The value is incidental to the purpose of the project, therefore the cost would be classified as indirect. In Project B, the 10 binders provide a direct benefit to the purpose of the project as stated in the proposal. Therefore, the cost would be classified as direct and can be charged to the project in the supplies cost category.

  1. Can the cost meet the definition of a direct cost? Can the cost be specifically identified with a project with relative ease and with a high degree of accuracy and allowed by all terms and conditions governing a particular award?
  2. For clerical and administrative salaries, do the facts and circumstances meet the criteria to qualify as an exception described by OMB guidelines to the general rule that these costs are an F&A cost?

Cost Accounting Standards require consistent treatment of costs in “like circumstances”. Consequently “unlike circumstances” must be demonstrated/justified if a cost will be budgeted, charged, and reported inconsistently. The following arguments cannot be used in and of themselves to demonstrate “unlike circumstances”:

  1. Sponsor approval of the allocation of a particular cost without proper review by the institution (i.e. steps 1-3 above).
  2. Insufficient F&A cost money returned to support the projects
  3. Sponsor limits or will not pay F&A costs
  4. Sponsor is willing to pay for the cost as a direct charge.

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Reliance on Agency Approval

Sponsor approval of a budget does not in and of itself constitute approval of the specific line items. The sponsor assumes you have complied with A-21, your Cost Accounting Disclosure Statement, your F&A cost proposal assumptions, and any other regulations cited. A cost that may be allowable at one institution as a direct charge may not be allowable at another because of the differences in the Disclosure Statement and the F&A cost proposal. There would be no way for any sponsor to make a determination of allowability because of these variables; therefore, it is the institution’s responsibility to exercise this judgment.

Agency approval can only be relied upon if you have reviewed regulations, policies and procedures; made a judgment based on this review; and disclosed the appropriate justification. Please note that even if the agency approves the expenditure, auditors (Department of Health and Human Services (DHHS), sponsor, state, or internal) could come back at a later time and disallow the expenditure based on their review, judgment, or lack of appropriate documentation.

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Unallowable Costs

Costs considered “unallowable” in accordance with various authoritative documents and the individual Sponsors must be identified and accounted for separately. These costs may not be budgeted, charged or reported to a sponsor.

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