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Procedures for Charging Expenditures to Federally Sponsored Program

 

INTRODUCTION

In recent years the Office of Management and Budget 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) which has generally provided cost accounting standards for firms in the private sector has also shown concern.  CASB requires private firms performing federally sponsored projects to comply with  nineteen cost accounting standards.  As of FY2000, Four of these standards that deal with consistent treatment of cost were included in OMB Circular A-21. In addition to complying with the cost accounting standards, Louisiana State University Health Sciences Center, New Orleans (LSUHSC-NO or the University) is required to file a disclosure statement to the Department of Health and Human Services (DHHS), Division of Cost Allocation (DCA) 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 insure the consistent treatment of costs incurred by LSUHSC-NO departments and charged directly or indirectly to federally sponsored programs, LSUHSC-NO has incorporated the following OMB Circular A-21 cost accounting principles in its accounting practices.  These principles apply except to the extent Federal awarding agencies via program regulations, policy statements, guidelines, instructions, etc modifies them.  To facilitate the understanding of what costs can be directly or indirectly charged, a brief overview follows of the costs recovered through the indirect cost rates charged to Federally sponsored research.

During the last revision to OMB Circular A-21, the use of the term "indirect cost" was replaced with "facilities and administrative cost". This change was done by the Federal government to recognize the two distinct categories of overhead cost. To be consistent with OMB Circular A-21, this document, from this point forward, will refer to indirect cost as F&A cost.

The Facilities and Administrative cost rate is made up of the following components:

Facilities Component

  • Building Use Depreciation - Depreciation on non-federally funded portions of buildings

  • Equipment Use Depreciation - Depreciation on non-federal equipment only

  • Operations and Maintenance -  Consists of facility costs such as electricity, steam, chilled water, plant operations, maintenance and repairs, health and safety, grounds maintenance, security, etc.

  • Library - Includes Library costs identified as supporting sponsored programs

Administrative Component

  • General Administration - Includes the Chancellor's Office, Controller, Accounting, Payroll, Personnel, Purchasing, etc.

  • Sponsored Projects Administration - Offices of Research Services and Sponsored Programs responsible for administration, accounting and reporting for Federal awards.

  • Student Administration - (Note: not generally allocated to sponsored programs)

  • Departmental Administration - Includes Dean's office, Faculty Administrative salaries, equipment service contracts and repairs, administrative and clerical salaries, office supplies, and other non-salary costs that will be addressed later.

The following are the accounting practices and procedures for assigning expenditures to federally sponsored programs as direct or F&A costs.  This will provide the framework for consistently charging costs throughout LSUHSC-NO.  The University's responsibility for compliance with these and other cost regulations is clearly established in OMB Circular A-21 C.4.d (1):

The recipient institution is responsible for ensuring that costs charged to a sponsored agreement are allowable, allocable, and reasonable under these cost principles.

The primary responsibility for making a determination as to whether an administrative support position (as well as other direct costs) is justified and appropriate to be charged directly to a federal project and for compliance with Federal requirements at the time of any transaction or subsequently upon audit or other request rests with the Project Director or Principal Investigator and his or her Department Chair/Division Head. Restricted cost categories and other inappropriate charges can be readily detected in audits, and resulting disallowances must be reimbursed to the federal government.

To understand potential issues that may arise in a Federal review; we have included the section of the regulations that addresses departmental costs and whether they should be recovered as direct or F&A.

Section F.6.b of OMB Circular A-21 revised as of August 8, 2000:

F.6.b. The following guidelines apply to the determination of departmental administrative costs as direct or F&A costs.

  (1) 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 F&A costs. For example, salaries of technical staff, laboratory supplies (e.g., chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs, and specialized shop costs shall be treated as direct cost 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.

  (2) The salaries of administrative and clerical staff should normally be treated as F&A 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. "Major project" is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments. Some examples of major projects are described in Exhibit C.

  (3) Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs.

LSUHSC-NO accounting practices for charging academic departmental costs (direct and F&A) 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 secretarial salaries should generally be assigned to Federal sponsored agreements as F&A costs.  The provision is intended to establish the principle that the salaries of administrative and clerical staff should usually be treated as F&A costs, but 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 which is significantly greater than the routine level of such services provided by academic departments.  The costs would need to 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," and the special circumstances requiring direct charging of the services would need to be justified to the satisfaction of the awarding agency in the grant application or contract proposal. 

The following examples, taken from OMB Circular A-21 Exhibit C, are illustrative of 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.

  • Projects which 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.

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. For instance, the examples would be appropriate when the costs of such activities are incurred in unlike circumstances, i.e., the actual activities charged direct are not the same as the actual activities normally included in the institution's facilities and administrative (F&A) cost pools or, if the same, the indirect activity costs are immaterial in amount. It would be inappropriate to charge the cost of such activities directly to specific sponsored agreements if, in similar circumstances, the costs of performing the same type of activity for other sponsored agreements were included as allocable costs in the institution's F&A cost pools. Application of negotiated predetermined F&A cost rates may also be inappropriate if such activity costs charged directly were not provided for in the allocation base that was used to determine the predetermined F&A cost rates.

The following are examples of the treatment of administrative and clerical expenditures as direct and F&A costs:

  • Extraordinary and extensive administrative support, 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.

    • Business managers performing extraordinary and extensive administrative support

    • Programmatic project effort 

    • Extraordinary and extensive data entry

    • Research data gathering and/or cleaning

    • Conducting interviews

    • Laboratory technician activities

    • Conducting computer research work

    • Telephone surveys

    • Computer programming

    • Non-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

    • Research training

    • Clinical and patient activities including: scheduling patient visits; physical exams; blood drawing; height and weight measurement and/or non-routine effort in formalizing physician reports

  • The following represents administrative and clerical activities that normally should not be direct charged to grants or contracts

    • Typing and mail correspondence

    • Accounting and budgeting

    • Purchasing

    • Non-scientific software and system development

    • Local area network administration

    • Payroll processing

    • Department administration

    • Filing

    • Processing vouchers

    • Travel related planning

    • Data entry

    • Answer telephone

    • Database maintenance

    • Typing applications for awards

As previously sated, 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.  Where direct charges for administrative and clerical salaries are made, care must be exercised to assure that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities.   Questions about LSUHSC-NO 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 so long as they reflect the level of effort expended on the project and are documented by the LSUHSC-NO's time and effort system.  Fringe benefits in accordance with established University policies are allowable and are charged to projects based on University established fringe benefit rates.

In describing a system to track effort on Federal projects OMB Circular A-21 J.8.b (1)(c) states the following:

"In the use of any methods for apportioning salaries, it is recognized that, in an academic setting, teaching, research, service, and 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."

LSUHSC-NO utilizes an after‑the‑fact certification of effort of all individuals when all or a portion of their salaries are charged to a sponsored project. In defining the "after-the-fact certification" 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 reasonable estimate of the work performed by the employee during the period, the reports will be signed by the employee, principle investigator, or reasonable  official(s) 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 indirect cost categories including department administration."

Process

LSUHSC-NO has established a Time and Effort Certification system in order to comply with the requirement.  Time and Effort Certification forms are required to be certified according to campus instructions.  LSUHSC-NO utilizes an after‑the‑fact certification of effort of all individuals when all or a portion of their salaries are charged to a sponsored project, Since Time and Effort Certification Forms are the source documents that support salary charges to sponsored projects, it is essential that this data be based on reasonable estimates of actual effort expended in the various effort categories.

Inaccurate effort estimates made to the Time and Effort Certification Forms, whether knowingly or through carelessness or mismanagement, may result in errors when charging costs to the federal government and other sponsors, Each individual with responsibility for Time and Effort Certification must therefore thoroughly understand the proper method of completing Time and Effort Certification Forms and ensure effort percentages reported on the forms reasonably reflect actual effort expended during the report period. Once signed, the information on the Time and Effort Certification Form is subject to independent audit and review by the federal government, other sponsors, and LSUHSC-NO.

Report Content and Procedures

The Time and Effort Certification form prints the percentage of appointment workload distribution from specific accounts for the reporting period. In some cases, these percentages may not reflect the individual's actual effort to the project attributable to the account. Since the percentages are generated from the appointment data within the PeopleSoft (PS) HRMS payroll system, they are after‑the‑fact projections of the level of effort the individual was expected to expend. If this percentage paid does not substantially (five percent or more) correspond to the effort actually expended by the individual on those projects during the report period, the Time and Effort Certification form must be completed to reflect actual effort expended. Payroll redistributions must be processed if actual effort percentages vary from the percentage paid by a project as averaged over a four month period A payroll reallocation must be created (PER-3) to change the actual payroll distribution in the HRMS system to match the actual effort reported on the Time and Effort Certification form.  See Attachment A for an example and instructions for the Time and Effort Certification Report.

B.  NON-SALARY EXPENDITURES

Adherence to the Federal cost principles and requirements outlined in OMB Circular A-21 is critical to the acceptance of LSUHSC-NO-NO charges to Federal awards.  The basic requirements are:

  • Costs must be reasonable and necessary for the performance of the sponsored agreement.  Failure to adequately document a cost could result in a disallowance of a legitimate charge.

  • For costs benefiting more than one sponsored project, the relative benefit must be approximated through the use of reasonable basis reflecting use or level of service.  Costs should be allocated to the "users" in proportion to the benefits received.

  • 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 agreements in order to meet deficiencies caused by overruns or other fund considerations to avoid restrictions impose by law or by terms of the sponsored agreement or for other reasons of convenience."

ALLOWABLE EXPENDITURES

The cost items listed in this section are some of the more common costs involved on sponsored programs at the LSUHSC-NO 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 to the extent practical.  For a list of common expenditures, and whether they should be charged directly or indirectly to Federally sponsored programs, see "Direct versus Indirect Quick Reference" (Attachment B).  If you have any questions about the allowability of any cost on your project, please contact the Office of Sponsored Programs.

Advertising Costs

The only advertising costs allowable 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.

Alumni Costs

Costs for alumni activities are unallowable.

Entertainment Costs

Costs incurred for alcohol, amusement, social activities, entertainment, and any items relating thereto, such as meals, lodging, rentals, transportation, and gratuities are unallowable.  Special care should be followed to ensure that entertainment costs are not charged to Federal projects.

Equipment and Other Capital Expenditures

Federal cost principles define equipment as "an article of non expendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5000 or more per unit."  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 criterion on the purchase or lease of capital expenditures varies between the different awarding agencies, approval will be obtained based on such awarding agency requirements.  For further information, contact Office of Sponsored Programs.

  • Screening
    To certify that an equipment acquisition is not duplicating an already available item, property-screening procedures must be followed.  The rule for screening equipment is in the Sponsored Programs Manual section 5 Budget, item 4. equipment.

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, 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.

Insurance

Costs of insurance required or approved pursuant to the sponsored agreements are allowable.

Interest

Costs incurred for interest on borrowed capital are unallowable with the exception of equipment, with prior approval from the sponsoring agency.

Losses on Other Sponsored Agreements or Contracts

Any excess of costs over income under another sponsored agreement or contract of any nature is unallowable.

Material Costs

Costs incurred for purchased materials and supplies used for the performance of the sponsored agreement are allowable (this does not include office supplies).

Memberships

Cost for membership in technical and professional organizations are treated as F&A costs and included in the Department Administration F&A cost pool.  Memberships that come as part of a subscription are allowable as a direct charge as long as they are specifically approved in the projects budget and the scientific information in the subscription is the primary reason for the expenditure.

Office Supplies

Normal departmental office supplies are treated as F&A costs and included in the Department Administration F&A cost pool.  An extensive amount of office supplies significantly greater than the routine level may be direct charged if approved by the sponsoring agency.

Political Activities

Federal funds may not be used for any type of partisan political activity by any person or organization involved in the administration of Federally-assisted programs.  "Political activities" include, but are not limited to, lobbying, publications, or other materials intended for influencing legislation.

Postage or Delivery Costs

Ordinary and routine postage is treated as an F&A cost and included in the Departmental Administration cost pool.  Costs of an extraordinary amount of postage can be charged directly to a federally sponsored program if approved in the budget of that program.  Delivery costs can be charged directly to projects if approved in the project budget.

Printing and Publications

Printing and publication costs are allowable as direct costs to Federally sponsored programs.

Proposal Costs

The costs of preparing proposals - including typing, copying, mailing, etc. are treated as F&A costs and may not be assigned as a direct charge to a sponsored project.

Public Relations Cost

Costs pertaining to specific research or scientific accomplishments are allowable, when they result from performance of the sponsored agreement and approved by the sponsoring agency.  All other public relations costs are unallowable.

Remodeling Costs

Special arrangement and alteration costs incurred specifically for the sponsored project are allowable when such work has been approved in advance by the sponsoring agency.

Student Aid Costs

Costs of scholarships, fellowships, and other student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency.

Student Activity Costs

Costs incurred for intramural activities, student publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the sponsored agreements.

Subscriptions

Costs for subscriptions to professional and technical periodicals are allowable.

Telephone Costs

Costs incurred for local and long distance telephone services are treated as F&A costs.  Long distance toll charges are excluded from the F&A proposal during the preparation process.

Travel Costs

Travel costs are allowable when they are directly attributable to specific work under a sponsored agreement and are approved in the sponsored agreement. 

Foreign travel costs are allowable only when the travel has received specific prior approval.  See the requirements outlined in the Louisiana State Travel Guide, Policy and Procedure Memorandum 49, S 1509, A and B.

Costs of meetings and conferences, when the primary purpose is the dissemination of technical information, are allowable.  This includes costs of meals, transportation, rental of facilities, and other items incidental to such meetings or conferences.

For additional policies and procedures pertaining to travel please refer to the Louisiana State Travel Guide, Policy and Procedure Memorandum 49. The travel rules are also stated in LSUHSC-NO Permanent Memorandum number 13


 

The following Quick Reference lists common expenditures, and whether they are generally charged directly or indirectly to federally sponsored programs.  The actual written LSUHSC-NO policy should be referenced to fully understand how costs should be charged for specific circumstances.                            

 

  DIRECT INDIRECT
  Project Salaries Administrative Salaries
  Student Salaries Clerical Salaries *
  Advertising Costs   Memberships
  Equipment    Office Supplies *
  Insurance   Printing Costs **
  Material Costs      Local/long Distance Telephone
  Printing and Publications  Postage or Delivery Costs *
  Subscriptions  Building Depreciation
  Approved Travel Equipment Depreciation
    Security Costs
    Electricity
    Steam
    Repairs and Maintenance ***
    University Administration
    Sponsored Programs Admin
    Library Costs
    Proposal Costs

* These costs may be charged directly to federally sponsored programs provided that they are extraordinary and are being used in significantly greater proportions than a routine level of support would require.

** Printers used exclusively in a research laboratory, which are connected to computers with specialized scientific software.

*** Maintenance agreements may be charged to federal Sponsored Programs if the costs are directly attributable to the equipment used only on the project.