COST ACCOUNTING STANDARDS

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COST ACCOUNTING STANDARDS
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OMB CIRCULAR A-21

• Issued 1979
• Defines Allowable Direct Indirect Costs
• May 1996 revision incorporated
• Four Cost Accounting Standards and
• Required Disclosure Statement (DS-2) - a roadmap
  of our policies

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CAS Applied to Universities

• CAS 501 Consistency in Estimating, Accumulating
  and Reporting Costs
• CAS 502 Consistency in Allocating Costs for the
  Same Purpose
• CAS 505 Accounting for Unallowable Costs
• CAS 506 Cost Accounting Period

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A-21 Allowable Cost

• Reasonable
• Allocable
• Consistently treated per A-21
• Conform to limits in A-21 or specific award

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Reasonable

• Prudent person
• Necessary expense
• Restraints of arms-length bargaining
• Consistent with institutional policy and procedure

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Allocable

• Charged in relation to the benefit
• And by the way, you cant shift the cost around

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CAS 505 - Accounting for Unallowable Costs

• Unallowable costs must be identified and excluded
  from any billing, claim, application or proposal.

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CAS 501- Consistency in Estimating, Accumulating
and Reporting Costs

• Practices used to estimate costs in a proposal
  should be the same as the way we charge and
  report
• Level of detail can be different, but should be
  able to make sufficient and meaningful
  comparison

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CAS 501 Consistency in

• Classifying as Direct vs Indirect
• Placing an item in an Indirect pool
• Methods of allocating indirect to sponsored
  agreements

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Direct Costs

• 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.

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Indirect Costs

• Costs incurred for common or joint objectives
  and, therefore, cannot be identified readily and
  specifically with a particular sponsored project,
  an instructional activity or any other
  institutional activity.
• Also called Facilities Administrative costs

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Examples of Direct and Indirect Costs

• DIRECT
• Salaries of PI, technician, research assistant
• Scientific equipment
• Animal care
• Duplicating
• Lab supplies
• Subcontracts
• Travel

• INDIRECT
• Salaries of secretary, dept. administrator
• General purpose equipment
• Postage
• Basic telephone
• Office supplies
• Expenses of SPA, OSPA, Purchasing

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

• Each type of cost may be allocated only once
• However
• All costs incurred for the same purpose, in like
  circumstances, are either direct only or indirect
  costs only

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DS - 2

• Sets forth our accounting practices to
  distinguish direct vs indirect
• And
• If a cost is sometimes direct and sometimes
  indirect, spell out specific criteria and
  circumstances

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Examples of projects which could be considered
special purpose or circumstance

• Industry sponsored projects
• State sponsored projects
• Training grants
• Geographically inaccessible projects
• Large, complex projects
• See section 3.2 of policy for complete list

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Criteria for Direct Charging Normally Indirect
Cost to a Project

• The item of cost must be
• Identified specifically with the project with a
  high degree of accuracy
• Incurred for a special purpose as described in UK
  Costing Policy
• Explicitly budgeted, justified in proposal, and
  awarded

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Criteria, continued...

• Federal projects have an additional requirement
  the Budget Justification must state that the cost
  is normally treated as indirect by the
  University it is requested due to a different or
  special circumstance and the circumstance is
  explained.

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Procedures

• Proposal Budget
• PI/department prepares budget
• Draft budget to OSPA for review
• PI and OSPA discuss changes to budget
• Internal Approval Form completed signed

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Procedures

• Awarded Account
• Approved indirect items budgeted in specific
  object codes
• Monthly report of federal funds with indirect
  object codes not approved
• Remove by IDIV
• Correct object code by IDIV
• Justify as special purpose

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Cost Sharing and CAS

• Treat a cost consistently as direct or indirect
• Accumulate all costs consistently and only once

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Cost Sharing

• Use of institutional funds to supplement
• project costs not borne by the sponsoring
• agency.
• Either required by sponsor, to voluntarily
• reflect University financial support, or
• when award is less than proposal.

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Reasons to minimize cost sharing

• Increased administrative burden - ALL cost
  sharing on ALL sponsored projects must be
  documented
• Increase in cost sharing causes decrease in
  indirect cost rate
• Depreciation on cost shared equipment may NOT
  contribute to indirect rate

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Sources of Cost Sharing

• University funds
• Unfunded or waived indirect cost
• Another sponsored project (requires approval of
  both sponsors and is rare)
• Third parties (non-University sources)

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Criteria for Cost Sharing Expenditures

• Verifiable in accounting records
• Each expenditure used only once
• Necessary and reasonable expense
• Allowable as a direct cost
• Itemized in budget (if required by sponsor)
• Incurred during effective dates of sponsored
  agreement

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Documenting Cost Sharing

• 1. Separate Ledger 3 Cost Sharing Account
• 2. Faculty Effort System (FES)
• 3. Cost Sharing Certification Report Form