2CFR220 (A-21)
Cost Principles For Educational Institutions
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Cost Principles For Educational Institutions
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Defines allowable and unallowable costs
(the “J” section)Defines payroll
distribution systems (a.k.a. “effort
reporting”)
Defines methods of F&A cost rate
identification and calculation
Establishes Cost Accounting Standards.
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DIRECT COSTS
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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
Examples of Direct Costs:
 Salary of researcher (including benefits
costs)
 Laboratory supplies purchased for project
 Technician
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FACILITIES AND ADMINISTRATIVE (F&A)
COSTS (INDIRECT COSTS)
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Costs that are 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 (Section E.1)
Examples of F&A Costs:
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Salary of department administrator
Building utility and maintenance costs
President, Provost, and CFOs offices
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TOTAL PROJECT COSTS (A-21, C.1)
Direct Costs
(Directly benefit a specific sponsored project)
+
F&A Costs
(Cannot be attributed to a specific project)
------------------------------= Total Project Costs
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WHAT DOES “ALLOWABLE” MEAN?
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An “allowable” cost is one that is eligible for
reimbursement by the federal government.
Contrast with:
 PERMISSIBLE BY INSTITUTION: A cost is
permitted by institution, as outlined in its various
administrative procedures.
 ALLOWABLE BY AGENCY: A cost is permitted by
the terms of the sponsoring agency.
 An "unallowable" cost is one that is not eligible for
reimbursement by the federal government.
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WHAT IS AN “ALLOWABLE” COST?
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An allowable cost must be:
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Reasonable: A prudent business person would
have purchased this item and paid this price.
Allocable: It can be assigned to the activity on
some reasonable basis.
Consistently Treated: Like costs must be treated
the same in like circumstances, as either direct or
F&A costs.
Conform to Terms: In A-21 or the Sponsored
Agreement.
Cost must meet all four standards to be
considered allowable!
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WHAT DOES “REASONABLE” MEAN?
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A cost is reasonable if …
The nature of the good or service and the amount
involved reflect the action of a prudent person.
Considerations in determining reasonableness:
 Necessary for the performance of the sponsored
agreement;
 Determined by arm’s length bargaining of a
prudent person;
 In accordance with the sponsored agreement
terms and conditions;
 Consistent with established institutional policies
and practices
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ALLOCABILITY
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A cost can be allocable as a direct or an indirect cost
A cost is allocable as a direct cost if the goods or
services provided are assignable in accordance with
the relative benefits received….
 It is incurred solely to advance the work under the
sponsored agreement
 It benefits both the work under the sponsored
agreement and other work of the institution in
proportions that can be approximated
Allocate costs based on benefit to projects
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ALLOCATING DIRECT COSTS
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Proportional benefit
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Cost benefits two or more projects in proportions
that can be determined without undue effort or
cost
Any reasonable basis
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Proportional benefit between projects cannot be
determined because of the interrelationship of the
work involved; allocate costs between projects on
any reasonable basis
 Who determines reasonable basis?
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EXAMPLES: ALLOCABILITY OF COSTS
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Travel by PI to conference (not related to specific
project)
 Not allocable as direct charge to sponsored award.
Salary of research technician
 Allocable as direct cost, not as F&A cost
Salary of administrative assistant
 Allocable as F&A, not normally allocable as direct
charge to a sponsored project
Proposal preparation costs
 Not allocable as direct charge to sponsored award.
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EXAMPLES OF WHEN COSTS MAY
NOT BE ALLOCATED
Costs can not be allocated:
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to meet deficiencies caused by overruns,
to avoid restrictions imposed by law or terms of the
sponsored agreement,
for other reasons of convenience, or
the big “No No”…
…Because one project has more funds!
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CONSISTENTLY TREATED: COST ACCOUNTING STANDARDS
(APPENDIX A)
Each Institution Shall Follow Four CAS Standards:
CAS 501:
CAS 502:
Consistently follow its established cost
accounting practices when estimating,
accumulating, and reporting costs
Consistently allocate costs incurred for
the same purpose, in like
circumstances, as either direct or F&A
costs as they relate to the final cost
objective
CAS 505:
CAS 506:
Identify and exclude unallowable costs
from proposals and claims (e.g., F&A
rate proposal)
Consistently use the same cost
accounting period for purposes of
estimating, accumulating and reporting
costs.
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DISCLOSURE STATEMENT
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Educational institutions with $25 million or more in
sponsored agreements per fiscal year required to file.
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Disclosure Statement (DS 2) submitted to cognizant
agency.
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Must file amendments when disclosed practices are
changed.
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Cost adjustments shall be made if an educational
institution fails to consistently follow its disclosed
practices.
UNALLOWABLE COST
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An “unallowable” cost is one that is not eligible for
reimbursement by a Federal sponsor, either directly or
indirectly (through the F&A rate)
Costs that are ‘unallowable’ for reimbursement by
Federal sponsors may still be permissible charges
against department or institution funds
 e.g., wine at a reception to entertain potential
donors
Care should be taken to specifically categorize such
costs so that while it may still be reimbursed by the
institution it will not be passed on to the Federal
government through the F&A rate
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Examples of Unallowable Activities
(something you do)
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Organized fund raising
Lobbying
Commencement and convocation
General public relations and alumni activities
Student activities
Student housing
Campus bookstore
Athletics
Prosecuting claims against the federal government
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UNALLOWABLE TRANSACTIONS (DIRECT OR
INDIRECT)
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Advertising (some types
allowed)
Alcoholic beverages
Entertainment (including meals
with inadequate substantiation
of business purpose)
Fines and penalties
Memorabilia, promotional
materials (allowable if used for
employee morale)
Moving costs if employee
resigns within twelve months
Certain recruitment costs
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Certain travel costs (i.e., first
class)
Cash donations to other
parties (such as donations to
other Universities)
"Golden Parachute"
severance payments
Interest (except interest paid
to outside parties for certain
purposes)
Memberships in social,
dining, or country clubs
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OTHER ALLOWABILITY & ALLOCABILITY
CONSIDERATIONS: COSTS THAT SHOULD “NORMALLY”BE
TREATED AS F&A COSTS
OMB Guidance on A-21 Revision to section
F.6.b. (July 1993)
“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....”
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A-21 REVISION TO SECTION F.6.B
“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. Items such as
office supplies, postage, local telephone costs, and
memberships shall normally be treated as F&A costs."
[Ref: A-21:F6(b)]
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MAJOR PROJECTS
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A-21 definition:
“a project that requires an extensive amount of
administrative or clerical support, which is
significantly greater than the routine level”
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Projects may be major, regardless of their size.
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EXAMPLES OF MAJOR PROJECTS
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Those which require or involve:
 Large, complex programs
 Extensive data accumulation, analysis, entry...
 Large amount of travel/meeting arrangements
 Preparation of manuals, large reports, books...
 Geographically inaccessible project locations
 Conditions including human or animal protocols,
multiple-investigator coordination
Examples are not exhaustive, nor are they intended to imply that
direct charging of admin / clerical salaries would always be
appropriate in the situations illustrated.
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CRITERIA FOR DIRECT ADMIN CHARGING
3. Budgeted and approved by the sponsor
4. Supported by a budget justification
When all criteria are met, you can charge direct…if it’s
Allowable, Allocable, Reasonable, and Consistent!!
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EFFORT REPORTING
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Required by OMB Circular A-21 (Section J.10)
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Certifies that salaries and wages charged to
sponsored agreements are reasonable in relation to
the work performed.
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Certifies that expended effort meets the commitments
made in the project proposal, even if the person was
not paid from project funds.
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EFFORT REPORTING - WHAT IS IT?
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What is Effort?
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Effort vs. payroll charges
Proposed vs. actual effort
Who can Certify?
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Effort reports will be signed (certified) by the
employee, principal investigator, or responsible
official(s) using suitable means of verification that
the work was performed.
What is “suitable means of verification?"
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EFFORT REPORTING
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Why Should We Care?
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Recent settlements
Office of Inspector General reports
Complicated Effort Reporting Areas
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NIH K-Awards
VA appointments
Clinical practice payments
NIH salary cap
Cost shared effort
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EFFORT REPORTING - ALTERNATIVES
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Plan Confirmation
Salaries distributed based on budgeted, planned or
assigned activity.
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After-the-Fact Activity Records
Salaries distributed are supported by activity reports.
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Multiple Confirmation Records
Salary distribution supported by records which verify
separately direct and F&A activities.
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FACILITIES & ADMINISTRATIVE COSTS
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Facilities & Administrative (Indirect) Costs:
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Real costs incurred by the institution
Cannot be easily identified to a specific project or
activity
Infrastructure costs to maintain a research university
Calculated as a % of a Base
Made up of both “Facilities” and “Administrative”
costs
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FACILITIES & ADMINISTRATIVE
CALCULATION
F&A(IDC) allocable to OR
Organized Research Base
Sponsored
research
= F&A Rate
Overdrafts
Committed cost sharing
University-funded competitive awards
OR Base = All direct MTDC expenses related to OR
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FACILITIES COMPONENTS
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Building Depreciation
Equipment Depreciation
Operations and Maintenance (utilities, maintenance,
custodial costs, non-capital improvements)
Interest Expense (paid to external parties)
Library (books, library facilities and library
administration)
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ADMINISTRATIVE COMPONENTS
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Departmental Administration
 Dean’s Office, Dept Heads, Dept Administrative
staff and administrative work of faculty (including
bid and proposal preparation)
General Administration & General Expense
 President or Chancellor, Institution-wide Financial
Management and Business Services, Personnel
Management, Safety & Risk Management, etc.
Sponsored Projects Administration
 Grant and Contract Administration, Cost Analysis,
Patent Expenses
Student Services
 Registrar, Bursar, Student Medical
 Typically supports and is allocated to Instruction
Administrative Components limited to 26% of MTDC
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NCURA UNIVERSITY F&A RATE (ON CAMPUS)
Administrative Costs
 General and Administrative
 Departmental Administration
 Sponsored Programs Administration
 Sub-total Administration
 Capped Administrative rate
Facilities Costs
 Building Depreciation
 Equipment Depreciation
 Interest Expense
 Operations & Maintenance
 Utility Cost Adjustment
 Library
 Sub-total Facilities
Total F&A Rate
9.49%
14.11%
4.98%
28.58%
26.00%
5.64%
5.27%
1.61%
13.54%
* 1.30%
2.64%
30.00%
56.00%
* If the Institution is listed in OMB A-21 Exhibit B
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TYPES OF F&A COST RATES
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Provisional
Estimated rate used when parties cannot agree on an
equitable rate. May be replaced by fixed or
predetermined rate before the end of the fiscal year.
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Predetermined
Rate established for period, normally 2 to 4 years. No
carry forward provision.
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Fixed with Carry Forward
Rate established for period. Over/under recovery is
determined and an adjustment is applied to a
subsequent rate negotiation.
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NEGOTIATION OF F&A RATES
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A “cognizant agency" means the Federal agency
responsible for negotiating and approving F&A rates
for an educational institution on behalf of all Federal
agencies
Cognizant Agencies: Either
 Dept of Health and Human Services (DHHS), or
 Office of Naval Research (ONR) (Section G-11 of A21)
Cognizance is assigned to the agency that provided
the most funds to the educational institution over the
past three years
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OFF-CAMPUS RESEARCH F&A RATE
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F&A Rate applied to sponsored agreements at offcampus facilities
Off-Campus is usually not a university owned facility
Recovers administrative costs associated with sponsored
agreements
Typically is the “A” portion of the Full (On-Campus) F&A
rate; “F” costs are direct-charged
Example:
Administrative Costs
Facilities Costs
F&A Rate
Off-Campus Rate = Administrative Costs
26.0%
+ 30.0%
56.0%
26.0%
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OTHER F&A RATES
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Non-Research Sponsored Programs
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Institutions with large amount of non-research
sponsored projects may negotiate a separate rate
for these projects, e.g., Educational Services Rate,
Sponsored Instruction, Other Sponsored Activities
Rates for Specific Facilities
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The costs of certain programs/facilities may be
unique enough to warrant a separate F&A rate
Examples:
Agricultural Experiment Station
 University Medical Center
 Animal Care Facility
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APPLICATION OF F&A RATES
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Negotiated F&A rates in effect at the time of the initial
award should be used throughout the life of the
sponsored agreement
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“Life” means each competitive segment of a project
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A “competitive segment” is a period of years approved
by the Federal funding agency at the time of the award
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SIMPLIFIED METHOD (“SHORT FORM”) - A-21,
SECTION H.
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Less Than $10 Million In Expenditures on Federal
Awards in a Year
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Single F&A Pool, incl. G&A, Plant O&M (and
depreciation/use allowance), Library, Dept Admin
(20% of salaries of Deans, Dept Heads)
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Rate Base Is Salaries And Wages (S&W) or Modified
Total Direct Costs (MTDC)
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F&A CONSIDERATIONS
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F&A cost recovery is the reimbursement for actual
costs incurred by the institution in support of
sponsored projects
F&A costs are incurred on all institutional activities, not
just sponsored research
F&A costs are real costs!
A significant portion of F&A costs are not recovered
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F&A CONSIDERATIONS (CONTINUED)
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When an external sponsor pays less than the full F&A
rate, the unrecovered F&A costs must be absorbed by
the institution (it’s an institutional decision)
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F&A cost recovery is normally unrestricted income to
the institution
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F&A recovery may be returned to departments or
retained centrally
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F&A CONSIDERATIONS (CONTINUED)
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The F&A rate tends to go up when there is investment
in new research facilities or when facilities costs are
increasing at a faster rate than research funding
The F&A rate tends to go down when research
expenditures are increasing at a faster pace than
infrastructure costs
For institutions over the cap, increases in the F&A
rate are not the result of increased administrative
costs (a common misconception often held by
faculty!)
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A-21 SUMMARY & CONCLUSIONS
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Costs charged to sponsored agreements must be allowable,
allocable and reasonable
A direct costs of a sponsored agreement must
 be incurred solely to advance the work of the project (or
interrelated projects)
 be reasonable and necessary for the performance of the
project
A cost may be allowable as an F&A cost only or a direct cost only
Cost accounting standards require institutions to be consistent
 in the way that costs are estimated, accumulated and
reported
 in the treatment of costs as either direct or indirect
Institutions must exercise caution when direct-charging costs
that are normally considered to be indirect
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RESOURCES
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US Government Printing Office/FDSYS (electronic CFRs)
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http://www.gpo.gov/fdsys/
Select the year
Select “Title 2 – Grants and Agreements
Pick your type – pdf, XML, or other
In the pdf, scroll down to about page 4, that’s where Part 215 (A-110) begins
FDSYS XML link for A-110
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http://www.gpo.gov/fdsys/pkg/CFR-2010-title2-vol1/xml/CFR-2010-title2-vol1-chapII.xml
CONTACT INFORMATION
Maggie Griscavage
Email: gmgriscavage@alaska.edu
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Acknowledgment:
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Liberally borrowed, by permission, from the NCURA FRA Workshops.
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