A Guide for UW-Madison Administrators & Faculty
Basics of the
Cost Accounting Standards (CAS),
OMB Circular A-21, and
Cost Principles
March 28, 2006
Robert Andresen
Assistant Director, Post-Award Services
Research and Sponsor Programs
Carol Hillmer
Assistant Dean, Research Division
College of Agricultural and Life Sciences
Overview
• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions
Cost Accounting Standards (CAS)
• What is the CAS Board?
• What are CAS?
• Why are there CAS?
• How are CAS applied to educational institutions?
What is the Cost Accounting Standards Board?
• The Board is an independent legislatively-established board
located within the Office of Federal Procurement Policy (a
section of the Office of Management and Budget).
• The Board issues rules and regulations by which government
agencies, contractors, and subcontractors are required to
comply.
• The Board has exclusive authority to make, promulgate, and
amend cost accounting standards and interpretations
designed to achieve uniformity and consistency in the cost
accounting practices governing the measurement, assignment,
and allocation of costs.
What are Cost Accounting Standards?
• CAS incorporates three areas of cost accounting:
– Measurement of costs
– Assignment of cost to cost accounting period
– Allocation of cost to cost objectives
• There are 19 standards, 4 of which apply to
educational institutions (see OMB Circular
A-21, Subsections C.10-14).
Why are there Cost Accounting Standards?
• CAS were designed to achieve uniformity and
consistency in the measurement, assignment, and
allocation of costs.
• The standards are based on examinations of
common cost accounting practices.
• CAS establish limits and constraints on what is
considered appropriate, with the goal of providing
consistency and uniformity in cost accounting.
Cost Accounting Standards applied to Educ. Institutions
OMB Circular A-21 Subsections C.10-14 impose 4 of
the 19 standards on educational institutions:
• CAS 501 Consistency in Estimating, Accumulating
and Reporting Costs
• CAS 502 Consistency in Allocating Costs Incurred
for the Same Purpose
• CAS 505 Accounting for Unallowable Costs
• CAS 506 Cost Accounting Period
Cost Accounting Standards applied to Educ. Institutions
• CAS 501 Consistency in Estimating, Accumulating
and Reporting Costs
– Requires that an institution’s practices in
estimating costs in pricing a proposal be
consistent with the institution's cost accounting
practices used in accumulating and reporting
costs.
– Requires that an institution's cost accounting
practices used in accumulating and reporting
actual costs for a sponsored agreement be
consistent with its practices used in
estimating costs in pricing the related
proposal or application.
Cost Accounting Standards applied to Educ. Institutions
• CAS 502 Consistency in Allocating Costs Incurred for
the Same Purpose
– Requires that all costs incurred for the same
purpose, in like circumstances, be treated as
either direct costs only or F&A costs only with
respect to final cost objectives.
Cost Accounting Standards applied to Educ. Institutions
• CAS 505 Accounting for Unallowable Costs
– Unallowable costs must be identified and excluded
from any billing, claim, application, or proposal
applicable to a sponsored agreement.
Cost Accounting Standards applied to Educ. Institutions
• CAS 506 Cost Accounting Period
– Educational institutions must use their fiscal year
as their cost accounting period.
Overview
• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions
OMB Circular A-21
• What is OMB Circular A-21?
• Purpose of OMB A-21
• CAS in OMB A-21
What is OMB Circular A-21?
• OMB is the Office of Management and Budget.
• Circulars are instructions or information issued by
OMB.
• Circular A-21 addresses Cost Principles for
Educational Institutions.
• Circulars are expected to have a continuing effect of
two years or more.
• Current Circular A-21 was Revised 05/10/04.
Purpose of OMB Circular A-21
• Establishes principles for determining costs
applicable to grants, contracts, and other
agreements with educational institutions.
• Principles deal with the subject of cost
determination.
• Principles are designed to provide that the
Federal Government bear its fair share of total
costs, determined in accordance with generally
accepted accounting principles, except where
restricted or prohibited by law.
Cost Accounting Standards in OMB Circular A-21
• In 1996, A-21 implemented CAS for all sponsored
agreements.
• Effective July 1, 1997, UW-Madison implemented
its compliance with the CAS required by the OMB.
Cost Accounting Standards in OMB Circular A-21
• OMB Circular A-21 Cost Principles for Educational
Institutions requires that institutions treat similar costs
consistently as either direct costs or F&A costs.
• OMB expects that certain types of costs will be
included in the institution’s F&A cost rate and will not
be charged as direct costs to Federal projects.
Overview
•
Cost Accounting Standards (CAS)
•
OMB Circular A-21
•
Cost Principles
•
Allowable vs. Unallowable
•
Exceptions
•
Questions
Cost Principles
•
Costs are reimbursable by the Federal
Government ONLY if they are:
Necessary
Reasonable
Allocable
Allowable
Consistently treated
Permissible
•
If a cost cannot meet this criteria, it is
unallowable no matter what it is for.
Necessary
• Costs applied to the project MUST be necessary to
accomplish the scope of work.
• To be necessary, the cost applied must be absolutely
essential to achieve a certain result or results.
Reasonable
• If the nature of the goods or services acquired or
applied to the project reflect the action that a “prudent
person” would take under similar circumstances.
• Emphasis would be upon one acting in good
judgment.
• Not excessive or extreme; fair.
Allocable
• Cost is incurred solely for advancement of work on
the project.
• Application of cost is in proportions that can be
approximated through reasonable methods.
• Cost is necessary and deemed assignable to the
project.
Additional Considerations of Allocability
• Costs allocable to a particular sponsored
agreement may not be shifted to other sponsored
agreements to meet deficits caused by overruns or
other fund considerations, to avoid restrictions, or
for other reasons of convenience.
• Costs allocable to activities sponsored by industry,
foreign governments or other sponsors may not be
shifted to federally-sponsored agreements.
Additional Considerations of Allocability
• When equipment is purchased as authorized
under a sponsored agreement, the costs are
assignable to the sponsored agreement
regardless of the use that may be made of the
equipment after the end of the project.
Allowable
• Allowability of costs is defined specifically in OMB
Circular A-21 Section J General Provisions of the cost
principles.
• A-21 Section J – see handout summarizing
allowability of costs
Consistently Treated
• Like costs must be treated the same in like
circumstances … consistently.
• Costs may be treated as direct costs only or as F&A
costs only.
Permissible
• Costs must be permissible under the law
AND/OR
• Costs must be permissible under terms/conditions of
the award
Overview
• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions
Allowable vs. Unallowable Costs
• OMB Circular A-21 Section J defines 54
specific categories of costs and assigns them
to the categories of allowable and unallowable.
• Section J instructs grantees on the acceptable
treatment of allowable costs as either direct
costs or F&A costs.
Allowable Costs
• Section J instructs that an allowable cost may be:
– normally treated as a direct cost;
– normally treated as an F&A cost; or
– normally treated as an F&A cost, except in “unlike”
circumstances under which it may be treated as a
direct cost.
• Note that such “unlike” circumstances must
be documented during the institutional CAS
review and approval process.
Unallowable Costs
• Section J instructs that an institution is required to
separately track and account for all unallowable
costs to ensure that they are not charged to Federal
awards either as direct costs or as part of the
institution’s F&A cost rate calculations.
– Examples: Alcoholic Beverages, Alumni Activity,
Commencement Costs, Bad Debts, etc.
• Costs that are named in Section J as
unallowable are unallowable in any
circumstance.
CAS 502 – Impact on Allowability
• Requires that all costs incurred for the same
purpose, in like circumstances, be treated as either
direct costs only or F&A costs only with respect to
final cost objectives.
• Prohibits double direct charging of the same cost to
multiple projects.
• Prohibits charging as a direct cost any cost for which
other costs incurred for the same purpose, in like
circumstances, have been included in any F&A cost
pool to be allocated to that or any other
final cost objective.
Costs Normally Treated as Indirect Costs (F&A)
• Administrative and Clerical Salaries
• Telecommunications -- Local Telephone Service
Including phone equipment such as telephones, cell
phones, pagers, fax machines, and line charges
• Postage
Including U.S. Postal Service, Federal Express, UPS
• Dues and Memberships
• Office Supplies
Costs Normally Treated as Indirect Costs (F&A)
• Subscriptions, Books, and Periodicals
• General Purpose Equipment
Non-research equipment which may be used for general
office purposes such as desktop computers, laptop
computers, printers, fax machines, copy machines, and
office furniture.
• General computer services, networking costs, or
other DoIT services
• Staff recruitment and relocation
Overview
• Cost Accounting Standards (CAS)
• OMB Circular A-21
• Cost Principles
• Allowable vs. Unallowable
• Exceptions
• Questions
Is a Cost Eligible for a CAS Exception?
• A cost normally treated by UW-Madison as an F&A
cost may be appropriate as a direct cost on a
Federally sponsored project if:
– The cost is necessary, reasonable, allocable,
allowable, and permissible under the law,
terms/conditions of the award, and the
circumstances are “unlike.”
– “Unlike” circumstances may be determined by the
nature of the project, such as those detailed
in Exhibit C of OMB Circular A-21.
Exhibit C: OMB Circular A-21 Major Project Examples
• Large, complex programs that entail assembling and
managing teams of investigators
– Examples: General Clinical Research Centers (GCRC),
Primate Centers, Program Projects, Environmental or
Engineering Research Centers.
• Projects involving extensive data accumulation,
analysis/entry, surveying, tabulation, cataloging,
reporting
– Examples: Epidemiological Studies, Clinical Trials.
Exhibit C: OMB Circular A-21 Major Project Examples
• Projects whose principal focus is preparation and
production of manuals, reports, books
– Excludes: Routine Progress and Technical Reports.
• Individual projects requiring project-specific
database management or individualized manuscript
preparation
Exhibit C: OMB Circular A-21 Major Project Examples
• Projects which require extensive travel or meeting
arrangements
– Examples: Conference or Seminar Awards.
• Projects that are geographically inaccessible to
normal department administrative services
– Examples: Radio Astronomy Projects, Remote Field Sites.
• NOTE: These examples are not exhaustive, nor are
they always appropriate as instances when
assessment of administrative/clerical
salaries would be allowed.
Administrative and Clerical Salaries
• Administrative and clerical salaries should normally
be treated as F&A costs per A-21 F.6.b.2. It may be
appropriate to charge administrative and clerical
salaries to a Federal award under the following
circumstances:
– A major project (as defined in OMB A-21 Exhibit C) or
activity explicitly budgets for administrative or clerical
services; and
– Employees involved can be specifically identified with the
project or activity; and
– Costs are incurred in unlike circumstances, i.e.,
the actual activities direct charged are not the
same as the actual activities normally included
in the institution's F&A cost pool.
Telecommunications Costs
• Long distance phone calls are normally
treated as direct costs under Section F.6.b.1.
• Local phone service and phone equipment
are normally treated as F&A costs by UWMadison per A-21 F.6.b.3.
Telecommunications Costs
• It may be appropriate to charge local and
equipment costs to a Federal award under the
following circumstances:
– A pager may be necessary for a clinical trial in order to
allow the study coordinator to remain in immediate
contact with the PI for the safety of patients.
– A fax machine and line may be justifiable if it is
dedicated to the project and is necessary to ensure
confidentiality of transmitted patient information.
– Monthly telephone line charges may be justifiable if the
telephone line is fully dedicated to the project and
used for no other purposes.
Postage
• Postage costs which include U.S. Postal Service,
Federal Express, and UPS should normally be
treated as F&A costs per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
Federal award under the following circumstances
– Costs of shipping biological samples in dry ice to a
collaborator may be allowable as direct costs due to
“unlike” circumstances.
– Costs associated with mailings involving data
collection/survey costs, also may be allowable
as direct costs due to “unlike” circumstances.
Postage
• Conversely, cost of sending the proposal,
revisions, periodic or annual reports, or
related correspondence to the funding
agency should not be charged as direct costs to
a sponsored project.
Section J.34. Proposal Costs specifies that costs
of preparing proposals should normally be
treated as F&A costs. No “unlike” circumstance
exists.
Dues and Memberships
• Dues and Membership fees should normally be
treated as F&A costs per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
Federal award under the following circumstances:
– A investigator will attend a specific meeting or conference
to present finds of their research under a specific award.
The registration costs to attend include membership fees.
A non-member option of attendance is more costly than the
registration including membership.
– The RFP under which application was made requires
investigator attendance at a specific meeting. Meeting
attendance requires the individual to hold a current
membership.
Office Supplies
• Office Supply costs should normally be treated as
F&A costs. Office supplies such as paper,
envelopes, pens, staples, etc. are normally treated
as F&A by UW-Madison per A-21 F.6.b.3.
• It may be appropriate to charge such costs to a
Federal award under the following circumstances:
– A large epidemiological survey project may require
paper, envelopes, etc. to produce and mail surveys to
study participants.
– An outreach project may require paper and
pens as part of the training component
defined within the scope of the project.
Subscriptions, Books, and Periodicals
• Subscription, Book, and Periodical costs should
normally be treated as F&A costs per A-21.F.8.
• It may be appropriate to charge such costs to a
Federal award under the following
circumstances:
– An outreach project may require specific books as
part of the training component to be available for use
and reference at traveling training sites defined within
the scope of the project.
– However, subscriptions or books specifically
purchased for a general laboratory reference
library would not be allowable.
General Purpose Equipment
• General purpose equipment such as desktop
computers, laptop computers, printers, office furniture
and vehicles are normally treated as F&A costs.
• Under J.16.b.1, such charges are unallowable as
direct charges, except where approved in advance by
the sponsored agency. Some agencies have waived
prior approval requirements under FDP/Expanded
Authorities.
• However, CAS 502 requires consistent treatment as
F&A costs except in “unlike” circumstances.
General Purpose Equipment
• CAS requires consistent treatment of similar costs
in like circumstances. Since general purpose
equipment costs are normally treated as F&A by
UW-Madison, CAS exceptions for direct charging
these items may be approved only in “unlike”
circumstances:
– For example, a desktop computer might be necessary,
dedicated and justifiable for a project that requires large
amounts of statistical or data analysis.
– A laptop computer might be necessary, dedicated and
justifiable for a study of microbial contamination of
fresh produce in which data will be collected and
entered into a database using the laptop in a
remote agricultural site during harvest of
produce.
General computing, networking costs, other DoIT services
• General computer services, networking costs, or other
DoIT services should normally be treated as F&A costs.
• It may be appropriate to charge such costs to a Federal
award under the following circumstances:
– The award is for a large clinical research center (a major
project). Networking costs would need to be fully dedicated to
the center to be allowable.
– NOTE: Networking costs for the vast majority of Principal
Investigators would NOT be allowable in that their role is NOT
fully dedicated 100% to any one specific award.
Staff Recruitment and Relocation
• Staff Recruitment and Relocation costs should
normally be treated as F&A costs.
• It may be appropriate to charge such costs to a
Federal award under the following circumstances:
– Expertise of an unusual nature is required on a specific
project.
• Advertisement costs may be allowable if the recruitment costs are
normal in nature -- costs incurred must be pursuant to a well
managed recruitment program, the advertisement is promoted in
keeping with standard recruiting methods (see A-21 J.42.), and the
opportunity being recruited must be required to fulfill the needs of
the project.
CAS Exception Review & Approval
• Investigators should provide clear justification in
Federal project budgets for direct cost items that
normally are treated as F&A costs.
• The fact that the sponsoring agency allows such
costs to remain in the awarded budget may not be
interpreted as approval for these items as CAS
exceptions.
• School/College Dean’s Offices review and
approve CAS exceptions on sponsored
project budgets. This institutional approval
is required by A-21.
Is a Cost Eligible for a CAS Exception?
At the time a proposal is being submitted, items which
would normally be treated as F&A costs, may be
included in the budget request as a CAS Exception.
To do so:
• The project scope of work would need to qualify as a
project under which exceptions could be granted.
• The budget/narrative would need to clearly detail the
exceptional nature of the item.
• Approvals would need to be granted by the
School/College Dean’s Office and included
as an approved CAS Exception with the
proposal routed to RSP at time of
submission.
Is a Cost Eligible for a CAS Exception?
When an exception was not properly identified and
approved within the proposal at time of
submission, an exception can be requested at
time of occurrence during the award.
• Request must be made through a campus
exception approval process.
– Departments/Centers need to submit a formal request
justifying the purchase in question. The request will
require Dean’s Office approval prior to purchase – and
may in certain instances require agency review and
approval.
Is a Cost Eligible for a CAS Exception?
– Request should include:
Principal investigator name
Project grant number (i.e., 144-____)
Agency name
Project title
Detail regarding specific item(s) to be purchased (i.e.,
description and amount)
Full justification of why the item(s) is required and why a
CAS exception would be appropriate
– Request can route in hardcopy or via email. If by email,
email needs to be sent from PI or on behalf of PI by an
appropriate designee.
– Route to School/College Dean’s Office.
Dean’s Office will review and if acceptable,
route forward to RSP.
Is a Cost Eligible for a CAS Exception?
– RSP assists in reviewing terms/conditions, consulting with
departments and College/School’s Dean’s Offices, and
making recommendations for granting exceptions.
– Such approvals should accompany purchase requests
and be retained in the award file to document the CAS
exception.
– NOTE: approvals should be requested and granted prior
to a purchase proceeding or an expenditure being applied
to an award.
– ATTENTION: The fact that the sponsoring agency allows
such costs to remain in the awarded budget may not be
interpreted as approval for these items as CAS
exceptions.
CAS Applied to Non-Federal Awards
• General Principles of A-21 apply.
– More exceptions than on the Federal side.
• Many Non-Federal Sponsors prohibit direct
charging of certain types of costs.
• Full Indirect Cost Recovery vs. Partial (or No)
Recovery.
• Bottom Line: It Depends.
What if I have Questions?
• Campus contacts/experts:
Research and Sponsored Programs Post-Award:
Charles Hoffman 2-0253 choffman@rsp.wisc.edu
-orBarbara Keenan 2-2588 bkeenan@rsp.wisc.edu
• School/College Post-Award Dean’s Offices or
School/College Business Services Offices
What if I have Questions?
• Website references
A-21:
http://www.whitehouse.gov/omb/grants/grants_circulars.html
RSP:
http://www.rsp.wisc.edu
Slides: http://www.rsp.wisc.edu/training