COST ACCOUNTING
STANDARDS
Office of Sponsored Projects Administration
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 can’t 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
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INDIRECT
– Salaries of secretary,
dept. administrator
– General purpose
equipment
– Postage
– Basic telephone
– Office supplies
– Expenses of SPA,
OSPA, Purchasing
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
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