Office of Grant and Research Development
Sponsored Programs Services
This guideline takes into account the unique needs and requirements of the University's research community in order to comply with the requirements of the following federal and University rules and agreements:
- OMB Circular A-21, Cost Principles for Educational Institutions, which includes the federal Cost Accounting Standards (CAS).
This circular (A-21) provides principles for determining costs applicable to research and development, training, and other sponsored work performed by the University on federally-funded sponsored agreements.
- OMB Circular A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations.
This circular (A-110) outlines requirements for written procedures for determining the reasonableness, allocability, and allowability of federally-funded award costs.
- Federal Demonstration Partnership (FDP) terms and conditions;
- University's Cost Accounting Standards (CAS) Disclosure Statement; and
- University's facilities and administrative (F&A) cost agreement with the federal government.
Future modifications to this and other internal policies may be necessary as further adjustments and interpretations are issued by the federal government.
The University delegates considerable authority and responsibility for fiscal compliance to principal investigators (PIs) and departments. See 40.01. This requires the development of significant expertise at the department level and relies heavily on PIs and departmental fiscal staff to comply with WSU policies and various sponsor rules and regulations.
Project costs may be considered reasonable if the nature and amount of the goods or services acquired or applied reflect a prudent person's decision under similar circumstances to incur such costs.
See OMB Circular A-21 Section C.3 for major considerations involved in the determination of the reasonableness of a cost.
Allocable costs are expenses which may be assigned or charged to one or more sponsored project cost objectives, in accordance with the relative benefits received or other equitable relationship. Project costs must advance, benefit, or be necessary for the sponsored agreement to be allocable. See OMB Circular A-21, Section C.4.
According to OMB Circular A-21, a cost may be charged to a sponsored agreement only if it meets all of the following criteria:
- It must be a reasonable cost,
- It must be allocable to the sponsored program,
- It must be treated consistently, through the application of generally accepted accounting principles, and
- It must be within the type and dollar amount limitations specifically defined in Circular A-21 and the particular contract or agreement.
Direct costs are defined as costs that can easily and with a high degree of accuracy be identified or assigned specifically with one of the following:
- A particular sponsored project,
- An instructional activity,
- Any other institutional activity.
See also below.
A cost is considered direct when a specific grant or contract gains explicit benefit from the cost for a specific programmatic purpose. For example, when a PI's activity involves scientific effort on a particular grant or contract, his or her salary is an allowable direct cost to that grant or contract. See 40.34.
Facilities and Administrative (F&A) Costs
Facilities and administrative costs (F&A costs) are expenditures incurred by a sponsored project (programs 11-14) which are not readily identified with that project. (OMB Circular A-21, Section E.1) See below and 40.25.
CONSISTENT TREATMENT OF COSTS
Consistent treatment of costs is a basic cost accounting principle. Federal guidelines specifically require consistency to ensure that the same types of costs are not charged to grants and contracts as both direct and facilities and administrative (F&A) costs. This requirement ensures that the federal sponsor is not paying twice for the same costs in like circumstances. (OMB Circular A-21 and Cost Accounting Standard 502 (OMB Circular A-21, Section C.11.a))
University departments must consistently treat costs incurred for the same purpose in like circumstances as either direct or F&A costs. Where the University treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in similar circumstances must be treated as direct costs. (OMB Circular A-21, Section D.1) See below.
Application To Sponsored Programs
Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreements. Typical costs charged directly to a sponsored agreement are the compensation of employees for performance of work under the sponsored agreement, including related fringe benefit costs to the extent they are consistently treated, in like circumstances, by the University as direct rather than F&A costs; the costs of materials consumed or expended in the performance of the work; and other items of expense incurred for the sponsored agreement, including extraordinary utility consumption. The cost of materials supplied from stock or services rendered by specialized facilities or other institutional service operations may be included as direct costs of sponsored agreements, provided such items are consistently treated, in like circumstances, by the University as direct rather than F&A costs, and are charged under a recognized method of computing actual costs, and conform to generally accepted cost accounting practices consistently followed by the University. (OMB Circular A-21, D.2)
Costs that are normally F&A costs may be charged to nonfederally sponsored agreements if permitted by the sponsors' policies/practices or otherwise approved by the sponsors.
For off-campus projects only, other direct costs include facilities costs, e.g., rent, maintenance, security, utilities. Off-campus facilities are defined as facilities which are not owned and/or leased by the University and which are not maintained or operated by University Facilities Services, Operations.
Facilities and Administrative (F&A) Costs
F&A costs are those 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. See A-21 Section F.1 for a discussion of the components of F&A costs.
Normally, F&A costs (often called overhead) are those costs which accrue from the general operation of the University. Such costs normally are classified under the following categories:
- Depreciation and use allowances,
- General administration and general expenses,
- Sponsored projects administration expenses,
- Operation and maintenance expenses,
- Library expenses,
- Departmental administration expenses, and
- Student administration and services.
Examples of facilities and administrative costs are:
- Building depreciation,
- Maintenance costs,
- Electricity and heat costs,
- Accounting services,
- Personnel services,
- Departmental administration,
- Purchasing, and
- Human subjects administration.
DISTRIBUTION OF DIRECT COSTS
OMB Circular A-21, Section C.4.d.(3) provides two methods for allocating an allowable direct cost to two or more sponsored projects: the proportional benefit rule and the interrelationship rule.
Proportional Benefit Rule
The proportional benefit rule applies when a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost. The department allocates the cost according to the proportion of benefit provided to each project.
The department might allocate the cost of laboratory supplies based upon the quantity used (or planned to be used) on each project.
The interrelationship rule applies when a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved. The department distributes the cost on any reasonable basis because the proportional benefit cannot be quantified and identified to the individual projects.
The department might allocate the cost of laboratory supplies based upon the allocation of employee salaries to each project.
DIRECT COSTS OR F&A COSTS?
Direct Charging Examples
The following are examples of "major projects" where direct charging of administrative or clerical staff salaries may be appropriate. (A-21 Exhibit C)
- 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 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 research vessels, radio astronomy projects, and other research fields sites that are remote from campus.
- Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; 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 University'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.
Appendix A Part 99005 -- Cost Accounting Standards
The following guidelines apply to the determination of departmental administrative costs as direct or F&A costs. (A-21, F.6.b)
- 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.
- 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.
- Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs. (A-21, F.6.b)
Other Normal F&A Costs Treated as Direct Costs
The following additional costs are usually treated as F&A costs, as noted in OMB Circular A-21 Section F.6.b.(3). Such costs may be treated as direct costs only under special or unique circumstances.
- Office supplies
- Basic local telephone services on campus
- Basic services include phone installation, monthly line charges, basic instruments
These types of costs may be directly charged only if they meet the following requirements:
- The project has a special need for the item or service involved that is beyond the level of services normally provided.
- The costs can be specifically identified to the work conducted under the project.
- The costs are specified in the proposed budget of the sponsored agreement, and the special circumstances requiring direct charging are justified in the proposal.
- The sponsoring agency accepts the cost as part of the projects direct cost budget; i.e., the sponsor does not specifically disapprove the cost in the award or in other notices it gives to the University.
The following are examples of unique circumstances justifying direct charges:
- Office supplies/postage
Envelopes used to mail an unusually large number of research questionnaires.
- Basic local telephone service on campus
A hotline or crisis line that is specifically required by a grant or contract.
A membership in a professional or scientific organization if joining is the only means of obtaining a specific journal or periodical directly related to a grant or contract.
REBUDGETING OF NORMAL F&A COSTS
When a need arises and the sponsoring agencies permit rebudgeting after a project has started, a department may request the rebudgeting of normal F&A costs.
See also 40.23.