omb circulars & cost transfers

OMB Circulars & Cost Transfers

James Trotter, SPA DirectorCharlie Resare, Subrecipient Monitor

Sponsored Projects Administration

Audience

This course is intended for “department administrative staff”—including department administrators, division managers, department fiscal managers, department effort coordinators, etc.

Introduction

The federal Office of Management and Budget (OMB) has issued a number of circulars to define the principles and standards for sponsored projects funded by federal agencies.

These Circulars are instructions directed to the agencies but they must still be followed by recipient institutions.

Part 1

OMB Circulars•Office of Management & Budget

OMB Circulars

The federal Office of Management and Budget (OMB) has issued a number of Circulars to define the principles and standards for agreements between federal agencies and research institutions. A clear grasp of the central principles of these Circulars is essential for effective sponsored project management. .

Introduction

The first part of this session will examine the three circulars most significant to sponsored projects at OHSU:

• A-21• A-110 (2 CFR Part 215)• A-133

The Code of Federal Regulations (CFR) spells out each agency’s implementation of these circulars.

Introduction

A-21 defines the cost principles applicable to grants and contracts at educational institutions.

A-110 sets forth standards for consistency among federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profits.

A-133 sets forth standards for consistency in audits of organizations spending federal awards.

Introduction

The Sponsored Projects Administration (SPA) website provides a link to the complete text of each OMB Circular:http://www.ohsu.edu/research/rda/spa/federal.shtml

A-21 Topics

Direct vs. Indirect (F&A) Costs

Allowable vs. Unallowable Costs

Effort Reporting

A-21 Topics

Direct Costs are costs that can be directly associated with a particular sponsored project, an instructional activity, or any other institutional activity.

Examples of Direct Costs:• Principal Investigator salary

• Lab supplies

• Scientific equipment

A-21 Topics

Indirect Costs (Facilities & Administrative) are costs that are incurred for common or joint objectives and cannot be specifically identified with a particular sponsored project, instructional activity, or other institutional activity.

Examples of Indirect Costs:• Libraries• Maintenance• Research Administration

A-21 Topics

Allowable Costs• Must be reasonable

• Must be allocable

• Must be treated consistently

“Prudent person” test

A-21 Topics

Section J specifies which costs are allowable and unallowable as both direct and indirect costs.Examples of Allowable Costs

• Equipment, Professional Services, Transportation

Examples of Unallowable Costs

• Alcohol, Entertainment, Lobbying, Marketing

A-21 Topics

Time and Effort ReportingThe purpose of an effort reporting system is

to provide a reasonable basis for distributing salary charges among direct and indirect activities.

OHSU uses a semi-annual, after-the-fact effort reporting system.

A-110 Overview

2 CFR Part 215 (formerly OMB Circular A-110)Uniform Administrative Requirements for Grants

& Agreements.“This circular sets forth standards for obtaining

consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations.”

A-110 Topics

Financial Management Systems

Cost Sharing

Program Income

Reports and Records

Termination and Enforcement

Close-Out Procedures

A-110 Topics

OHSU is accountable to sponsoring agencies and must demonstrate that appropriate financial management systems are in place.

A-110 requires institutions receiving federal assistance to maintain “[e]ffective control over and accountability for all funds, property and other assets. . . and assure they are used solely for authorized purposes.” (Subpart C.21.b.3)

A-110 Topics

Cost Sharing is the portion of project costs not borne by the Federal Government

Cost Sharing can include:• Cash (from recipient)

• Academic year effort (from recipient)

• Third party In-Kind Contributions (from outside the recipient organization)

A-110 Topics

Cost Sharing must be more than a token amount (i.e., typically more than 1% of project costs).

Cost Sharing represents institutional commitment to the project.

A-110 Topics

Mandatory Cost Sharing is required by the sponsor as a condition of making the award.

Voluntary Cost Sharing is not required by the sponsor but may become legally binding as a commitment reflected in the proposed budget.

Committed (eg, over salary cap)

Uncommitted (not tracked by OHSU)

A-110 Topics

Acceptable Cost Sharing must be:Verifiable and documented in recipient

recordsNot included as matching for any other

federal projects, nor paid from other federal awards

Necessary and reasonableAllowable under applicable cost principlesAppropriate to all OMB Circular A-110

provisions

A-110 Topics

Program Income applies to funds earned during a project period.

Program Income includes:Registration fees for a training or conference

awardProducts or materials purchased on an award

and sold after research has been conductedSale of information produced or acquired

under the award

A-110 Topics

Program Income may be:• Added to funds committed to the project• Deducted from total project allowable costs• Applied to non-federal share of project costs

Recipient has no obligation to the Federal Government for funds earned after the project period unless the agency’s regulations or terms and conditions provide otherwise.

A-110 Topics

Property Management applies to property purchased under Federal awards, such as land, structures, equipment.

Exempt property is that on which the title vests with the recipient upon acquisition with no further obligations.

A-110 Topics

Property Management systems must:• Conduct a physical inventory every two years• Safeguard against damage, loss, and theft• Provide adequate maintenance• Maintain insurance• Sell competitively at highest return, when

authorized

A-110 Topics

Reports & Records:

A-110 sets forth procedures for monitoring and reporting financial and program performance and the required reporting forms, including requirements for record retention.

A-110 Topics

Award recipients are responsible for: managing and monitoring each project,

program, function and activity supported by the award.

ensuring that sub-recipients have also met all audit requirements.

A-110 Topics

Technical reports must be completed not more than quarterly and not less than annually.

Reports must contain:• Comparison of actual accomplishments with

set goals for the period• If applicable, reasons that goals were not met• Explanation for any cost over-runs or high unit

costs

A-110 Topics

Award recipients must notify the awarding agency whenever events occur that have a significant impact on the project or program, or when problems, delays or adverse conditions materially impair the ability to attain program objectives.

A-110 Topics

Financial Status Report (FSR) is required on any federally sponsored project.

SPA submits financial reports to sponsors.

SPA Senior Financial Analyst sends copies of reports to departments for review (eg, End Date Memo, etc.).

A-110 Topics

Financial records, supporting documents, statistical records and all other records must be retained for three years from the date of final report, except when:• Litigation requires retention until matters have

been resolved.• Records are transferred to the agency, in

which case retention requirements end.• Other record retention requirements apply.

A-110 Topics

With agency approval, copies can be substituted for original records.

Electronically imaged records may be substituted for original records provided the institution establishes appropriate procedures.

A-110 Topics

Access to records is allowed to the agency, the inspector general and the comptroller general.

Agencies may not limit public access to the recipient’s records without justification.

A-110 Topics

Types of Award Termination:• By the awarding agency• By the awarding agency with recipient

consent• By the recipient

Types of Enforcement:• Remedies for non-compliance• Hearings and appeals• Suspension and termination• Debarment

A-110 Topics

Close-Out Requirements:• All reports submitted within 90 days• Prompt payment by awarding agency• Recipient refund of unobligated cash

advances• Accounting for real and personal property• Agency right to recover disallowances

A-133 Overview

Effective July 1, 1992 (revised June 24, 1997), A-133 “sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of … non-profit organizations expending Federal awards.”

A-133 requires an annual external audit of all non-federal entities expending $500,000 or more annually in Federal funds.

A-133 Overview

A-133 defines the requirements of an audit and explains the responsibilities of the institution, the agency and the auditor

A sample of Federal awards and their direct cost transactions is selected and examined to determine if expenditures and procedures were appropriate.

A-133 Topics

At OHSU, departments become involved in annual A-133 audits when SPA requires information on source documentation.

Part 2

Costing & Cost Transfers

Costing & Cost Transfers

Project costs get charged to accounts according to accepted principles, policies and federal regulations. Occasionally expenses need to be moved between research projects, expenditure types, or differing funds at OHSU. These are called cost transfers, and are allowable only with proper justification, documentation, and approval.

The next part of this course moves step-by-step through general cost accounting standards and the stages involved in a cost transfer.

Charging Direct Costs

Sponsor funds must be available

Costs are allocable to the project

Costs are reasonable

Costs are allowable

Like costs are treated consistently

Allocable

To be allocable as a direct cost, the expenditure must benefit only one project, or must be easily and proportionally assigned to multiple projects that benefit.

Reasonable

To be reasonable, costs must pass the “prudent person test”.

Would the local press make a story out of the costs you are charging to taxpayer funds? If so, you might want to think again.

Allowable

For costs to be allowable on a federally sponsored award, “they must conform to any limitations or exclusions set forth in these [federal] principles or in the sponsored agreement as to types or amounts of cost items” (OMB Circular A-21, C.2.d).

Consistent

“Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or F&A costs. Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.” (OMB Circular A-21, D.1)

Consistent

Certain items are generally considered “indirect” (F & A) costs—unless a direct relationship to a specific sponsored project can be established, such as:

• Salaries of departmental staff• Office supplies• Telephone expenses• Photocopying and postage• Etc.

Cost Transfers

Cost Transfer: the process for moving an item of

expenditure between sponsored projects, expenditure types, or different types of funds.

Cost Transfers need justification, documentation, and approval.

Cost Transfer Overview

Rules governing Cost Transfers

Necessary approvals

Walk through of OHSU Adjustment Form

Cost Transfers and Audits

Strategies for Prevention of Cost Transfers

Examples

Avoid the Need

All project costs should be appropriately charged to accounts according to accepted accounting principles as well as OHSU policies and the regulations applicable to sponsoring agencies.

Ideally, completed transactions should not need correction.

Transfer When Needed

However, in certain circumstances, changes are required to move expenses:• Between projects • Between expenditure types• Between different types of funds

Cost Transfers need all of the following:• Justification• Documentation• Authorization

Federal Requirements

The Federal Government questions the propriety of Cost Transfers on federally funded projects.

Cost Transfers can cast doubt on a grantee’s accounting system and internal controls.

The Government expects documentation and an authorization process for all Cost Transfers on federally assisted projects.

Federal Requirements

Under no circumstances may a Cost Transfer be made with the sole intent of using up the unexpended balance in a federal account.

Under no circumstances may an expense be ‘parked’ on one federal project while awaiting the award/set up of the ‘correct’ project.

SPA Procedure

SPA reviews the OHSU Adjustment Form for:AllowabilityAcceptabilityPropriety of charges

If the request does not meet these criteria, it will be returned to the PI.

If the request is approved, SPA forwards the form for processing.

Acceptable Reasons

Correction of error—but be more specific.

Charges benefit more than one program (distribution of costs based on benefits received).

Programs involve closely related work.

Unacceptable Reasons

To reduce overruns if the transfer is from one federal project to another

For reasons of convenience

To use unspent money in a project

Because the bookkeeper was on leave, etc.

Walk Through of Form

Make Cost Transfers using the OHSU (“Transfer Between”) Adjustment Form: http://www.ohsu.edu/xd/about/services/financial-services/forms/upload/JE_FOMOPPL_POETA_Adjustment_Form.xlsx (link needs correction)

Online instructions to this form: http://www.ohsu.edu/xd/about/services/financial-services/forms/upload/JE_Guidelines_CFS.pdf

Audits

Cost Transfers can be a “red flag” to auditors.

Auditors examine:• Frequency• Justification• Remedies

Audit Questions

Are Cost Transfers supported by documentation which adequately explains and justifies why the transfers were made?

Are Cost Transfers caused by work which is supported by more than one funding source?

Are there Cost Transfers between projects which are in an overrun condition to those with unexpended balances?

Cost Transfer Case Study #1

An OHSU employee transfers expenses from one account to another and annotates the cost transfer “to correct an accounting error”.

Is this an appropriate justification?

Why or why not?

Case Study #1

Answers:

If it was an accounting error, the transfer must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organization official.

Transfers made solely to cover cost overruns are not allowable.

Cost Transfer Case Study #2

You are asked by a PI to stop at an office supply store on your way to work and pick up a few items. The PI also asked you to get donuts for the lab meeting that morning.

When you arrive at work, the PI tells you that all the items should be charged to the grant. Your Department Administrator tells you that these purchases must come from departmental funds.

Why?

Case Study #2

Answers:

If the supplies are not specifically allocable to the grant, they are considered general office supplies and should not be charged as a “direct” cost to the grant account.

Entertainment, such as food, is unallowable under the provisions of A-21.

Cost Transfer Case Study #3

Dr. Miller purchases a much needed piece of specialized equipment for her research on hypertension. When preparing the purchase request, she realizes that the only account with enough money is her grant for research on sleep disorders. Because both grants are funded by NIH, she charges the equipment to the sleep disorder grant.

Is this acceptable?

Case Study #3

Answer:

The purchase must directly benefit the project it is charged to. Dr. Miller must charge the hypertension study, not the sleep study.

Cost Transfer Summary

Cost Transfer is the process of moving an expenditure between research projects, expenditure types, or different types of funds.

Cost Transfers should be an exception, not a standard means of operating.

Cost Transfers need justification, documentation, and approval.

OMB Circulars & Cost Transfers

Questions?