introduction to 2 cfr part 220: cost principles for
TRANSCRIPT
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Introduction to 2 CFR Part
220: Cost Principles for
Educational Institutions
SRA International Meeting
Montréal, Québec, Canada10/23/2011
Kathryn Watkins-Wendell, CRA
Director, Office of Research Services & Sponsored
Programs, The University of Akron
[email protected] 330-972-6764
Learning Objectives
• Leave with a basic understanding of cost
principles applicable to educational
institutions
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History of OMB Circular A-21
• 1947 Blue Book issued by ONR (government should support research)
• 1958 A-21 published by Bureau of the Budget
• 1960’s-1991 Numerous revisions
• 1991-2003 Significant revision 26% administrative cap, cost accounting standards, DS-2,revisions to add utility cost adjustment factor, consistent depreciation methods
• 2005 A-21 moved to 2 CFR, Part 220
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2 CFR 220 at a Glance
• Purpose and scope
• Definition of terms
• Basic considerations
• Direct costs
• Facilities & Administrative (F&A) costs
• Identification & assignment of F&A costs
• Determination and application of F&A cost rate or rates
• Simplified methods for small institutions
• General provisions for selected items of cost
• Certification of charges
• Exhibits
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Purpose • Establishes principles for determining costs
applicable to grants, contracts and other
agreements with educational institutions
– “Sponsored Agreements”
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Scope
• Cost determination
– Direct vs. F&A costs
– Negotiation of F&A rate
• Sound management practices
• Generally accepted accounting principles
– Cost Accounting Standards
• Mutual understanding between educational
institutions and Federal Government
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Objectives of 2 CFR 220
• Set uniform standards of allocation and allowability
• Identify full cost of federal programs
• Provide that federal government bears its fair
share of total costs
• Encourage consistent costing
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Applicability
• Applies to all Federal agencies that sponsor
R&D, training and other work at educational
institutions
– Includes subgrants, cost-reimbursement
contracts and other awards
• Principles flow down to subrecipients
• Does not apply to loans, scholarships
fellowships, traineeships or other fixed
amounts
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Limitations
• Does not supersede limitations imposed by law
• Does not dictate extent of federal funding
• Does not dictate how F&A cost revenue should be used
• Does not dictate your institution’s internal management procedures
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Definition of Terms:
Major Functions of an Institution
• Instruction
• Organized Research
• Other Sponsored Activities
• Other Instructional Activities
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Composition of Total Costs
• Direct Costs
– Costs that can be specifically associated
with a sponsored project
• Facilities and Administrative (F&A) Costs
– Costs incurred for common objectives;
can’t be identified with a particular activity
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Basic Cost Tenets
– Reasonable
– Allocable
– Allowable
– Consistently applied in like circumstances
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Basic Considerations
• Reasonable
– “Prudent Person” test
– Necessary for performance of program
– Consistent with established institutional
policies and practices
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Basic Considerations
• Allocable
– Costs easily identifiable with the project
and assigned to the project in accordance
with the benefits received by the program
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Basic Considerations
• Consistently Applied
– The cost must be treated consistently as
either a direct cost or a facilities &
administrative (F&A) cost when incurred
under like circumstances
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Basic Considerations
• Allowable
– Costs that are reasonable
– allocable to sponsored agreements under the
principles
– given consistent treatment thorough application of
generally accepted accounting principles;
– conform to any limitations or exclusions set forth in
the principles or in the sponsored agreement
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When is a Cost Direct?• When it
– can be identified specifically with a
sponsored project
– can be directly assigned to an activity with
a high degree of accuracy
• Once a direct cost, always a direct cost
– Exceptions can occur: “In like
circumstances”
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Typically Identified as Direct
Costs:
• Salaries of employees devoting time to a
sponsored project (including cost-shared
time)
• Fringe benefits if not part of F&A
– Including tuition benefit for GAs
• Material and equipment
• Project-related travel
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When is a Cost F&A (Indirect)
• When it
– is incurred for common or joint objectives
– cannot be identified readily and specifically
with a particular project
• Exceptions for certain types of projects
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Costs Typically Associated with
F&A • Facilities
– Depreciation and use allowances
– Library
– Office supplies, local telephone
• Administration (cannot exceed 26% of total)
– Departmental administration
– Sponsored projects administration
– Student administration and services
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Obtaining an F&A Rate
• Rate proposal prepared
• Submitted to Cognizant Federal Agency
(CFA)
– Either DHHS or DoD (through ONR)
• Negotiated with CFA
• CFA approves rate
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F&A Bases
• Salary and Wage based (“Simplified Method”)
– S&W often provides higher rate, but base
is smaller
– For institutions with federal funding under
$10M
• Modified Total Direct Costs (MTDC)
– Most institutions use this rate
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Modified Total Direct Costs
• “Long Form”
• Requires identification of cost pools
– Facilities cost pool
– Administrative cost pool
• Results in a rate that applies to numerous
direct cost elements
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Modified Total Direct Cost Rate
• MTDC calculated on:
– S&W, benefits, materials and supplies,
services, travel, first $25K of subcontracts
• Excluded items
– Equipment
– Clinical trials
– Capital expenditures
– Patient care
– Participant support costs
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Types of F&A Rates
• Provisional: Temporary, established for a given period of time to
permit funding and reporting of F&A pending establishment of a final
rate
• Predetermined: Financial data demonstrates reasonable
assurance that rate will remain stable during term.
• Fixed: Same characteristics as predetermined except the
difference between estimated costs and actual costs is carried forward
as an adjustment to future periods
• Final: Established after organization’s actual costs for an operating
period are known
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Example of Carry Forward
Provision
2011 Negotiated fixed rate 40%
2011 Direct cost base $10,000,000
2011 F&A actual costs 4,200,000
2011 Rate recovery 4,000,000
2011 Actual rate 42%
Under-recovery $ 200,000
$200K carried over to next rate period.
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F&A and Subsidizing Industry
• Rate must ensure that Federal sponsors do
not subsidize F&A costs of other sponsors,
particularly industry and foreign governments
– When submitting a rate proposal, institution
must describe process used to ensure Fed
equity
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Section J: General Provisions for
Select Items of Cost
Cost Items
• Section J # 1-54
– Principles to establish allowability
– Some cost items are always unallowable
• Examples?
– Some cost items: it depends
• Examples?
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Section J.10: Compensation
• Payroll Distribution
– Plan Confirmation
– After-the-Fact Activity Records
– Multiple Confirmation Records
• Report of payroll distribution compared to
actual effort expended
– Time and Effort Reporting
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Faculty
• Institutional base salary (IBS)
– Basis for charges to grants
– Generally Academic Year salary
• Periods outside Academic Year
– IBS / the period to which base salary
relates
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What about Overload?
• Allowable if:
– Faculty as “consultant” across
departmental lines or with a separate or
remote operation
– Arrangement specifically provided for in the
agreement
– Or approved in writing by sponsoring
agency
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Exhibits to 2 CFR 220
Exhibit A
• List of Colleges & Universities Subject to
Section J.14.h
– Applies to largest college & university
recipients of federal R&D
• Must expend or reserve the portion of
F&A made for depreciation or use to
acquire or improve facilities.
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Exhibit B
• List of Institutions Eligible for the Utility Cost
Adjustment
– 1.3 points added to its F&A rate for
organized research
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Exhibit C• Examples of “Major Project” Where Direct
Charging of Administrative or Clerical Staff
Salaries May be Appropriate
– Large complex programs
– Projects involving extensive data
accumulation, analysis and entry
– Project that require making travel and
meeting arrangements (large conference)
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Attachment A to Appendix A
• Cost Accounting Standards
– Consistency in estimating, accumulating
and reporting costs by educational
institutions
• DS-2 to be filed if received $25M or
more in federally-sponsored projects
governed by 2CFR220 (awards, not
expenditures)
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Attachment B to Appendix A
• Cost Accounting Standards Board (CASB)
Disclosure Statement (DS-2)
– Disclosure of institution’s practices
regarding allowable, unallowable, F&A, etc.
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Attachment C to Appendix A
• Documentation Requirements for F&A Rate
Proposal
– Part I: schedule of summary data on
institution’s F&A cost pools and allocations,
and proposed F&A rates.
– Part II: standard documentation to be
submitted with institution’s F&A rate
proposal
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The Hot List
• Effort Reporting
– How often, what method?
• Cost Sharing
– Cash, in-kind, matching
• Cost Transfers
– Time limits
– How many is too many?
• Subawards
– Monitoring
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Resources
• History of A21
http://research.musc.edu/gca/A21evolve.htm
• Electronic Cost Circulars
http://ecfr.gpoaccess.gov/cgi/t/text/text-
idx?c=ecfr&tpl=/ecfrbrowse/Title02/2cfr220_
main_02.tpl
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Questions?
Katie Watkins-Wendell, CRA
330-972-6764
Director of Research Services and Sponsored Programs
The University of Akron
Akron, Ohio
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