The
following is based on OMB
Circular A-21 Cost Principles for Educational Institutions, Part J, Section
1-50. This is meant to be a quick reference (the first 4 pages). Specific allowances or disallowance should be
checked with the Office of Research Programs and Services (ORPS) or the
Business Office BEFORE you incur the
encumbrance or expenditure.
These costs
may be direct (specific line item in your budget) or indirect (otherwise known
as F&A Costs) (e.g. postage is usually not a budget line item in a grant
unless the cost is large enough to warrant it and a primary function to
complete the grant involves mailing, but usually, it is deemed an indirect cost
of grant activity and will not be allowed to be a direct cost category).
OMB A-21
refers to grants as sponsored agreements.
For simplicity, this reference will use the term grants. Some categories of costs are more detailed in
what is allowed and what is disallowed (see advertising as an example). Again, always check the circular or ORPS
While not a
definitive answer to whether a cost is allowable, these basic Allowable Tests
might help.
First ask, “Is this cost directly in support of advancing
the goals of the grant?”
Then, “Is the cost reasonable and treated similarly if the
same cost was incurred outside the grant?”
Finally, “Can I allocate the cost to this project?”
Here is
what OMB Circular A-21 says:
Factors
affecting allowability of costs. The tests of allowability of costs under these principles
are: (a) they must be reasonable; (b) they must be allocable to sponsored
agreements under the principles and methods provided herein; (c) they must be
given consistent treatment through application of those generally accepted
accounting principles appropriate to the circumstances; and (d) they must
conform to any limitations or exclusions set forth in these principles or in
the sponsored agreement as to types or amounts of cost items.
Reasonable
costs. A cost may
be considered reasonable if the nature of the goods or services acquired or
applied, and the amount involved therefor, reflect the action that a prudent
person would have taken under the circumstances prevailing at the time the
decision to incur the cost was made. Major considerations involved in the
determination of the reasonableness of a cost are: (a) whether or not the cost
is of a type generally recognized as necessary for the operation of the
institution or the performance of the sponsored agreement; (b) the restraints
or requirements imposed by such factors as arm's-length bargaining, Federal and
State laws and regulations, and sponsored agreement terms and conditions; (c)
whether or not the individuals concerned acted with due prudence in the
circumstances, considering their responsibilities to the institution, its
employees, its students, the Federal Government, and the public at large; and,
(d) the extent to which the actions taken with respect to the incurrence of the
cost are consistent with established institutional policies and practices
applicable to the work of the institution generally, including sponsored
agreements.
Allocable
costs. A cost is allocable to a particular cost
objective (i.e., a specific function, project, sponsored agreement, department,
or the like) if the goods or services involved are chargeable or assignable to
such cost objective in accordance with relative benefits received or other
equitable relationship. Subject to the foregoing, a cost is allocable to a
sponsored agreement if (1) it is incurred solely to advance the work under the
sponsored agreement; (2) it benefits both the sponsored agreement and other
work of the institution, in proportions that can be approximated through use of
reasonable methods, or (3) it is necessary to the overall operation of the
institution and, in light of the principles provided in this Circular, is
deemed to be assignable in part to sponsored projects. Where the purchase of
equipment or other capital items is specifically authorized under a sponsored
agreement, the amounts thus authorized for such purchases are assignable to the
sponsored agreement regardless of the use that may subsequently be made of the
equipment or other capital items involved.
ALLOWABLE COSTS |
DISALLOWABLE COSTS |
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1.c.(1)-(4): Advertising: to recruit personnel to
function solely for a grant, to procure goods and services for the
performance of the grant |
1.d.(1)-(3): Advertising: any other advertising that does not promote
or function solely towards the grant itself; cost of activities used for
institutional promotion purposes. |
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1.f.: Public relations: costs communicating with the public/press
pertaining to specific activities resulting from performance of the grant and
to keep the public or agency informed of grant specific matters. |
1.f.: Public relations: costs of promotional items
and memorabilia, gift, souvenirs; any advertising or public relations
designed solely to promote the institution. |
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7. Communication: telephone services, local and
long distance, telegrams, radiograms, postage and the like |
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8. Compensation for personal services covers all
amounts paid currently or accrued by the institution for services of
employees rendered during the period of performance under grants. Such
amounts include salaries, wages, and fringe benefits. These costs are
allowable to the extent that the total compensation to individual employees
conforms to the established policies of the institution, consistently
applied, and provided that the charges for work performed directly on grants
and for other work allocable as F&A costs are determined and supported as
provided below. Charges to grants may include reasonable amounts for
activities contributing and intimately related to work under the grant, such
as delivering special lectures about specific aspects of the ongoing
activity, writing reports and articles, participating in appropriate
seminars, consulting with colleagues and graduate students, and attending
meetings and conferences. Incidental work (that in excess of normal for the
individual), for which supplemental compensation is paid by an institution
under institutional policy, need not be included in the payroll distribution
systems described below, provided such work and compensation are separately
identified and documented in the financial management system of the
institution. |
8.d.(1): Charges for work performed on grants
during all or any portion of such period are allowable at the base salary
rate. In no event will charges to a grant, irrespective of the basis of
computation, exceed the proportionate share of the base salary for that
period. This principle applies to all members of the faculty at an
institution. Since intra-university consulting is assumed to be undertaken as
a university obligation requiring no compensation in addition to full-time
base salary, the principle also applies to faculty members who function as
consultants or otherwise contribute to a grant conducted by another faculty
member of the same institution. However, in unusual cases where consultation
is across departmental lines or involves a separate or remote operation, and
the work performed by the consultant is in addition to his regular
departmental load, any charges for such work representing extra compensation
above the base salary are allowable provided that such consulting
arrangements are specifically provided for in the grant or approved in
writing by the sponsoring agency. 8.d.(2)(a)
work performed by faculty members on sponsored agreements during the summer
months or other period not included in the base salary period will be
determined for each faculty member at a rate not in excess of the base salary
divided by the period to which the base salary relates |
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8.f.:Fringe benefits in the form of regular
compensation paid to employees during periods of authorized absences from the
job, such as for annual leave, sick leave, military leave, and the like, are
allowable, provided such costs are distributed to all institutional
activities in proportion to the relative amount of time or effort actually
devoted by the employees. |
Exceptions
for fringe benefits are specific to pension plan specifics and taxes. See the circular if more details are
needed. |
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12. Depreciation
and use allowances. Institutions may be compensated for the use of
their buildings, capital improvements, and equipment, provided that they are
used, needed in the institutions' activities, and properly allocable to grants. |
Computation
of the depreciation and use is cumbersome.
Adequate justification is necessary to create a direct cost budget
line item. |
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13. Donations or contributions made by the institution,
regardless of the recipient, are unallowable. |
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14. Employee
morale, health, and welfare costs and credits. The costs of house
publications, health or first-aid clinics and/or infirmaries, recreational
activities, food services, employees' counseling services, and other expenses
incurred in accordance with the institution's established practice or custom
for the improvement of working conditions, employer-employee relations,
employee morale, and employee performance, are allowable. |
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16. Equipment and other capital expenditures Only if
the equipment is special purpose equipment specific to the accomplishment of
the grant, is itemized in the grant and is approved by the granting agency |
General
office equipment and capital expenditures |
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21. Insurance and
indemnification. Generally, insurance is allowable if required
under the terms of the program. |
Costs of
insurance with respect to any costs incurred to correct defects in the
institution's materials or workmanship are unallowable |
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22. Interest, fund
raising, and investment management costs. |
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23. Labor
relations costs. Costs incurred in maintaining satisfactory
relations between the institution and its employees, including costs of labor
management committees, employees' publications, and other related activities,
are allowable. |
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25. Losses on other
sponsored agreements or contracts. Any excess of costs over income
under any other sponsored agreement or contract of any nature is unallowable. |
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26. Maintenance
and repair costs. Costs incurred for necessary maintenance, repair
or upkeep of property (including Federal property unless otherwise provided
for) which neither add to the permanent value of the property nor appreciably
prolong its intended life but keep it in an efficient operating condition,
are allowable. |
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27. Material costs.
Costs incurred for purchased materials, supplies, and fabricated parts
directly or indirectly related to the sponsored agreement, are allowable. |
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28. Memberships,
subscriptions and professional activity costs. Costs of the
institution's membership in business, technical, and professional
organizations are allowable. Costs of the institution's subscriptions to
business, professional, and technical periodicals are allowable. Costs of
meetings and conferences, when the primary purpose is the dissemination of
technical information, are allowable. This includes costs of meals,
transportation, rental of facilities, and other items incidental such
meetings or conferences. |
Costs of
membership in any civic or community organization and costs of membership in
any country club or social or dining club or organization are unallowable. |
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33. Profits and
losses on disposition of plant equipment or other capital assets. |
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Restrictions
on how recruitment is accomplished are noted. |
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Except
for the taxes paid if we could have gotten an exemption. Ensure that purchases are tax exempted. |
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Restrictions
apply |
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J. General provisions
for selected items of cost.
Sections 1 through 50
provide principles to be applied in establishing the allowability of certain
items involved in determining cost. These principles should apply irrespective
of whether a particular item of cost is properly treated as direct cost or
F&A cost. Failure to mention a particular item of cost is not intended to
imply that it is either allowable or unallowable; rather, determination as to
allowability in each case should be based on the treatment provided for similar
or related items of cost. In case of a discrepancy between the provisions of a
specific sponsored agreement and the provisions below, the agreement should
govern.
1. Advertising
and public relations costs.
a. The term
advertising costs means the costs of advertising media and corollary
administrative costs. Advertising media include magazines, newspapers, radio
and television programs, direct mail, exhibits, and the like.
b. The term
public relations includes community relations and means those activities
dedicated to maintaining the image of the institution or maintaining or
promoting understanding and favorable relations with the community or public at
large or any segment of the public.
c. The only
allowable advertising costs are those which are solely for:
(1)
The recruitment of personnel required for the performance by the institution of
obligations arising under the sponsored agreement, when considered in
conjunction with all other recruitment costs, as set forth in Section J.37;
(2)
The procurement of goods and services for the performance of the sponsored
agreement;
(3)
The disposal of scrap or surplus materials acquired in the performance of the
sponsored agreement except when institutions are reimbursed for disposal costs
at a predetermined amount in accordance with Circular A-110; or
(4)
Other specific purposes necessary to meet the requirements of the sponsored
agreement.
d. The only
allowable public relations costs are:
(1)
Costs specifically required by sponsored agreements;
(2)
Costs of communicating with the public and press pertaining to specific
activities or accomplishments which result from performance of sponsored
agreements; or
(3)
Costs of conducting general liaison with news media and government public
relations officers, to the extent that such activities are limited to
communication and liaison necessary to keep the public informed on matters of
public concern, such as notices of contract/grant awards, financial matters,
etc.
e. Costs
identified in subsections c and d if incurred for more than one sponsored agreement
or for both sponsored work and other work of the institution, are allowable to
the extent that the principles in Sections D and E are observed.
f.
Unallowable advertising and public relations costs include the following:
(1)
All advertising and public relations costs other than as specified in
subsections c, d, and e;
(2)
Costs of convocations or other events related to instruction or other
institutional activities including:
(i) Costs of displays, demonstrations, and exhibits;
(ii) Costs of meeting rooms, hospitality suites, and other
special facilities used in conjunction with shows and other special events; and
(iii) Salaries and wages of employees engaged in setting up
and displaying exhibits, making demonstrations, and providing briefings;
(3) Costs of promotional items and
memorabilia, including models, gifts, and souvenirs;
(4) Costs
of advertising and public relations designed solely to promote the institution.
2. Alcoholic
beverages. Costs of alcoholic beverages are unallowable.
3. Alumni/ae
activities. Costs incurred for, or in support of, alumni/ae activities and
similar services are unallowable.
4. Bad
debts. Any losses, whether actual or estimated, arising from uncollectible
accounts and other claims, related collections costs, and related legal costs,
are unallowable.
5.
Civil defense costs. Civil defense costs are those incurred in planning
for, and the protection of life and property against, the possible effects of
enemy attack. Reasonable costs of civil defense measures (including costs in
excess of normal plant protection costs, first-aid training and supplies,
firefighting training, posting of additional exit notices and directions, and
other approved civil defense measures) undertaken on the institution's premises
pursuant to suggestions or requirements of civil defense authorities are
allowable when distributed to all activities of the institution. Capital
expenditures for civil defense purposes will not be allowed, but a use
allowance or depreciation may be permitted in accordance with provisions set
forth in Section J.12. Costs of local civil defense projects not on the
institution's premises are unallowable.
6.
Commencement and convocation costs. Costs incurred for commencements and
convocations are unallowable, except as provided for in Section F.9.
7.
Communication costs. Costs incurred for telephone services, local and
long distance telephone calls, telegrams, radiograms, postage and the like, are
allowable.
8.
Compensation for personal services.
a. General.
Compensation for personal services covers all amounts paid currently or accrued
by the institution for services of employees rendered during the period of
performance under sponsored agreements. Such amounts include salaries, wages,
and fringe benefits (see subsection f). These costs are allowable to the extent
that the total compensation to individual employees conforms to the established
policies of the institution, consistently applied, and provided that the
charges for work performed directly on sponsored agreements and for other work
allocable as F&A costs are determined and supported as provided below.
Charges to sponsored agreements may include reasonable amounts for activities
contributing and intimately related to work under the agreements, such as
delivering special lectures about specific aspects of the ongoing activity,
writing reports and articles, participating in appropriate seminars, consulting
with colleagues and graduate students, and attending meetings and conferences.
Incidental work (that in excess of normal for the individual), for which
supplemental compensation is paid by an institution under institutional policy,
need not be included in the payroll distribution systems described below,
provided such work and compensation are separately identified and documented in
the financial management system of the institution.
b. Payroll
distribution.
(1)
General Principles.
(a) The
distribution of salaries and wages, whether treated as direct or F&A costs,
will be based on payrolls documented in accordance with the generally accepted
practices of colleges and universities. Institutions may include in a residual
category all activities that are not directly charged to sponsored agreements,
and that need not be distributed to more than one activity for purposes of
identifying F&A costs and the functions to which they are allocable. The
components of the residual category are not required to be separately
documented.
(b) The
apportionment of employees' salaries and wages which are chargeable to more
than one sponsored agreement or other cost objective will be accomplished by
methods which will (1) be in accordance with Sections A.2 and C, (2) produce an
equitable distribution of charges for employee's activities, and (3)
distinguish the employees' direct activities from their F&A activities.
(c) In the
use of any methods for apportioning salaries, it is recognized that, in an
academic setting, teaching, research, service, and administration are often
inextricably intermingled. A precise assessment of factors that contribute to
costs is not always feasible, nor is it expected. Reliance, therefore, is
placed on estimates in which a degree of tolerance is appropriate.
(d) There
is no single best method for documenting the distribution of charges for
personal services. Methods for apportioning salaries and wages, however, must
meet the criteria specified in subsection b.(2). Examples of acceptable methods
are contained in subsection
c. Other
methods which meet the criteria specified in subsection b.(2) also shall be
deemed acceptable, if a mutually satisfactory alternative agreement is reached.
(2)
Criteria for Acceptable Methods.
(a) The
payroll distribution system will (i) be incorporated into the official records
of the institution, (ii) reasonably reflect the activity for which the employee
is compensated by the institution, and (iii) encompass both sponsored and all
other activities on an integrated basis, but may include the use of subsidiary
records. (Compensation for incidental work described in Section J.8.a need not
be included.)
(b) The
method must recognize the principle of after-the-fact confirmation or
determination so that costs distributed represent actual costs, unless a
mutually satisfactory alternative agreement is reached. Direct cost activities
and F&A cost activities may be confirmed by responsible persons with
suitable means of verification that the work was performed. Confirmation by the
employee is not a requirement for either direct or F&A cost activities if
other responsible persons make appropriate confirmations.
(c) The
payroll distribution system will allow confirmation of activity allocable to
each sponsored agreement and each of the categories of activity needed to
identify F&A costs and the functions to which they are allocable. The
activities chargeable to F&A cost categories or the major functions of the
institution for employees whose salaries must be apportioned (see subsection
b.(1)(b)), if not initially identified as separate categories, may be subsequently
distributed by any reasonable method mutually agreed to, including, but not
limited to, suitably conducted surveys, statistical sampling procedures, or the
application of negotiated fixed rates.
(d)
Practices vary among institutions and within institutions as to the activity
constituting a full workload. Therefore, the payroll distribution system may
reflect categories of activities expressed as a percentage distribution of
total activities.
(e) Direct
and F&A charges may be made initially to sponsored agreements on the basis
of estimates made before services are performed. When such estimates are used,
significant changes in the corresponding work activity must be identified and
entered into the payroll distribution system. Short-term (such as one or two
months) fluctuation between workload categories need not be considered as long
as the distribution of salaries and wages is reasonable over the longer term,
such as an academic period.
(f) The
system will provide for independent internal evaluations to ensure the system's
effectiveness and compliance with the above standards.
(g) For
systems which meet these standards, the institution will not be required to
provide additional support or documentation for the effort actually performed.
c. Examples
of Acceptable Methods for Payroll Distribution:
(1)
Plan-Confirmation: Under this method, the distribution of salaries and
wages of professorial and professional staff applicable to sponsored agreements
is based on budgeted, planned, or assigned work activity, updated to reflect
any significant changes in work distribution. A plan-confirmation system used
for salaries and wages charged directly or indirectly to sponsored agreements
will meet the following standards:
(a) A
system of budgeted, planned, or assigned work activity will be incorporated
into the official records of the institution and encompass both sponsored and
all other activities on an integrated basis. The system may include the use of
subsidiary records.
(b) The
system will reasonably reflect only the activity for which the employee is
compensated by the institution (compensation for incidental work described in
subsection a need not be included). Practices vary among institutions and
within institutions as to the activity constituting a full workload. Hence, the
system will reflect categories of activities expressed as a percentage
distribution of total activities. (See Section H for treatment of F&A costs
under the simplified method for small institutions.)
(c) The
system will reflect activity applicable to each sponsored agreement and to each
category needed to identify F&A costs and the functions to which they are
allocable. The system may treat F&A cost activities initially within a
residual category and subsequently determine them by alternate methods as
discussed in subsection b.(2)(c).
(d) The
system will provide for modification of an individual's salary or salary
distribution commensurate with a significant change in the employee's work
activity. Short-term (such as one or two months) fluctuation between workload
categories need not be considered as long as the distribution of salaries and
wages is reasonable over the longer term, such as an academic period. Whenever
it is apparent that a significant change in work activity which is directly or
indirectly charged to sponsored agreements will occur or has occurred, the
change will be documented over the signature of a responsible official and
entered into the system.
(e) At
least annually a statement will be signed by the employee, principal
investigator, or responsible official(s) using suitable means of verification
that the work was performed, stating that salaries and wages charged to
sponsored agreements as direct charges, and to residual, F&A cost or other categories
are reasonable in relation to work performed.
(f) The
system will provide for independent internal evaluation to ensure the system's
integrity and compliance with the above standards.
(g) In the
use of this method, an institution shall not be required to provide additional
support or documentation for the effort actually performed.
(2)
After-the-fact Activity Records: Under this system the distribution of
salaries and wages by the institution will be supported by activity reports as
prescribed below.
(a)
Activity reports will reflect the distribution of activity expended by
employees covered by the system (compensation for incidental work as described
in subsection a need not be included).
(b) These
reports will reflect an after-the-fact reporting of the percentage distribution
of activity of employees. Charges may be made initially on the basis of
estimates made before the services are performed, provided that such charges
are promptly adjusted if significant differences are indicated by activity
records.
(c) Reports
will reasonably reflect the activities for which employees are compensated by
the institution. To confirm that the distribution of activity represents a
reasonable estimate of the work performed by the employee during the period,
the reports will be signed by the employee, principal investigator, or
responsible official(s) using suitable means of verification that the work was
performed.
(d) The
system will reflect activity applicable to each sponsored agreement and to each
category needed to identify F&A costs and the functions to which they are
allocable. The system may treat F&A cost activities initially within a
residual category and subsequently determine them by alternate methods as
discussed in subsection b.(2)(c).
(e) For
professorial and professional staff, the reports will be prepared each academic
term, but no less frequently than every six months. For other employees, unless
alternate arrangements are agreed to, the reports will be prepared no less
frequently than monthly and will coincide with one or more pay periods.
(f) Where
the institution uses time cards or other forms of after-the-fact payroll
documents as original documentation for payroll and payroll charges, such
documents shall qualify as records for this purpose, provided that they meet
the requirements in subsections (a) through (e).
(3)
Multiple Confirmation Records: Under this system, the distribution of
salaries and wages of professorial and professional staff will be supported by
records which certify separately for direct and F&A cost activities as
prescribed below.
(a) For
employees covered by the system, there will be direct cost records to reflect
the distribution of that activity expended which is to be allocable as direct
cost to each sponsored agreement. There will also be F&A cost records to
reflect the distribution of that activity to F&A costs. These records may
be kept jointly or separately (but are to be certified separately, see below).
(b) Salary
and wage charges may be made initially on the basis of estimates made before
the services are performed, provided that such charges are promptly adjusted if
significant differences occur.
(c)
Institutional records will reasonably reflect only the activity for which
employees are compensated by the institution (compensation for incidental work
as described in subsection a need not be included).
(d) The
system will reflect activity applicable to each sponsored agreement and to each
category needed to identify F&A costs and the functions to which they are
allocable.
(e) To
confirm that distribution of activity represents a reasonable estimate of the
work performed by the employee during the period, the record for each employee
will include: (i) the signature of the employee or of a person having direct
knowledge of the work, confirming that the record of activities allocable as
direct costs of each sponsored agreement is appropriate; and, (ii) the record
of F&A costs will include the signature of responsible person(s) who use
suitable means of verification that the work was performed and is consistent
with the overall distribution of the employee's compensated activities. These
signatures may all be on the same document.
(f) The
reports will be prepared each academic term, but no less frequently than every
six months.
(g) Where
the institution uses time cards or other forms of after-the-fact payroll
documents as original documentation for payroll and payroll charges, such
documents shall qualify as records for this purposes, provided they meet the
requirements in subsections (a) through (f).
d. Salary rates for faculty members.
(1)
Salary rates for academic year. Charges for work performed on sponsored
agreements by faculty members during the academic year will be based on the
individual faculty member's regular compensation for the continuous period
which, under the policy of the institution concerned, constitutes the basis of
his salary. Charges for work performed on sponsored agreements during all or
any portion of such period are allowable at the base salary rate. In no event
will charges to sponsored agreements, irrespective of the basis of computation,
exceed the proportionate share of the base salary for that period. This
principle applies to all members of the faculty at an institution. Since
intra-university consulting is assumed to be undertaken as a university
obligation requiring no compensation in addition to full-time base salary, the
principle also applies to faculty members who function as consultants or
otherwise contribute to a sponsored agreement conducted by another faculty
member of the same institution. However, in unusual cases where consultation is
across departmental lines or involves a separate or remote operation, and the
work performed by the consultant is in addition to his regular departmental
load, any charges for such work representing extra compensation above the base
salary are allowable provided that such consulting arrangements are
specifically provided for in the agreement or approved in writing by the
sponsoring agency.
(2)
Periods outside the academic year.
(a) Except
as otherwise specified for teaching activity in subsection (b), charges for
work performed by faculty members on sponsored agreements during the summer
months or other period not included in the base salary period will be
determined for each faculty member at a rate not in excess of the base salary
divided by the period to which the base salary relates, and will be limited to
charges made in accordance with other parts of this section. The base salary
period used in computing charges for work performed during the summer months
will be the number of months covered by the faculty member's official academic
year appointment.
(b) Charges
for teaching activities performed by faculty members on sponsored agreements
during the summer months or other periods not included in the base salary
period will be based on the normal policy of the institution governing
compensation to faculty members for teaching assignments during such periods.
(3)
Part-time faculty. Charges for work performed on sponsored agreements by
faculty members having only part-time appointments will be determined at a rate
not in excess of that regularly paid for the part-time assignments. For
example, an institution pays $5000 to a faculty member for half-time teaching
during the academic year. He devoted one-half of his remaining time to a
sponsored agreement. Thus, his additional compensation, chargeable by the
institution to the agreement, would be one-half of $5000, or $2500.
e. Noninstitutional
professional activities. Unless an arrangement is specifically authorized
by a Federal sponsoring agency, an institution must follow its institution-wide
policies and practices concerning the permissible extent of professional
services that can be provided outside the institution for noninstitutional
compensation. Where such institution-wide policies do not exist or do not
adequately define the permissible extent of consulting or other
noninstitutional activities undertaken for extra outside pay, the Federal
Government may require that the effort of professional staff working on
sponsored agreements be allocated between (1) institutional activities, and (2)
noninstitutional professional activities. If the sponsoring agency considers
the extent of noninstitutional professional effort excessive, appropriate
arrangements governing compensation will be negotiated on a case-by-case basis.
(1)
Fringe benefits in the form of regular compensation paid to employees during
periods of authorized absences from the job, such as for annual leave, sick
leave, military leave, and the like, are allowable, provided such costs are
distributed to all institutional activities in proportion to the relative
amount of time or effort actually devoted by the employees. See Section J.40
for treatment of sabbatical leave.
(2)
Fringe benefits in the form of employer contributions or expenses for social
security, employee insurance, workmen's compensation insurance, tuition or remission
of tuition for individual employees are allowable, provided such benefits are
granted in accordance with established educational institutional policies, and
are distributed to all institutional activities on an equitable basis. Tuition
benefits for family members other than the employee are unallowable for fiscal
years beginning after
(3)
Rules for pension plan costs are as follows:
(a) Costs
of the institution's pension plan which are incurred in accordance with the
established policies of the institution are allowable, provided: (i) such
policies meet the test of reasonableness, (ii) the methods of cost allocation
are equitable for all activities, (iii) the amount of pension cost assigned to
each fiscal year is determined in accordance with subsection (b), and (iv) the
cost assigned to a given fiscal year is paid or funded for all plan
participants within six months after the end of that year. However, increases
to normal and past service pension costs caused by a delay in funding the
actuarial liability beyond 30 days after each quarter of the year to which such
costs are assignable are unallowable.
(b) The amount
of pension cost assigned to each fiscal year shall be determined in accordance
with generally accepted accounting principles. Institutions may elect to follow
the "Cost Accounting Standard for Composition and Measurement of Pension
Cost" (48 Part 9904-412).
(c)
Premiums paid for pension plan termination insurance pursuant to the Employee
Retirement Income Security Act (ERISA) of 1974 (Pub. L. 93-406) are allowable.
Late payment charges on such premiums are unallowable. Excise taxes on
accumulated funding deficiencies and prohibited transactions of pension plan
fiduciaries imposed under ERISA are also unallowable.
(4)
Fringe benefits may be assigned to cost objectives by identifying specific
benefits to specific individual employees or by allocating on the basis of
institution-wide salaries and wages of the employees receiving the benefits.
When the allocation method is used, separate allocations must be made to
selective groupings of employees, unless the institution demonstrates that
costs in relationship to salaries and wages do not differ significantly for
different groups of employees. Fringe benefits shall be treated in the same
manner as the salaries and wages of the employees receiving the benefits. The
benefits related to salaries and wages treated as direct costs shall also be
treated as direct costs; the benefits related to salaries and wages treated as
F&A costs shall be treated as F&A costs.
g. Institution-furnished
automobiles. That portion of the cost of institution-furnished automobiles
that relates to personal use by employees (including transportation to and from
work) is unallowable regardless of whether the cost is reported as taxable
income to the employees.
9. Contingency
provisions. Contributions to a contingency reserve or any similar provision
made for events, the occurrence of which cannot be foretold with certainty as
to time, intensity, or with an assurance of their happening, are unallowable.
(See also Section J.21.c.)
10. Deans
of faculty and graduate schools. The salaries and expenses of deans of
faculty and graduate schools, or their equivalents, and their staffs, are
allowable.
11. Defense
and prosecution of criminal and civil proceedings, claims, appeals and patent
infringement.
a. Definitions.
"Conviction," as
used herein, means a judgment or conviction of a criminal offense by any court
of competent jurisdiction, whether entered upon verdict or a plea, including a
conviction due to a plea of nolo contendere.
"Costs," include,
but are not limited to, administrative and clerical expenses; the cost of legal
services, whether performed by in-house or private counsel; the costs of the
services of accountants, consultants, or others retained by the institution to
assist it; costs of employees, officers and trustees, and any similar costs
incurred before, during, and after commencement of a judicial or administrative
proceeding that bears a direct relationship to the proceedings.
"Fraud," as used
herein, means (i) acts of fraud or corruption or attempts to defraud the Federal
Government or to corrupt its agents, (ii) acts that constitute a cause for
debarment or suspension (as specified in agency regulations), and (iii) acts
which violate the False Claims Act, 31 U.S.C., sections 3729-3731, or the
Anti-kickback Act, 41 U.S.C., sections 51 and 54.
"Penalty," does
not include restitution, reimbursement, or compensatory damages.
"Proceeding,"
includes an investigation.
b. (1)
Except as otherwise described herein, costs incurred in connection with any
criminal, civil or administrative proceeding (including filing of a false
certification) commenced by the Federal Government, or a State, local or
foreign government, are not allowable if the proceeding (a) relates to a
violation of, or failure to comply with, a Federal, State, local or foreign
statute or regulation, by the institution (including its agents and employees);
and (b) results in any of the following dispositions:
(i) In a criminal proceeding, a conviction.
(ii) In a civil or administrative proceeding
involving an allegation of fraud or similar misconduct, a determination of
institutional liability.
(iii) In the case of any civil or administrative
proceeding, the imposition of a monetary penalty.
(iv) A final decision by an appropriate Federal
official to debar or suspend the institution, to rescind or void an award, or
to terminate an award for default by reason of a violation or failure to comply
with a law or regulation.
(v) A disposition by consent or compromise, if
the action could have resulted in any of the dispositions described in
subsections (i) through (iv).
(2)
If more than one proceeding involves the same alleged misconduct, the costs of
all such proceedings shall be unallowable if any one of them results in one of
the dispositions shown in subsection b.
c. If a
proceeding referred to in subsection b is commenced by the Federal Government
and is resolved by consent or compromise pursuant to an agreement entered into
by the institution and the Federal Government, then the costs incurred by the
institution in connection with such proceedings that are otherwise not
allowable under subsection b may be allowed to the extent specifically provided
in such agreement.
d. If a
proceeding referred to in subsection b is commenced by a State, local or
foreign government, the authorized Federal official may allow the costs
incurred by the institution for such proceedings, if such authorized official
determines that the costs were incurred as a result of (1) a specific term or
condition of a federally-sponsored agreement, or (2) specific written direction
of an authorized official of the sponsoring agency.
e. Costs
incurred in connection with proceedings described in subsection b, but which
are not made unallowable by that subsection, may be allowed by the Federal
Government, but only to the extent that:
(1)
The costs are reasonable in relation to the activities required to deal with
the proceeding and the underlying cause of action;
(2)
Payment of the costs incurred, as allowable and allocable costs, is not
prohibited by any other provision(s) of the sponsored agreement;
(3)
The costs are not otherwise recovered from the Federal Government or a third
party, either directly as a result of the proceeding or otherwise; and,
(4)
The percentage of costs allowed does not exceed the percentage determined by an
authorized Federal official to be appropriate considering the complexity of
procurement litigation, generally accepted principles governing the award of
legal fees in civil actions involving the United States as a party, and such
other factors as may be appropriate. Such percentage shall not exceed 80
percent. However, if an agreement reached under subsection c has explicitly
considered this 80 percent limitation and permitted a higher percentage, then
the full amount of costs resulting from that agreement shall be allowable.
f. Costs
incurred by the institution in connection with the defense of suits brought by
its employees or ex-employees under section 2 of the Major Fraud Act of 1988
(Pub. L. 100-700), including the cost of all relief necessary to make such
employee whole, where the institution was found liable or settled, are
unallowable.
g. Costs of
legal, accounting, and consultant services, and related costs, incurred in connection
with defense against Federal Government claims or appeals, or the prosecution
of claims or appeals against the Federal Government, are unallowable.
h. Costs of
legal, accounting, and consultant services, and related costs, incurred in
connection with patent infringement litigation, are unallowable unless
otherwise provided for in the sponsored agreements.
i. Costs
which may be unallowable under this section, including directly associated
costs, shall be segregated and accounted for by the institution separately.
During the pendency of any proceeding covered by subsections b and f, the
Federal Government shall generally withhold payment of such costs. However, if
in the best interests of the Federal Government, the Federal Government may
provide for conditional payment upon provision of adequate security, or other
adequate assurance, and agreement by the institution to repay all unallowable
costs, plus interest, if the costs are subsequently determined to be
unallowable.
12.
Depreciation and use allowances. Institutions may be compensated for the
use of their buildings, capital improvements, and equipment, provided that they
are used, needed in the institutions' activities, and properly allocable to
sponsored agreements. Such compensation shall be made by computing either
depreciation or use allowance. Use allowances are the means of providing such
compensation when depreciation or other equivalent costs are not computed. The
allocation for depreciation or use allowance shall be made in accordance with
Section F.2. Depreciation and use allowances are computed applying the
following rules:
a. The
computation of depreciation or use allowances shall be based on the acquisition
cost of the assets involved. For this purpose, the acquisition cost will exclude
(1) the cost of land; (2) any portion of the cost of buildings and equipment
borne by or donated by the Federal Government, irrespective of where title was
originally vested or where it is presently located; and (3) any portion of the
cost of buildings and equipment contributed by or for the institution where law
or agreement prohibit recovery. For an asset donated to the institution by a
third party, its fair market value at the time of the donation shall be
considered as the acquisition cost.
b. In the
use of the depreciation method, the following shall be observed:
(1)
The period of useful service or useful life established in each case for usable
capital assets must take into consideration such factors as type of
construction, nature of the equipment, technological developments in the
particular area, and the renewal and replacement policies followed for the
individual items or classes of assets involved.
(2)
The depreciation method used to charge the cost of an asset (or group of
assets) to accounting periods shall reflect the pattern of consumption of the
asset during its useful life. In the absence of clear evidence indicating that
the expected consumption of the asset will be significantly greater in the
early portions than in the later portions of its useful life, the straight-line
method shall be presumed to be the appropriate method. Depreciation methods
once used shall not be changed unless approved in advance by the cognizant
Federal agency. The depreciation methods used to calculate the depreciation
amounts for F&A rate purposes shall be the same methods used by the
institution for its financial statements. This requirement does not apply to
institutions (e.g., public institutions) which are not required to record
depreciation by applicable generally accepted accounting principles (GAAP).
(3)
Where the depreciation method is introduced to replace the use allowance
method, depreciation shall be computed as if the asset had been depreciated
over its entire life (i.e., from the date the asset was acquired and ready for
use to the date of disposal or withdrawal from service). The aggregate amount
of use allowances and depreciation attributable to an asset (including imputed
depreciation applicable to periods prior to the conversion to the use allowance
method as well as depreciation after the conversion) may be less than, and in
no case, greater than the total acquisition cost of the asset.
(4)
The entire building, including the shell and all components, may be treated as
a single asset and depreciated over a single useful life. A building may also
be divided into multiple components. Each component item may then be
depreciated over its estimated useful life. The building components shall be
grouped into three general components of a building: building shell (including
construction and design costs), building services systems (e.g., elevators,
HVAC, plumbing system and heating and air-conditioning system) and fixed
equipment (e.g., sterilizers, casework, fumehoods, cold rooms and glassware/washers).
In exceptional cases, a Federal cognizant agency may authorize an institution
to use more than these three groupings. When an institution elects to
depreciate its buildings by its components, the same depreciation methods must
be used for F&A purposes and financial statements purposes, as described in
subsection (2).
(5)
Where the depreciation method is used for a particular class of assets, no
depreciation may be allowed on any such assets that have outlived their
depreciable lives. (See also subsection c.(3))
c. Under the use allowance method, the following
shall be observed:
(1)
The use allowance for buildings and improvements (including improvements such
as paved parking areas, fences, and sidewalks) shall be computed at an annual
rate not exceeding two percent of acquisition cost. The use allowance for
equipment shall be computed at an annual rate not exceeding six and two-thirds
percent of acquisition cost. Use allowance recovery is limited to the
acquisition cost of the assets. For donated assets, use allowance is limited to
the fair market value of the assets at the time of donation.
(2)
In contrast to the depreciation method, the entire building must be treated as
a single asset without separating its "shell" from other building
components under the use allowance method. The entire building must be treated
as a single asset, and the two-percent use allowance limitation must be applied
to all parts of the building. The two-percent limitation, however, need not be
applied to equipment or other assets that are merely attached or fastened to
the building but not permanently fixed and are used as furnishings, decorations
or for specialized purposes (e.g., dentist chairs and dental treatment units,
counters, laboratory benches bolted to the floor, dishwashers, and carpeting).
Such equipment and assets will be considered as not being permanently fixed to
the building if they can be removed without the need for costly or extensive
alterations or repairs to the building to make the space usable for other
purposes. Equipment and assets which meet these criteria will be subject to the
six and two-thirds percent equipment use allowance.
(3)
A reasonable use allowance may be negotiated for any assets that are considered
to be fully depreciated, after taking into consideration the amount of
depreciation previously charged to the Federal Government, the estimated useful
life remaining at the time of negotiation, the effect of any increased
maintenance charges, decreased efficiency due to age, and any other factors
pertinent to the utilization of the asset for the purpose contemplated.
(4)
Notwithstanding subsection(3), once an educational institution converts from
one cost recovery methodology to another, acquisition costs not recovered may
not be used in the calculation of the use allowance in subsection(3).
d. Except
as otherwise provided in subsections b and c, a combination of the depreciation
and use allowance methods may not be used, in like circumstances, for a single
class of assets (e.g., buildings, office equipment, and computer equipment).
e. Charges
for use allowances or depreciation must be supported by adequate property
records, and physical inventories must be taken at least once every two years
to ensure that the assets exist and are usable, used, and needed. Statistical
sampling techniques may be used in taking these inventories. In addition, when
the depreciation method is used, adequate depreciation records showing the
amount of depreciation taken each period must also be maintained.
f. This
section applies to the largest college and university recipients of Federal
research and development funds as displayed in Exhibit A.
(1)
Institutions shall expend currently, or reserve for expenditure within the next
five years, the portion of F&A cost payments made for depreciation or use
allowances under sponsored research agreements, consistent with Section F.2, to
acquire or improve research facilities. This provision applies only to Federal
agreements which reimburse F&A costs at a full negotiated rate. These funds
may only be used for (a) liquidation of the principal of debts incurred to
acquire assets that are used directly for organized research activities, or (b)
payments to acquire, repair, renovate, or improve buildings or equipment
directly used for organized research. For buildings or equipment not
exclusively used for organized research activity, only appropriately
proportionate amounts will be considered to have been expended for research
facilities.
(2) An assurance that an amount equal to the Federal re