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CHAPTER SIX: Financial Management of Awards

6.1 Criteria for Direct Charging Costs to Sponsored Programs

When charging expenses for federally sponsored agreements, University faculty and staff must be aware of the appropriateness of the charges. OMB Circular A-21 provides the criteria for direct charging costs to federally sponsored programs. The basic principle is that costs directly charged to a sponsored project must be allocable, allowable, reasonable and necessary, and treated consistently.

1) Allocable: The cost must have a direct benefit and be directly attributable to the project or activity being performed. For example, an investigator purchases a piece of equipment to conduct a sponsored project. This piece of equipment is allocable to that project and can be charged as a direct cost to the project. The investigator also purchases office supplies for the entire research group. These supplies are not directly attributable to the project, are therefore not allocable, and cannot be charged as a direct cost to the project.

2) Allowable: The cost must be allowed by University policy, sponsor policies, and OMB Circular A-21. For example, an investigator has 3 lab technicians working on her project and charges their salaries to the project. These are allowable costs to the project and can be charged as direct costs. The investigator takes her 3 lab technicians out to lunch during the project. This expense is an unallowable cost to the project and cannot be charged as a direct cost.

3) Reasonable and Necessary: The cost must be reasonable and necessary for the performance of the project. For example, an investigator purchases lab supplies in order to complete the work on his project. These supplies are reasonable and necessary to the performance of the project and can be charged as direct costs. The investigator also purchases a new microscope that was on sale through the supplier from which he purchased the lab supplies. The microscope is not needed for his current project but may be needed for an upcoming project. This expense is not reasonable and necessary for the performance of the current project and therefore cannot be charged as a direct cost.

4) Consistently Treated: All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only. The University cannot double charge the government for similar costs by directly charging a cost to a sponsored project and by including the same type of cost in the F&A rate charged to that sponsored project. For example, a Unit Business Manager purchases stamps for the department. Investigator A uses 5 stamps for various mailings related to his project and Investigator B uses 8 stamps for various mailings related to her project. If the cost of the stamps is included as a direct cost to Investigator A or B’s sponsored project, and similar costs (stamps) incurred in like circumstances (general purpose) are included in the University’s F&A rate, the costs are not treated consistently.

Any expense that does not meet all of these criteria should not be directly charged to a federally sponsored project. Note that approval of a particular expense as a direct cost by the sponsoring agency does not a priori guarantee that the expense constitutes an allowable cost. The expenditure must also meet the requirements for treating costs consistently as described above.

Administrative & General Purpose Costs

Administrative costs such as salaries for clerical personnel or items such as office supplies and postage are generally viewed by the federal government as F&A costs. Within limited circumstances, administrative costs may be directly charged to a federally sponsored program; the rules for directly charging these administrative costs are found in OMB Circular A-21 section F.6.b (2) and F.6.b (3), along with Exhibit C. These rules are as follows:

OMB Circular A-21 F.6.b (2): 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.

OMB Circular A-21 F.6.b (3): Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs.

OMB Circular A-21 Exhibit C: Examples of "major project" where direct charging of administrative or clerical staff salaries may be appropriate.

· 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 field 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.

· The charges must be clearly spelled out in the initial budget submitted to the sponsoring federal agency.

· An explanation of why these charges should be made directly to the project should also be provided and the relationship of the charges to the scope of work of the project should be clearly identified.

· For clerical and administrative salary charges there must be a description of how the nature of the work performed for the project differs from general clerical services provided in the department and how this work is an integral part of achieving programmatic goals of the project.

6.2 Cost Transfers

Federal regulations regarding cost transfers can be found in OMB Circular A-21, Section C.4.b. Cost transfers should be kept to a minimum by initially charging proper accounts timely and accurate manner. However, in those instances in which a cost transfer is required, the proposed cost transfer should comply with the following procedures:

· Documentation of the original charge must be included. This can be a copy of the monthly ledger sheet showing the transaction or other identifying documentation such as a purchase order number. This information is necessary to maintain an audit trail.

· An explanation of the reason for the cost transfer is required. The explanation must address why the charge is being transferred, and must provide more explanation than "boilerplate language" such as "to correct error" or "to transfer cost." If moving an expense TO a sponsored program, the reason should not be based upon funding issues. There must be justification for the cost as a direct benefit to the sponsored project.

· For an expense to be transferred, it must meet these criteria:

      . The cost must have posted to the General Ledger

      . The movement of expenses between object codes should only occur when that movement results in the expense ultimately being recorded under the appropriate object code

      . If the transaction will move an expense onto a sponsored account, the expense must be allowable, allocable, reasonable and necessary, and treated consistently as a direct charge to the project

· The cost transfer should be posted within 90 days of the initial charge. The reason for this is twofold--financial reports must be filed within 90 days of the completion of the project and accounts should be reviewed for proper charges in a timely fashion. If the cost transfer is more than 90 days old, the requesting department must also provide a written explanation of why the transfer was not made within the 90-day period. The explanation must be reviewed and approved by the Controller's Office.

· In the event that a charge is determined to be unallowable to a project, the expense must be moved onto non-sponsored departmental funds.

· Cost transfers of salaries and wages must be made before effort has been certified.

See Section 6.4 Deficit Policy for information regarding transferring overdrafts from a sponsored account.

Department administrators use the Intra-University Transfer (IUT) form to initiate a cost transfer. Documentation notifying or affirming the transfer is included on the IUT. Contact OGM for additional information related to cost transfers at the University.

6.3 Rebudgeting

Rebudgeting policies vary from sponsor to sponsor.  Many sponsors allow flexibility in revising budgets and most budget revisions can be handled directly by the Office of Sponsored Programs Grants Administration (OSPGA), (formerly Grants Management) or the Office of Industry Contracts (OIC).  The departmental administrator or the Grants Management Specialist or Industry Contracts Specialist can assist the PI/PD in determining whether a budget reallocation needs sponsor approval.  Budget revisions can be requested by contacting a Grants Management Specialist or Industry Contracts Specialist via email or if an OIC managed project by using the BUDGETING INDUSTRY SPONSORED CLINICAL TRIAL BUDGETS AT UOFL information.   IBED (Investigator, Budget, End Date)  Revision Form  (Excel)  The Office of Sponsored Programs Grants Administration or the Office of Industry Contracts must countersign requests that require sponsor approval prior to being forwarded to the sponsor.  All rebudgeting requests must detail the purpose of the change being requested.

6.4 Deficit Policy

During the course of sponsored agreements, the primary responsibility for ensuring that expenditures are both in accordance with federal guidelines and within the approved budget lies with the PI/PD. The financial information provided by the University accounting system, PeopleSoft, is to be used by the PI/PD to monitor the expenditures and uncommitted balance for each project. The information in PeopleSoft should be reconciled to the departmental records on a monthly basis.

When a cost overrun occurs on a sponsored agreement, the Office of the Controller will review the speedtype. Upon confirmation of a deficit, the Office of the Controller will notify the PI/PD and the Unit Business Manager (UBM) or designee of the problem and request that the overexpenditure be moved to nonsponsored funds.

Should this attempt prove unsuccessful, the Office of the Controller will send a written notice to the PI/PD, with a copy to the Department Chair and the UBM, stating that the deficit must be eliminated within 30 days. If the deficit is not removed in this period, the Office of the Controller will transfer the deficit via journal entry to the department’s operating budget or an alternative speedtype if provided by the department. A copy of the journal entry will be sent to the department chair and the UBM.

6.5 Effort and Salary Allocation on Sponsored Agreements

When performing work on sponsored agreements, University employees may have all or a portion of their salaries charged to sponsored agreements. Section C of OMB Circular A-21 provides the framework for acceptable charging of employees’ salaries to sponsored projects. The basic requirements are that the costs must be allowable, reasonable, and allocable to the sponsored agreements and treated consistently by the institution as either direct or Facilities & Administrative costs.

For the University, this means that when salaries are charged to sponsored agreements, the charges must bear a relationship to the work performed. Funding considerations are not an appropriate rationale for charging sponsored projects. The effort put forth by the employee should be accurately reflected on the Position Funding Change (PFC) form and the sponsored project. If an employee is devoting more effort to a sponsored project than is being charged, the PFC should be revised to reflect the actual effort, and the department should provide additional funding to the sponsored project via the cost sharing mechanism. The department should review the allocation of salary for all employees working on sponsored projects on a quarterly basis and make any necessary adjustments to the Personnel Action Notices to accurately reflect employees’ effort.

6.6 Effort Reports

The University must have certification that the effort put forth on a sponsored project is reasonable in relation to the amount of salary being charged to the sponsored project. This is necessary to comply with federal regulations and to provide assurance to sponsors that the salary charged to a sponsored program is reasonable with respect to the effort. The home department of an employee must ensure that the Payroll Action Form for that employee properly reflects a true allocation of his/her salary in proportion to the effort performed on sponsored projects. The mechanism used to document that pay charged to the project is reasonable relative to actual effort is the Effort Certification Report (Excel spreadsheet).

Section J.8 of OMB Circular A-21 provides the framework for acceptable methods of documenting the effort of employees on sponsored projects. OMB Circular A-21 states, “Direct cost activities and F&A cost activities may be confirmed by responsible persons with suitable means of verification that the work was performed.” When effort reports are received from the Controller's Office, a responsible person must review and confirm that the salary charged is reasonable in relation to effort spent. It is critical that a person with first-hand knowledge of all of an employee’s effort certify for the employee. In most cases, faculty should certify for themselves and direct supervisors can certify on behalf of others (although it is preferable for employees to certify their own effort). It is inappropriate for UBAs/UBMs to certify effort for an entire department.

Federal guidelines dictate that effort reports must be completed at least on an annual basis. The University has chosen to certify effort on a semi-annual basis to comply with federal guidelines. While completing the review of the employee’s effort for certification on the effort report, the department should ensure that the Personnel Action Notice (PAN) provides an accurate reflection of the employee’s effort.

6.7 Program Income

Program income is defined by the federal government as gross income earned by the University of Louisville, which is directly generated by a supported activity or earned as a result of an award. Program income includes, but is not limited to, income from fees for services performed, the use or rental of real or personal property acquired under federally funded projects, and the sale of commodities or items fabricated under an award. Except as provided below, program income earned during the project period shall be retained by the University, and in accordance with federal awarding agency regulations or the specific terms and conditions of the award, be used in one or more of the following ways:

· Added to funds committed to the project by the federal awarding agency and used to further eligible project or program objectives

· Used to finance the non-federal share of the project or program

· Deducted from the total project or program cost

It is the responsibility of the PI/PD to track, document, and report program income. In most cases, this reporting is made at the time of a continuation or renewal proposal for the existing project. The Office of the Controller staff can assist the PI/PD in making a determination as to whether income meets the definition of program income. The Office of the Controller can also provide instruction on how to meet reporting requirements. Contact the Office of the Controller for more information related to administering program income.

6.8 Cost Sharing Policy for Sponsored Accounts

The Definition of Cost Sharing appears in Chapter 3, Section 9. Committed cost share requires an approved transfer of funds, from a departmental general fund program or otherwise unrestricted source, to a cost share speedtype that corresponds to a related sponsor-funded grant. The cost share speedtype must also have a budget established that agrees with the cost share amount specified in the approved grant award document. The organizational responsibilities and the procedure to provide cost sharing is listed on our Cost Sharing Policy web page..

6.9 Uncollectible Costs

Sponsored agreements typically operate on a cost reimbursement basis with the Office of the Controller being responsible for recovering the funds. There may be instances in which the sponsor is unwilling or unable to reimburse the University for the expenses incurred. When this happens, the resulting cash deficit must be handled internally.

In those cases in which the sponsor does not pay the amount due to the University in a timely manner, the Office of the Controller will cover the cash deficit. However, if the reason for the delay is that the department performing the work did not provide required information to the Office of the Controller, the Office of the Controller will not cover the cash deficit.

When the sponsor does not pay the amount due for the following reasons, the department will be responsible for covering the cash deficit:

· The sponsor went out of business

· The department performing the work failed to complete the project to the sponsor’s satisfaction

· The department began the work prior to receiving the award, and then the award was not made

The Vice President for Finance will review any other instances on a case-by-case basis.

6.10 Service Center Costs

Allowable direct costs generally include charges from University facilities that provide specialized services. A detailed discussion of the administrative requirements for service centers is included in Chapter 10.

 

07/18/2011

 

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