Cost Principles: Allowable Costs Uniform Guidance 2 CFR 200

1 Cost Principles: Allowable Costs Uniform Guidance 2 CFR 200 Carlos M Rodr guez Rivera Director Marcos O P rez Beauchamp Compliance OfficerOffice for Research Compliance & IntegrityUniversity of Puerto RicoSession normsPut your phone into silent, mute or vibrate modeQuestions related to a topic could be made during the presentationQuestion on a specific case will be answer at the end of the presentationTraining Materials will be available at: Introduction 2 CFR 200 overview Basic Concepts Cost Principles Applicability Cost Principles Applied on the Job Common Problems Questionable Costs Management Practice Session Practice Session Discussion Q&AObjectives for the day Determine which regulation apply under a given circumstance Understand the reach of the cost principles Learn to manage specific cost allowability issues Understand how to apply cost principles to the different stages of a federal agreement Regulation: 2 CFR 200 Consolidates 8 OMB circulars Effective since December 26th, 2014 Applies to: State Governments Higher Education Institutions Tribal Governments Local Governments Non for Profit bin/text idx?

2 Tpl=/ecfrbrowse/Title02 (Searchable indexed html) 2014 title2 vol1/pdf/CFR 2014 title2 vol1 (PDF)2 CFR 200 SummaryAreaCircularEntityCost Principles2 CFR 225 (OMB A-87)State, local and tribal governments2 CFR 220 (OMB A-21)Higher Education Institutions2 CFR 230 (OMB A-122)Non for Profit Institutions2 CFR 200 SummaryAreaCircularEntityAdministrative Requirements2 CFR 215 (OMB A-110)Educational Institutions, Hospitals and non for profit InstitutionsOMB A-102 State and local governmentAuditsOMB A-133 State and local government, Educational Institutions, Non for Profit InstitutionsOMB A-50 FederalCFDAOMB Circular A-89 Federal2 CFR 200 Subparts Subpart A Acronyms and Definitions Subpart B General Provisions Subpart C Pre Federal Award Requirements and Contents of Federal Awards Subpart D Post Federal Award Requirements Subpart E Cost Principles Subpart F Audit RequirementsBasic Concepts Reasonableness Allocability Conformance Allowability Composition of Costs Direct Cost Indirect Cost Applicable CreditsMUST= REQUIREDSHOULD= Best practice or recommendedReasonableness Reasonable costsA cost is reasonable if, in its nature and amount, it doesnot exceed that which would be incurred by aprudentperson under the circumstances prevailing at the timethe decision was made to incur the cost.

3 Ordinary and necessaryfor the operation of the non Federal entity or the proper and efficient performanceof the Federal (cont) Requirements sound business practices arm's length bargaining Follow federal, state, local, tribal, and other laws andregulations Follow terms and conditions of the Federal award Market prices for comparable goods or services for thegeographic area Prudence Evaluate deviations from established practices and policiesAllocability Allocable cost is allocable to a particular Federal award or othercost objective if the goods or services involved arechargeable orassignableto that Federal award or costobjective inaccordance with relative (cont)Tests for allocability: Is incurred specificallyfor the Federal award Cost benefits both sponsored agreement & other work in proportions that can be approximated by reasonable methods Is necessaryto the overall operation of institution and is deemed to be assignable in part to sponsored projects No shifting of costsfrom one fund to another to cover cost overruns, avoid restrictions on agreement or for reasons of convenienceConformanceTest for allowability conformance deals with limitationsand exclusions as contained in theterms and conditionsof award, including those in the cost principlesvariesbythetypeofactivity,the type of recipient,andothercharacteristics of individual where otherwise authorized by statute, Costs must meet thefollowing general criteria in order to be Allowable under Federalawards.

4 Conform to any limitations orexclusions Consistent treatment betweendirect and indirect Costs GAAP (except governments) Cannotbeusedascostshare Beadequately documented Necessary, Reasonableand Allocable Be consistentwith policiesand procedures that applyuniformlytobothfederally financed andother activitiesof thenon Federal entityProcurement Decision Making ProcessREASONABLED etermining AllowabilityApproved Grant BudgetProject DescriptionNECESSARY / CONFORMG rant ObjectivesFinancial / Inventory RecordsALLOCABLEIf equipment A is listed on:If equipment A has gone through the:If equipment A has links to the grant Project in the:ALLOWABLEIf equipment A is: NECESSARY, REASONABLE,ALLOCABLEand CONFORMS grant term & condition then it is:All conditions for allowability must be met. A cost allocable to an award is not necessarily reasonableExample:Buy a sport car to transport food A reasonable cost may not be allocable to an award Example:The purchase of a Xerox machine A cost may be reasonable and allocable but does not conforms to award terms and conditions or defined as unallowed in the regulationExample:Lobbying Costs Oh, but is budgeted, therefore allowed!

5 It doesn t matter NIH Grants Policy Statement: The fact that a proposed cost is awarded as requested by an applicant does notindicate a determination of allowability. NSF Award and Administration Guide:It is thegrantee organization that isultimatelyresponsiblefor ensuring that all Costs charged to NSF awards meet therequirements of the cost principles contained in 2 CFR 200,Subpart E, grant terms and conditions, and any otherspecific are Costs under a Federal Agreement? Composition of costsTotal Cost The total cost of a Federal award is the sum of the Allowable direct and allocable indirect Costs less any applicable Cost = Direct + Indirect CreditsDirect Direct Costs . Can beidentified specifically with a particular finalcost objective,such as a Federal award, or otherinternally or externally funded activity, or that Can be directly assigned to such activities relativelyeasily with ahigh degree of accuracyIndirect (F&A) Indirect (F&A) Costs Indirect (F&A) Costs means those Costs incurred for acommon or joint purpose benefiting more thanone cost objective, Not readily assignableto the cost objectivesspecifically benefitted, Indirect (F&A) cost poolsmust be distributed tobenefitted cost objectiveson bases that willproduce anequitable resultin consideration ofrelative benefits Credits Applicable creditsRefer to those receipts or reduction of expenditure typetransactions that offset or reduce expense items allocableto the Federal award as direct or indirect (F&A).

6 Insurance refunds or rebates Adjustments of overpayments or erroneous charges Purchase discounts Rebates or allowances Recoveries or indemnities on lossesDirect or Indirect (F&A) Classification of Costs . There isno universal rulefor classifying certain Costs aseither direct or indirect (F&A) A cost may be direct with respect to some specificservice or function, but indirect with respect to theFederal award or other final cost or Indirect (F&A)(Cont.) Item of cost incurred for the same purpose be treated consistently in like circumstances either as a direct or an indirect (F&A) Context is importantConsistent Treatment Factors affecting allowability of Costs ."(d) A cost may not be assigned to a Federal award as adirect cost if any other cost incurred for the samepurpose in like circumstances has been allocated to theFederal award as an indirect cost."Direct / Indirect Decision TreeDoes the cost result in a direct benefit to the grant?

7 Is it necessary to the overall operation of the organization?Rethink whether the cost is allowableCan it can be easily and accurately traced to the grant?Does it benefit more than 1 grant?Is it normally charged as indirect?Have you calculated proportional benefit?IndirectDIRECTI ndirectCalculate proportional benefitDIRECTNOYESYESYESNOYESNONONOYESNO YESB eware of double charging through indirectTotal Cost = Direct + IndirectIndirect Rate(%) = Indirect / DirectAn organization spends $10 on indirect Costs that relate tothe corresponding share of a grant with $100 in directcosts. Of the $10 in indirect Costs , $2 represents clericalstaff and $8 to other indirect Costs . The organization, underregular circumstances, classify clerical staff as indirect the indirect rate is: IndirectRate=$10/$100=10%Double charging explainedNormal Calculation: Total Costs =$100 + 10%*100 = $110 Even though the grant does not has any specialclerical requirements (like circumstances), in itsbudget a $2 line was added for clerical support thattotalized the direct amount to $102 Total Costs =$102 + 10%*102 = $ $ Over ChargedCost Principles Applicability The applicable Costs principles for an organization aredetermined by the type of the organization Sub recipients do not grandfather cost principlesapplicabilityExample:A for profit institution entered in an award as a sub awardee with an Institution of Higher Education.

8 Although the prime awardee is governed by the 2 CFR 200 the for profit institution has to comply with 48 CFR Principles ApplicabilityType of OrganizationApplicable Cost Principles RegulationCollege or University2 CFR 200 State, Local, or Indian Tribal GovernmentNonprofit OrganizationCost Principles ApplicabilityType of OrganizationApplicable Cost Principles RegulationProfitmaking Organization48 CFR principles used by awarding agency, usually 45 CFR 75, Appendix IXSelected Items of Costs ( ) Establishes the allowabilityof specific cost items. Establishes guides on the allocation of Costs (direct vsindirect) If a cost is not found on this list, it does not means thatis Allowable or unallowable. Judgement should beexerted using similar or related items of cost In case of a discrepancy between the provisions of aspecific Federal award and the provisions in the items ofcosts,the Federal award governsSelected Items of CostsUG SectionDescription for selected items of cost.

9 And public relations. councils. beverages. activities. services. debts. Costs . of improper payments. and convocation SectionDescription personal services. fringe benefits. provisions. and donations. and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. health and welfare Costs . Costs . and other capital Items of CostsUG SectionDescription rates. , penalties, damages and other settlements. raising and investment management Costs . and losses on disposition of depreciable assets. Costs of government. or services for personal use. facilities and idle capacity. and indemnification. property. SectionDescription on other awards or contracts. and repair Costs . and supplies Costs , including Costs of computing devices. , subscriptions, and professional activity Costs . Costs . support Costs . and security Costs . award Costs .

10 Service Items of CostsUG SectionDescription Costs . and printing Costs . and reconversion Costs . Costs . Costs of employees. Costs of real property and equipment. and student aid Costs . and marketing Costs . service facilities. activity SectionDescription (including Value Added Tax). Costs . and education Costs . Costs . Costs . Items of Costs Compensation for Personal Services ( ) All remuneration, paid currently or accrued, for services ofemployees rendered during the period of performanceunder the Federal award,including but not necessarilylimited to wages and salaries Consistently appliedto both Federal and non Federalactivities Reasonableness Consistent with that paid for similarworkin other activities of the non Federal entity The non Federal entity establishes a consistent written definition of work covered by IBSS elected Items of Costs Compensation for Personal Services ( ) Salary basis Charges to Federal awards for salaries and wagesmust bebased on recordsthat accurately reflect the workperformed.