Purpose of Guidelines

Background

Circular A-21 establishes principles for determining costs applicable to grants, contracts and other agreements with educational institutions as well as proper documentation required. In order for the University of Florida to meet federal requirements, it is necessary to identify and correct errors in allocation of direct charges to the wrong organization code in a timely and consistent manner and to provide proper documentation. Cost transfers are an area of concern to federal auditors and negotiators, therefore it is important that all department staff and PIs, as well as the offices of Finance and Accounting, understand and consistently follow the stated guidelines.

In order to transfer a cost to a sponsored agreement, the cost must first meet the test of allowability. According to OMB Circular A-21, "The test of allowability of costs under these principles (A-21) are:

1. they must be reasonable;
2. they must be allocable to sponsored agreements under the principles and methods provided herein;
3. they must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances; and
4. 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."

In other words, we can only transfer expenses if they are:

1. Reasonable - A prudent person would have purchased the item and paid that price.
2. Allocable - Expenses are at least partially applicable to a sponsored agreement.
3. Consistently Treated - Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances.
4. Allowable - The expense must be allowable or not specifically excluded as specified by government regulations (see guidelines for unallowable costs for clarification) or by the contract/grant/cooperative agreement requirements.

If an expense cannot meet the above criteria, it is NOT eligible to be charged against the sponsored agreement.

Cost Accounting Standard (CAS) 502 requires consistency between direct costs (Base) and indirect costs (Pool). It is therefore especially important to verify that a cost was incurred in support of a sponsored project when the costs are being reimbursed to a departmental organization code (unrestricted) and charged to a sponsored agreement. Similarly, if due to a cost overrun, a cost is being reimbursed to the sponsored agreement and charged to a departmental organization code (unrestricted), the cost transfer must be considered as cost sharing and appropriately recorded. See University Policy for Cost Sharing for details of that procedure. However, if the costs were charged in error to the sponsored agreement, and were not in support of the agreement, then the cost transfer will not be considered cost sharing.

Cost Accounting Standard (CAS) 506 requires consistency in the cost accounting period. This is necessary in order for accuracy in rate development and rate application.

Definitions

A-21 Office of Management and Budget (OMB) circular of Cost Principles for Educational Institutions.

Allowable Costs

An expense which can be placed in the indirect cost rate proposal based on the following:

1. Reasonable - A prudent person would have purchased the item and paid that price.
2. Allocable - Expenses are at least partially applicable to a sponsored agreement. This is true for direct and indirect costs.
3. Consistently Treated - Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances.
4. Allowable - The expense must be allowable or not specifically excluded as specified by government regulations.

Direct Costs

Costs which are specifically associated and identified to a particular project, program or activity.

Indirect Costs

Costs incurred for a common or joint purpose benefiting more than one cost objective and which cannot be readily assigned to a particular project, program or activity.

PI

Principal Investigator on a grant, contract or cooperative agreement. This person bears the main responsibility for costs that are charged to that agreement.

Transfer of Costs

Moving a direct cost charged to one organization code to another organization code, this can be between departments. Salary, wages and fringes are moved using a Request for Wage Transfer form, with a Form 260H, and using the Reallocation/Cost Transfer Check List with appropriate backup. A new electronic system is also available for transferring salary, wage and fringe from one organization code to another organization code. This electronic cost transfer system is available through the Administrative Applications Menu. To obtain access to the system it is necessary for you to contact your departmental application security requester. If you have questions, please contact Greg McEachern in University Payroll Services at 392-1231. Other expenditures are moved using an I.D. Expense Refund form with appropriate backup.

Guideline Issues

In order to meet federal and agency guidelines, all cost transfers to contracts and grants must be timely, appropriate, consistently treated throughout the university and adequately documented. To insure consistency in the treatment of cost transfers, there needs to be campus wide awareness and training at the departmental level where costs are incurred and first recorded and at the contracts and grants level where cost transfers are approved.

Adequate documentation

There must be an explanation of how the costs being charged benefit the sponsored agreement as well as the cause of the error. A plan to correct the cause of the error should be indicated and followed. Frequent errors in the recording of costs may indicate a need for improvements in the departments accounting system and/or internal controls.

Timeliness

An error in charging of costs must be identified and corrected within 120 days of the error or 45 days after the end of the budget period, whichever date first occurs. No costs can be charged to a sponsored agreement after that date without a letter of explanation addressed to the Vice President of Finance and Administration. Costs transfers to reimburse a sponsored agreement must be processed as soon as the error is discovered, regardless of the date the error occurred. Consistency in cost accounting periods requires that costs be transferred within the same fiscal year; therefore every effort should be made to correct errors within the same fiscal year.

Reasons for Transfers

A cost must be allowable and directly related to the sponsored agreement in order to be transferred to that organization code. Agency guidelines prohibit transfers based on funding considerations (cannot transfer costs to use up remaining funds).

The effective date of these guidelines is July 1, 1996.

Although much of these guidelines have already been implemented, an effective date of July 1, 1996 is set to allow for university wide training at the department level so as to ensure compliance and consistency.

Responsibility for Compliance

Responsibility for following these guidelines lies primarily with Principle Investigators, Department Chairs and fiscal personnel with the general guidance and oversight of the colleges, schools and divisions. Contracts and Grants is responsible for review of cost transfers. The University of Florida administration is responsible for guidance and training and for insuring compliance through periodic internal and external audits.

Department Responsibilities

The first and foremost responsibility for recording charges to the correct account is at the department level when the costs are incurred and recorded. Sufficient fiscal practices at the department should allow for any clerical or bookkeeping errors to be identified in a timely manner, allowing cost transfers to be processed within the required time limits. The foremost responsibility for transfers of costs is with the PI who must certify that the costs being transferred are applicable to the sponsored project. The PI's signature is required on all cost transfers.

Contracts and Grants Responsibilities

Contracts and Grants staff are responsible for approving all cost transfers of salaries, wages and fringes and for interdepartmental expense refunds greater than or equal to $1,000. They will review the backup documentation and specific sponsored agreement in an effort to verify that the cost transfer is allowable. Any questions regarding original coding of charges or cost transfers can be addressed to The Office of Contracts and Grants, 352-392-1235, which is the central unit designated to carry out oversight.

Service Centers' Responsibilities

As stated in the University of Florida Guidelines on Service Centers, Recharge Centers and Specialized Service Facilities, each service center must adequately document its activities and maintain records to support cost transfers. These cost transfers must meet the same requirements of applicability and timeliness as mentioned earlier.