Purpose of Guidelines

The purpose of these guidelines is to provide information about the identifying and allocating Patient Care cost as defined in OMB Circular A-21 and Cost Accounting Standards (CAS) 501 and 502 to which the University of Florida must adhere.

Background

Circular A-21 establishes principles for determining costs applicable to grants, contracts, and other agreements with educational institutions. According to OMB A-21, the cost of a sponsored agreement is comprised of the allowable direct costs incident to its performance, plus the allocable portion of the allowable indirect costs of the institution, less applicable credits. The tests of allowability of costs under these principles 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."

Cost Accounting Standard (CAS) 501 requires consistency in estimating, accumulating, and reporting costs. The purposes of this standard are to make the cost accounting practices in estimating costs for its proposals consistent with those practices used in accumulating and reporting costs during contract performance, and to provide a basis for comparing such costs. (See University of Florida Policy on Charging Costs Directly to Sponsored Projects. )

Cost Accounting Standard (CAS) 502 requires consistency in allocating costs incurred for the same purpose. "All costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives. No final cost objective shall have allocated to it as an indirect cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective. Further, no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included in any indirect cost pool to be allocated to that or any other final cost objective. (See University of Florida Policy on Charging Costs Directly to Sponsored Projects. )

Therefore the purpose of this standard is to bring consistency in accounting for costs campus-wide and all costs for similar circumstances must be charged the same.

Definitions

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

Modified Total Direct Costs -MTDC

Indirect costs shall be distributed to applicable sponsored agreements and other benefiting activities within each Major Function on the basis of MTDC, consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract). Equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from MTDC. Other items may be excluded where necessary to avoid a serious inequity in the distribution of indirect costs.

Allocation

The process of assigning a cost, or a group of costs, to one or more cost objectives, in reasonable and realistic proportion to the benefit provided or other equitable relationship.

Cost Objective

May be a major function of the institution, a particular service or project, a sponsored agreement, or an indirect cost activity.

Direct Costs

Those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs. Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.

Indirect Costs

Those costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.

Guideline Issues

Circular A-21 G.2. identifies costs that are to be excluded from modified total direct cost for the purpose of charging indirect costs. Per A-21 "Excluded costs include equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct costs."

The costs associated with patient care and other major functions must be clearly and separately defined. Space, material and labor used jointly for patient care and other activities must be allocated equitably between those cost objectives.

For institutions which receive cost reimbursement from Federal research sponsors and Medicare/Medicaid, the allocation of costs between patient care and research, used as the basis for reimbursement, must be consistent (e.g., physician effort reported to Medicare must be consistent with effort reported to the National Institute of Health).

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 insure compliance and consistency.

Responsibility for compliance

PIs/Departments are responsible for correctly recording any patient care costs that are directly charged to a sponsored project. Due care must be taken to insure these costs are allowable.

Responsibility for following these guidelines lies primarily with Contracts and Grants which is responsible for development of the annual indirect cost proposal. The University of Florida administration is responsible for guidance and training and for insuring compliance through periodic internal and external audits.