Troy University Sponsored Program Accounting

Direct Costs

Costs that can be identified specifically with a particular sponsored project or that can be directly assigned to such activity relatively easily with a high degree of accuracy.

Remember:

Must be allowable Must be allocable Must be reasonable Must be charged to a sponsored project in a consistent matter.

Troy University is required by the Office of Management and Budget (OMB) Circular A-21 (Relocated to 2 CFR, Part 220), OMB Circular A-110 (Relocated to 2 CFR) and Cost Accounting Standards (CAS) 502 and 505 to have established principles for determining direct costs that are applicable to sponsored projects and to consistently and uniformly administer sponsored projects, respectively.

Sponsored Program Accounting is available to answer questions and provide assistance regarding the requirements of the Direct Cost Policy.

Troy University requires that direct costs on all federal and non-federal sponsored programs for all cost categories, including payroll costs, be accurately charged to the appropriate TROY project account to maintain the financial integrity for sponsor programs.  In order to maintain the financial integrity direct costs must adhere to the following criteria:

  1. Direct costs must meet the allowability, allocability and reasonableness guidelines described in OMB Circular A-21 and consistently in OMB A-110, along with any sponsored agreement specific requirements;

    1. Unacceptable direct cost charging practices; this list is not inclusive:

      1. Not necessary for the performance of the agreement

      2. Does not benefit the project

      3. Advances; no prepayments (i.e., no travel advances) on federal and federal-flow-through contracts and grants

      4. Based upon a budgeted amount; the amount must be based upon actual usage (i.e., departmental service charges)

      5. Disguised as an allowable cost that is unallowable (i.e., misclassify a cost as something that it isn’t)

      6. Overspent costs from other projects to “use up the funds” (i.e., charging items that benefit another project or “dumping costs”).

      7. Charged arbitrarily to a project with the largest remaining balance or to a project with the earliest expiration date.

      8. Intended to use up unobligated balances

    2. If direct costs are not allowable, allocable, and reasonable or adequately documented they may NOT be charged to a sponsored project.

  2. Direct costs must adhere to Federal Statutes, State of Alabama Regulations and University Policy;

    1. Some direct costs may be allowable as a charge to a sponsored project but are “not allowable” under Federal Statutes, State of Alabama Regulations and University Policy.  All direct costs purchased under a sponsored program must adhere to Federal Statutes, State of Alabama Regulations and University Policy.
       
    2. Direct costs that have a specified policy:

      1. Equipment – All direct costs for equipment must comply with policies.

      2. Subcontracts – All direct costs for subcontracts must comply with policies.

    3. Direct Costs that have specified processing requirements:

      1. Salary – All direct costs for salary and Sponsored Programs must comply with university employment policies within the Department of Human Resources,

      2. Student Employment – All direct costs for student employment, including graduate students, must comply with university policies.

      3. Travel – All direct costs for travel must be submitted to Sponsored Program Accounting and include a Travel Approval Form. All travel forms must have all appropriate signatures prior to submitting for payment.

        Special Note: Travel advances for all federal and federal-flow-through contracts and grants are “unallowable.”

      4. Tuition - All direct costs for tuition must be processed through Sponsored Program Accounting who will inform Financial Aid.

  3. Direct costs must be charged to the appropriate sponsored project;

    1. Direct costs need to be charged to the appropriate sponsored project (TROY restricted account) when first incurred. In most cases, direct costs are attributable to a single project, but for instances when costs may be attributed to more than one project, those costs need to be allocated. OMB Circular A-21 provides a  method for allocating allowable direct costs on two or more grants http://www.whitehouse.gov/omb/circulars_a021_2004/:

      1. Requirements to allocate direct costs
        In order to comply with the standards set forth in OMB Circular A-21, the following steps are required to allocate direct costs: (1) costs must be allocated on a consistent basis, (2) allocating costs between projects must be based on the benefit received, (3) the allocation method must be clearly documented and (4) allocations must be updated if there is a change in benefit to the project.

      2. Method – Acceptable
        The proportional benefit rule is an acceptable method to allocate direct costs. Direct costs are allocated according to the proportion of benefit provided to each project without undue effort or cost. For example, the cost of lab supplies might be allocated based upon the quantity used on each project.

      3. Method – Unacceptable
        All other methods of allocating costs such as: (1) assigning charges to a project with the largest remaining balance, (2) assigning charges to a project with the earliest end date or (3) charging the budgeted amount to the project, instead of the amount based on actual usage are all unacceptable methods, because the cost cannot be identified to a project with a high degree of accuracy.


  4. Direct costs must be allowable to the sponsored project; and properly justified with sufficient support documentation on the appropriate university form;

    1. In accordance with OMB Circular A-21, OMB Circular A-110 and CAS 505 the federal government will not reimburse universities for certain costs that it considers unallowable.  These unallowable costs are specifically identified in OMB Circular A-21, Section J. as unallowable costs on Federal grants and contracts.  The following list below is examples of unallowable costs.  This list is “not inclusive.” 

      Unallowable Costs

      Advertising

      Fine/original art

      Alcoholic beverages

      Fines and penalties

      Alumni or fund-raising activities

      Flowers

      Antiques

      Gifts, prizes and awards

      Audit costs and related services

      Goods and services for personal use (clothing, briefcases, etc.)

      Bad debt write-offs

      Holiday decorations, parties and greeting cards

      Commencement expenses

      Lobbying

      Conference Events (golf outings, tours, etc.)

      Memberships in non-job related professional societies (civic, social, community organizations and country clubs)

      Contributions (political and charitable)

      Petty cash funds

      Cost overruns

      Selling and marketing products or services of the University

      Decorative objects for offices (plants, clocks, bookends, picture frames, etc.)

      Spouse related costs

      Entertainment (meals, food or refreshments)

      Travel related: (1) air travel club memberships, (2) first class/business class airfare and (3) hotel amenities (movies, room service, etc.)

      Faculty and exempt staff salary in excess of base rates paid by the institution

      University parking passes or tickets

      Note: Individual agencies and programs have authority to approve certain costs.  For example, it may be appropriate to budget “alcoholic beverages” as a direct cost of a sponsored project when the Scope of Work is to study the effects of alcohol on reflex movement.  To budget or charge such a cost, the principal investigator must fully disclose such items in the budget narrative and detail the use of the items in the Scope of Work.

      Sponsored programs may have additional cost limitations included in the terms and conditions of the award.  In these instances, the provisions of the award document must be adhered to in addition to the OMB Circulars.  If a Federal sponsor does not allow a certain expense on a project or limits the amount of the cost, the unallowable cost cannot be charged to another Federal project.  For example, National Institutes of Health (NIH) has a Salary CAP as stated in the NIHGPS (Grants Policy Statement) available at http://grants.nih.gov/grants/policy/policy.htm#gps

    2. The direct cost must be justified by providing a detailed explanation in order for a reviewer to understand the purpose of the cost and conclude that it is appropriate for the project. 

    3. The direct cost must be accompanied with sufficient support documentation which includes: invoices, statements and receipts.

    4. The direct cost must be submitted on the appropriate university form:

      1. Labor costs – Refer to the university Human Resources Office for official university forms.

      2. All other costs – Refer Sponsored Program Accounting forms.

    5. Direct costs charged to awards should be net of any applicable credits.  OMB Circular A-21, Section C, 5 states that “applicable credits” refers to those receipts or negative expenditures that operate to offset or reduce direct or F&A cost items.  Examples of such transactions are: purchase discounts, rebates, or allowances; recoveries or indemnities on losses; and adjustments of overpayments or erroneous charges.  This term also includes “educational discounts” on products or services provided specifically to educational institutions.  Therefore, if a credit is received on a purchase the credit cannot be funneled to or accumulated in a different account; the credit must be applied directly to the account in which it was charged.

  5. Direct costs must be treated consistently as direct or indirect costs;

    1. OMB Circular A-21 and Cost Accounting Standards CAS 502 require the consistent treatment of costs.  Costs incurred for the same purpose, in like circumstances, must be treated uniformly as either direct or indirect costs.  In-other-words, the same types of costs must be treated consistently as either direct or indirect costs. 

    2. The following costs are “normally” treated as indirect costs and will not be allowed to be charged directly to Federal sponsored projects:

      1. Salaries and related fringe benefits of administrative, secretarial and clerical staff;
      2. Office supplies;
      3. Postage;
      4. Local telephone costs;
      5. Memberships and subscriptions;
      6. General purpose equipment; and
      7. General purpose software

Exception - Non-Federal Sponsored Project

When non-federal sponsored agreements specifically authorize costs that are normally treated as indirect costs, such as salaries for clerical or administrative, office supplies or phone, these costs may be directly charged to non-federal sponsored projects.

Exception – Federal Sponsored Project

Certain circumstances may exist that would allow the expenses listed above to be charged as direct costs to a Federal sponsored project.

The circumstance for which Administrative and Clerical salaries may be an allowable direct cost to a Federal sponsored project would be that the project is considered a “Major Project.”  A “Major Project” as defined by OMB Circular A-21 Section F, 6, b(2), is a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such service provided by an academic department.  A “Major Project” may exist if costs meet the following criteria inclusively:

  1. One of the following must exist in the proposal’s Scope of Work:

    • A large or complex program that entails assembling and managing teams of investigators from a number of institutions  (Examples:  Clinical Research Centers, Primate Centers, Program Projects, Environmental Research Centers and Engineering Research Centers).
    • A project that involves extensive data accumulation, analysis, and surveying, tabulation, cataloging, searching literature, and reporting (Examples:  Epidemiological Studies, Clinical Trials and Retrospective Clinical Records Studies).

    • A project that requires making travel and meeting arrangements for large numbers of participants (Examples:  conferences and seminars).

    • A project whose primary focus is the preparation and production of manuals and large reports, books and monographs; excludes routine progress and technical reports.

    • A project that is geographically inaccessible to normal departmental administrative services (Examples: research vessels, radio astronomy projects and other research field sites that are remote from campus).

    • A project that requires project-specific database management, individualized graphics or manuscript preparation (Examples:  human or animal protocols and multiple project-related investigator coordination and communications).

  2. The cost can be specifically identified with the objectives of the project (Scope of Work);

  3. The cost can be specifically identified with relative ease and a high degree of accuracy;

  4. The cost is used for a purpose other than the normal university operations and requires support, which is greater than the routine costs that an academic department typically provides;

  5. The expense item is included in the budget proposal and justification.  If the need for the cost is realized during the life of the project, the Principal Investigator may request approval. Sponsored Program Accounting will determine if it is necessary to obtain prior written approval from the Federal sponsor.

The circumstance for which non-labor administrative costs may be an allowable direct cost to a Federal sponsored project would be that the project has a “Special Circumstance.”  A “Special Circumstance” may exist if costs meet the following criteria inclusively:

  1. The cost can be specifically identified with the objectives of the project (Scope of Work);

  2. The cost can be specifically identified with relative ease and a high degree of accuracy;

  3. The cost is used for a purpose other than the normal university operations and requires support, which is greater than the routine costs that an academic department typically provides;

  4. The expense item is included in the budget proposal and justification.  If the need for the cost is realized during the life of the project, the Principal Investigator may request approval. Sponsored Program Accounting will determine if it is necessary to obtain prior written approval from the Federal sponsor; and

  5. Direct costs must be correctly categorized by utilizing the university’s account code system;

    1. Direct costs must be classified by account code utilizing the university’s account code system in order to invoice and report the financial activity for grants and contracts. Expenditure account codes are 4-digit numeric codes used by the university to categorize expense items. It is critical to assign the correct account code to each direct expense in order to properly invoice and report direct costs to the sponsor.

    2. It is unallowable to disguise an unallowable cost as allowable, by misclassifying the direct cost using the university’s account code system.

      Direct costs must have adequate budget availability;

    3. Direct costs must have adequate budget availability in the designated budget. Determining the budget availability for an award can be accessed by using the Datatel financial System.

    4. The direct costs must be listed in the sponsor approved budget proposal. If the sponsor did not require a budget to be submitted during the proposal stage, a budget will be required to approve charges to the TROY project account.

 

Troy University Sponsored Program Accounting
334-670-3970