AN INTRODUCTION TO 2 CFR 220 (OMB CIRCULAR A-21 )

1. AN INTRODUCTION TO 2 CFR 220 (OMB CIRCULAR A-21 ) OGCA Research Administration Education Program, 2009

2. BACKGROUND • A-21 Cost Principles for Educational Institutions has been around a long time • 1947 ONR “Blue Book” • 1958 BOB reissued as A-21 • 1973 Transferred from BOB to OMB • 1973 Transferred from OMB to GSA • 1979 Transferred from GSA to OMB More than 20 revisions since that date 2006- Codified in the Code of Federal Regulations (CFR) became 2 CFR 220

3. A-21 ISSUED AS PRINCIPLES • Marked difference between the earlier documents and current versions • Supposed to be principles • “research and instruction inextricably intertwined, especially at the graduate level” • but is actually a curious mixture of principles and processes • Once codified, the principles and processes became regulation.

4. APPLICABILITY • To assistance awards • Grants and cooperative agreements • Via authority of OMB to issue instructions to the agencies • To procurement awards • Contracts • Via incorporation as Part 31.3 in the Federal Acquisition Regulations • Not to “Other Transactions”

5. GRANT • The appropriate agreement to be used whenever • The principal purpose is the transfer of money, property, services or anything of value to the recipient in order to accomplish a public purpose • No substantial involvement anticipated between the government and the recipient

6. COOPERATIVE AGREEMENT • The principal purpose is the transfer of money, property, services or anything of value to the recipient in order to accomplish a public purpose • Substantial involvement anticipated between the government and the recipient

7. CONTRACT • The appropriate agreement to be used whenever • The principal purpose is to acquire services for the direct benefit of the government • Substantial involvement is anticipated between the government and the recipient

8. PURPOSE AND EFFECT OF OMB CIRCULARS • Purpose: • Instruction to federal agencies • Agencies required to implement • Not directly applicable to recipients; only applicable through agency implementation • Effect: • Provide guidance • Maximum requirements for government • Minimum standards for institutions

9. WHICH CIRCULARS APPLY TO WHICH ORGANIZATIONS?

10. 2 CRF 220: OVERVIEW Establishes principles for determining costs applicable to federal grants, contracts, and other sponsored agreements with educational institutions • Defines often-used terms • Defines methods of F&A cost calculation • Defines allowable and unallowable costs (the J-section) • Includes cost accounting standards • Examples of “major project” for clerical/administration charging

11. 2 CFR 220 SECTIONS • Purpose and scope • Definition of terms • Basic considerations • Direct costs • F&A Costs • Identification and Assignment of F&A Costs • Determination and Application of F&A Cost Rate or Rates • Simplified Method for Small Institutions • General Provisions for Selected Items of Cost • Certification of charges • Exhibits and Appendices

12. KEY DEFINITIONS • Major functions of an institution: • Instruction • Including departmental research • Sponsored instruction and training • Departmental research • Organized research • Includes research training • University research • Other sponsored activities • Other institutional activities

13. BASIC CONSIDERATIONS • Costs must be • Reasonable • Allocable • Note Section C.4.d • Consistently treated

14. REASONABLE COSTS • Reasonable and necessary • Prudent person rule • Is cost necessary for performance of project? • Are costs incurred consistent with institutional policies?

15. ALLOCABLE COSTS • Are costs • Assignable to a cost objective in accordance with benefits received • Incurred to advance work under the project • Remember C.4.d

16. CONSISTENT COSTS • Are costs consistently treated? • In other words, costs cannot be treated in some circumstances as direct costs and, in like circumstances, also treated as indirect (F&A) costs

17. COST ACCOUNTING STANDARDS • 501. Consistency in estimating, accumulating, and reporting costs • 502. Consistency in allocating costs incurred for the same purpose • 505. Accounting for unallowable costs • 506. Cost accounting period

18. Potential CAS Problem (501) • Cost sharing • Effort included in proposal as research (estimate) but recorded in accounting system as instruction (actual) • Inconsistent use of terminology • Research proposal budgets chemicals but accounting system charges materials and supplies

19. Potential CAS Problem (502) • Department charges costs directly that are also in the F&A rate (administrative and clerical) • Issue of telephone equipment costs • ….normally charged indirectly

20. THE ISSUE OF COST SHARING • OMB Clarification Memo on Cost Sharing • Mandatory • Voluntary committed • Voluntary uncommitted www.whitehouse.gov/omb/memoranda/m01-06.pdf

21. The Issue of Administrative and Clerical Costs (F.6.b) • Particularly problematic in ensuring that costs incurred for the same purpose in like circumstances are treated alike. Example given in regulations identifies examples of • Direct costs – technical salaries, laboratory supplies, travel • Normally indirect – administrative and clerical salaries (except for “major projects”), office supplies, postage, local telephone costs

22. F&A COST CALCULATION (Direct) • Direct costs = research base (funds spent on research) • Total direct costs expenditures on all “organized research” programs…must include • Externally sponsored research projects • Internally sponsored research projects (separately budgeted and accounted for) • Cost sharing (mandatory and voluntary committed)

23. F&A COST CALCULATION (Indirect) • Prescribed pools • Facilities (building and equipment depreciation/use allowance, operations and maintenance, interest) • Administration (general admin, department admin, sponsored projects admin) (limited to 26 points in the rate) • Library

24. F&A RATE CALCULATION F&A Expenses Divided by Original Research Base = F&A Rate (expressed as %) Example: F&A $ = $34 million Base $ = $65 million RATE = 52%

25. DISTRIBUTION BASE • Modified total direct costs (MTDC) – all salaries and wages, fringe benefits, materials and supplies, services, travel and subawards up to the first $25,000 of each • Excluded from base: equipment, capital expenditures, patient care, tuition remission, rental costs, scholarships, fellowships and subawards in excess of $25,000

26. RATE TYPES • Predetermined • Fixed rates with carryforward provisions • Provisional rates • Fixed rates for the life of the sponsored agreement

27. The Issue of “Fixed Rate for Life of Award” • Federal agencies shall use the negotiated rates for F&A costs in effect at the time of the initial award throughout the life of the sponsored agreement • “Life” means each competitive segment of a project. • If negotiated rate agreement does not extend through life of agreement at time of initial award, negotiated rate for last year of sponsored agreement shall be extended through the life of that agreement.

28. WHO NEGOTIATES THE RATES? • DHHS OR ONR depending on which agency provides more funds to the educational institution for the most recent three years

29. THE ‘J’ SECTION – Selected Items of Cost • Total of 54 items identified • Items for discussion • J3 Alcoholic beverages • J10 Compensation for personal services • Entertainment • Equipment • Memberships, subscriptions, professional activities

30. THE ‘J’ SECTION – Selected Items of Cost (continued) • Selected items of cost • J32 Meetings and conferences • J38 Proposal costs • J45 Scholarships and student aid costs • J47 Specialized service facilities • J53 Travel costs

31. WHERE ARE THE AUDIT VULNERABILITIES? • Effort Reporting • Cost Sharing • Cost Transfers • Subawards

32. QUESTIONS? • Contact information: Maren Boyack Grant Management Officer 474-6073