Charging Direct Costs to Sponsored Projects
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This procedure contains the following sections:
- Prepare the budget
- Justify expenses
- Track and charge expenses
- Monitor expenses
All costs must be charged in a timely manner and must be:
- Allocable: The cost must have a direct benefit and be directly attributable to the project or activity being performed.
"If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the costs should be allocated to the projects based on proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, ...the costs may be located or transferred to benefited projects on any reasonable basis..." (OMB Circular A-21, Section C.4.d(3)).
- Allowable: Costs must be allowed by University policy, sponsor policies, the project's Notice of Contract/Grant Award and, for federally-sponsored projects, OMB Circular A-21.
- Reasonable and necessary for the performance of the project.
Any expense that does not meet all of these criteria cannot be charged to the sponsored account.
1. Prepare Budget
A direct cost is a cost that can be identified specifically with a particular sponsored project or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Examples of direct costs include salaries of technical staff, laboratory supplies (e.g. chemicals), and animals and animal care costs.
Effective July 1, 1997, OMB Circular A-21 stated that salaries and fringe benefits of administrative and clerical staff and certain general administrative expenses, such as office supplies, postage, local telephone costs, and memberships, should be charged as F&A costs (formerly known as "indirect costs") when they are associated with general University functions that do not result from specifically identifiable requirements.
However OMB Circular A-21 does allow these expenses to be charged directly to a sponsored project in certain circumstances. "Direct charging may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. "Major project" is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments." (Section F.6.b(2))
OMB Circular A-21 (Exhibit C) provides examples of "major projects:"
- Large, complex programs, such as General Clinical Research Centers, primate centers, program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
- Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective studies of clinical records).
- Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
- Projects where the principal focus is the preparation and production of manuals and large reports, books, or monographs (excluding routine progress and technical reports).
- Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other field research remote from campus.
- Individual projects requiring significant amounts of project-specific database management; individualized graphics or manuscript preparation; human or animal protocols, and multiple project-related investigator coordination and communications.
Use the following guidelines to budget and charge the following administrative costs: [See Step #2 for justifications]
Charges must be based on actual usage rather than some other measure. For example, glasswashing charges must be based on the number of glasses washed, not on space used to store the glasses. In addition, administrative ISO/service charges are not allowable on sponsored projects unless specifically authorized by the sponsor. This includes computer server access fees, administrative pools, etc. They are already covered in the F&A cost pool.
Administrative and clerical salaries and fringe benefits
To charge these salaries and expenses to the project, the following criteria must be met:
- These costs can be specifically identified with the objectives of the project or activity.
- These costs are explicitly listed in the approved budget or subsequent revisions by position (and name, if known). Rebudgeting authority cannot be used to charge administrative or clerical salaries not included in the approved budget.
- These costs by position (and name, if known) are not specifically disallowed in the sponsor's award notice.
Office supplies that are normally used in the general administrative support of a project may not be included in the budget or charged to the award. Office supplies that are used for project-specific activities outlined in the proposal may be included in the budget and charged to the project. Because many items of office supplies are used for both general administrative support and project-specific activities, it is important that these items, when included in the budget, be justified in terms of their relevance to the methods used in conducting the project.
- Local Telephone Costs
Local telephone rentals used to conduct routine business of the project may not be included in the budget. Telephone lines, including data lines, modems, and telephones, used to conduct surveys or to maintain contact with project activities conducted at remote locations may be included in the budget.
- Long Distance Calls
Long distance telephone calls may be included in the budget. However, the principal investigator must take care to ensure that charges are directly related to project-specific activities.
- Cell Phones and Pagers
Cell phone and pager expenses are usually considered "local telephone costs" and may not be included in the budget if they are used to conduct routine business of the project. If these devices need to be used for safety or accessibility reasons and will be used for business purposes only, they may be included in the budget. See Sponsored Project Administration's Grant Management Manual for further details.
- Memberships in Professional and Scientific Organizations
Memberships in professional and scientific organizations may not be included in the budget.
Postage may be included in the budget when it is directly related to the conduct of the study, including correspondence with the sponsor and project participants. Additionally, postage may be included in the budget to disseminate surveys and materials produced as a result of the project activities.
Ordinary photocopies that are used in the general administrative support of a project may not be included in the budget. If the photocopy is project-specific and can be tracked, it can be charged as a direct cost.
For projects with nonfederal sponsors that permit administrative charges, all charges that can be specifically identified with the project should be budgeted and must be adequately justified in the proposal (see Step #2 for instructions on preparing a justification).
2. Justify Expenses
For all administrative items listed in Step #1 (e.g., clerical salaries, postage, photocopies), the charges must be explicitly justified and explained in the budget narrative section of the proposal.
Before any of the charges will be allowed against sponsored agreements, awards must provide evidence that the budget has the sponsor's approval. Principal investigators and their departments are responsible for ensuring that costs assigned to the project are appropriate. Restricted cost categories and other inappropriate charges can be readily detected in audits and resulting disallowances must be reimbursed to the sponsor from departmental funds (see the policy on uncollectible costs).
To justify administrative charges, address the following issues:
- Because all projects require a certain amount of account reconciliation, correspondence, phone calling, office supplies, etc., how does the proposed charge differ from the standard level expected for all projects?
- The job title or payroll classification may imply that administrative work is being conducted. Is the nature of the work different from the general administrative work conducted for all projects? Are the charges necessary to meet the technical purposes of the award rather than to support the administrative needs?
- The cost category, e.g., supplies, may imply that the items are being used for administrative purposes. How will these items be used to meet the technical needs of the project? Explain in detail their relevance to the methods used in conducting the project.
- Can the proposed charges be easily and accurately documented as appropriate to the project? How will this be done? For example, an administrator working full-time for a project can be allocated easily and accurately to the project. However, if that person works on five or more projects, it will be difficult to accurately document the relative benefit to any specific project.
To justify these charges, address the following issues:
- These proposed charge must be allocated relatively easily and with a high degree of accuracy to the project.
- How does the charge meet a specific need of the project? What is the benefit of this charge to the project?
- How will the charge be allocated easily and accurately to the project? For example, an administrator working full-time for a project can be allocated easily and accurately to the project. However, if that person works on five or more projects, it will be difficult to accurately document the relative benefit to any specific project.
3. Track and Charge Expenses
Internal controls must be in place to identify the expense to the project through standard practices such as the effort certification process, department logs, and autotron systems.
Unacceptable direct charging practices include:
- Purchasing items simply to use an unobligated balance
- Rotating charges among projects
- Assigning charges to a project on the basis of the remaining balance to resolve funding problems
- Charging the budget amount (in contrast to charging an amount based on actual usage)
- Assigning charges to an award before the cost is incurred (except as an encumbrance)
- Charging an expense exclusively to an award when the expense has supported other activities
- Applying a "departmental tax" to projects for clerical, secretarial, and administrative costs
- Creating ISOs or recharge accounts such as clerical and administrative/secretarial support pools to circumvent direct-charging regulations. See also Administrative Policy: Selling Goods and Services to University Departments.
4. Monitor Expenses
Financial reports must be used to monitor charges on sponsored accounts.
Direct costs charged to sponsored projects in excess of the award amount result in a cost overrun or deficit spending. These charges must be moved to a nonsponsored account in accordance with procedures in Administrative Policy: Removing Uncollectible Costs Charged to Sponsored Projects.