Purpose of Policy

The Federal Office of Management and Budget issued regulations in July 1993, which emphasized increased enforcement of the regulations concerning expenses that may be paid with federal grant funds. The Cost Accounting Standards Board issued regulations in November 1994, which further enforces the emphasis on expenses charged to federally sponsored projects. It is the responsibility of individual investigators, department heads, and other administrators to understand and follow the regulations described below. Many of these regulations are common sense statements, i.e., a sponsored award may only pay for items that are actually used in the direct pursuit of the funded research. However, there is another important issue concerning which types of items or salaries may be directly charged to a sponsored project and which are considered overhead. The latter are also referred to as indirect costs. They are not directly billed to the sponsored project but instead may be recovered from the federal government as "indirect cost charges", i.e., as the "overhead" on a sponsored project, if they are allowable in the institution's indirect cost rate. As detailed below, there are instances in which clerical and administrative assistants, basic phone service, and office supplies among others may no longer be allowable as direct charges. Some practices are now explicitly forbidden, including payment for any goods or services with sponsored project funds that were not directly and credibly used for the funded project, or charging all sponsored projects a "tax" to pay for functions that do not directly benefit the funded project. (See page 5) The University guidelines are intended to help investigators and administrators in developing and administering sponsored project budgets.

Background

As a recipient of federal awards, the University of Florida is obligated to comply with numerous rules and regulations promulgated by federal agencies. Those agencies include the Office of Management and Budget (OMB) and the Cost Accounting Standards Board (CASB) which set forth broad policies governing sponsored project financial administration, as well as numerous individual agencies that award sponsored projects, such as the Public Health Service (PHS) and the National Science Foundation (NSF), which have their own agency-specific regulations for administrating sponsored awards. Over the last two years, there has been a great deal of regulatory change aimed at limiting the costs that may be recovered either directly or indirectly through federally sponsored projects. Among them are changes to the costs that should normally be treated as indirect costs and therefore not customarily directly charged to federal awards.

Effective date of the revisions to OMB Circular A-21 and the CASB regulations

OMB Circular A-21 was revised and reissued on July 15, 1993. The Cost Accounting Standards were issued on November 8, 1994 and became effective January 9, 1995. New award applications, renewals, and continuations being developed and submitted now, for grant budget periods following July 1, 1996, must follow these requirements.

Definition of Direct Costs

Section D1, OMB Circular A-21 states "Direct costs are 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 and 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." This statement implicitly makes the point that charges to an award should support the award's purpose and activity. Such charges cannot be assigned arbitrarily or for the purpose of simplified budget management that is unrelated to the sponsored project's purpose.

Typically, direct charges to a sponsored project are the costs that are necessary to meet its scientific and technical requirements. Section F6b, OMB Circular A-21 states that administrative costs are not normally allowable as direct costs. However, under limited and specific conditions, such costs may be charged directly.

Illustrations of costs which are not incurred for the same purpose

1. An educational institution normally allocates special test equipment costs directly to contracts. The costs of general purpose test equipment are normally included in the indirect cost pool which is allocated to contracts. Both of these accounting practices were previously disclosed to the Government. Since both types of cost involved were not incurred for the same purpose in accordance with the criteria set forth in the educational institution's Disclosure Statement, the allocation of general purpose test equipment costs from the indirect cost pool to the contract, in addition to the directly allocated special test equipment costs, is not considered a violation of Standard 502.
    
2. An educational institution proposes to perform a contract which will require three firemen on 24-hour duty at a fixed-post to provide protection against damage to highly inflammable materials used on the contract. The educational institution presently has a firefighting force of 10 employees for general protection of its facilities. The educational institution's costs for these latter firemen are treated as indirect costs and allocated to all contracts; however, it wants to allocate the three fixed-post firemen directly to the particular contract requiring them and also allocate a portion of the cost of the general firefighting force to the same contract. The institution may do so but only on condition that its disclosed practices indicate that the costs of the separate classes of firemen serve different purposes and that it is the institution's practice to allocate the general firefighting force indirectly and to allocate fixed-post firemen directly.

Allowable direct charges

A direct charge is an expense that may be paid using sponsored project funds. The federal guidelines state which costs may be directly paid by a contract or grant. Only those expenses that are allowable according to the OMB Circular A-21 may be directly charged to a federal sponsored project. OMB Circular A-21 states that allowable direct costs must be "reasonable", "allocable", "consistently treated as direct charges" and "not specifically designated as unallowable". These terms are further described below. In essence, these guidelines mean that an expense must meet all of the following conditions before it may be directly charged to a contract or grant.

1. The expense must be reasonable and necessary for the performance of the project. This means that a prudent individual pursuing the proposed work would spend funds in this manner.
    
2. The expense must be allocable to the project. This is not an issue if the expense was incurred by a single project. However, if the item is of benefit to more than a single award, then a sponsored project may only be charged for that portion of the expense that represents the benefit directly received by that funded research project. If the item or service benefits both a sponsored project and other work, only the proportion of the cost that benefits the sponsored research may be charged to that project.
    
3. For an expense to be directly charged to a federally sponsored project, it must be consistently treated in like circumstances as a direct charge for all other federally funded projects at the University of Florida. A particular cost item, e.g., secretarial support, telephone charges or rent, must be charged either as a direct cost or indirect cost. A cost item may not be charged as a direct cost on some sponsored projects and as an indirect cost on other sponsored projects.
    
4. A sponsored project may not be directly charged for any item or service which is specifically designated as unallowable in either an OMB Circular, agency guidelines or in the agency award.

All four of these criteria must be met before an expense may be directly charged to a sponsored project. Costs that might be incurred for the common or joint objectives of several research projects, but which cannot be specifically attributed to a particular sponsored project with a high degree of accuracy, may not be directly charged to these research projects.

Examples of direct-charging practices that are NOT acceptable to federal agencies

1. Rotation of charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each grant.
    
2. Assigning charges to the sponsored project with the largest remaining balance.
    
3. Charging the budget amount in contrast to charging an amount based on actual usage.
    
4. Assigning charges to sponsored projects in advance of the time the cost is incurred.
    
5. Identifying a cost as something other than what it actually is.
    
6. Charging expenses exclusively to sponsored projects, when the expense has supported non-sponsored project activities.
    
7. Assigning charges that are part of the normal administrative support for contracts and grants (e.g., proposal preparation, accounting, payroll).
    
8. Charging ending sponsored projects to expend funds without regard to the appropriateness of the costs.

These practices are not acceptable because they do not meet the OMB Circular A-21's standard for a "high degree of accuracy" in the assignment of costs to contracts and grants.

Practices for Direct Charging

The following costs are examples of acceptable direct costs, as long as they meet the OMB Circular A-21 requirements cited above and are identifiable to a particular cost objective. If a cost cannot be so identified, it cannot be directly charged.

Personnel costs may be charged directly to a sponsored project budget as long as they meet the OMB Circular A-21 requirements cited above and are "identifiable to a particular cost objective” (F6b) AND CASB Standard 502 requirements. If they do not meet all of the aforementioned criteria, they cannot be directly charged.

Researchers and Technicians salaries and fringe benefits may be directly charged provided they are working to achieve the research goals of the award and the costs are supported and certified in the University of Florida's Effort Reporting System.

All of the following conditions must be met in order to justify charging administrative and clerical salaries directly to sponsored projects.

1. “Specific identification” with the sponsored project: Individuals whose salaries are paid from a sponsored project must have responsibilities specifically associated with the work of the sponsored project and must be able to certify this association on the University of Florida's Effort Reporting System. The "specific identification" requirement may be satisfied in one of two ways:
    

   1. Unusually high levels of administrative activity associated with unusually large and complex projects such as program projects, cooperative agreements, coordinating centers, multi-center grants or operations office. Only in such cases, eligible responsibilities might include coordination of financial activities for multiple projects, core units, meetings for steering or advisory committees, pilot projects programs, special reporting needs, etc.
       
   2. Administrative work that is specifically related to the distinctive scientific and technical requirements of the work of the sponsored project, such as data collection, maintaining subject/patient data, phone surveys, etc.

   Note:  The salaries of individuals whose responsibilities do not meet either of these specific associations cannot be charged directly to a sponsored project. For example, responsibilities that duplicate normal departmental administrative functions such as proposal preparation, accounting, payroll, purchasing, etc. cannot be charged directly to a sponsored project. The cost of administrative work such as library searches and the typing of manuscripts would not be considered as allowable direct charge because such work is common across many sponsored projects. It is usually not related to the distinctive requirements of a particular award. Such costs may support grant activity, but they are classified by OMB Circular A-21 as indirect costs because they do not meet the "specific identification" standard.
    

2. Realistic association: The percentage of the individuals' effort and salary assigned to the sponsored project must be a realistic reflection of their planned effort in the case of budgeted costs or real effort in the case of actual costs.
    
3. Specifically budgeted: As proposed contract or grant budgets are developed, the percent of effort, salaries of administrative and clerical positions must be specifically included in the budgets and reasonably explained. Agency approval is also required; this is assumed if the salary is budgeted and not specifically denied in the notice of award.
    
4. Major project: The administrative or clerical salaries must support a major project or activity. A major project would include:
    
   1. Large complex programs such as general clinical research centers, primate centers, engineering research centers and other sponsored projects that entail assembling and managing teams of investigators from a number of institutions.
       
   2. Projects which involve extensive data accumulation and entry, surveying, tabulation, cataloging and reporting such as epidemiological studies, clinical trials and retrospective clinical records studies.
       
   3. Projects that require making substantial travel and meeting arrangements for large numbers of program participants.
       
   4. Projects whose principal focus is the preparation and production of manuals and large reports excluding routine progress and technical reports.
       
   5. Projects that are geographically inaccessible to normal departmental administrative services i.e., seagoing research vessels and radio astronomy projects that are remote from the campus.

According to Section F6b, OMB Circular A-21  "the salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs 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". The judgment as to whether a direct charge for clerical and administrative assistant salaries is appropriate for a particular award must be based on a "facts and circumstances" test that considers the needs of the project; accordingly, the initial judgment must be made by the Principal Investigator. In order to establish that the salaries of individuals performing such tasks may be charged directly to sponsored projects, the investigator must be prepared to demonstrate that their activities go well beyond the core of normal administrative services a department is expected to provide in support of its research and other programs at the University of Florida. It should be noted that just because the agency approved the charges doesn't per se make them appropriate. The Agency is relying on the University of Florida to follow this policy before requesting the charges. Actual charges to the award must be supported by the University of Florida Effort Reporting System. Unless the extent of such duties changes significantly in the course of the project, it is expected that such amounts will approximate those shown in the award budget.

The following are examples of circumstances where administrative and clerical costs may be charged directly to sponsored projects.  These examples are not exhaustive and they are not intended to imply that the direct charging of administrative and clerical salaries to sponsored projects would always be appropriate for the situations illustrated. Representatives for the federal government have also indicated that RO1 basic research awards, in general, do not represent major projects and do not generally require significant administrative and clerical staff effort to be direct charged to the award.

1. The administrative services being rendered relate specifically to a particular project, are measurable and identifiable, and because of the size or nature of the project, such services go well beyond the core of departmental services routinely provided to support general departmental activities. A major project includes, but is not limited to, program project grants, center grants (including NIH P30s and P50s), cooperative agreements, coordinating centers, multi-center grants, core grants, grants with multiple subcontracts/subgrants, or any other project that because of its size, complexity or nature requires unusually high levels of administrative and/or clerical support. This level of support must exceed the usual effort provided for the normal operation of the department. International projects, projects at remote locations where normal administrative/clerical staff cannot be easily accessed, projects requiring studies of populations of subjects that result in intensive data collection and manipulation, projects involving extensive patient care activities, and projects where administrative/clerical staff have been legislatively mandated are also included. Such positions should be specifically budgeted in the proposal. If approved by the sponsoring agency, the salary amount is restricted to the approved positions. Rebudgeting must be in accordance with the sponsoring agency's guidelines.
    

2. The administrative or clerical services rendered relate specifically to the technical substance of the project. These individuals should be classified on the contracts and grants as technical staff and their positions should be directly charged where appropriate. For example, sponsored projects that call for the collection and analysis of clinical or behavioral data on large populations, or for counseling and treatment of patients, typically require administrative effort that relates specifically to the technical substance of the project. Such projects may require limited managerial effort by a principal investigator, combined with extensive clerical and administrative effort to collect, enter, process and present the data or to schedule interviews, confirm them and prepare and process payment forms to the subjects. In these circumstances, the salaries of both the investigator and the administrative/clerical staff would be charged directly to the project since they directly contribute to the performance of technical aspects of the projects.
    

3. The administrative and clerical services being rendered relate specifically to a particular project and are measurable and identifiable. For example, a secretary who prepares, mails and coordinates the responses to numerous questionnaires sent to participants in a funded research study and devotes a measurable portion of time to that effort may be charged proportionally to the sponsored project. Examples include making travel and meeting arrangements for a large number of participants, preparing and producing  manuals and large reports.

Salaries that may not be direct charged

In conducting research, teaching, public service and other objectives, academic units clearly require administrative and clerical support to complement the technical and professional personnel who carry out these activities. Although it is known that there are differences among the various academic units, a core of administrative/clerical personnel exists within each department who simultaneously support the various missions by providing a broad range of general support services, including secretarial assistance, the procurement of materials and services, accounting and bookkeeping, and payroll and personnel. This "core" of normal general support services that support a broad range of activities, including federally sponsored research, comprises what the government defines as "departmental administration". These costs are recovered in part by the institution through the reimbursement of indirect costs. Accordingly, the salaries of personnel engaged in providing this type of baseline departmental service cannot be directly charged to sponsored projects.

Miscellaneous supply and related costs

Section F6b OMB Circular A-21 states, "Items such as office supplies, postage, local telephone costs and memberships shall normally be treated as indirect costs". However, A-21 does not absolutely prohibit such costs from being directly charged to a contract or grant. Section D1, OMB Circular A-21 states that costs can be directly charged if "they can be identified specifically with" the sponsored project or can be assigned to its activities "relatively easily and with a high degree of accuracy". Administrative costs of this kind may be charged to sponsored projects, but only if the cost supports activity that is directly related to the work of the sponsored project and the link between the cost and the activity is close and clear. Assignment of such costs through a general departmental "tax" would not typically be close or clear enough to justify them as direct costs.

1. Office supplies and postage: Direct charges for office supplies and postage should be restricted to projects with a high demand for these items as described in the budget narrative. They must be clearly identified with the work of a particular sponsored project or groups of sponsored projects. A postage meter or log should be used to document such support. Shipping costs not classified as ordinary postage are acceptable direct costs. Only those supplies actually used in the performance of the sponsored project or a documented, reasonable allocation between projects may be directly charged.
    
2. Long-distance telephone charges: Long-distance toll charges that are reasonable and necessary to the performance of a project may be charged directly either by identifying them individually to the project they benefit, or on a proportional basis using documented, reasonable methods.
    
3. Project supplies, photocopy costs, animal care costs, computer costs, travel costs. Technical and scientific equipment (and related maintenance agreements) and specialized shop costs: These must be clearly identified with the work of a particular sponsored project or groups of sponsored projects. For example, travel costs and photocopy costs cannot be charged directly unless they directly and clearly benefit the contract or grant to which the charge is made. Computer supplies and software may be charged directly if a specific budget justification is provided in the budget narrative and the agency does not specifically disallow.

Note: Supplies drawn from a common stock or inventory may be charged directly to a sponsored project if their applicability to the sponsored project or grant is recorded at the time of withdrawal by means of a manual log, for example. All such costs must be charged to the sponsored project based on anticipated usage at the time of withdrawal.

Miscellaneous Supply and related costs that may not be generally charged directly to a sponsored project

1. Memberships and subscriptions: Memberships in professional or scholarly societies and subscriptions to scholarly publications may not generally be charged directly to a sponsored project. It is the government's view that, first, these costs are seldom directly necessary for the performance of a sponsored agreement. Second, membership and subscriptions provide general, ongoing benefits to members/subscribers akin to continuing professional education. Third, Section J.28 of OMB Circular A-21 only lists institutional memberships and subscriptions as allowable, and these would logically occur as indirect rather than direct costs. Fourth, in the case of subscriptions, the University of Florida library (which is indirectly charged to the government) is presumed to provide access to periodicals, books and other forms of scholarly publications.
    
2. Local telephone charges: The basic telephone line charge and local calls may not generally be charged directly to a sponsored project, except in the rarest circumstances when a separate, dedicated telephone line is necessary solely for the performance of a sponsored project. Local telephone charges may be direct charged for major projects/activities.
    
3. General office supplies: General office supplies, including paper, pencils, pens, file folders and staples may not generally be direct charged.
    
4. General purpose software and licensing such as word processing and spreadsheet programs. These items may not generally be direct charged unless they are specifically justified in the budget and allowed by Justification to Direct Charge form from Division of Sponsored Research.

Responsibility for compliance

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

1. The University's responsibility: The University of Florida supports a research process by which new knowledge is acquired for the benefit of society. It recognizes that the scientific method is associated with outcomes that are often difficult to predict and is a creative process which is fundamentally evolutionary in nature. The University accepts responsibility for creating uniform rules of conduct relating to management of contracts and grants and assuring compliance with the rules of such contracts and grants. The University does so in recognition of the trust that society places in the scientific enterprise. No matter how flexible, these guidelines will require substantial attention and effort in their implementation. The University of Florida's administration and the administration of each of the colleges, realize that day-to-day responsibility for compliance rests with the Principal Investigators and departmental fiscal personnel. Their understanding and care are critical and appreciated. The University accepts responsibility for developing a set of operating principles and guidelines that comply with OMB Circular A-21 and CASB's standards, and that among other things, clearly delineate those research-related expenses it identifies as direct costs vs. indirect costs. It takes responsibility for disseminating this information to all University of Florida faculty and staff, whether their research is supported by governmental or non-governmental sources. It takes responsibility for overseeing the implementation of these principles and guidelines. The Office of Contracts and Grants is the central unit designated to carry out these oversight responsibilities.
    
2. College/Departmental/Division responsibilities: The college, department or division is responsible for implementing and monitoring compliance with these guidelines. They are also responsible for providing Principal Investigators with the information necessary to fulfill their fiduciary and sponsored project management responsibilities. The college is responsible for clearly delineating the division of responsibilities between the college and its departments/divisions. The college, department or division should have records that will permit ready auditing by internal or external auditors. For example, if an investigator's laboratory is supported by multiple sponsored projects with distinct specific aims, cost incurred for use of common equipment and other activities that benefit all these contracts or grants should be able to be distributed across these sponsored projects on the basis of the proportional benefit provided to each of them, as required by OMB Circular A-21.
    
3. The Principal Investigator's responsibilities: Responsibility for scientific and budgetary decision-making in research contracts and grants, following the University of Florida guidelines, is assigned to and must be accepted by, the individual designated as the contract's or grant's Principal Investigator. These decisions must be recorded in a manner that assures their subsequent accurate implementation. The Principal Investigator is responsible for giving the college, department or division instructions on specific allocation of funds.

Grant Budgets, Rebudgeting, Cost Transfers, and Effort Reporting

1. Budgets: Budget submission should be realistic estimates of cost requirements. The estimated budgets should have documented approved CAS Exemption forms in the Principal Investigator's files if generally unallowable charges are included. The design of the budget should express the intent of the Principal Investigator and should not be designed by an administrator without the Principal Investigator's participation and approval.
    
2. Rebudgeting: Rebudgeting within a sponsored project grant, after it is awarded, is allowed if there is a legitimate need to redirect budgeted costs, provided the rebudgeting conforms to the sponsoring agency's guidelines and is consistent with the university's disclosed accounting practices. Rebudgeting is not allowed for the purpose of relieving financial pressure on a department's unrestricted budget, or on other sponsored projects nor to assign costs that could not otherwise be assigned.
    
3. Cost Transfers: Cost transfers to sponsored projects are permitted in order to link a cost more appropriately with the benefit it is providing. For example, if an employee changes his/her effort percentages from those reported on his/her original effort report, a payroll cost transfer is the means of making the corresponding change in salary distribution. Cost transfers to sponsored projects are not permitted in order to solve funding problems or other reasons of convenience. For audit purposes cost transfers must be completed in a timely manner and an adequate explanation for all rebudgeting and cost transfer actions must be on file in the department.
    
4. Effort Reporting: Effort reporting is a federal requirement; Principal Investigators are obligated to follow the federal requirements concerning effort reporting upon acceptance of a federal award. Federal effort reporting guidelines require that either the individual or someone having firsthand knowledge of the work performed, e.g., the Principal Investigator, must sign the effort reports. Regardless of who signs, the Principal Investigator must be able to verify that persons paid on their contracts or grants actually performed the work and must be in a position to provide agreement to the effort certified.