Purpose of Guidelines

The purpose of these guidelines is to provide information about Indirect Costs Assignment / Cost Pool Development in preparation of the Indirect Cost proposal. The University of Florida must comply with the requirements of OMB A-21, and CAS 501,502, 505 and 506.

Background

Circular A-21 defines indirect costs as those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, and instructional activity or any other institutional activity. These costs are usually classified and accumulated in the following indirect cost categories; depreciation/use allowances, operations and maintenance, general administration/general expenses, department administration, sponsored projects administration, library, and student administration/services. Each category may have several cost pools, costs that are grouped together because they are like in nature and use of the same allocation method for distribution to the various cost objectives will be fair and equitable.

Cost Accounting Standard (CAS) 501 requires consistency estimating, accumulating and reporting costs. Accumulation has already occurred at the object code level. 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. Proper care must be taken in allocating costs that are usually considered indirect. See University of Florida Policy on Charging Costs Directly to Sponsored Projects.

Cost Accounting Standard (CAS) 505 requires identification and correct treatment of unallowable costs. Unallowable costs must be identified and excluded. Unallowable activities must be identified and allocated to Other Institutional activities. See University Policy on Unallowable costs.

Cost Accounting Standard (CAS) 506 requires consistency in the cost accounting period. This is necessary in order for accuracy in rate development and rate application. It requires that the same time period be used for the development of the indirect cost pools and direct cost pools (bases).

Definitions

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

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 (i.e. Instruction, Research, Other Institutional Activities), a particular service or project (i.e. Animal Resources), a sponsored agreement, or an indirect cost activity (i.e., Operations and Maintenance, General Administration, Department Administration).

Direct Costs

Costs which are specifically associated and identified to a particular project, program or activity.

Indirect Costs

Costs incurred for a common or joint purpose benefiting more than one cost objective and which cannot be readily assigned to a particular project, program or activity.

PI

Principal Investigator on a grant, contract or cooperative agreement. This person bears the main responsibility for costs that are charged to that agreement.

Guideline Issues:

In order to correctly and fairly allocate indirect costs for the purposes of the indirect cost proposal, it is necessary to first identify and segregate costs as either direct or indirect in nature. (We call these segregated costs, cost pools.) This requires that costs are correctly recorded in the accounting system (recorded to the correct object code and account) and then carefully assigned to the appropriate cost pool.

Per A-21: The overall objective of the indirect cost allocation process is to distribute the indirect costs to the major functions of the university in proportions reasonably consistent with the nature and extent of their use of the university's resources. In order to do this it is necessary to group indirect costs together, so that costs that are like in nature and in terms of their relative contribution to the particular cost objectives to which they can be appropriately distributed can be pooled.

Multiple cost pools may be warranted to accurately assign costs to the relevant cost objective. Separate indirect cost pools should be established:

1. when certain activities should receive only a portion of central indirect costs because they provide their own administrations,
2. for certain items/categories of expenses which relate to specific areas of the university, and
3. for service facilities where output is measurable and allocable based on organized research, instructional, or other activities at the University.

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 ensure compliance and consistency.

Responsibility for compliance:

Responsibility for following these guidelines lies primarily with Contracts and Grants which is responsible for development and review of the indirect costs pools. Principle Investigators, Department Chairs and fiscal personnel with the general guidance and oversight of the colleges, schools and divisions are responsible for recording costs to the correct object code and organization code. The University of Florida administration is responsible for guidance and training and for insuring compliance through periodic internal and external audits.

Department Responsibilities:

Correct accumulation of indirect costs begin at the department level where many of the costs are first incurred and recorded. In order to comply with A-21 and CAS 501,502 and 505 it is imperative that departments understand and correctly record all costs. See University Policy on Charging Costs Directly to Sponsored Projects for guidance regarding the consistency in estimating, accumulating and reporting costs (as required in CAS 501) and for information of those costs which are required to be charged indirectly (and examples of when such charges as administrative and clerical salaries may be direct charged (as required in CAS 502) Any questions regarding original coding of charges or cost transfers can be addressed to The Office of Contracts and Grants, 392-1235, which is the central unit designated to carry out oversight.

Contracts and Grants Responsibilities:

Contracts and Grants staff are responsible for developing and reviewing the indirect cost pools. This is done in accordance with A-21 and the related Cost Accounting Standards 501, 502, 505 and 506.