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Costing Practices

A new circular for cost principles has been published by the Office of Management and Budget (OMB). Known as the Uniform Guidance (Omni-Circular A-81), the circular supersedes and streamlines requirements from A-21.

The University of Houston’s costing practices for federal sponsored agreements must comply with OMB Circular A-21. However, effective December 26, 2014, new awards must comply with the Uniform Guidance Cost Principles for Educational Institutions, and the following Cost Accounting Standards (CAS):

  • 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

The purpose of this document is to provide guidance to staff to ensure compliance with the federal requirements.

Applicability of this Policy

This policy applies to all federal and federal flow-through projects. Costs normally treated as indirect costs (now referred to as “facilities and administrative [F&A] costs”) may be charged directly to nonfederal projects if permitted by the sponsor.

Internal Controls

Responsibility for compliance with the Uniform Guidance (for new awards effective December 26, 2014) and A-21 (prior awards) lies primarily with the Principal Investigators. College Business Administrators, Department Business Administrators, and Research Administrators are responsible for ensuring compliance through review of budgets at the proposal stage and through final review of expenditure documents. DBAs and CBAs are responsible for compliance with the regulations prior to initiating any expenditure and also at the expenditure document preparation and review stage.

In order to reduce the risk that unallowed direct, non-payroll costs will be charged to a federally funded cost center, the University modified its financial system to create a warning message when the following occurs:

  • An expense account that is normally not allowed on a federal cost center is used on a voucher, requisition, purchase order, or journal, along with a federal cost center.
  • An invoice data is entered that is after the grant end date for a federal cost center on a voucher. 
  • Capital equipment purchased on federal cost center up to 180 days before the grant end date.

The message tells the user to make the necessary correction, or to route the document through the Office of Contracts and Grants for workflow approval. The warning message will appear each time the document is opened or saved by the document creator or a workflow approver (department, intermediate, and final approver). The final approver in Accounts Payable, Purchasing, or General Accounting will return the document to the user if the warning message appears and the document has not been approved by Office of Contracts and Grants as the intermediate approver. Office of Contracts and Grants will only approve the document if the expense is allowed on the specific federal cost center used. 

In order to reduce the occurrences of payroll expenses outside of the period of performance posting to grant accounts, the University has modified its HR system to validate the paycheck earning dates against the grant end date. If the earning date is after the grant end date, the payroll will post to a suspense cost center instead of the grant account. Additionally, payroll reallocations will not validate or route through the payroll system for approvals and post to the grant cost center if the accounting end date is closed. The accounting date on federal grants are set up in the financial system to close 90 days after the expiration of the award. A request must be made to the central Office of Contracts and Grants to extend the accounting date.

Consistent Treatment of Costs

Consistent treatment of costs is a basic cost accounting principle and is specifically required by the Uniform Guidance (for new awards effective December 26, 2014) and A-21 (prior awards) to ensure that the same types of costs are not charged to federally sponsored agreements both as direct costs and as F&A costs. This concept is reinforced and emphasized in CAS 502. Consistency in this context means that costs incurred for the same purpose, in like circumstances, must be treated uniformly as either direct costs or as F&A costs. The size, nature and complexity of federally sponsored projects, although not the final determining factors, are important considerations in determining circumstances where exceptions are justified. Due to the unique requirements of each federally sponsored project, the existence of special circumstances must be evaluated on a case-by-case basis.

Direct Costs

Direct costs (Uniform Guidance 200.413 and A-21 Section D.1) Direct costs are those costs that can be identified specifically with a particular sponsored project or other internally or externally funded activity, or that can be directly assigned to such activities with relative ease and with a high degree of accuracy. Direct costs for a sponsored agreement are those costs that are necessary to meet the project's scientific and technical requirements. Direct costs charged to sponsored agreements must support the sponsor’s programmatic intent, support the sponsored agreement's purpose and activity, and adhere to the sponsor's restrictions presented in the award document. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs.

Facilities and Administrative Costs

Facilities and administrative costs (Uniform Guidance 200.56 and A-21 Section E.1) are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project. See UH's Rate Agreement (PDF).

Administrative and Clerical Salaries, and Fringe Benefits

Salaries of administrative and clerical staff (Uniform Guidance 200.413 or A-21 Section F.6.b) should normally be treated as F&A costs, but may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:

  • costs are required by the project’s scope of work;
  • costs can be specifically and easily identified to this project;
  • and costs represent a special need that could be classified as an unlike circumstance.

Unlike circumstances occur when, because of their specific research purpose, the costs directly charged to a sponsored project are not the same as the costs included in the institution’s F&A cost pools. It would be inappropriate to charge the cost of such activities directly to specific sponsored agreements if, in similar circumstances, the costs of performing the same type of activity for other sponsored agreements were included as allocable costs in the institution’s F&A cost pools. Direct charging of administrative and clerical salaries and fringe benefits may be appropriate when the scope of the project requires an extensive amount of administrative or clerical support that is significantly greater than the routine level of such services provided by academic departments, and when the clerical/administrative personnel involved can be specifically identified with the project or activity. Such circumstances include:

  • administrative support required for a project defined as a major program or activity (program grants, centers, projects in remote locations, conference grants, and similar activities);
  • or administrative and clerical salaries required for specific research activities (data collection, statistical analyses, human subjects management, literature searches) that include a minimum of ten percent (10%) effort charged to a specific project. Routine account monitoring, ordering of supplies, arrangement of meetings, or typing of general correspondence, manuscripts, and reports are not included in this definition.

The following examples are illustrative of circumstances where direct charging of the salaries and fringe benefits of administrative or clerical staff may be appropriate:

  • 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 require assembling and managing teams of investigators from a number of institutions.
  • Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical record studies.
  • Projects that require making travel and meeting arrangements for large numbers of participants, such as conference and seminar projects.
  • A project whose principal focus is the preparation and production of manuals and large reports, books, and monographs (excluding routine progress and technical reports).
  • Projects that are geographically inaccessible to normal departmental administrative services, such as seagoing research vessels, radio astronomy projects, and other research field sites that are remote from the campus.
  • Individual projects requiring project-specific database management, individualized graphics or manuscript preparation, and multiple project-related investigator coordination and communication.

The above examples are not exhaustive, nor are they intended to imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated. Costs incurred for the same purpose in like circumstances must be consistently treated as direct costs for all activities.

The clerical/administrative personnel paid from a sponsored project must have responsibilities specifically related to the work of the project. The effort devoted to the project must be documented in the UH System's activity reporting system. In addition, we recommend that the DBA maintain a current list of accounts for which administrative and/or clerical positions, including student workers, have been approved. If administrative/clerical payroll is requested from a federal project for which approval has not been previously obtained, OCG approval must be obtained. Guidelines for obtaining approval are located at the end of this document, under “Approval Procedures.”

Non-labor Costs Normally Charged as Indirect

Because of their general-purpose nature, office supplies, postage (including overnight carriers such as Federal Express, Airborne, etc.), memberships, subscriptions, and local telephone costs (defined as all costs other than long distance) are normally F&A costs and may be charged directly only under special circumstances. Facilities and administrative costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.

Costs normally charged as indirect may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria: Costs are required by the project’s scope of work; Costs can be specifically and easily identified to this project; and Costs represent a special need that could be classified as an unlike circumstance. Unlike circumstances occur when, because of their specific research purpose, the costs directly charged to a sponsored project are not the same as the costs included in the institution’s F&A cost pools. It would be inappropriate to charge the cost of such activities directly to specific sponsored agreements if, in similar circumstances, the costs of performing the same type of activity for other sponsored agreements were included as allocable costs in the institution’s F&A cost pools.

Costs may be charged to a project in direct proportion to the amount of the item that will be consumed by the project. For instance, if a particular type of supply item can only be purchased in bulk quantities and only a portion of the purchase can be specifically allocated to the project, only that portion of the purchase can be paid from the project. The remainder of the cost would have to be paid from another source. A departmental log or some other defensible method that demonstrates the relationship of these costs to the project is necessary.

Office Supplies

General-purpose office supplies are usually considered facilities and administrative costs, and are therefore not allowed as direct costs. When items normally considered office supplies are purchased for technical or scientific use on a project, charges may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:

  • costs are required by the project’s scope of work
  • costs can be specifically and easily identified to this project, and
  • costs represent a special need which could be classified as an unlike circumstance.
Office supplies paid from a sponsored project must be consumed within the life of the project.
  1. The definition of office supplies includes such items as paper, envelopes, paper clips, binder clips, binders/notebooks, transparencies, rubber bands, legal pads, pens, pencils, markers, post-it notes, liquid paper, staples/staplers, tape/tape dispensers, clocks, calendars, paper punches, University stationery, desk organizers, file cabinets, file folders, printer paper, printer ribbons, toner cartridges, diskettes, zip disks, etc. These items may be allowable as direct costs with justification of unlike circumstances. An example of a justification for paper, binders/notebooks, and inkjet cartridges is the requirement in the scope of work to produce a 300-page manual and distribute it to 200 participants.
  2. The definition of office supplies also includes general-purpose software and site licenses (e.g., Word, Excel, GroupWise, etc.), and these items are normally not allowable as direct costs. Software is only allowable if it is purchased with the computer as the operational system, or if it is special-purpose software required for data acquisition or interpretation for a sponsored research project.
  3. The definition of office supplies does not include laboratory notebooks, poster board, photographic supplies, videotapes, cassette tapes, plotter paper, plotter pens, or computer items such as computer parts, memory cards, cables, surge protectors, etc. These items are allowable as direct costs. A research reason for the purchase should be written on the expenditure document.
Postage (including overnight carriers such as Federal Express, Airborne, etc.)

Postage is usually considered a facilities and administrative cost, and is therefore not allowed as direct costs. Postage charges may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:

  • costs are required by the project’s scope of work
  • costs can be specifically and easily identified to this project, and
  • costs represent a special need which could be classified as an unlike circumstance.
  1. The justification for postage to be charged as a direct cost must demonstrate a need required by the scope of work. Examples include mail surveys, technical reports and deliverables, information to be reviewed by several project participants, and abstracts or publications.
  2. The shipping of samples, equipment, and parts through the mail or via other carriers is allowable as a direct cost without justification, and should be coded as shipping.
Communication Costs (all costs other than long distance)

Local telephone costs (line charges, equipment rental, etc.) are usually considered facilities and administrative costs, and are therefore not allowed as direct costs. Local telephone costs may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:

  • costs are required by the project’s scope of work
  • costs can be specifically and easily identified to this project, and
  • costs represent a special need which could be classified as an unlike circumstance.

Line charges or equipment charges might be appropriate, with adequate justification, for projects that involve field work (i.e., research at a remote location). Long distance calls necessary for the conduct of a sponsored project are allowable with proper documentation.

The University of Houston allows, under certain circumstances, a department to monetarily contribute to an employee’s purchase and operation of wireless communication devices. This allowance is paid as part of the employee’s taxable compensation and is paid through the payroll system. No other form of reimbursement for the use of wireless devices is approved. UH considers the wireless device to be the personal property of the employee, and it may be used in any way the employee deems appropriate. As it would be difficult to allocate the cost with a high degree of certitude, it would not be appropriate to charge this allowance to a sponsored project. For further information on the use of wireless devices, see MAPP 10.03.05 (PDF).

Memberships and Subscriptions

Memberships and subscriptions are usually considered facilities and administrative costs, and are therefore not allowed as direct costs. Membership and subscription costs may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:

  • costs are required by the project’s scope of work,
  • costs can be specifically and easily identified to this project, and
  • costs represent a special need which could be classified as an unlike circumstance.
Approval Procedures

Administrative/clerical salaries, office supplies, postage, local telephone costs, memberships, and subscriptions are usually considered F&A costs, and are therefore not allowed as direct costs. If costs normally considered F&A costs will be necessary for the conduct of a specific research project, the following procedure should be used to obtain approval for their consideration as a direct cost.

Requesting Approval at Pre-Award Stage

The charges should be anticipated at the proposal budget preparation stage and specifically identified and justified in the proposal’s budget justification. OCG approval to allow these costs in a proposed budget must be requested by completion of a Budget Justification form. Administrative salary justification should include:

  1. identification of the individual by name and title,
  2. a clear justification of the duties and the direct relationship to the scope of work,
  3. a reasonable level of effort commensurate with the scope of work, shown as hours or percentage, and
  4. the name of the supervisor.

Office supplies, postage, local telephone costs, memberships, and subscriptions should be specifically identified.

Requesting Approval after Award Receipt

OCG will check the proposal file during award set-up to determine if the sponsor approved the restricted categories. (This requires a written justification in the proposal. A budget category without a justification is not acceptable.) If an official budget was not sent to the sponsor (e.g., NIH Modular Grant), a Budget Justification form must be completed prior to OCG approval of restricted budget categories.

If a cost normally charged as indirect was not included and justified (with OCG approval) in the proposal budget, the cost may be charged directly to the project only if the University of Houston has rebudgeting authority under the terms of the sponsored project. OCG approval to allow these costs in the project’s budget must be requested by completion of a Budget Justification Form. The justification must include the same information that would have been provided to the sponsoring agency in the proposed project budget. These costs will be authorized if the Office of Contracts and Grants is satisfied that the sponsoring agency would have approved the cost had it been in the original budget.

If the approved budget for a restricted category is exceeded, the DBA should initiate a revised Budget Justification Form for the additional costs.