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OMB A21 Principles
Download a .doc version of this memo | download the A21 attachment.doc
THE UNIVERSITY OF MICHIGAN
DIVISION OF RESEARCH DEVELOPMENT AND ADMINISTRATION
AND FINANCIAL OPERATIONS - SPONSORED PROGRAMS
DIVISION OF RESEARCH DEVELOPMENT AND ADMINISTRATION
AND FINANCIAL OPERATIONS - SPONSORED PROGRAMS
September 10, 2003
- Memo to:
- Principal Investigators on Federal Sponsored Projects
- Unit Research Administrators
- Research Associate Deans
From: Jim Randolph and Rob Barbret
Subject: OMB Circular A-21 Principles
Recent reductions in State funding are putting pressure on School, College, and Departmental budgets. In most cases, the effects of these pressures have had an impact on individual faculty. Particularly affected are Principal Investigators of extramural sponsored projects.
Many PIs are now being required to cover costs heretofore supported by unit funds, either directly or through the return of research incentive funds. We write now to remind unit administrators and investigators that certain costs are not generally allowable as direct charges to Federally sponsored projects. It is the responsibility of the Schools, Colleges, and Institutes (i.e., the units that benefit directly from indirect cost revenues) to provide sufficient funding to individual investigators to cover these expenses that the government and the University consider allowable, but indirect.
ALLOWABILITY
Office of Management and Budget Circular A-21 sets forth principles for determining costs applicable to Federal grants, contracts, and other agreements with educational institutions. The Circular prescribes which costs are allowable and not allowable for recovery from the Government and of the costs considered allowable, whether the institution most appropriately treats them as direct or indirect. The Circular gives reasonably clear guidance on a subset of these costs, generally referred to at Michigan as "A-21 sensitive" items.
The relevant sections of the Circular are attached to this note. In summary, A-21 states that the following costs should normally be treated by the institution as indirect costs: the salaries and associated benefits of administrative and clerical staff, office supplies, postage, local telephone costs, memberships, and hosting. Use of the qualifier "normally" gives the University some latitude in interpreting the A-21 guidelines.
Based on nine years of experience with this A-21 language in addition to the results of many subsequent audit interpretations, the University currently uses the following guidelines for each of the categories. The point of departure, however, remains that these costs are generally unallowable as direct charges to Federally sponsored projects.
Administrative and Clerical Expenses
Direct charging may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and the individuals involved can be specifically identified with the project or activity. Examples of "major projects" are offered in Exhibit C of Circular A-21 [should open in anew window]. The key is that the project requires support services beyond the normal scope necessary for the typical project.
Office Supplies
This category includes, for example, computers (under $5,000), printers, monitors, fax machines, printer paper, toner cartridges, pens, pencils, legal pads, clips, rubber bands, post-it notes, books, individual subscriptions to journals, notebooks, binders, folders, diskettes, and departmental stationery. The category does not include printing, photocopying and duplication, research publication costs, and page charges, (i.e., these are generally treated as allowable direct charges). The category also does not include laboratory supplies such as lab notebooks, data storage supplies (e.g., CDs, CD jackets and wallets, and zip storage), aluminum foil and plastic wrap for packaging and preserving specimens, and materials required for poster or publication preparation (poster board, photographic supplies, color paper).
The circumstances surrounding the expenses in this category play a major role in determining whether to treat as an exception, i.e., to permit as a direct charge. As an example, computers are necessary to the overall administration of a sponsored project. Purchasing computers for this purpose would generally be considered an indirect cost expense -- part of the normal wherewithal the institution can reasonably be expected to provide for its research staff. Purchasing computers to control and monitor scientific equipment, however, represents a different circumstance or use of that equipment and would typically be allowed as a direct charge.
Postage (stamps)
The postage costs associated with the normal administration of the project are generally not allowable as direct charges to the project. Examples include interactions with vendors, routine correspondence with the sponsor, colleagues, and potential publishers, and students. In general however, the costs of overnight shipping and handling (e.g., Federal Express) are allowable assuming they are directly associated with the conduct of the project. The principal reason for this distinction is that the latter can be directly assigned to a particular project relatively easily and with a high degree of accuracy. Stamps are generally purchased in bulk and consumption cannot, in a cost effective manner, be assigned to a specific activity.
Telephones
The costs of local telephone lines used to conduct routine business of the project should not be direct charged to a project. Telephones used for the conduct of surveys are allowable as this would represent an unlike circumstance to routine business purposes. Telephone toll charges are allowable if they are directly related to the project activities.
The University takes the position that cell phones and prepaid long distance calling cards also should not be direct charged to Federal sponsored projects because there is no easy or accurate way to monitor usage to ensure project relatedness.
Memberships
The dues to maintain individual memberships in professional and scientific organizations are not allowable direct costs to federal sponsored projects. They are considered professional development expenses and should be covered with discretionary or personal funds.
Hosting
There are very few cases where hosting is allowable on Federally sponsored projects. These circumstances are stated during the proposal budgeting process and are only allowable when the sponsor gives express consent. DRDA will not utilize the rebudgeting authority to give authorization for hosting expenses. Written authority will need to be obtained directly from the sponsor by the department.
PROPOSAL BUDGETS
To charge these expenses to a Federally sponsored project, the following two criteria must be met during the proposal process:
1. The costs can be specifically identified with the objectives of the project or activity.
2. The costs are explicitly listed in the University-proposed and sponsor-approved budgets.
The preferred test for allowability is explicit approval from the sponsoring agency. For all A-21 sensitive items listed above, the charges should be explicitly justified and explained in the budget and budget narrative section of the proposal. Before any charges will be allowed against sponsored agreements, awards must provide evidence that the budget has sponsor approval. Principal Investigators and their units are responsible for ensuring that costs assigned to the project are appropriate.
To justify A-21 sensitive charges in proposal budgets, the following items should be addressed in the budget or budget narrative:
- Because all projects require a certain level of account reconciliation, correspondence, communications, and office expenses, how does the proposed charge differ from the standard level expected to be provided by the institution for all projects?
- The job title within the HR system may imply that the effort is dedicated to administrative purposes. Is the nature of the work different from the general administrative work conducted for all sponsored projects? Are the charges necessary to meet the technical needs of the award rather than to support the administrative needs?
- The cost category (e.g., office supplies) may imply that the items are being used for administrative purposes. How will the 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?
POST AWARD REBUDGETING
As an exception, local rebudgeting authority may be exercised by DRDA and Financial Operations - Sponsored Programs, and can substitute for explicit sponsor approval in those instances where 1) the terms of the award allow such post-award rebudgeting flexibility, and 2) the need for the expense was not contemplated at the time the original budget was prepared. It should be noted that in most cases local rebudgeting authority is given only on grants. It is rarely allowed on contracts. On subcontracts, it is advisable to check with the appropriate DRDA or Financial Operations representative to discuss the local rebudgeting flexibility.
This post-award authority should be used on rare occasions only and should never be used to circumvent the integrity of the proposal budgeting process.
UNACCEPTABLE PRACTICES
Unacceptable direct charging practices include:
- Purchasing items simply to exhaust an unobligated balance.
- Rotating charges among projects.
- Assigning charges to a project on the basis of the remaining balance to resolve availability of funding issues or simply to avoid the loss of carry-forward balances.
- Charging the budgeted amount (in contrast to an amount based on actual usage), unless the project allows a fixed price or other type of approved reimbursement method that does not require tracking of actual charges to the project.
- Assigning charges to an award before the cost is incurred.
- Charging an expense exclusively to a single award when the expense clearly has supported other activities.
- Applying a unit "tax" to projects to distribute clerical and administrative expenses.
- Transferring an overdraft from one sponsored project to another, without express sponsor approval.
POST EXPENSE REVIEW PROCESS
An annual review will be done on all Federal projects to ensure that the expenditures incurred on the projects are in accordance with the budget categories stipulated in the award document. The "A-21 sensitive" categories are indicated on the Project Budget Status Report (PBSR). If those categories have not been requested through the proposal process or not indicated on the award document from the sponsor, the expenditures in those categories will be questioned by Financial Operation Ð Sponsored Programs. Justification for those expenditures will be required to allow the expenses to remain on the project. If justification is not received, those expenses must be removed from the sponsored project.
AUDIT RESOLUTION
All sponsored projects are subject to audit by their respective agencies. Receiving justification will not guarantee that the expenses may not be questioned at a later date. While the procedures outlined above are in place to put the University in a strong position with respect to potential disallowances, they may still occur. In the event of a disallowance, the responsibility for covering any disallowance will belong to the academic unit.
| Jim Randolph | Rob Barbret |
| 764-7242 | 764-9593 |
| nihjim@umich.edu | rbarbret@umich.edu |