Accounting Office

University of Mississippi

Direct Cost Charging Policies

The university is responsible for compliance with rules and regulations established by federal agencies. Those agencies include the Office of Management and Budget (OMB) and the Cost Accounting Standards Board (CASB). There are also numerous individual agencies that award contracts and grants to the university, such as the National Science Foundation and the Public Health Service, which have their own agency-specific regulations.

Purpose of Policy

The OMB issued a statement in 1993 that encouraged increased enforcement of regulations related to spending federal funds. The CASB issued regulations in 1994 to promote consistent treatment of costs, as well as the identification and exclusion of unallowable costs.

It is the responsibility of project directors, department heads and other administrators to understand and comply with federal regulations. Many of these regulations are common sense statements, i.e., charging only expenses that benefit the project. However, there are other issues that are not well-defined, such as whether specific items should be charged directly to a sponsored project or included in the indirect cost pool. This policy will serve as a framework to assist those responsible individuals in making decisions.

Direct Costs

Direct costs are those costs that can be identified specifically with a sponsored project or assigned to the project with a high degree of accuracy. Costs incurred for the same purposes in like circumstances must be treated consistently as either direct costs or Facilities & Administrative (F&A) costs. Only costs allowable by OMB Circular A-21 may be charged to a federal project. Circular A-21 states that allowable direct costs must be reasonable, allocable, consistently treated as direct charges, and not specifically identified as unallowable. Therefore, the cost must meet all the following conditions:

  • The cost must be reasonable and necessary for the performance of the project. A prudent person conducting the work would spend funds in this manner under the same circumstances.
  • The cost must be allocable to the project, meaning the goods or services involved are chargeable to the project in relation to the benefits received. If the cost benefits more than one project, each project may be charged only for that portion of the costs representing the benefit received by the project. Costs that might be incurred for several research projects but cannot be readily assigned to the individual projects may not be charged as a direct cost to those projects.
  • Direct charges to federal projects must be applied consistently in like circumstances as a direct charge for all federal projects at the University of Mississippi. A particular cost item may not be charged as a direct cost on some projects and as F&A costs on other projects.
  • A project may not be directly charged for any item specifically disallowed by OMB circulars, agency-specific guidelines or the award document.

Examples of Allowable Direct Costs

Although there are exceptions, the following types of costs are typically allowable as direct charges:

  • Personnel costs for individuals working directly on the project. Personnel time must be documented through the university’s effort reporting system.
  • Travel for employees who document their time on the project via the effort reporting system.
  • Laboratory and technical supplies.
  • Technical and scientific equipment and maintenance agreements related to the equipment.
  • Other miscellaneous costs: long distance telephone, animal care, computer costs and specialized service facilities with rates approved by the Contracts and Grants Office.

Examples of Unallowable Charging Practices

  • Charging amounts budgeted as opposed to an amount based on actual usage.
  • Assigning charges to sponsored projects in advance of the time the cost is incurred.
  • Charging a cost exclusively to a sponsored project, when it also benefits nonsponsored activity.
  • Assigning charges that are part of the normal administrative support for contracts and grants (proposal preparation, accounting, payroll, etc.)
  • Charging travel costs for employees not specifically identified as working on the project.
  • Charging ending sponsored projects to expend funds without regard to the benefit derived from the cost.
  • Assigning costs incurred outside the approved project period, unless specifically approved by the awarding agency.

Project directors have ultimate responsibility for defending all costs charged to their sponsored projects. However, project directors may contact the Contracts and Grants Office in advance of charging an item if there is a question or concern about the appropriateness of the charge.

University Policy for Charging Costs Direct or through the F&A Rate

In order to comply with OMB Circular A-21 and the CASB’s cost accounting standards, the university’s policy is to charge the following types of costs as follows:

Direct Costs

F&A

Nonadministrative Salaries, Wages and Fringe Benefits: Project DirectorsResearchers

Graduate Assistants

Administrative Salaries, Wages and Fringe Benefits: AccountantsSecretarial & Clerical

Departmental Administrators

Consultants
Travel – for employees paid or cost sharing on project funds Travel – employees not working directly on the project
Long Distance Telephone Charges Telephone Line Charges and Local Fees
 Cellular Telephone Charges
Laboratory and Scientific Supplies Office Supplies & Printing
Repair & Maintenance – on equipment purchased with project funds
Subscriptions
Institutional Memberships
Service/Recharge Center Charges
Animal Care Charges
Research Equipment Identified Specifically to a Project Departmental Equipment – Typewriters, Computers, etc.

Charging Normally F&A Costs to Sponsored Projects

OMB A-21 allows the direct charging of F&A costs in certain situations where major projects or programs place substantial administrative burdens on the university. Therefore, project budgets may include direct charges of F&A costs as long as ALL the following conditions are met:

  • The costs are readily identified with the project with a high degree of accuracy.
  • The costs are incurred for a different purpose or circumstance as described below.
  • The costs are explicitly budgeted and approved by the sponsoring agency. The budget justification must identify the cost as being normally treated as an F&A cost, and explain the reason for different treatment in this specific case.

Examples of Major Projects Where Direct Charging May Be Appropriate

OMB A-21 offers the following examples of situations where direct charging may be appropriate:

  • Large complex programs such as those conducted by research centers and other contracts and grants that entail 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.
  • Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
  • Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine technical reports).
  • Projects that are geographically inaccessible to normal departmental administrative services.
  • Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.

UM Procedure for Approval of F&A Costs as Direct

When requesting an exception to the university’s basic policy, under one of the circumstances cited above, the project director must submit an explanation with the project budget to the Office of Research. The Office of Research, with input from the Accounting Office, will make recommendations of whether reasonable justification exists to charge an F&A item as a direct charge. The explanation submitted by the project director will be maintained by the department as justification for audit purposes. However, project directors and department heads should be prepared to provide additional documentation that may be requested during an audit. It is ultimately the responsibility of the charging department to justify these charges and pay back funds due to audit disallowances. The Office of Research may choose to not sign a proposal if the budget obviously does not comply with university policies.