DIRECT CHARGES
INTRODUCTION
The University's investigators enjoy the support of the public in carrying out scientific research, and the government entrusts investigators with the expenditure of research funds. Scientific research has a stochastic quality that requires considerable flexibility in making expenditures. The government also requires accountability in managing research spending. Recently, OMB revised the regulations that govern the charging of costs to research grants (OMB Circular A-21). These latest revisions affirmed old principles and created new ones. The University's administration and its investigators have a joint responsibility to comply with these regulations. This summary outlines the main features of the federal regulations, but is no substitute for the more complete descriptions that are readily available.1
A core principle, that grant2 funds should be expended only to support the work approved under the grant, affirms the value of peer review. This principle underlies the awarding agency's responsibility to support only work judged meritorious by its review process. Arising from this principle is the A-21 requirement to link a cost to the approved objectives of the grant "with a high degree of accuracy" before it can be direct-charged.
Recognizing the complexity of research, and the fact that a single investigator may have several sources of support, A-21 recognizes three mechanisms for linking a cost to a specific project or group of projects "with a high degree of accuracy." These mechanisms are single grant charging 3, proportional benefit charging and interrelatedness charging. Single grant charging, the most commonly used mechanism, assumes a direct relationship between a cost and a single benefiting grant. The proportional benefit and interrelatedness mechanisms allow the investigator, under certain circumstances, to allocate a cost across two or more grants.4
What will be asked of the Principal Investigator? Principal Investigators (PIs) are primary financial managers as well as principal scientific investigators for each of their respective grants. While departmental administrators and Central Fiscal Unit personnel provide PIs essential management support in this area, it is the investigator who must make the crucial financial decisions related to expenditures.5
From practical necessity, the PI and the University collaborate to create an auditable record of the link between the benefiting grant and the direct charge. Careful and clear documentation of actions is an important element in facilitating the annual Circular A-133 audit, program specific audits or Inspector General audits. Proper documentation for charges or cost transfers to a grant should pass the "stand alone" test. An interested party, without additional explanation, must easily understand the paper audit trail for a charge or transfer. To make this record under single grant charging the PI or his/her designee specifies the grant to be charged on a requisition form. The proportional benefit and interrelatedness methods also require the PI or his/her designee to specify the benefiting funds on a form. 6 With this authorization from the PI in hand, the departmental administrator can establish an acceptable audit record through the on-line ordering system. To direct charge a normally facilities and administrative (F&A) cost 7 the PI must also document the unlike circumstances that support the direct-charge. 8Documentation will be a key determining factor in establishing "unlike circumstances" for our auditors in support of direct-charging normally F&A costs.
Which responsibilities of the PI may be delegated? The PI understands best how the costs relate to the project, and is therefore responsible for the authenticity and accuracy of costs both in budget proposals and spending awarded funds. The PI designs the budget scope and assures costs listed in the proposal benefit the proposed project. PIs may use the assistance of departmental administrators to develop and retain a record of justification for cost estimates. Once an award is made, the PI is responsible for managing spending, but may ask others for assistance of certain types. For example, a laboratory assistant who uses supplies for a particular project may sign requisitions for supplies as long as the assistant is in a position to know that the linkage of the expense with the funded project is close and clear.
Circular A-21 reaffirms previous limitations on direct charging. The federal government tightened its stance on direct charging of certain costs. In particular, certain administrative costs, such as administrative and clerical salaries, general office supplies, postage, etc., will normally not be directly chargeable. Please use the "Quick Reference Guide" or the University's "Direct-Charging Guidelines" to find whether a charge can be direct. (Although the limitation on direct charging may relieve the grant budget of some costs, the University's F&A cost recovery will probably not be sufficient to match the support that was previously provided by direct charges to the grant.)
Cost Accounting Standards tighten the Federal requirement for consistency. OMB Circular A-21 states, "like charges incurred in like circumstances" must be handled consistently. The University may treat certain categories of costs as direct costs under some circumstances and as F&A costs under other circumstances. The cost categories typically involved are costs such as clerical salaries or postage that, though not normally direct-charged, may be permitted to be direct charged on an exceptional basis. Cost Accounting Standards, effective July 1, 1996, require University level consistency in classifying costs as direct or F&A. The University's schools can no longer independently develop policies to achieve consistency in direct-charging normally F&A costs. The entire University must observe the same rules for determining exceptional treatment (i.e., "unlike circumstances") for direct-charging F&A costs.
Circular A-21's core requirement is specific identification. "Direct costs are those that can be identified specifically with a specific sponsored project -- or that can be assigned to (such activity) relatively easily and with a high degree of accuracy." Methods such as those listed below are unacceptable. These methods do not meet A-21's requirement for linking costs and the work of a grant with a high degree of accuracy.
Rotating direct charges among grants, or "taxing" grants for central services,Making direct charges to a single grant when usage may be partially for other purposes,
Direct-charging to the fund with the largest remaining balance even though there is no linkage or only a partial linkage between the expenditure and its usage for the project,
Direct-charging to the grant with the earliest expiration date even when there is no linkage or only a partial linkage between the expenditure and its usage for the project,
Cost transfer to artificially bring expenditures in line with budgets,
Charging in advance of the expenditure,
Direct-charging the budgeted amount rather than the amount actually spent,
Rebudgeting after an award is made to pay for charges that are normally not permitted as direct charges.
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