DIRECT CHARGES

QUESTIONS AND ANSWERS

Attached is a question and answer document designed to assist with the implementation of OMB Circular A-21 and the University's Guidelines for Direct-charging Costs to Grants. These questions and answers will no doubt be modified and added to over time. Suggestions are welcome by the School of Medicine's Office of Gifts, Grants and Contracts (362-6876) or the University's Office of Sponsored Projects Accounting and Indirect cost (935-7089).

Table of Contents

Topic

1. Documentation Standards


2. Administrative and Clerical Salary Costs


3. Costs Which Are Not Normally Direct


4. Photocopying Costs


5. Maintenance Agreements/Service Contracts


6. Equipment Costs


7. Direct Charging Methodologies


8. Consistency


9. Unexpended Grant Funds


10. Cost Sharing

I. DOCUMENTATION STANDARDS

1. Q. What are the documentation standards necessary to support direct charges to a grant or contract?
A. Principal Investigators and their designees signify approval for a charge by signing or initialing a requisition form, stockroom log, invoice, other initiating document or by using an auditron code. Careful and clear documentation is proof of the investigator's conscientious exercise of the fiduciary responsibility inherent in the expenditure of public funds. Moreover, such documentation is an important element in facilitating the annual Circular A-133 audit, program specific audits or Inspector General audits. Documentation will also be a key determining factor in establishing "unlike circumstances" in support of direct-charging normally indirect costs.

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. The documentation for a payroll cost transfer should explain the reasons for the transfer. An explanation that merely states "to correct an error" is not sufficient. See the "Washington University Policies and Procedures Manual - General Accounting Volume" (Chapter 15) for an explanation of documenting transfers using the Who, What, When, Where and Why standard. Departments should maintain these records (originals or copies as appropriate) in accordance with University transaction processing rules and record retention policy.


2. Q. Does the Federal Government articulate documentation standards?

A. Yes. The Federal Government articulates documentation standards at OMB Circulars A-110 (Subpart C_.50), A21(C.4.d) and HHS Grants Administration Manual Chapter 7-20. For example, the HHS Manual requires cost transfers, including cases where more than one funding source supports closely related work, be supported by a full explanation of how the error occurred, justification and certification of the correctness of the new charge. For more information on cost transfers and documentation see the "General Accounting Volume" pages 15-18 through 15-19.

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II. ADMINISTRATIVE AND CLERICAL SALARY COSTS

1. Q. May administrative and clerical positions be budgeted on grant proposals?
A. Generally, no. However, if you identify and budget the extent of planned administrative or clerical time required, justify the unlike circumstances and document the specific association of the administrative or clerical duties with the grant, the administrative or clerical salary is permitted to be included on the grant proposal. As stated in Section E of the "Direct Charging Guidelines", documentation of unlike circumstances and specific association can be accomplished in one of two ways:
• there is an unusually high level of administrative or clerical work required by an unusually large and complex project, such as a program project, etc., or
• the administrative or clerical work is related to the distinctive scientific and technical requirements of the work of the grant, such as data collection, maintaining subject/patient data, phone surveys, etc.

The justification of the unlike circumstances requirement must be included in the grant proposal. In addition, the P.I. has the responsibility to ensure costs are in compliance with notifications from sponsoring agencies.

Generally, unlike circumstances are not activities normally performed on all research grants. For example, making travel arrangements, preparing progress reports or IRB protocols for normal RO1 grants are all examples of administrative functions covered by the indirect cost or F&A rate and not eligible for direct- charging. A program project is a special circumstance because of the unusual nature of the support required. For example, unlike circumstances include making travel arrangements for participating researchers in different departments, schools or other organizations.


2. Q. What is the role of Sponsored Projects Accounting and the Medical School Office of Gifts, Grants, and Contracts in the review of administrative salaries budgeted on proposals?

A. Sponsored Projects Accounting (for Hilltop Campus grants) and the Office of Gifts, Grants, and Contracts (for Medical School Grants) will review proposed budgets. If administrative salaries are, in their opinion, adequately justified in the proposal, they will approve them for submission. If not, they will return them for better justification or removal from the budget. Effective with FY 1996 salary sourcing, hard programming edits within the payroll system only allow the sourcing of administrative and clerical salaries to grants with specific approval for such costs. The payroll system edits for allowability against the profile when a department uses an administrative or clerical job code for salary sourcing. The payroll system only allows sourcing to accounts that have the proper profile code. Sponsored Projects Accounting (for Hilltop Campus grants) and the Office of Gifts, Grants, and Contracts (for Medical School Grants) enters this code based upon the award document.


3. Q. Concerning the answer to question #2, why not just let the federal agency decide the allowability of those salaries?

A. The federal Office of Management and Budget holds Washington University responsible for compliance with the principles of Circular A-21. Review of proposals before submission is part of the University's responsibility to develop a set of operating principles and guidelines which comply with Circular A-21 and to oversee the implementation of and compliance with those principles and guidelines. Auditors will hold Washington University accountable for proper application of A-21 guidelines. Budget approval by a sponsoring entity alone is not enough documentation to justify an exception to the normally indirect treatment of these costs required by A-21.


4. Q. What flexibility exists to give an administrative or clerical position a title on the grant budget that appears more technical than clerical in function in order to help ensure the position is funded?

A. Identifying an individual or any other cost as something other than what it is has never been permissible. The correlation between job title and job duties must be high. It will be tested during internal and external audits.


5. Q. A P.I. receives both a federal and non-federal grant neither of which had clerical or administrative support requested in the budget. Midway through the grant year, a secretary is needed to collect patient survey data directly related to the activities of both grants. May the secretary's salary and fringe benefits related to that effort be directly charged to either grant?

A. In general, the University must treat administrative and clerical salaries as facilities and administrative (F&A; formerly known as indirect cost) costs. A-21 states, "The salaries of administrative and clerical staff should normally be treated as F&A costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative and clerical services and individuals involved can be specifically identified with the project or activity." (F6b) Exceptions are possible when the circumstances are consistent with Circular A-21. Such an exception would be if the need for surveys occurred as a result of the work being performed on the grant and was unanticipated at the time of the grant budget preparation. Whether a portion of the secretary's salary and fringe benefits can be charged to the non-federal grant depends on the requirements of the non-federal sponsor providing the support.

In the case of the federal grant, unless specifically restricted by the Notice of Grant Award, the P.I. should submit a Prior Approval form to Gifts, Grants and Contracts (GG&C; Medical School) or Sponsored Projects Accounting (SPA; Hilltop). In the form the P.I. should justify the need to make the described change. Using the guidance articulated above, GG&C or SPA will decide if the circumstances warrant a special circumstance. If a special circumstance exits, GGC or SPA will adjust the account profile to allow the direct charge.


6. Q. Many of our grants permit rebudgeting. Is it acceptable to charge the projects for administrative salary costs, even though they were not budgeted?

A. Generally, no. When the original budget did not include administrative and clerical salary cost, any subsequent rebudgeting is subject to the granting agency's rebudgeting rules and Circular A-21. See the answer to question 6 for further discussion.


7. Q. In order to ensure adequate funding, can we increase allowable salaries in the grant budget submissions by a percentage which is more than the usual annual salary increase?

A. No. The grant budgets submitted to sponsoring agencies must reflect the University's best estimate of actual costs.


8. Q. Is the administrative or clerical salary cost of manuscript typing and library searches acceptable as a direct charge to a grant, if the work is done by an administrative or clerical employee?

A. Generally, no. A-21 says that the salaries of administrative and clerical employees cannot normally be charged directly to grants. Exceptions are possible in the case of major projects, or if the nature of a particular grant (or group of grants) requires unusual effort in these areas, and the effort can be identified with the grant's work "relatively easily and with a high degree of accuracy." Otherwise, the salaries related to this work cannot be directly charged. Section E of the Direct-Charging Guidelines provides more information.

This position does not imply that manuscript typing and library searches are somehow less important for the work of the grant than other work that can be directly charged. Such work is usually essential to the completion of the grant's work. The same can be said of other grant-related activities that are performed by administrative and clerical employees: purchasing, payroll preparation, maintaining proper accounting records, etc.

The difference between these activities, and activities whose costs can be directly charged is that the activities of administrative and clerical employees typically cannot be identified with a particular grant, or a specified group of grants, "relatively easily and with a high degree of accuracy." Typically, they support all grants in a department, often along with non-grant-related work.

Therefore, A-21 classifies the cost of these activities as facilities and administrative costs. These costs become part of the calculations that produce the University's facilities and administrative cost rate. This rate is used to calculate an amount that should be paid to the University as reimbursement for these facilities and administrative costs. (In practice, the federal government rarely provides full calculated reimbursement for these costs.)

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III. COSTS WHICH ARE NOT NORMALLY DIRECT

Refer to "Guidelines" Sections E and F for policy guidance on costs which are not normally direct. For guidance on certain specific costs refer to the "Quick Reference".

1. Q. Can the items which A-21 revisions say are not normally direct costs, such as postage, office supplies (including research office supplies), professional dues, memberships and assessments and local telephone/FAX/data line charges still be requested in grant budgets?

A. According to A-21, these costs are normally considered facilities and administrative costs, but they may be requested in a grant budget as direct costs if they meet the same criteria for direct charging as administrative and clerical salaries (i.e., specific identification and unlike circumstances). If approved by the funding agency, the expenses can be directly charged, provided there is appropriate documentation (e.g., logs or FIS trailing documents) to assure there is a direct relationship of such charges to the scientific activities of the grant and an unusual circumstance exists.


2. Q. The documentation requirement for linking costs such as office supplies and postage to grants are clumsy and time-consuming. Are these requirements really necessary?

A. Yes, they are. A-21 is clear that a cost must be linked specifically to its cost objective - the grant or group of grants that it benefits - with a high degree of accuracy. In addition to establishing specific identification (i.e., a direct link) with a benefiting grant, departments must also document unlike circumstances to support direct charging a normally F&A cost.

If the cost benefits a specified group of grants, then you can document the link to the group, and distribute the cost to the specific grants within the group based on the cost's proportional benefit to each grant in the group. Or, if the proportional benefit is administratively difficult to determine because of the interrelationship of the grants, then the cost can be distributed among the grants on any reasonable basis. (Remember that the use of proportional benefit or interrelatedness must be properly documented.)

In the May 8, 1996, revision to Circular A-21, OMB tightened the Federal requirement for consistency. OMB Circular A-21 states, "like charges incurred in like circumstances" must be handled consistently as either direct or indirect costs. Administrative and clerical salaries, postage, memberships, office supplies (including research office supplies) and local telephone/FAX/data line charges, although normally F&A costs, may be treated as direct costs under some circumstances. Cost Accounting Standards, effective July 1, 1996, require University level consistency in classifying costs as either 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. Divergence in the treatment of costs between departments, even when consistent within a department, is no longer allowed.


3. Q. Can office supplies used in a lab be directly charged to grants?

A. Generally, no. A-21 says that office supplies are normally F&A rather than direct costs. For example, general office supplies or research office supplies, even if used exclusively in a lab, are still F&A costs. Exceptions are possible in cases where the department can document "unlike circumstances" such as major projects, or if the nature of a particular grant (or group of grants) requires unusual kinds of supplies and these supplies can be identified with the grant's work "relatively easily and with a high degree of accuracy." For example, specialized laboratory notebooks used specifically to document the results and conclusions of scientific activity for a particular grant can met the "unlike circumstances" test and be direct-charged to that grant. Investigators cannot use such laboratory notebooks for purposes other than documentation of experiments (e.g., class notes, general "to do" lists, etc.) for a particular grant or specified group of grants.


4. Q. Our office has a postage meter, so therefore we can track postage by grant, thus establishing the "close and clear" specific link to the grant. However, A-21 also says that postage costs are normally F&A costs. So can we charge our postage to grants?

A. Generally, no. Circular A-21 defines routine postage as normally an F&A cost. To be charged directly, the cost must support an activity that is directly related to the specific work of the grant and the circumstances surrounding the cost must also be unlike the normal circumstances for incurring that cost. Allowable direct-charged postage would be items more of an unusual nature, such as bulk mailings of surveys related to the grant rather than routine correspondence between researchers.


5. Q. Can telephone equipment, line charges and personal computer data line charges be direct-charged to a grant?

A. Generally, no. Local telephone costs, including equipment, line and PC data line costs, are defined by A-21 as normally general support (i.e., F&A) costs to be recovered via the F&A or indirect cost rate. These costs cannot be direct-charged to a grant unless their applicability to the specific and distinctive requirements of a grant can be clearly established and the circumstances surrounding the cost are also unlike the normal circumstances for incurring that cost. Long distance calls specifically related to grants may be directly charged if sufficient documentation exists to support those charges as being related to the specific grants.


6. Q. Are the following costs allowable direct costs to a grant: copying a grant proposal, express mail or postage charges to mail a proposal, pre-award calls to an agency (i.e., obtaining an RFA, negotiating) or post-award calls to an agency?

A. No. These are administrative costs which are not normally to be treated as direct costs.

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IV. PHOTOCOPYING COSTS

1. Q. The photocopy machine counter indicates 3000 copies were made for the month. Some of these copies were directly related to the scientific and technical activities of six grants. Can the costs for these copies be directly charged to each of the six grants?

A. Yes. Each grant can be charged the amount associated with the particular grant as recorded by a grant-specific access code or manual log (assuming agency guidelines allow photocopying charges).


2. Q. A P.I. conducted a survey paid for by a grant. It is now time to copy and distribute the results to the various people who participated in the survey. Can the cost of photocopying and postage be directly charged to the grant?

A. Generally, photocopying and postage related to a survey can be direct-charged to a grant, unless prohibited by the Notice of Grant Award, sponsoring agency guidelines or the costs cannot be linked to "a specific cost objective (i.e., a grant) relatively easily and with a high degree of accuracy." Under these conditions, according to our "Direct-Charging Guidelines", direct-charging is acceptable even though A-21 states that "normally" administrative costs such as postage are not to be direct-charged.

The University's expectation is that the effect of this policy will be compliance with the A-21 directive that administrative costs such as office supplies, postage, local telephone charges, and memberships will not normally (i.e., most of the time) be direct-charged.

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V. MAINTENANCE AGREEMENTS/SERVICE CONTRACTS

1. Q. Can our department charge each grant in the department a flat percentage of scientific equipment maintenance agreements when the grants' activities require use of the equipment, and such costs are allowable per agency guidelines?

A. No. Using a flat percentage is not an acceptable practice. Such costs should be directly charged to a grant based on the percentage that the related equipment is actually used for the particular grant's activities. One acceptable method to track equipment usage would be to record each grant's usage in a log.


2. Q. Regarding the answer to the preceding question, it would be extremely difficult and administratively impractical to identify such costs with each individual grant. Is there another allowable method?

A. Yes, the proportional benefit rule would be appropriate in this case. Under this method, a proportional distribution of the cost can be devised, with the approval of the P.I., based on the benefits each grant has received or is expected to receive. See the discussion in the answer to question 3 below.

3. Q. A number of P.I.s share many scientific equipment items in my department. How should we allocate the related costs of the service contracts on those equipment items to the grants?

A. Whenever a cost can be identified with and charged to a specific grant, it should be so charged. Therefore, when possible, service contract costs should be allocated based on actual usage of the equipment. One such method of tracking actual usage is a manual log for each item of equipment. If the determination of actual usage is administratively impractical, the charges could be allocated by the proportional benefit method, whereby the P.I.s determine the proportional benefit of the equipment to their grants. In this case, the key first decision is to determine which group of grants benefits from the equipment items. It would be reasonable to make this decision at the beginning of the year (or other costing period) based on history or P.I. expectations of usage for the upcoming period. The grants in the group and corresponding proportional benefits should be reviewed by the P.I.s at least annually. Non-sponsored cost objectives (e.g., instruction funds) should also receive an allocation of the service contract cost in proportion to the benefit derived.

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VI. EQUIPMENT COSTS

1. Q. The cost of a computer is budgeted on grant A and charged to grant A. Can the computer be used for personal purposes while grant A is active?

A. No, not unless the charge to the grant is appropriately adjusted. For example, if the P.I. uses the computer 80% for the work of grant A and 20% for instruction then the charge for the computer should also be 80% to Grant A and 20% to an instruction fund.


2. Q. The cost of a computer is budgeted on grant A and charged to grant A. Can the computer be used for the work of other grants?

A. Yes. Federal Circular A-110 states that during the time that non-expendable property is held for use on the federal project or program for which it was acquired, the recipient shall make the property available for use on other federal projects or programs if such other use will not interfere with the work on the project or program for which the property was initially acquired. First preference must be given to other projects or programs sponsored by the federal agency that financed the property; second preference should be given to projects or programs sponsored by other federal agencies.


3. Q. A P.I. orders a piece of equipment and charges the cost to grant A. If the P.I. does not receive the equipment until after the expiration of grant A, can he still charge grant A?

A. Generally, no. The equipment must be received before the end of the grant in order to meet the A-21 requirement that the equipment be used for the work of the grant. Exceptions to this general rule are possible in certain circumstances (e.g., continuation years of multiple year awards). Please contact Sponsored Projects Accounting (935-7089) for specific guidance in this area.


4. Q. Once a P.I. no longer needs a piece of equipment acquired with federal funds can he sell it to another P.I. if she uses federal funds for her purchase?

A. No. Federal Circular A-110 states that when the recipient no longer needs the equipment for the original project or program, the recipient institution shall use the equipment in connection with its other federally-sponsored activities. Allowing the second P.I. to acquire, with her federal funds, equipment originally purchased with federal funds amounts to double charging the federal government. Before disposing of any piece of equipment consult with Sponsored Projects Accounting (935-7089).

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VII. DIRECT CHARGING METHODOLOGIES

1. Q. If we track allowable non-salary costs by laboratory, may we rotate expenses monthly among the grants in the laboratory?

A. No. Rotation of charges among grants is not permissible. The expenses should be allocated based on the specific identification with each particular grant. If specific identification is not possible without undue effort, the proportional benefit rule may be applied. See the "Guidelines" Section G for detailed guidance on using the proportional benefit rule.


2. Q. What is the difference between the proportional benefit rule and interrelatedness rule?

A. Both are rules to allocate a direct cost to a group of grants, provided the link between the cost and its benefit to the specified group of grants can be made relatively easily and with a high degree of accuracy. The proportional benefit rule requires that the distribution method must plausibly reflect the approximate proportional distribution of the benefits of the cost. The interrelatedness rule applies when the interrelatedness of the work of the grants makes it impractical to determine the proportional distribution of benefits. See the "Guidelines" Section G for detailed guidance on using the proportional benefit rule.


3. Q. What happens if we are using the proportional benefit rule for photocopying and lab supplies for a group of three grants and one grant runs out of money before the P.I. finishes the work of the grant? For example, the P.I. assigns Grant A 50% of the cost, Grant B 20% of the cost, and Grant C the remaining 30% of the cost. Grant C runs out of money but Grant C's work continues?

A. If Grant C runs out of money and work on the grant continues, costs related to Grant C may not be charged to A or B or any other grant. A cost sharing account must be established for Grant C and such costs should be absorbed by unrestricted sources. For Grants A and B, two options exist: A new proportional benefit percentage for Grants A and B for only the cost related to Grants A and B should be determined and approved by the P.I., or costs should be directly charged to Grants A and B based on specific usage for Grants A and B.


4. Q. A piece of equipment which benefits several grants needs repair, but one of the grants lacks sufficient funds to absorb its "fair share" of the expenses. The repair must be made to continue the research on all the grants. How should the repair cost be allocated?

A. The grant with insufficient funds should be charged it's fair share of the charges to the extent of the funds remaining. The remainder of this particular grant's fair share of the charges must be absorbed by the department if work is going to continue on the grant. The amount that the department pays must be charged to a cost sharing account for the grant with insufficient funds.

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VIII. CONSISTENCY

1. Q. Is it permissible for P.I. Smith to charge administrative supplies to her grants when the relevance to the grants is correctly documented, while P.I. Jones, with like circumstances, charges no administrative supplies to grants?

A. No. This inconsistency violates A-21's requirements that like costs, charged in like circumstances, must be treated alike. See Section H of the "Direct-Charging Guidelines". In the May 8, 1996, revision to Circular A-21, OMB tightened the Federal requirement for consistency. 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.

A-21 does permit different charging practices for a normally indirect cost when the cost is specifically identified with the work of the grant and circumstances surrounding the cost are unlike the normal circumstances for incurring that cost. P.I. Smith may charge administrative costs directly to her grant if she meets both tests (i.e., specific identification and unlike circumstances). P.I. Jones may not charge administrative costs if he does not meet the two tests necessary to direct-charge. The University may allow different treatment of a cost only when unlike circumstances occur.


2. Q. The photocopy machine counter indicated 3000 copies were made for the month. Some of these copies were directly related to the scientific and technical activities of six grants. Can all of these costs be charged to a departmental account?

A. No. The University's practice is to consistently treat the allowable portion of these costs as direct costs rather than charging these costs as indirect costs. The Cost Accounting Standards provisions of A-21 require consistency in treating a particular type of cost as direct or F&A. This consistency requirement is required at the University level.

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IX. UNEXPENDED GRANT FUNDS

1. Q. My research project is complete. My grant is close to expiring and still has unexpended funds. Can I use these funds to purchase goods or services for use on other grants, or other functions, such as instruction, or for efforts to produce results to support a new proposal?

A. No. Unless otherwise stipulated by your sponsoring agreement, your granting agency expects you to refund the amounts you have not needed to complete the work of your grant. The premise behind this expectation is that the funds were awarded for a specific purpose, and only for that purpose. Please call the School of Medicine's Office of Gifts, Grants and Contracts (362-6876) or the Office of Sponsored Projects Accounting (935-7089) with any questions about residual balances on your particular agreement.

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X. COST SHARING

1. Q. What is cost sharing and why does the University use "X" and "V" accounts to capture these costs?

A. Cost sharing occurs when any costs (e.g., salary, supplies, equipment, etc.) attributable to a sponsored project are not borne by the sponsor. The most common cost sharing occurs when a P.I. agrees to spend effort greater than the corresponding salary charge to a grant (i.e., the P.I. agrees to spend 30% effort and charge only 10% salary). Cost sharing can also take the form of other products or services provided to the grant without charge. For example, cost sharing occurs if the University incurs the cost of chemicals used on a grant without charging the grant.

In order for PARS reports and indirect cost recovery to be correct cost sharing must be accounted for on the grant receiving the benefit. Washington University records cost sharing using the account number for the benefiting grant with either an "X" or "V" suffix. The "X" suffix indicates "mandatory" cost sharing or cost sharing required by the terms of the grant (e.g., NIH's salary cap). The "V" suffix indicates "voluntary" cost sharing which covers all cost sharing other than mandatory.


2. Q. When grant funds run out during the grant's active budget period and work on the grant continues, is it correct for the department to absorb these costs without using cost sharing accounts (i.e., "V" accounts)?

A. No. The costs assigned to sponsored projects should be accounted for on those agreements by use of a "V" account when the department is absorbing those costs. The PARS report of any personnel working on the grant will be incorrect without a "V" account to capture their effort for this grant. Without the use of a "V" account, the department-absorbed costs become part of the University's administrative indirect cost pool and are allocated inappropriately to other projects.

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