Direct and Indirect Cost Allocations Under OMB Circular A-21

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University Policy Number 2108

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I. SCOPE

This policy applies to all George Mason University (university) locations, organizations, faculty, and staff.

II. POLICY STATEMENT

It is essential for both financial statement and cost accounting purposes that the university adheres to a uniform policy with respect to the assignment and allocation of costs.  This policy addresses the incorporation of Cost Accounting Standards (CAS) into the Federal Office of Management and Budget (OMB) Circular A-21, Principles for Determining Costs Applicable to Grants, Contracts and Other Agreements with Educational Institutions.

III. DEFINITIONS

A. Direct Cost. Direct costs are those expenditures that can be identified specifically with a particular sponsored project, instructional activity or any other activity, relatively easily and with a high degree of accuracy.  Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.  Where the university treats a particular type of cost as a direct cost, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.  Cost that might be incurred for the common or joint objectives of several research projects, but which cannot be specifically attributed to a particular sponsored project with a high degree of accuracy, may not be directly charged to these projects.

B. Indirect Costs (Commonly called Facility and Administrative Cost or F&A) Indirect costs are those expenditures or costs that are not readily identifiable with a particular project or activity, but nevertheless are necessary to the general operation of the university and the conduct of its activities.  The types of expenses usually considered as indirect costs include the cost of operation and maintenance of buildings and grounds, equipment, libraries, and the costs of academic central administrative units.

IV. RESPONSIBILITIES

The university is responsible for developing a set of uniform operating principles and guidelines that assures compliance with OMB Circular A-21, which provides specific guidance on classifying expenditures as either direct or indirect costs.  The university is responsible for disseminating this information to all faculty and staff, and for overseeing implementation of these principles and guidelines.  These responsibilities are delegated by the Senior Vice President and the Provost to the Fiscal Services Division and the Office of Sponsored Programs.

A. The Fiscal Services Division is responsible for:
· Establishing all university fiscal policies consistent with A-21;
· Developing and negotiating Facilities and Administration (F&A) rates with the cognizant Government agency;
· Reviewing and concurring with proposals for changes in cost accounting practices; and
· Developing and negotiating cost impact statements resulting from changes in the university’s cost accounting practices.

B. The Office of Sponsored Programs is responsible for:
· Providing administrative guidance and support to the university community in its sponsored programs efforts;
· Developing and negotiating federally sponsored agreements that budget expenditures as direct or indirect costs consistent with A-21;
· Approving or reviewing on a post audit basis, actual expenditures charged to federally sponsored agreements as direct or indirect costs consistent with A-21;
· Ensuring that the university’s financial and contractual rights are protected (see Administrative Policy (AP) No. 28, Sponsored Programs); and
· Providing principal investigators with the information necessary to fulfill their sponsored project fiduciary and sponsored project management responsibilities.

C. Central Administration is responsible for spending its allocation of recovered indirect costs in support of research activities.

D. All colleges, schools and institutes are responsible for implementing and monitoring policies and procedures, and for providing the support necessary to ensure project goals can be accomplished.  Units are required to spend their allocation of recovered indirect costs in support of research activities.

E. Individual Principal Investigators (PIs) are responsible for scientific and budgetary decisions related to contracts and grants.  PIs also are responsible for ensuring the accurate allocation and assignment of costs to a specific contract/grant (i.e., the project fund which incurred the expense). (See also AP 28.)  PIs are required to spend their allocation of recovered indirect costs in support of research activities.

V. REFERENCE MATERIAL

A. Office of Management and Budget (OMB) Circulars A-21 and A-110.
OMB Circular A-21: http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html
OMB Circular A-110: http://www.whitehouse.gov/omb/circulars/a110/a110.html

B. Federal Acquisition Regulations (FAR): http://www.acquisition.gov/far/ 
Subpart 30.201-4(e), Cost Accounting Standards – Educational Institutions (VOL1)
Subpart 31.104 and Subpart 31.3, Contracts with Educational Institutions (VOL 1)
Subpart 52.230-5, Cost Accounting Standards – Educational Institutions (VOL 2)

VI. COMPLIANCE

Failure to comply with federal regulations, circulars, and cost accounting standards may result in repayment of disallowed costs, and assessment of fines, penalties, and interest by the federal government.

VII. EFFECTIVE DATE AND APPROVAL

This policy is effective October 20, 2005, and was revised January 23, 2008.  This administrative policy shall be reviewed and revised, if necessary, annually, with changes to become effective at the beginning of the university’s fiscal year, unless otherwise noted.

Approved:

__/S_____________________
Maurice W. Scherrens
Senior Vice President

__/S______________________
Peter N. Stearns
Provost

Date approved: January 31, 2006

Revised: January 23, 2008