Office of Research and Project Administration

SPONSORED PROGRAMS COMPLIANCE

9. The Cost Principles: OMB Circular A-21

Fiscal Fundamentals

Anyone authorizing the expenditure of federal funds needs to understand the cost principles contained in Circular A-21, published by the Federal Office of Management and Budget (OMB). These principles govern costs that may be charged to the government by educational institutions either directly or indirectly.

The University of Rochester has implemented policies and issued guidelines on proper charging of costs, including the Implementation of Revisions to OMB Circular A-21 (December 27, 1993) that prohibits the direct charging of administrative costs to Federal awards. Generally, these same cost principles are applied to non-federal funding as well, although in some cases non-federal sponsors define allowable/unallowable costs differently than federal sponsors.

Any cost being charged to a sponsor must satisfy the following criteria:

1. The cost must be ALLOWABLE as defined by Circular A-21 and/or by the terms of your particular award (discussed further on the next page of this site).
   
   
2. The cost must be ALLOCABLE, that is, the project which paid the expense must benefit from it.
   
   
3. The expense must be REASONABLE, that is, the cost reflects what a "prudent person" might pay.

If costs are not allowable, allocable and reasonable, then they may NOT be charged to a sponsored project.

In addition, A-21 requires that costs be handled consistently across the University. This means, for example, that particular types of expenses may not be charged directly in one School or Department, and charged as an indirect cost somewhere else. The University of Rochester's policies and practices regarding the consistent treatment of costs have been established to meet the compliance standards set forth in OMB Circular A-21 and the Cost Accounting Standards (CAS) applicable to educational institutions. It is the responsibility of principal investigators, department heads and administrators to understand and comply with this guidance in order to prevent cost disallowances by the federal government. Consistent treatment of costs is necessary to meet the ultimate objective of CAS 502 which is to prevent overcharging the federal government and double counting.

The ultimate key to consistency is the application of University of Rochester policy. As long as you know and apply University policies, you do not need to be an expert on A-21 or CAS. The University of Rochester employs experts to assure that policy guidance reflects regulatory requirements.