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9.
The Cost Principles: OMB Circular A-21
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Fiscal
Fundamentals
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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.
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What
is OMB
Circular A-21? |
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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.
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Any
cost being charged to a sponsor must satisfy the
following criteria:
- 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).
- The
cost must be ALLOCABLE, that is, the
project which paid the expense must benefit
from it.
- The
expense must be REASONABLE, that is,
the cost reflects what a "prudent person" might
pay.
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"Real-Life"
Examples |
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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.
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