Postaward Expense Allowability FAQs
- What type of Expenditures are Allowable at the End of a Project?
OMB Circular A-110 states, “Where a funding period is specified, a recipient may charge to the grant only allowable costs resulting from obligations incurred during the funding period and any pre-award costs authorized by the Federal awarding agency”. (Ref: A-110 C.28).
Federal cost principles define “allowable” costs as those that are reasonable, necessary to complete the project objectives, and allocable by providing a direct benefit to the project (charged proportionately to benefit received and split funded appropriately). (Ref: A-21,C.2).
BEFORE THE PROJECT END DATE:
Investigators must consider the lead-time in ordering goods and services near the end of the project to ensure delivery and utilization prior to the end date. If an item is not received during an award period, the benefit to the project is questionable. Such items are routinely disallowed on audit, even if they were legitimate charges at the time the order was placed. A large amount of orders placed near the end of a project may also give the appearance of spending up an available budget balance for goods to be used for future research. This is called "stockpiling" and is not allowable.
The following expenditures near the end of the project may be allowed:
• Stock Replenishment
An exception to the cost principle requiring direct benefit to a project would be for orders placed prior to the end of a project for the purpose of replenishing stock-on-hand used within the performance period. This is differentiated from "stockpiling" in that the investigator is bringing the supply level to the level it was at the onset of the project, thereby properly charging the account for supplies used for the benefit of the project.
• Equipment
Another exception, in relation to expenditures being allocated in accordance with the project's proportionate benefit received, would be for capital items specifically authorized under the sponsored agreement (within an approved budget, or other written approval). OMB Circular A-21 states, “ Where the purchase of equipment or other capital items is specifically authorized under a sponsored agreement, the amounts thus authorized for such purchases are assignable to the sponsored agreement regardless of the use that may subsequently be made of the equipment or other capital items involved”. (Ref: A-21 C.4.a(2)). Such purchases must still be received and used prior to the end date, and provide a necessary direct benefit to the project. The purchase of equipment not specifically authorized must follow the standard cost principles for allowable costs.
SPS may require additional documentation and justification for expenditures placed near the end of the project.
AFTER THE PROJECT END DATE:
Valid post-termination expenditures are those charges that post to the account after the end date (within the closeout period specified by the sponsor), but actually occurred before the end of the project. Some examples are:
- Payroll for hours worked prior to the end date, but paid and posted after the end date.
- Vacation payout. The University Rate Agreement with the Federal government allows for a separate charge to a project for the cost of accrued vacation leave earned, but unused, at the termination of a project. See related FAQ, Vacation Payout, for more detail.
- Long distance telephone charges (which usually lag one month) for services provided within the performance period.
- Liquidation of valid purchase orders (must be in the form of a completed PO , not a purchase requisition) that were encumbered in the University system prior to the end date.
- Expense transfers and corrections of errors (RFAAs or PETs) that either remove expenditures, or transfer allowable expenditures to the account.
SPS will review all post-term expenses for validity. Detailed backup documentation must accompany all post-term expenditures in order to evaluate and determine the direct benefit to the project.
- Is it a Subcontract? Or Vendor?
The nature of the business relationship determines whether the third party is a subcontractor or vendor. A subcontractor has distinguishing features that sets it apart from a vendor:
• A subcontractor has the ability to make program decisions. The entity appoints a responsible person who will become a collaborator with the University's principal investigator.
• The subcontractor's performance is measured against program objectives based upon the scope of work.
• A subcontractor is responsible for ensuring that federal guidelines and program compliance requirements are met.
• A subcontractor uses the funds to carry out the program and is accountable to the recipient (the University) for the use of the funds.
The distinguishing features of a vendor include:
• Provides goods or services as part of regular business operations.
• Provides those goods or services to many different purchasers.
• A vendor operates in a competitive environment.
• The goods or services provided are ancillary to the program.
• A vendor is not subject to compliance requirements.
• A vendor is not subject to reporting requirements.
Sometimes, the relationship of the third party contains features of both a subcontractor and vendor. In those cases, judgment must be used and the nature of the arrangement must be examined to determine whether a subcontract or fee for service exists.
Prior approval of subcontracts is required for most sponsors. However, some sponsors do not require prior approval. In those cases, the University requires sponsor notification for any unbudgeted subcontracts (see template under Post Award forms).
- What is "Major Project" status?
OMB Circular A-21, section F.6.b.(2) defines “major project” as “a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments.” See Exhibit C of the A-21 for some examples of “major project” at this web site: http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html#exc
What is the process to approve a project as “major”?
The responsibility to approve the “major” status of a project rests with both the department and the manager of quality assurance at SPS. The following steps explain the process:
• Department, meaning both the PI and the business manager, reviews the project to determine whether the project meets the definition of a “major project” provided by OMB Circular A-21. See answers to “What is a major project?” for clarification.
• If the project meets the A-21 definition, the department needs to review if the administrative salaries are included in the project budget with sufficient written justification and approved by the sponsor.
• If the administrative position is budgeted and justified, send or email a request for “major project” status to the manager of quality assurance at SPS.
• If the administrative position is budgeted but not justified, fill out the rebudgeting form (http://www.sps.arizona.edu/cas/newmemo1.doc) and submit to the manager of quality assurance at SPS.
• If the administrative position is neither budgeted nor justified, check if the sponsor policy and the agreement allow for rebudgeting without pre-approval. Contact SPS for questions about rebudgeting authority. If the University has rebudgeting authority, fill out the rebudgeting form ( http://www.sps.arizona.edu/cas/newmemo1.doc ) and submit to the manager of quality assurance at SPS. If not, obtain approval from the sponsor and submit the approval to the manager of quality assurance at SPS.
• The manager of quality assurance at SPS receives the request for “major project” status, reviews the rebudgeting form or the project file for budget and justification, and approves the “major project” status within 5 working days. A copy of the “major project” notice will be forwarded to the PI and the business manager.
• If the project does not meet the A-21 definition of “major project”, administrative salaries are not allowed to be charged directly to the project directly. All prior charges are required to be removed to non-sponsored funding source.
See the full text of Direct and Indirect Cost Policy at: http://www.sps.arizona.edu/postaward/directindirectcostpolicy.htm
- Why can't I charge Administrative Salaries to my sponsored projects?
OMB Circular A-21, section F.6.b.(2) states that “the salaries of administrative and clerical staff should normally be treated as F&A costs.” Therefore, direct charging of administrative salaries is usually not allowed. However, section F.6.b.(2) also provides that “direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity.” Hence, if a project is a “major project” with specific budget and justification for administrative salaries, direct charging of administrative salaries may be allowed.
- Why can't I charge Other Administrative Costs (office supplies, dues, etc.) to my sponsored projects?
OMB Circular A-21, section F.6.b.(3) states that “items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs. Readers of A-21 may notice that Section J.10. allows for certain membership costs. This is not a conflicting statement with section F.6.b.(3) because section J.10. allows membership costs as indirect costs but not as a direct charge to projects.
These administrative costs may be charged directly only if the following criteria are met:
- The costs are incurred under different circumstances other than those under which they are normally incurred, and
- The costs can be specifically identified with the project, and
- The costs are reasonable and necessary costs for the project, and
- The allocable amount can be determined relatively easily with a high degree of accuracy, and
- The costs are specifically budgeted with sufficient written justification and approved by the sponsors.
Examples of circumstances where these administrative costs may be directly charged to sponsored projects:
- Membership fee required in order to attend a conference, where the conference is part of the project
- Membership fee required in order to subscribe a journal, where the subscription is necessary for the project
- Postage for reprints, only in unusual circumstances, e.g., large volume of reprints used for a survey, where the survey is part of the project
- Express mail for the project
- Shipping costs incurred specifically for the project
- Office-type of supplies such as lab notebooks and pens that are stored and used only in the laboratory or in field for the technical work of the project
If the administrative costs are budgeted but not justified, fill out the rebudgeting form (http://www.sps.arizona.edu/cas/newmemo2.doc) and submit it to the manager for quality assurance at SPS.
If the administrative costs are neither budgeted nor justified, find out if the specific sponsor allows for rebudgeting without approval. If so, fill out the rebudgeting form (http://www.sps.arizona.edu/cas/newmemo2.doc) and submit it to the manager for quality assurance at SPS. If not, these costs are only allowed when approval from the sponsor is obtained. Previously charged administrative costs are required to be removed to non-sponsored funding source.
See the full text of Direct and Indirect Cost Policy at: http://www.sps.arizona.edu/postaward/directindirectcostpolicy.htm
- Operational Advances: The Whos, Whats, Whens & Hows
Who can get an Operational Advance?
Anyone who is employed by the University of Arizona : Faculty, Staff, Appointed Personnel or Student Employees. If a student employee is obtaining an advance, the department must ensure they are keeping the proper receipt documents to be submitted when settling the advance.
What is an Operational Advance?
An Operational Advance is an advance of funds used to pay for project costs. The two most frequent uses are:
- To pay study subjects during research
- To obtain field research supplies that are not allowed on a Travel Advance
Operational advances are used when other University procurement methods will not meet the needs of the project. For instance, project personnel may be in the field, and will not be able to create a check request or purchase order to buy supplies or pay subjects.
What is the difference between a One-Time and Revolving Advance?
A one-time advance is used when you know exactly or approximately how much money you will need to purchase field supplies. You may or may not be doing research in a remote area.
A revolving advance is generally used to pay study subjects. It is established as revolving so that you can take out a certain amount and submit receipts on a ‘revolving' basis to always have monies on hand to pay subjects. Because it is revolving, you only settle the original amount requested.
What documentation is needed to request an Operational Advance, where do I get it, and where do I send it?
- The Check Request is required to request the advance (FSO eForms web site)
- Promissory Note – This is normally generated by Sponsored Projects and must be signed by the Payee upon check pick-up at Accounts Payable. However, you can find a blank version on the FSO eForms web site and it can be sent with the Check Request to Sponsored Projects . The last paragraph of the promissory note should be filled out as follows:
Amt of Advance $1- $999 = ½ of amount requested.
Amt of Advance $1000 or more = $500.
If this area is not completed the Promissory Note will be returned for initials or the Payee will be required to initial the correction before the check will be released.
All other documentation will be completed by Sponsored Projects and a copy will be given to you when you pick up the check. Please do not use the Operational Advance Responsibilities that is located on the eForms web site. This form is not appropriate for advances on sponsored accounts.
All requests for Operational Advances on accounts administered by Sponsored Projects should be sent to: Sponsored Projects Services, USB Rm 510, PO Box 210158 . Sending them to Accounts Payable first will delay the process. We will make sure that the documents get to A/P when completed.
How soon should I request my advance if I know I will need one?
Request the advance as soon as possible. Waiting until the week before the advance check is needed will mean that you won't receive the advance on time.
When and how do I settle my advance?
Settlement paperwork is due no more than 30 days past the last date of funds use. Send all backup documentation (receipts, logs, etc.) to Accounts Payable. If you make a deposit at the Bursar's Office, send a copy of the receipt to SPS so the encumbrance can be released in a timely fashion.
What if I am using the money to pay subjects on my project and I need more time to run tests?
You can request an extension to the settlement date via email to your fund accountant. Extensions will not be granted to simply gather receipts.
- Am I allowed to charge Vacation Payout for a terminating employee to a sponsored account?
There are two options in handling vacation payout on a sponsored project account.
- Require the employee to use up vacation balances before the end date of the project.
- Charge the account if it has sufficient funds to cover the vacation payout at the term and the sponsor does not require specific approval. The vacation pay out must be allocated according to the employees distribution of effort and in accordance with UA Policy. For example, if an employee is 10 % effort on a sponsored account, the sponsored account can accept up to10% of the vacation/sick leave payout.
OMB Circular A-21dated May 10, 2004 , section J, paragraph 10
“(1) Severance pay is compensation in addition to regular salary and wages which is paid by an institution to employees whose services are being terminated. Costs of severance pay are allowable only to the extent that such payments are required by law, by employer-employee agreement, by established policy that constitutes in effect an implied agreement on the institution's part, or by circumstances of the particular employment
(2) Severance payments that are due to normal recurring turnover and which otherwise meet conditions of subsection (1) may be allowed provided the actual costs of such severance payments are regarded as expenses applicable to the current fiscal year and are equitably distributed among the institution's activities during that period”
NIH Grants Policy Statement, Revised December 1, 2003
“The amount of severance pay to be provided should be determined according to the established organizational policy consistently applied regardless of the source of funds and should be reasonable, taking into consideration the practice of similar types of organizations and the extent of the organization's dependence on Federal funds. The applicable cost principles should be consulted regarding the different treatment of severance pay in regular and mass termination situations”
The University Federal Rate Agreement has a provision for charging vacation leave at the term of a project.
Rate Agreement
"Vacation, holiday, sick leave pay and other paid absences are included in salaries and wages and are claimed on grants, contracts and other agreements as part of the normal cost for salaries and wages. Separate claims for the costs of these paid absences are not made, except where vacation benefit leave is accrued and earned but unused at the termination of a project. "
- Why are too many Cost Transfers considered a control weakness?
Cost transfer is a mechanism to correct transactions posted to the wrong account. It is not a mechanism to move costs from one fund to another. Thus, when cost transfer occurs frequently, it indicates that we do not have a mechanism to prevent errors. Furthermore, if errors could not be corrected within 30 days, it indicates that the account review process could not detect errors in a timely manner.
Auditors look for frequent cost transfers and justifications for cost transfers to judge whether our internal control is sufficient. A strong control would not allow too many errors occur in the first place. Too many cost transfers cause auditors to question why and how these costs were charged initially. To extrapolate the issue, auditors could question the legitimacy of all other costs on grants and contracts.
- How can I reduce the frequency of Cost Transfers?
To avoid too many cost transfers, check if the following steps are performed regularly:
- Both the PI and the business office are familiar with the terms and conditions of the grant
- PI and whoever has the authority to charge the grant know whether the costs incurred benefit the grant
- Business office reconciles the grant account and reviews charges on a monthly basis
- Business office communicates with the PI immediately if any charges look improper
- Contact SPS immediately if questions about allowability of charges arise
- Process cost transfers as soon as errors are found
- Why does SPS require Error Certs?
The Correction of Error Certification is a federal requirement and must be completed for costs being transferred, that are more than 30 days old, into federal and sub-federal accounts. These are considered untimely (late) cost transfers.
The University Correction of Error Certification addresses the requirements of the federal regulations by fully describing the cost being transferred, the allocability of the charge to the project, the reason for the late request, and the integrity of the accounting process.
The Arizona Auditor General audits our cost transfers as part of the annual federal “A-133” audit. One of their favorite references is NACUBO's “A Guide to Managing Federal Grants.” The NACUBO publication refers to two federal guidelines on cost transfers, the PHS Grants Policy Statement and OMB Circular A-21:
• PHS Grants Policy Statement
“Transfers of costs to PHS grants by grantees, sub-grantees, and contractors that represent corrections of clerical or bookkeeping errors must be made promptly after the error is discovered. The transfers must be supported by documentation that contains a full explanation of how the error occurred and a certification of the correctness of the new charge by a responsible financial or administrative official of the recipient organization. An Explanation which merely states that the transfer was made ‘to correct error' or ‘to transfer to correct project' is not sufficient . It should be noted that frequent errors in the recording of costs may indicate the need for improvements in the grantee's accounting system and/or internal controls. Therefore, where such errors occur, grantees are encouraged and may be required to evaluate the need for improvements in these areas and to make what improvements are deemed necessary.”
• OMB Circular A-21
“Any costs allocable to a particular sponsored agreement under the standards provided in the Circular may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.”
Sponsored Projects rejects many requests for cost transfers because the Error Certification
forms are not properly filled out. The most frequent mistake made is to state that the
transfer is necessary because the cost is budgeted on the project. While that's great, and
does provide some support for the propriety of the transfer, the key is the cost must be
allocable to the project—meaning, the cost must have actually benefited the project.
- Can Meal Expenses be charged to Grants & Contracts?
Federal regulations generally do not allow meal expenses to be charged on grants and contracts, especially meal expenses incurred for ad hoc meetings, working lunches, and lab coffee breaks. The only exception to the general rule is that meal expenses may be allowable for meetings and conferences that are specifically budgeted in the proposal.
OMB Circular A-21 states that “costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable. This includes costs of meals, transportation, rental of facilities, speakers' fees, and other items incidental to such meetings or conferences.” To make sure that grantees are not charging the Federal government for entertainment costs, A-21 also states that “costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.”
The National Science Foundation’s NSF Grants Policy Manual clarified A-21 by limiting the business meal expenses to conferences, and only when the costs are specifically identified in the budget.
The National Institutes of Health’s NIH Grants Policy Statement adopted similar language but further allowed meal expenses for human subjects or meal expenses specifically approved as part of the project activity.
Please note that the meal expenses rule does not apply to per diem reimbursement for employees or consultants who are on travel status. Costs of project-related business meetings may be charged to discretionary funds if they are not specifically identified in the budget.
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