Handbook for Principal Investigators

OTHER OPERATING COSTS

Consultants and Speakers
It is important to differentiate an "employee" from an "independent contractor" before engaging a consultant or speaker. The most current interpretation can be found in the FRS Departmental Manual, Section 9.12. Be aware of possible sponsor limitations in the daily or hourly rates.

The principal investigator will review and approve the consultants' invoices before Accounts Payable pays the invoices. The principal investigator is responsible for monitoring the technical progress of the consulting work to ensure that all technical requirements have been met.

Entertainment vs. Meeting Expenses
Entertainment costs on sponsored projects are unallowable. The distinction between unallowable entertainment charges and legitimate project-related meeting expenses is not clearly defined by the regulations. Auditors and agency regulations are applying a conservative interpretation of the cost principles. Therefore, the University requires that meeting and conference expenses directly charged to sponsored projects must be supported by documentation that the activity is directly-related to the project charged, and that the primary purpose of the activity is the dissemination of technical information. Examples of acceptable documentation include: a line item in the approved project budget for the meeting or conference, narrative in the proposal referring to the meeting or conference, a published agenda, and correspondence with the sponsor. Sponsored funds are not to be spent for meals or coffee breaks for intramural meetings of the institution or any of its components, including, but not limited to, laboratories, departments, and centers.

Administrative Costs
The Federal government expects the University to cover administrative costs with funds recovered through the indirect cost rate and, therefore, does not permit direct charging of costs normally treated as administrative costs to Federal grants and contracts without sponsor approval. OMB Circular A-21, Section F.6.b, allows direct charging of costs normally treated as indirect costs only in narrowly-defined circumstances: where a project explicitly budgets for the administrative costs in the form of an explicitly budgeted line item in the award document and the costs are specifically identified with the project. The intent of this regulation is to improve consistency in accounting, eliminate rebudgeting of technical costs to administrative costs, and to eliminate the practice of allocating small amounts of pooled administrative costs to many projects. Examples of administrative costs that require sponsor approval:

Salaries of administrative and clerical staff
Office supplies
Postage
Local telephone costs (may not be charged on Federal funds per University policy)
Membership fees and dues

After the award is made, the investigator may determine that administrative costs should appropriately charged to a program, even though the costs are not explicitly budgeted for in the proposed budget. Direct charging of these costs may be appropriate where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support, significantly greater than the routine level of such services provided by the academic department. Examples of "major" programs include program projects, center projects, projects involving extensive data collection, conference grants, remote projects, and projects requiring manuscript preparation (excluding routine progress and technical reports). Another test is if the cost can be specifically identified to the technical sope of work conducted under the project. Reference: UA Policy "Direct and Indirect Costs of Sponsored Agreements."

Operational Advances
An operational advance is a cash advance used to provide funds for project directors and other authorized University employees, usually in a moderate amount, for expenses on field trips, payments to subjects in approved psychological/medical experiments, and various other circumstances, where it is not practical to use the campus purchasing and payment system. Such advances are designed to assist the project director or other authorized user in those cases where exact amounts and types of expenditures cannot be predicted fairly and where a local disbursing function is essential to the project, as in the case of a remote location.

There are two types of operational advances. A Regular One-Time Advance is used for a relatively moderate amount of funds for a relatively short period of time. Multiple regular one-time advances are not allowed for the same individual; an outstanding regular one-time advance must be settled before another advance will be reviewed or approved. The Regular One-Time Advance is usually used for field trips. A Revolving Advance is used for a relatively large amount of funds for a relatively long period of time. It permits the initial advance amount to be kept to a minimum (two months cash need), and requires the individual to periodically submit an accounting with receipts to obtain additional operating funds. A Revolving Advance is usually used for subject pay.

If the advance amount is comparatively large, you should set up a separate checking account in your name to keep those funds apart from your personal account. Do not, however, set up a checking account in the University’s name or use the University’s Employer Identification Number. It is permissible to set up a checking account in the name of the research project under an Employer Identification Number assigned to the project. The investigator can obtain an Employer Identification Number for the research project from the Internal Revenue Service.

Reference: FRS Departmental Manual, Section 9.15.

Student Support
Costs of scholarships, fellowships, and other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. For training grants, the budget category "Trainee Costs" is usually restricted in that the transfer of budget awarded for trainee costs (stipends, tuition, and fees) to other expenditure categories is not allowed.

Just the opposite is true for research grants. Expenditures for trainee costs (stipends, tuition, and fees) are unallowable on research grants, unless specifically budgeted for. For research grants, transferring budget into Trainee Costs is considered a change in the objective of the project from "research" to "training" and requires sponsor approval. Graduate research assistants working on research grants are considered employees of the University and must be compensated through the University payroll system, not through a student stipend. See section above under "Fringe Benefits" for a discussion about charging registration fees for research assistants to a grant.

Subject Pay
Budgets for research projects involving human subjects may provide for payments to the subjects for participating in the research. The Human Subjects Committee Manual of Procedures contains the policies and procedures required for the initial approval and continual monitoring of research involving human subjects conducted at the University of Arizona, the University of Arizona Medical Center, and the Tucson Veterans Administration Medical Center.

If the research project is a confidential study, it is not necessary to identify the human subjects by name or SSN.  However, a Confidentiality Certificate  must be provided along with the check request, and the total payment to any individual participating in a confidential study must be less than $600 in a calendar year.  The principal investigator should maintain the disbursement record on file and make it available upon request.

SUBJECT PAYMENTS LESS THAN OR EQUAL TO $600 PER YEAR PER SUBJECT
Payments of less than or equal to $600 per year to subjects are exempt from IRS 1099 reporting requirements. The $600 threshold encompasses the cumulative amount a subject receives from all UA studies in a single calendar year.

Reimbursement for subject payments for subjects meeting the criteria listed on the certification is accomplished by preparing a check request with an attached log sheet indicating the number of subjects, the dollar amount(s) paid to the subjects, and the date of participation. The signatures of the investigator and one other support staff member must appear on the log sheet. Please refer to FRS Departmental Manual, section 9.12 for check request preparation requirements.

The principal investigator must maintain backup information on file supporting the check request. The supporting documentation includes the date, amount, subject’s name, and subject’s signature of receipt of payment. This documentation should remain on file for audit purposes at least 5 years from the date of acceptance of final technical report for the project.

SUBJECT PAYMENTS GREATER THAN $600 PER YEAR PER SUBJECT
The University of Arizona requires that tax information be reported for subject payments over $600 per year. It is the responsibility of the principal investigator to obtain subjects’ names, social security numbers, addresses, and payment amounts, and include that information as an attachment to the check request for reimbursement of the subject pay. No other information about the study should appear with the reimbursement documentation.

The following disclosure statement must be given to the subject prior to the subject’s participation in the study.

"Any payment you receive as a result of your participation in this test may be reported for taxation purposes to appropriate Federal and state agencies. Information identifying the title of the research study and the results of the study remains confidential and will not be forwarded to tax authorities."

Travel
Generally, the sponsor expects the travel charges to a project to be consistent with University policy. Per diem rates, mileage rates and hotel rates are set by University policy. Some Federal contracts are approved for Federal Travel Regulations (FTR), which means that the traveler is authorized to charge the project at the per diem rates under the Federal Travel Regulations. International travel generally requires sponsor approval.

Federally funded air transportation is generally required by the “Fly America Act” to use U.S. flag air carries.  See Fly America Act Waiver Checklist for exceptions.  Also see FTR web site for clarification on Airline Open Skies Agreements.

Equipment
Sponsor guidelines and terms of the award dictate the restrictions on the purchase of capital equipment. Before purchasing equipment on a sponsored account, the principal investigator must determine that the University does not have the equipment in the inventory available for use on the project. The departmental approval on the purchase request stands for assurance that existing equipment is not available. See FRS Departmental Manual, Section 10.13 for procedure for screening available equipment.

The University definition of equipment is: an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more. The amount to be charged as "capital" is the cost of the asset, including the cost to put it in place. Capital expenditure for equipment, for example, means the net invoice price of the equipment, including the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. Ancillary charges, such as sales tax, shipping and installation costs are included as part of the capital expenditure.

Fabrication of Equipment

Fabrication is distinguished from assembly of component parts by any of the following three characteristics:

• Creative effort in the design. If creative effort on the part of UA faculty is necessary for completion of the design specifications of the equipment, and if the equipment cannot reasonably be built by an off-campus vendor, then the activity qualifies as fabrication rather than assembly of parts.
• Change in the name of the equipment. If the component parts of the finished equipment bear the same name as the finished equipment, then the activity is probably assembly of component parts and not fabrication, e.g., computer components assembled to build a personal computer. If the component parts of the finished equipment bear no relationship in name to the finished equipment, the activity should be considered fabrication, e.g., a telescope composed of a computer, camera, lens, etc.
• Complexity of construction. If the component parts can be easily assembled and if the specifications for assembly are straightforward, the activity is assembly of component parts rather than fabrication. If the construction is complicated, the activity is generally fabrication.

Even though the end product is classified as capital, charge the costs comprising the fabricated equipment to the appropriate expenditure category. For example, charge personnel costs to the personal services category; charge consulting fees, shop services, and raw materials, including lumber, glass and tubing to operations; charge parts costing over $5,000 to equipment, whether purchased from an outside vendor or a University shop.

Indirect cost is charged to fabrication costs according to the expenditure object codes assigned to the costs, consistent with the Federal negotiated indirect cost rate agreement. The institution incurs substantial indirect costs in the construction of complex equipment and systems and expects full indirect cost recovery in the cost pricing for fabrication projects.

Materials for fabrication are inventoried as "work in progress" and a "tag number" is assigned beginning with the first purchase of materials. Subsequent purchases are identified with the same "tag number."

Distinguishing between Capital and Repair/Maintenance

If an expenditure restores the asset to its original condition, it should be classified as a repair and maintenance expenditure and charged to operations. For example, a new roof on a building generally maintains the original condition of the building or restores the building to a fit condition. A new roof does not usually make the building more useful for its intended purpose or add to the estimated useful life of the building as a structure. Expenditures for parts or improvements to existing capital are considered capital if the improvement adds to the (original) estimated useful life of the capital or if the improvement increases the (original) purpose of the capital.

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.

General Purpose Equipment.

OMB Circular A-21, J16(b) "Cost Principles for Educational Institutions" prohibits the purchase of general purpose equipment, except where provided in advance by the sponsoring agency. General purpose equipment refers to equipment which is not limited in use to only research, medical, scientific or other technical activities. Even equipment used on your research project only for technical purposes is considered general purpose if the equipment could be used for other purposes. Examples of general purpose equipment include office equipment and furnishings, air conditioning equipment, reproduction and printing equipment, motor vehicles, and automatic data processing equipment. Appropriate documentation of sponsor approval would be a line item in the approved budget, description in the budget justification, or letter of approval from the grants officer.

This A-21 regulation requiring advance sponsor approval for the purchase of general purpose equipment is waived for grants awarded under the terms of the Federal Demonstration Partnership (FDP). "Expenditures for general purpose equipment which would be treated as direct costs for the project or program are unallowable unless the equipment is primarily used in the actual conduct of the research." (Reference:FDP General Conditions, Section 27(a)(ii))

Requirement for Search of Excess Government Property Prior to Acquisition on Federal Government Contracts (Form DD1419) (not applicable to GRANTS)
NASA and Jet Propulsion Laboratory (JPL) contracts (not grants) have a requirement that prior to acquisition of any item of equipment with an expense of $1,000 or more that the form DD-1419 be submitted to the sponsor’s contracting officer. NASA and JPL screen the acquisition need against property held in government warehouses. NASA and JPL have a maximum of 30 days to complete the review before the University can proceed with acquisition of all commercially available equipment items, except computer hardware. There is no maximum review time on data processing equipment.

The Department of Defense has the same review requirement for the purchase of equipment, but their minimum threshold for review and submission of Form DD-1419 is $50,000 or more.

When required by the Federal Government sponsor for equipment acquisition, the principal investigator must submit Form DD-1419 through the Property Administrator in Sponsored Projects. The Property Administrator issues a control number and retains a copy for the contract’s property audit file. The principal investigator must include time for the sponsor to process the Form DD-1419 when scheduling the acquisition of project equipment.

Split-funded Equipment Purchases
The Sponsored Projects Property Administrator reviews capital equipment purchases funded from two or more projects for conflict in title-holder. The principal investigator is urged to avoid shared funding of equipment from projects with different title-holders, i.e., federal vs. University, Department of Energy vs. NASA. The Property Administrator will contact the principal investigator when a conflict arises.

Subcontracts
Most sponsors require their prior approval before the University can transfer substantive programmatic work to a third party, by contracting or any other means. The reason for this requirement is obvious and makes sense; when a sponsor awards a project to The University of Arizona, the sponsor expects the University to perform the programmatic work, not some other entity. Generally, an award based on a proposal budget with a line item for the named subcontractor constitutes documentation of sponsor approval.

Some sponsors do not require their approval before subcontracting to a third party. For those sponsors, the University requires sponsor notification rather than sponsor approval. An award based on a proposed budget with a line item for the named subcontractor constitutes acceptable documentation of sponsor notification. For unbudgeted subcontracts, a template is available on the Sponsored Projects web site to notify sponsors of the subcontract. .Keep in mind sponsor prior approval requirements for reduction of investigator level-of-effort when subcontracting.

The process for initiating a subcontract begins when the principal investigator prepares and submits a Purchase Requisition for the subcontract. The first $25,000 of the subcontract is charged to object code 3350, "Subcontracts-overhead bearing" and the balance over $25,000 is charged to object code 3340, "Subcontracts-Non-overhead bearing." The Sponsored Projects accountant reviews the grant file for documentation of sponsor approval or notification and approves the Purchase Requisition. The Office of Research and Contracts Analysis (ORCA) administers the subcontract, including determining the acceptability of the subcontractor's pricing and costs, sole source justification, drafting of the subcontract document, negotiating the terms with the subcontractor, and mailing the final subcontract agreement to the subcontractor. More information about the subcontract process and subcontractor monitoring can be found on ORCA's website at: http://www.orca.arizona.edu/subcontracts.html

During the life of the subcontract, the principal investigator will review and approve the subcontractor's invoices before Accounts Payable pays the invoices. The principal investigator is responsible for monitoring the technical progress of the subcontractor and for ensuring that all technical requirements have been met. ORCA will coordinate reporting requirements, if applicable, and coordinate closeout.

See the Preaward Section, “Format of the Proposed Budget” for additional information regarding subcontracts.

Indirect Costs
The entire amount of the indirect cost budget category is encumbered when the budget is loaded to the FRS spending account. The encumbrance is reduced as the indirect costs are charged to the account. Thus, the budget available balance for the indirect cost category is always zero, until the point at which the indirect cost charged to the account exceeds the budget. Differences in the spending pattern, e.g., spending more or less capital than budgeted, influences the calculation of indirect costs and the bottom line available budget balance. It is important to understand how the system works when calculating the available budget balance for your account.

FRS posts indirect costs on a weekly basis. Overhead-bearing expenditures (modified total direct cost base) is multiplied by the indirect cost rate to give the indirect cost charge to the account.

Modified Total Direct Costs = Total Direct Costs (TDC)

LESS:

• Capital Items (Equipment) > $5,000
• Student Stipends (not wages or salaries)
• Tuition and Registration Fees (including Graduate Tuition Remission ERE Component)
• Facilities Rental
• Repair and Maintenance - Buildings
• Subcontracts (that portion over $25,000)
• Patient Care Costs

Mailing Address:
PO Box 3308
Tucson, AZ 85722-3308

Phone: (520) 626-6000
Proposal Fax: (520) 626-4130
Post Award Fax: (520) 626-4137
Email: sponsor@email.arizona.edu

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