Project Accounting - Cost Sharing

Responsible Office:    Project Accounting Office Date Issued:    09/30/04 Date Revised:      Contact:    project.accounting@iit.edu Policy: Cost Sharing (Policy 1810) Purpose: To communicate to principal investigators and other interested parties the IIT Policy for cost sharing for sponsored research programs. This policy was developed to facilitate the efforts of IIT's faculty and staff, and is designed to ensure that the University remains in compliance with federal, state, local, and nongovernmental organization regulations governing cost sharing arrangements for sponsored research programs and to ensure compliance with university accounting and budgeting processes. If these policies and procedures are not followed, the University may not be able to recover the full amount of program or project costs that it expects to receive from the sponsor. IIT defines University cost sharing as project costs not borne by the sponsor but directly and/or indirectly borne by the University itself. Briefly stated, federal regulations require the University to substantiate, through adequate records, cost sharing expenditures for both direct and indirect (facilities and administrative) cost purposes. The records must show that direct cost sharing expenditures are appropriate, necessary and incurred within the related project period. The records must also provide evidence that the cost sharing expenditures incurred in a particular fiscal year are included in the development of the University's facilities and administrative (indirect) cost rate for that same fiscal year. Policy In order to adequately budget, capture and document cost sharing expenditures, the University will record cost sharing expenditures in separately identified sponsored research subsidiary and general ledger accounts. When cost sharing is required on an award, the award report will need to specifically identify the source of University funds (account numbers) that will be used to satisfy the cost sharing commitment. Spending will not be permitted on an award until all cost sharing resources are identified. Approval of Cost Share Prior to execution of an agreement or acceptance of an award that obligates the university to cost share, the requesting Principal Investigator (PI) must obtain the approval of the department chair and/or the appropriate college dean, and must identify 100% of the funding sources for the cost share commitment. Cost share coverage must be identified at the proposal stage and account numbers provided to the Office of Sponsored Research and Programs. If the project extends beyond the current fiscal year, the approval by the department and the college dean also authorizes the use of subsequent fiscal year budgets to satisfy the commitment. Unacceptable Forms of Cost Share Cost share may never take place in the following forms: Costs funded by other federally funded sponsored programs; Costs pledged as cost share for another funded project generally; Costs reimbursed through the indirect cost recovery rate; Future or anticipated cash receipts. Costs must be Verifiable; Necessary, reasonable and allocable for proper and efficient accomplishment of project or program objectives; Allowable charges under applicable cost principles; Conform to other provisions of the Office of Management and Budget (OMB) Circular A-110, "Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations"; of the OMB Circular A- 21, "Cost Principles for Educational Institutions"; and of any other federal, state, or local government or non governmental organization regulations and requirements as applicable. Terms and Definitions: Cost Sharing: Under OMB Circular A-110, the Federal government defines cost sharing as "that portion of project or program cost not borne by the Federal government". Similarly, most State of Illinois agencies and departments follow the Federal rule, and define cost sharing in their grant and contract agreements as that portion of the project or program costs not borne by the State agency or department sponsoring the project or program. Other governmental and non governmental agencies may or may not agree with this definition. Unfortunately, State and Federal sponsors do not always clearly define the cost sharing requirements that they expect under the programs or projects that they sponsor. For example, the institutional portion of a program or project budget may be an amount that is: (1) mandated separately by law or regulation; (2) stated in the program or project announcement; (3) solicited or suggested in the program or project announcement; (4) offered unilaterally by the institution in response to a request for a project proposal; or (5) any Indirect Cost Rate (ICR) due the University based on approved ICR's but not recovered by the grant solely due to sponsor restrictions. As a consequence, unless the sponsor explicitly states the cost sharing requirements in the award budget, it is often difficult for institutions to be certain as to the exact amount of cost sharing required when the final award is made. In order to address this concern, the University will define, budget and account for cost sharing as the amount of program or project costs that the University and its partners, if any, will contribute to the sponsored program or project. This amount will be the larger of: (1) the amount of cost sharing specified by the law or regulations; (2) the amount of cost sharing explicitly stated in the award contract or budget; or (3) the amount of cost sharing budgeted or stated in the project proposal, if the award contract or budget does not otherwise explicitly state the cost sharing requirements. Matching: Matching is a term that is frequently used to describe a cost sharing requirement that is measured by a one-to-one or other significant proportional match of the primary sponsor's funding. The University will use the term cost sharing when referring to either cost sharing or matching. Indirect Costs: These are facilities and administrative costs incurred by IIT in connection with the conduct of sponsored programs. These costs, which were formerly referred to as indirect costs or overhead by the federal government, are recovered from sponsors through the application of the University's F&A cost rate. PD/PI: The sponsored Project Director or Principal Investigator at the University. OSRP: Office of Sponsored Research & Programs at the University. Cost Sharing Resources: The Federal government specifies what types of project costs are acceptable for the cost sharing purposes in Section .23 of OMB Circular A-21. Federal funds received under one project cannot be used as cost sharing on another Federal project. The following types of costs and expenditures are acceptable for cost sharing purposes on both State and Federal awards: Salaries and Wages: Project support provided from salaries and wages and the associated fringe benefits and indirect costs related to the project, but not charged to the sponsor. These project costs may have been initially charged to instruction and departmental research accounts, separately budgeted University research accounts and/or other designated and restricted accounts. Other Direct Costs: Project support provided from other direct costs and the associated indirect costs related to the project, but not charged to the sponsor. These project costs may also have been initially charged to instruction and departmental research accounts, separately budgeted University research accounts and/or other designated and restricted accounts. Unrecovered Indirect Costs: Project support provided from a waiver of the indirect costs that the University is otherwise entitled to recover from the sponsor. As a general rule, the University does not waive F&A (indirect) costs for cost sharing purposes. However, the ORSP may consider such a request under extraordinary and compelling circumstances. External Partners: Project support provided by external partners. This is sometimes referred to as third party in-kind cost sharing. Generally this takes the form of the partners donating the use of their facilities and/or employees for some project activity. External partners will need to document and report the value of their contributed services to the University in order for the University to report the cost sharing to the primary sponsor. The external partners should report the information to the University in the same format, cost categories and frequency that the University is required to report to the sponsor. Reporting and Cost Sharing Interim Reporting: Interim reporting of project cost, including cost sharing, will be handled by Project Accounting, as appropriate, in accordance with requirements of the project sponsor. Project Accounting will report the costs contained in the cost sharing accounts as well as the associated fringe benefits and indirect costs through the reporting data. If the interim reports reveal a potentially significant shortfall in the amount budgeted for cost sharing, the PD/PI may be requested to provide an explanation and corrective action plan to the project sponsor. Final Reporting: All program costs need to be finalized and recorded in the appropriate project and cost sharing account(s) thirty (30) days prior to the due date of the final fiscal report. Since most agencies require the final reports within ninety (90) days of the project end date, this requirement will generally give departments sixty (60) days to finalize charges. FEDERAL COST SHARING REGULATIONS General Provision – The Federal government sets forth its cost sharing policy in Section .23, "Cost Sharing or Matching," of OMB Circular A-110. The most applicable provisions of this section are reproduced below. ) All contributions, including cash and third party in-kind, shall be accepted as part of the recipient's cost sharing or matching when such contributions meet all of the following criteria. Are verifiable from the recipient's records Are not included as contributions for any other federally-assisted project or program Are necessary and reasonable for proper and efficient accomplishment of project or program objectives Are allowable under the applicable cost principles (federal OMB Circular A-21) Are not paid by the federal government under another award, except where authorized by Federal statue to be used for cost sharing or matching Are provided for in the approved budget when required by the federal awarding agency Conform to other provisions of this circular (A-110), as applicable ) Unrecovered F&A costs may be included as part of the cost sharing or matching only with the prior (written) approval of the Federal awarding agency. ) Values for recipients contributions of service and property shall be established in accordance with the applicable cost principles ) Volunteer services furnished by professional and technical personnel, consultants, and other skilled and unskilled labor may be counted as cost sharing or matching if the service is an integral and necessary part of an approved program or project ) When an employer other than the recipient furnishes the service of an employee, these services shall be valued at the employee's regular rate of pay (plus an amount of fringe benefits that are reasonable, allowable, and allocable, but exclusive of overhead costs), provided these services are in the same skill for which the employee is normally paid. ) Donated supplies may include such items as expendable equipment, office supplies, laboratory supplies or workshop and classroom supplies. Value assessed to donated supplies included in the cost sharing or matching share shall be reasonable and shall not exceed the fair market value of the property at the time of the donation ) The method used for determining cost sharing or matching for donated equipment, buildings and land for which title passes to the recipient may differ according to the purpose of the award ) The value of donated property shall be determined in accordance with the usual accounting policies of the recipient. Unallowable Costs: Based on Section. 23 of OMB Circular A-110, the following expenses cannot be claimed as direct cost sharing expenditures and, therefore, must not be charged to cost sharing accounts: Unallowable expenses as specified in OMB Circular A-21, "Cost Principles for Educational Institutions." For example, the cost of alcoholic beverages, alumni activities, entertainment, fund raising or development, and lobbying are among some of the costs specifically identified as unallowable under OMB Circular A-21 Administrative and clerical salaries, office supplies, membership fees and postage expenses that must be classified as part of F&A costs per OMB Circular A-21 Salaries in excess of that allowed by sponsoring agencies (eg: the National Institute of Health salary cap, revised each January 1) COST SHARING CHECKLIST FOR PRINCIPAL INVESTIGATORS In the course of preparing a proposal for a grant or contract: ) Review the Cost Sharing Policy ) Determine from OSRP, if there are any cost sharing requirements for the award ) Determine if cost sharing will be offered unilaterally by the University. If so, determine the dollar amounts, the budget source(s) and subcodes for the cost sharing. Get any necessary departmental approvals for the cost sharing and obtain appropriate account numbers. Upon receipt of the award, review all cost sharing obligations in light of your workload and any sponsor adjustments to the award amount. If you cannot provide the level of cost sharing envisioned in the proposal, contact OSRP to renegotiate with the sponsor what you are willing to commit to your award. OSRP will obtain any modification in writing from the sponsor. Keep your business manager informed of any changes. Work with OSRP to properly fund all cost sharing before starting work on the project. Make sure the necessary payroll changes to charge payroll for the cost sharing accounts are initiated, i.e: Payroll Authorizations, Income Tuition Vouchers, or salary reallocation forms, if necessary. Periodically during the period of the award, check your cost sharing accounts to see that the cost sharing is being accumulated properly. For external partner cost sharing, make sure that your external partner is reporting its cost sharing in a timely manner and in the proper format. At the close of the award, review and finalize the cost sharing reported. This should be done so that the final numbers can be reported to Project Accounting, as appropriate, thirty (30) days prior to the final financial report due date. Additional Guidelines Do keep auditable records at the department level for all types of cost sharing. Do not match or cost share federal funds from one agency with those of other federal agencies unless the cost sharing/matching is specifically approved by all the federal funding agencies involved. If an expense is normally unallowable for reimbursement under federal rules (e.g. entertainment), then it is not allowable as a cost-shared expense. IIT does not normally cost share the indirect costs associated with direct cost-shared expenses. The preferred form of cost sharing is costs deemed "direct costs" (faculty salary, lab supplies, etc.); however, with appropriate approvals, we can cost share waived or foregone indirect cost on the project (the difference between our published indirect cost rate and the lower indirect cost rate applicable to the cost-shared project). To share costs deemed "F&A" (rent, equipment depreciation, etc.) with federal funds presents a cost accounting standards inconsistency. However, indirect costs may be offered as cost sharing under the following special circumstances: the sponsor requires indirect cost sharing as a condition of the award; the sponsor's policy does not allow the University to recover indirect costs at the full federal rate; the sponsor will allow the use of waived or foregone indirect costs to satisfy their cost share requirements; and approval of the department is obtained.