Cost Accounting Standards
In November 1994, the federal Cost Accounting Standards Board published final regulations on cost accounting standards for educational institutions. The new rules have now been incorporated into federal Office of Management and Budget (OMB) Circular A-2 1, Cost Principles for Educational Institutions. OMB A-21 sets forth the principles for determining the costs (direct, indirect, allowable and unallowable) applicable to federally sponsored projects. Under these new regulations, four of the twent y-two rules applicable to commercial entities were extended to educational institutions having federally funded research activities. This includes all UC campuses. The rules focus on consistency in the way costs are calculated and charged. These rules are summarized in this document and will be explained in more detail at departmental informational meetings in December.
UCSB is required to submit a disclosure statement to the federal government by June 30, 1997 detailing our internal costing practices, and demonstrating that the costing practices are consistent with the new regulations. If existing practices are not in compliance with the regulations, we are required to make changes in our policies and procedures (for example, our Vacation Leave Accrual System) and implement the changes by the time our disclosure statement is filed. It is believed that most, if not all , universities will need to make changes in their current practices to bring them into conformance with the new regulations, and UCSB is no exception.
UCSB has established a Cost Accounting Standards Committee to review the current practices at our campus, to propose changes as needed, and to prepare and submit our disclosure statement. The Committee includes representatives from Accounting and Financi al Services, Academic Personnel, the Office of Budget & Planning, the Office of Research, the College of Letters and Science, Internal Audit, the Office of the Dean of Engineering, the Office of Vice Chancellor, Administrative Services, and three acad emic departments and organized research units. A list of committee members is attached.
The new CAS standards focus on consistency in the way costs are treated on federal contract and grant proposals and awards. While this requirement has long been a part of OMB Circular A-21, the new regulations take this requirement further to define the meaning of consistent treatment of costs. The four new standards are as follows:
- 501 Consistency in Estimating, Accumulating, and Reporting Costs
- 502 Consistency in Allocating Costs incurred for the Same Purpose
- 505 Accounting for Unallowable Costs
- 506 Cost Accounting Period
The standards require that costs estimated in a proposal budget be consistent with the way costs are charged within the university's accounting system, and the way costs are reported to the federal government. The standards also require that costs incurr ed for the same purpose be treated consistently as either direct costs or indirect costs. The new standards also require that direct costs and indirect costs be calculated the same way in every department on the campus. For example, one department cannot choose to pay its monthly contract-and-grant related long distance telephone charges by dividing the charge equally among its research faculty while at the same time another department is charging its toll calls based on records of who actually placed the calls. The new rules include some restrictions about what time periods the University can use to aggregate its expenses for its indirect cost pool. The rules also require that unallowable costs be identified and accounted for separately.