Cost Accounting Standards (CAS)

Institutions and researchers must comply with externally imposed requirements related to the management of research funds. The objectives of good fiscal management are twofold:

• To make the best use of available funds to achieve research outcomes
• To avoid problems of fraud, waste and abuse of sponsor support

Formal cost accounting standards as set forth by the federal government and institutional fiscal policy help set the appropriate fiscal protocols for researchers and the university.

This is a key component of compliance with federal regulations. Noncompliance may result in financial penalties for NC State and could affect our ability to qualify for federal funds.

Anyone authorizing the expenditure of federal funds must have a working understanding of the underlying cost principles as set forth in the Uniform Guidance (UG). These principles govern costs that may be charged either directly or indirectly to the government by educational institutions.

The CASB, an independent legislatively-established board within the executive branch of the federal government, provides guidelines on cost accounting practices, referred to as Cost Accounting Standards (CAS). In 1994, CAS imposed four standards on universities receiving significant awards from federal agencies. In 1996, A-21 was revised to include the four CAS standards and made these standards applicable to all types of federal awards. CASB imposed these standards to:

• Prevent the charging of unallowable costs to federal awards
• Standardize university costing practices
• Standardize requirements for recipients of federal funds

NC State must comply with the CAS requirements to ensure the recovery of direct and indirect (F&A) costs. As a required element of CAS, NC State University must disclose its cost accounting practices in writing to the federal government. NC State satisfied this requirement with the disclosure statement (DS-2) submitted to the federal government in 1997, with the most recent revision being approved in 2010.

NC State abides by the following cost accounting standards:

• CAS 501: Consistency in Estimating, Accumulating, and Reporting Costs
  This standard ensures that practices used to estimate proposal costs are consistent with practices used to record expenditures against funds.
• CAS 502: Consistency in Allocating Costs Incurred for the Same Purpose
  This standard describes how costs are allocated.
• CAS 505: Accounting for Unallowable Costs
  This standard requires that all unallowable costs be identified and excluded from any billing, claim, or proposal under a federal government award.
• CAS 506: Cost Accounting Period
  This standard describes the cost accounting period, which for NC State is the fiscal year: July 1 – June 30.

For further clarification of the requirements of these standards view Uniform Guidance (UG) §200.419.

The following policies have been clarified due to the implementation of Cost Accounting Standards (CAS) by educational institutions. While many of these policies have been in place for some time, it is important to have comprehensive written policies and procedures which address CAS.

CAS will apply to sponsored awards that meet any one of the following criteria:

• All federal awards (including federal “Fixed Price” awards)
• All awards that contain any federal flow-through money. If you discover the project is being funded with federal flow-through money after the award period has started, any unallowable direct charges need to be removed from the account
• The terms and conditions of the proposal or award documents reference Uniform Guidance or Cost Accounting Standards
• Any sponsored project whose funds are being used as cost sharing on a CAS covered project. Only the individual cost(s) being used as cost sharing will be subject to the definitions of direct charges and “unlike circumstances.”
• The sponsor is paying the University’s full negotiated facilities and administrative (indirect) cost rate (unless the project meets the University’s definition of a non-federal “Fixed Price” project).

Awards not covered under CAS administration are still subject to the requirements listed in the award as well as all University and State guidelines. Just because an award is not under CAS administration does not mean expenditures unrelated to the award can be charged. All expenditures on an award must be reasonable, allocable and allowable.

Awards not covered under CAS administration that are also not “Fixed Price” awards (see NC State’s Policies, Rules and Regulations) include either audit clauses and/or financial reporting requirements. These clauses allow for the review of supporting documentation for all expenditures. The supporting documentation should validate the relationship between the expenditure and the purpose of the award.

The CASB, and the cost principles as defined in Uniform Guidance provide the basis for determining the procedures used to identify direct costs. Costs incurred to support a project are treated as direct costs and are charged to sponsored projects when the costs can be specifically identified to the project with relative ease and with a high degree of accuracy.

Indirect costs are general institutional expenditures that are incurred for common or joint objectives benefiting instruction, research, or public service and therefore cannot be readily identified with a particular sponsored project. These costs are allocated to sponsored projects in accordance with OMB circulars through the application of the University’s Indirect Cost Rate.

The proper classification (direct vs. indirect) of any charge should be determined based on several factors:

Review

A thorough review of all regulations, policies and procedures applicable to the project. This includes internal or institutional regulations policies and procedures (e.g., NC State’s Disclosure Statement and the it Policies, Rules and Regulations) as well as any external regulations, policies or procedures (e.g., Uniform Guidance; other relevant federal circulars; sponsor terms and conditions; and specific award terms).

Judgment

Based on the review of specific facts and circumstances, a judgment is made by the institution’s appropriate personnel as to the proper allocation (direct vs. indirect).

Justification

Appropriate level of justification submitted to Contracts and Grants and the sponsor agency in the event that an unlike circumstance arises.

Agency Approval

There are some cost objectives that can be charged as either direct or indirect costs depending on the facts and circumstances of the individual project. The following questions should be asked to determine if it can be charged as direct cost:

• Can the cost meet the definition of a direct cost? Can the cost be specifically identified with a project with relative ease and with a high degree of accuracy and allowed by all terms and conditions governing a particular award?
• How does this benefit the project?
• Can the project be completed without this?
• Will any other project or group on campus benefit from this after the end of this project?

Cost Accounting Standards require consistent treatment of costs in “like circumstances”. Consequently “unlike circumstances” must be demonstrated/justified if a cost will be budgeted, charged and reported inconsistently. The following arguments cannot be used in and of themselves to demonstrate “unlike circumstances”:

• Sponsor approval of the allocation of a particular cost without proper review by the institution.
• Insufficient indirect costs money returned to support the projects
• Sponsor limits or will not pay indirect costs
• Sponsor is willing to pay for the cost as a direct charge
• Department or college has no funds to pay for an expense

Sponsor approval of a budget does not in and of itself constitute approval of the specific line items. The sponsor assumes you have complied with Uniform Guidance when submitting proposals, your Cost Accounting Disclosure Statement, your indirect costs proposal assumptions and any other regulations cited. A cost that may be allowable at one institution as a direct charge may not be allowable at another because of the differences in the Disclosure Statement and the indirect costs proposal. There would be no way for any sponsor to make a determination of allowability because of these variables; therefore, it is the institution’s responsibility to exercise this judgment.

Agency approval can only be relied upon if you have reviewed regulations, policies and procedures; made a judgment based on this review; and disclosed the appropriate justification. Please note that even if the agency approves the expenditure, auditors — Department of Health and Human Services (DHHS), Office of Inspector General (OIG), sponsor, state or internal — could come back at a later time and disallow the expenditure based on their review, judgment and/or a lack of appropriate documentation.

Costs considered “unallowable” in accordance with various authoritative documents and the individual sponsors must be identified and accounted for separately. These costs may not be budgeted, charged or reported to a sponsor.