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Federal Costing Principles

Memorandum To: Deans, Directors and Chairpersons From: Ilene H. Nagel Associate Provost for Research and Dean of the Graduate School Re: Revised Federal Costing Principles and University of Maryland, College Park, Implementing Policies Date: September 11, 1997 The University of Maryland is faced with a significant challenge arising from changes in the way that direct and indirect costs associated with federally sponsored research are to be handled. As most of you know, in July, 1994, the Federal Government began implementation of new budgeting and costing principles embodied in the US Office of Management and Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions." These new principles have serious financial implications relating to the application of direct and indirect costs for research universities. Nationally, research universities are reviewing their business and budgetary practices in order to evaluate their compliance with these new federal cost principles. During 1995, revision to A21 required universities to submit cost accounting policies and practices in a disclosure statement to their cognizant audit agency. The university submitted a disclosure statement in December 1996 to the Department of health and Human Services, our cognizant audit agency. The university's Cost Accounting Standards (CAS) Disclosure Statement was developed by a series of working groups that met over a period of several months; participants were drawn from various colleges and departments. The working groups reported to a CAS Oversight Committee. The Oversight Committee, chaired by Vice President Charles Sturtz, was comprised of Deans and senior administrators. Under the auspices of this committee, the university determined that the federally mandated changes required us to develop and issue two new policies: The UMCP Policy for Direct Charging of Costs to Federal Grants, Contracts, and Cooperative Agreements; and The UMCP Policy for Government Specialized Service Facilities A proposal for the adoption of these two policies was submitted to the Council of Deans and to Acting Provost Nelson Markley for their approval. After receiving the Deans' approval, they were approved by the Vice President for Administrative Affairs (November 27, 1996). As intended, the implementation of the above two policies put into place revisions that change the way the university conducts some of its business with the Federal Government. You may wish to take careful note of the fact that, in general, federally sponsored projects (either awarded directly by a Federal agency or by virtue of a subcontract through another prime contractor) may not normally be charged for secretarial and administrative salaries, office supplies, postage or telephone costs unless a particular project requires an unusual and extensive degree of administrative support. The UMCP Policy for Direct Charging of Costs to Federal Grants, Contracts and Cooperative Agreements provides examples of the kind of unusual circumstances under which direct charging might be appropriate, and therefore allowable. We ask that you please note, however, that if there are costs that fall under these exceptions, the costs must specifically be identified and justified in the proposal to the sponsor. Browse ORAA's Guidance for Principal Investigators on OMB Circular A-21, which provides concrete guidance for the budgeting and charging of administrative support costs to proposals and for on-going projects. To be sure, we all appreciate the fact that these new policies represent one more set of federally mandated regulations that impose (for some research projects) yet another financial burden on the departments under whose auspices they are conducted. To assist units with any adjustment to this burden, the campus provided FY 1998 budget allocations to alleviate a portion of the financial impact of the implementation of these two policies. It is likely, however, that certain changes in business practices will also be necessary. It is our fond hope that the university's approach to implementing these new policies reflects the best balance possible to permit us to comply fully with federal mandates while sustaining and supporting our enormously important research portfolio. By copy of this memo, we ask that you make every effort to insure that all research administrators and principal investigators familiarize themselves with these new policies. Should there be any questions, please feel free to contact the Office of Research Administration and Advancement (301-405-6269). If you would like these policies explained or discussed at a departmental meeting, ORAA will be pleased to arrange for the appropriate administrators to be present at your meetings. Despite the new cost accounting burdens, the University continues to reap extraordinary benefits from the research done by you and your colleagues; we look forward to continuing increases in our research support from, and our scientific collaborations with the Federal Government. Updated: 11 January 1999.