GAP 200.320, Direct Costing on Sponsored Projects

  1. General
  2. Definition
  3. Allowability Requirements
    1. Allowability
    2. Allocability
    3. Reasonableness
    4. Consistency
    5. Allowable Rates of Pay for Faculty
    6. Selected Items of Cost
    7. Availability of Funds
  4. Proper Coding
  5. Review and Audit
  6. Resources
  7. Related GAPs, UGCs, and Tools

As of December 26, 2014, new awards made by federal agencies are subject to the Office of Management and Budget (OMB) Uniform Guidance (2 CFR Part 200) and to related specific agency policy guides. Awards made prior to December 26, 2014 may be subject to OMB Circular A-21, or may incorporate elements of both requirements. Please note that the Uniform Guidance has been codified in the Code of Federal Regulations as 2 CFR Part 200. Also note that OMB Circular A-21 has been codified in the Code of Federal Regulations as 2 CFR Part 220. When referring to relevant applicable cost principles, federal agencies may refer to the Uniform Guidance as 2 CFR Part 200 and to Circular A-21 as 2 CFR Part 220 in official documentation. Likewise, OMB Circular A-110, Administrative Requirements has been codified as 2 CFR Part 215. Federal agencies may refer to Circular A-110 as 2 CFR Part 215 in official documentation.

I. GENERAL

In accepting federal funds for sponsored projects (grants, contracts, and other types of assistance agreements) Duke University agrees to abide by government regulations regarding the use of those funds. Code of Federal Regulations 2 CFR Part 220 (formerly Office of Management and Budget Circular A-21) and 2 CFR Part 200 (known as the Uniform Guidance) sets forth general criteria for determining the allowability of direct costs on government sponsored projects. Many federal agencies publish additional cost guidelines specific to those agencies, and familiarity with such regulations is also necessary. The Research Costing Compliance website provides links to the terms and conditions for the major federal agencies.

Although generally not as stringent as government requirements, non-federal sponsor requirements may also include cost guidelines. These requirements are also binding as a condition of award, and must be followed throughout the life cycle of the funded project.

This GAP summarizes pertinent overall federal regulations and Duke practices used to determine whether or not a particular cost item would be considered an allowable direct cost for budgeting and/or charging on a federally sponsored project. Auditors may use the same guidelines when conducting audits of externally sponsored projects awarded to Duke. Please refer to non-federal source documentation for specific non-federal sponsor requirements.

II. DEFINITION

Federal Definition of Direct Costs:
Direct costs are those costs that can be identified specifically with a particular sponsored project, or that can be directly assigned to such activity relatively easily with a high degree of accuracy. In general, these costs fall into broad categories such as effort, materials, travel, equipment, etc. The following diagram provides an overview of the most common direct costs.

Direct Costs

Direct costs items should be necessary and essential for project success. The items and/or services charged must reflect the amount that a reasonable person would pay, and must be directly allocable to the needs and purposes of the project.

III. ALLOWABILITY REQUIREMENTS

Summary of Criteria for Determining Allowability of Direct Cost

For purposes of determining whether it would be appropriate to budget or charge a certain direct cost to a sponsored project, principal investigators, departmental business officers and grant administrators should be familiar with the criteria used to define allowable direct costs. Direct Costs must:

  1. Be necessary and reasonable for the performance of the federal award. The cost/item must be necessary to the conduct of the project. For example, a more expensive item may not be necessary if a less expensive item will meet the needs of the project.
  2. Be allocable to the project and project goals.
  3. Conform to any limitations or exclusions in the Uniform Guidance/A-21 or in the federal award.
  4. Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of Duke University.
  5. Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost.
  6. Be determined in accordance with generally accepted accounting principles (GAAP)
  7. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period.
  8. Be adequately documented.

Clarification of Direct Costing Criteria

A. Allowability

Section J of 2 CFR, Part 220 (formerly OMB Circular A-21) AND Subpart E of 2 CFR Part 200 (known as the Uniform Guidance) provides a detailed listing of costs that may be charged to federal awards (with the disclaimer that these costs must not be deemed unallowable under a specific award notice from the federal sponsor). For general reference purposes, Section J of Circular A-21 and Subpart E of the Uniform Guidance provide descriptive listings on generally allowable costs. Federal sponsors may also provide additional guidelines on allowable costs. For example, the National Institutes of Health (NIH) and the National Science Foundation (NSF) among other federal agencies, each have their own guidelines. Non-federal sponsors will likely have their own unique guidance on allowable direct costs, and should be referred to as applicable to the project.

Duke University has also created a Uniform Guidance Cost Principles Reference Guide for selected items of costs associated with federal awards. Please consult the Reference Guide frequently, as items might be added and/or further clarified.

B. Allocability

A cost is allocable to a federally sponsored agreement if:

  1. It is incurred solely to advance the work under the sponsored agreement; or
  2. It benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then the costs may be allocated or transferred to benefited projects on any reasonable basis. However, this allocation cannot be used to eliminate cost overruns.

For example, general consumable lab supplies used in multiple projects should not be charged to a single project, nor should the cost of such supplies be rotated among benefitting projects. Instead, allocation should be estimated based on the benefit to each project and the cost of these items proportionately charged.

As allocability principles are core to federal determination of allowable costs, please refer to the RCC Allocability Training Online, which addresses best practices in documenting allocability.

C. Reasonableness

A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the cost of such goods and services reflect the decision that a prudent person would have made in incurring these costs. Major considerations involved in the determination of the reasonableness of a cost are:

  1. Whether or not the cost is of a type generally recognized as necessary for the performance of the sponsored agreement; and
  2. Appropriate Duke University practices for procurement are applied.

D. Consistency

Consistency means that Duke University manages costs that are reimbursable by the federal government in two ways:

  1. Those that are allowable to be directly charged to a sponsored project (identified specifically with a particular sponsored project, or that can be directly assigned to such activity relatively easily with a high degree of accuracy) such as a Principal Investigator’s salary or a project-specific piece of equipment.
  2. Those that are allowable to be included in the University’s negotiated Facilities and Administrative (F&A) base, which includes broad categories of costs that support sponsored research but cannot be clearly identified with a specific project or program. Examples include use of facilities, department basic costs of operations (paper, copying, staff support, etc.)

Because Duke receives federal reimbursement for both direct costs associated with a single project, and for F&A costs through its negotiated F&A rate, extra care must be taken to ensure that all costs are treated and billed consistently. In other words, not billed directly and also billed through F&A recovery. Duke University has established a process for reviewing costs that in unlike circumstances may be billed directly to a sponsored project. Please refer to GAP 200.360, Charging Clerical and/or Administrative Expenses to Federally Funded Projects for further information.

E. Allowable Rates of Pay for Faculty

Salary Basis: Charges for work performed on federal awards by faculty members during the academic year are allowable at the Institutional Base Salary (IBS) rate. In no event will charges to federal awards, irrespective of the basis of computation, exceed the proportionate share of the IBS for that reporting period. This principle applies to all members of faculty at an institution. IBS is defined as the annual compensation paid by Duke University for an individual's appointment, whether that individual's time is spent on research, instruction, administration, or other activities. IBS excludes any income that an individual earns outside of duties performed for the IHE. Unless there is prior approval by the federal awarding agency, charges of a faculty member's salary to a federal award must not exceed the proportionate share of the IBS for the period during which the faculty member worked on the award.

For additional information regarding compensation from sponsored programs, please refer to GAP 200.170, Effort Reporting.

F. Selected Items of Cost

The Uniform Guidance Cost Principles Reference Guide of selected items of costs under terms and conditions of sponsored programs is incorporated into this GAP. This guide is intended to be a dynamic document, reflecting latest updated information as available from federal sponsors. Please refer to this guide frequently for the most updated information.

Certain items of cost may require additional approvals prior to expense. The Uniform Guidance Cost Principles Reference Guide provides additional information.

For additional information on specific items of cost, please refer to related Sponsored Projects & Research Procedures GAPs.

G. Availability of Funds

If sponsor funds are available, appropriate direct cost items should be charged to sponsor funds in accordance with the account coding instructions in Section IV.

If funds are NOT available and it is determined that the scope of work of the sponsored project cannot be modified to eliminate the need for the item, then the direct cost item should be charged to an appropriate cost share account and reflected as a cost of the project, but one borne by Duke. GAP 200.140, Cost Sharing on Sponsored Projects provides guidance on how to do this.

IV. PROPER CODING

At Duke, budget line items and individual expense transactions are identified by a 6 digit G/L Account. The G/L account classifies the transaction as salaries, fringes, supplies, travel, etc. To select the correct account for sponsored project budget line items or expense transactions, the grant administrator should be familiar with Duke's account structure.

A complete listing of the G/L accounts is maintained on the Financial Services website. Each grant administrator should be familiar with the accounts available for use on sponsored projects and other centers.

Why the emphasis on proper account coding?

One of the elements most critical to successful financial administration of sponsored projects is the assignment of appropriate accounts to budget line items and expense transactions, for the following reasons.

  1. Miscoded expenses can result in incorrect F&A cost charges. The coding determines whether or not the cost will be included in "modified total direct cost" and therefore subject to F&A or indirect cost.
  2. Failure to identify capital equipment purchases can result in noncompliance with internal and external property management regulations. Federal regulations require that all capital equipment purchases be added to the central inventory system. The account used on the capital equipment requisition is one method used by Plant Accounting to identify capital equipment purchases to be added to central inventories.
  3. Errors in account coding can result in inappropriate conclusions by the principal investigator and/or sponsor regarding financial status.
  4. Improperly coded expenses can result in inappropriate conclusions by auditors and can adversely impact Duke's ability to effectively monitor for compliance with federal regulations regarding allowability. In an internal or external review or audit, the account determines the type of review or audit procedure to which the expense is subjected, and whether the expense is viewed initially as allowable or unallowable.
  5. The account distinguishes between costs funded by the agency and those cost-shared by Duke. Failure to use a cost sharing account on cost-shared expenditures will understate Duke's contribution to the project.

V. REVIEW AND AUDIT

Research Costing Compliance monitors direct charges to ensure appropriate coding, required internal controls, and adequate justification. Inadequately justified charges are noted, and the department is required to remove these charges from federal codes.

During the closeout process, OSP and departments use checklists and other reports to ensure that proper procedure is consistently applied. (GAP 200.180, Closeout of Sponsored Projects)

The Office of Audit Risk and Compliance (OARC) has responsibility for periodic institutional review of departmental and central office practice in regards to the conditions of this GAP, and of current and/or modified federal standards.

VI. RESOURCES

For Pre-Award administration contact either:

For Post-Award administration contact:

For questions regarding selection of and G/L Account contact:

VII. RELATED GAPS AND ADDITIONAL TOOLS

Please see any of the following for additional information and watch for changes to the following as may be announced through RCC as applicable.

A. GAPs:

GAP 200.140, Cost Sharing on Sponsored Projects

GAP 200.180, Closeout of Sponsored Projects

GAP 200.330, Facilities and Administrative (Indirect) Costs

GAP 200.360, Charging Clerical and/or Administrative Expenses to Federally Funded Projects

B. Tools:

Uniform Guidance Cost Principles Reference Guide

Note: This guidance is administrative in nature and is not a cost reimbursement policy. Failure to comply may or may not result in adjustments of charges to the award. Noncompliance with this policy does not mean this cost is unallowable from an external perspective. Any adjustments of charges will be as required under applicable Federal cost reimbursement principles. If a cost is removed from an award for any reason, whether or not related to this guidance, the cost will generally be charged to departmental funds.