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Applicable to: Deans, Directors, Department Heads, Faculty, Finance
Personnel, and Sponsored Project
Effective Date: November 14, 2006
In determining whether it is appropriate to charge (assign) a given cost to a sponsored agreement, Northwestern University follows the federal principles outlined in OMB Circular A-21, Cost Principles for Educational Institutions, including the Cost Accounting Standards contained therein, as well as specific terms and conditions of individual sponsored agreements.
This policy statement and the guidelines and definitions contained within are consistent with the language and policies referenced in Northwestern University's Disclosure Statement (DS-2). The disclosure statement, as required by the Code of Federal Regulations, provides general university information and details the cost accounting practices of the University - it is the principal source of institutional policy for charging sponsored projects.
Specifically, there are four guiding principles or criteria used to determine whether a cost can be charged to a sponsored agreement: reasonableness, allocability, allowability, and consistency. These criteria apply for both direct and indirect (or Facilities & Administrative) costs, which are defined below. For a given cost to be charged to a sponsored agreement, all four (4) of these criteria must be met.
For a cost to be considered reasonable, it must be:
For a cost to be considered allocable, it must:
For a cost to be considered allowable, it must:
Per the NIH Grants Policy Statement (Part II): "The fact that a cost requested in a budget is awarded, as requested, does not ensure a determination of allowability. The organization is responsible for presenting costs consistently and must not include costs associated with their F&A rate as direct costs."
For a cost to meet the requirement of consistency, it must be treated in the same manner (i.e., as either direct or indirect) when used in like circumstances. This means that for all categories of costs, all activities within the University must account for such in the same manner when incurred in similar circumstances.
Further elaboration is necessary regarding the consistency criterion, starting with the fundamental definitions of a direct versus an indirect cost.
A direct cost of a sponsored agreement is one that can be identified specifically with that sponsored project or that can be assigned to the sponsored project relatively easily with a high degree of accuracy.
General cost categories that may be charged as direct costs to individual sponsored agreements include, but are not limited to, the following:
If a cost benefits two or more projects/activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects/activities based on the proportional benefit. If proportions cannot be determined due to the interrelationship of the work, then costs may be allocated on any reasonable basis.
Allocation methodologies that may be used as a basis for allocating costs include the following:
Prohibited allocation methodologies (e.g., methodologies that cannot be used as a basis for allocating costs) include the following:
For any allocation basis used, written support must exist in each case with describes how the allocations have been determined, how all benefiting projects are charged, and why the method is recognized and reasonable.
Indirect costs of sponsored agreements are those that are incurred for common or joint objectives and cannot be identified readily or specifically with a particular sponsored project, or any other institutional activity.
Costs that are normally charged as indirect costs of sponsored agreements (via a Facilities & Administrative, or F&A, rate) include, but are not limited to, the following:
Any cost included in the categories above that is incurred for the same purpose, in like circumstances, must be treated either as a direct cost only or as an indirect cost only of the University's sponsored agreements.
In certain circumstances, costs that are normally charged as indirect costs to sponsored agreements may be charged as direct costs of those agreements. For these costs to be appropriate direct costs, they must be incurred in circumstances that are different or unlike the circumstances in which they are normally incurred. Generally, an unlike circumstance is defined as an activity/use of the cost item that is substantively greater in amount or different in purpose than is typical.
Specifically, in order to direct charge a cost that would ordinarily be charged as indirect, all of the following requirements must be met:
In regards to the latter two requirements, if the program itself does not require the submission of a project budget or the cost is identified after the project begins, the cost must be approved by both a designated official of the academic unit and by a grant and contract administrator in the Office for Sponsored Research.
The evaluation of unlike circumstances is made on a case-by-case basis. The evaluation occurs at the proposal preparation stage, or later during the conduct of the project, when the Principal Investigator identifies a need for a project cost that would normally be treated as an indirect cost. A justification must be provided to an Office for Sponsored Research grant and contract administrator describing the need and circumstance as a direct cost, after which the circumstance is evaluated. If it is deemed to be unlike, the cost may be charged directly to the sponsored project. The appropriateness of the treatment is subject to further review if the expenditure is encompassed in the pre-review of expenditures prior to posting (the scope of which is based on expenditure type and amount).
Examples of unlike circumstances include program projects and center grants and similar large, complex programs; projects that involve extensive database accumulation, survey tabulation, and/or graphics or manuscript preparation; and projects that are geographically separated from the rest of the institution such that normal departmental support is not available. A specific example might involve regular postage (e.g., 1st class mail) costs, which are normally treated as indirect costs of sponsored agreements. In the case of a sponsored project (e.g., an epidemiological study) that entails extensive data collection via a mail survey and, therefore, use of postage/mail services substantially beyond what is typical, the regular postage costs associated with the conduct of that survey would be direct charged to the project.
Questions or concerns regarding the charging of expenditures to sponsored projects, in the pre-award stage, should be directed to the Office for Sponsored Research (OSR).
Questions or concerns regarding the charging of expenditures to sponsored projects, in the post-award stage, should be directed to the Office of Accounting Services for Research and Sponsored Programs (ASRSP).
Questions or concerns regarding the policies for the charging of expenditures to sponsored projects should be directed to the Office of Cost Studies.
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