Direct and Indirect Costs on Federally Funded Sponsored Projects & Programs

EFFECTIVE DATE: March 2, 2010 |LAST UPDATED: October 6, 2014 | Policy Section: sponsored-research

Responsible Executives

Carolyn Ainslie, vice president for finance and treasurer

Jeffrey Friedland, director, ORPA

Responsible Offices

Sponsored Research Accounting

Office of Research & Project Administration (ORPA)

Contacts

Glynis Sherard, director of sponsored research accounting, (609) 258-4996

Jeffrey Friedland, director, ORPA, (609) 258-3090

I. Policy StatementBACK TO TOP

Under federal regulations and sponsor requirements, departmental types of expenses including but not limited to administrative or clerical salaries, office supplies, postage, local telephone costs, photocopy costs, network charges, cell phones, etc. should normally be treated as a Facilities and Administrative (F&A) cost and recovered through the F&A cost rate (also known as indirect cost rate). In exceptional circumstances where the nature of the work performed requires extensive departmental support, administrative or clerical salaries may be treated as a direct charge. However, administrative or clerical salaries and other general administrative costs must directly benefit and be easily identified with the particular sponsored project or program.

This policy is issued to define the appropriate charging of administrative or clerical salaries and other departmental expenses consistent with the Office of Management and Budget (OMB) Circular A-21.

II. Who is Affected by this PolicyBACK TO TOP

This policy applies to all federally funded (including federal prime subawards received by the University through another entity) sponsored projects and programs. It should be understood by Principal Investigators (PIs), Grant Managers, Department Managers, Department Chairs, Deans, Dean for Research, Sponsored Research Accounting (SRA) and the Office of Research and Project Administration (ORPA).

III. Definitions

Direct Costs - Those costs that can be identified specifically with a particular sponsored project or program, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.

Indirect Costs - Costs that are incurred for common or joint objectives and, therefore, cannot be specifically identified with a particular sponsored project, an instructional activity, or any other institutional activity. Indirect costs are synonymous with Facilities and Administrative (F&A) Costs.
 

IV. PolicyBACK TO TOP

COSTS INCLUDED IN FACILITIES AND ADMINISTRATIVE COST RATE
Administrative or clerical salaries and other expenses that fall within the routine services normally provided by academic departments are treated as F&A costs. As a general rule, such routine services cover the general business of the department as a whole and may include some limited support to faculty to enable them to conduct their teaching and scholarly activities.

General business functions include activities such as:

  • basic financial management and accounting;
  • purchasing;
  • human resource management;
  • facilities management;
  • administrative or clerical support for course instruction; and
  • secretarial and administrative support for professional correspondence, preparation of grant applications, etc.

DIRECT CHARGING ADMINISTRATIVE OR CLERICAL SALARIES AND OTHER DEPARTMENTAL EXPENSES
The direct charging of administrative or clerical salaries may be appropriate where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support which is significantly greater than the routine level of such services provided by the academic department.

On July 13, 1994, OMB issued an interpretation of Circular A-21, Section F.6.b that states:

“...direct charging of these costs may be appropriate where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support which is significantly greater than the routine level of such services provided by academic departments. The costs would need to meet the general criteria for direct charging in section D.1. -- i.e., be identified specifically with a particular sponsored project relatively easily with a high degree of accuracy, and the special circumstances requiring direct charging of the services would need to be justified to the satisfaction of the awarding agency in the grant application or contract proposal.”

Additionally, OMB Circular A-21 Exhibit C provides examples of circumstances where the direct charging of salaries of administrative or clerical staff may be appropriate. They are as follows:

  • Large complex programs, such as general clinical research centers, primate centers, program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
  • Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective clinical records studies).
  • Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
  • Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
  • Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other research field sites that are remote from campus.
  • Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.

These examples are not exhaustive nor are they intended to imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples.

Additional examples might also include computer science studies of large database management, computational biology studies, and astronomical surveys. The examples above are illustrative of the criteria that are applied to the treatment of items such as office supplies, postage, local telephone costs, photocopying, network charges, cell phones, etc. Direct charging of such expenses may be justifiable when the expenses are related specifically to the technical substance of a project or there is an unusually high level of expense because of the nature of the activity.

Federal regulations require that costs incurred for the same purpose in like circumstances must be treated consistently as either a direct or F&A cost. PIs and department administrators must exercise caution in applying the guidelines contained in this policy.

DIRECT CHARGING COMPUTERS
The term “computer” encompasses all information technology equipment, including high-end mainframes, minicomputers, personal computers (microcomputers used by a single user such as desktops and laptops), and smartphones regardless of whether the item meets the $5,000 capital equipment threshold. Computers include the hardware and software components needed for the programmatic conduct of the sponsored project or program. Computers are generally used for various activities such as instruction, research, administration, and personal use. It is therefore difficult to ensure their allowability or allocability as a direct cost to one specific sponsored project or program.

The following criteria must be satisfied for a computer to qualify as a direct cost to a sponsored project or program:

  • It must be necessary for and provide benefit to the project.
    • The computer must be essential for project activities and its use should be sufficiently tracked during the life of the project.
  • It must be allowable.
    • The computer is functioning as or is in direct support of specialized scientific equipment, and scientific equipment is an allowable expense according to the sponsor’s terms and conditions of the award.
    • The “principal use” of the computer is to support the project’s programmatic activities, and it would not have been purchased other than to support the goals of the project.
  • It must be directly allocable.
    • The “principal use” of the computer must be identified specifically with the purpose, goals, and activities of the sponsored project or program.
    • If a computer is directly charged to a project and is used other than incidentally for general administrative purposes, the appropriate allocation of the cost is required.
    • A computer may be allocated to one or more sponsored program or project unless the sponsor's terms and conditions of the award prevent such an allocation. The allocation requires that the computer be used primarily to conduct the research of each project.
  • It must be reasonable.
    • There must be an informed, prudent decision regarding the cost, utility, and value of the computer to the sponsored project or program.
  • It must be nonpersonal in nature.

PRINCIPAL USE
In some circumstances, the use of computers specifically required for individual sponsored projects or programs can be justified as directly benefiting those awards and may be an allowable direct charge to a sponsored project or program when the conduct of the research requires a computer. In order to support the allowability criteria of “principal use”, a computer must be used primarily for the programmatic conduct of the sponsored project or program and should not be used for non-programmatic purposes on more than an incidental basis.

Criteria for incidental use include the following:

  • Incidental use never interferes with project use.
  • Incidental use is solely for short time periods for convenience purposes only (e.g., quick e-mail check, preparing short occasional document, etc.).
  • Incidental use itself would not have justified the purchase of the computer.
  • Incidental use does not require removing the computer from the project location.
    (The use of a laptop computer to store non-sponsored project information or for use outside of the lab or office where the research is conducted - except for field work -  is likely to be questioned during an audit of the allowability of the laptop computer on a project.) 

Examples of circumstances whereby a computer might qualify as a direct cost to a sponsored project or program are as follows:

  • A computer is functioning as, or is in direct support of, scientific equipment that is required for collection and/or analysis of data for the project.
  • A computer is specifically needed to record data while the researchers are in the field at a remote location (such as an archeological site). In such situations, the computer is used either exclusively or primarily for the project.
  • Training grant institutional allowance funds might be used to purchase a computer for a student supported on the training grant in order for the student to document their research.

ALLOCATION
A computer may be allocated to one or more sponsored program(s) or project(s) unless the sponsor's terms and conditions of the award prevent such an allocation. The allocation requires that the computer be used primarily to conduct the research of the project(s). This allocation of costs should be made at the time of purchase.

An example of an appropriate allocation of costs may be a computer that is purchased specifically for two projects. The computer will be used 40% for Project A and 60% for Project B. The cost of the computer would be charged to the projects based on the proportionate benefit to each project. Therefore, 40% of the cost is allocated and directly charged to Project A, and 60% of the cost is allocated and directly charged to Project B. 

If an appropriate basis such as actual usage cannot be identified to allocate the costs with relative ease and with a high degree of accuracy at the time of purchase, such costs cannot be considered a direct cost on a sponsored project or program.

DOCUMENTATION OF PRINCIPAL USE
During the proposal preparation process, the need for a “principal use” computer should be budgeted and included in the justification. The purpose and direct benefit to the project should be fully described and explain how the project will be negatively impacted if the computer is not purchased. In addition, the budget justification section of the proposal should affirm that the use of the computer is different from general purpose computers normally included in the F&A and that the “principal use” criteria are satisfied. The multipurpose capability of smartphones results in expenditures that normally fall under F&A (Communications and General Purpose Equipment costs). Therefore, the requisitioner would need to make the same “principal use” justification for all uses of a smartphone. In practical terms, this creates a strong presumption that a smartphone would rarely qualify as a direct charge.

If the need for a computer was unknown during the proposal process and identified subsequently during the award process, the same justification needs to be documented and maintained in the award file. If the sponsor requires prior approval of the computer purchase, ORPA will submit the request to the sponsor.

SPONSOR-SPECIFIC GUIDANCE
The following list includes computer charging policies from some federal agencies and is not considered a comprehensive listing, as other federal agencies may further restrict the allowability of computers.

NIH Grants Policy Statement:
“Direct Costs and Facilities and Administrative Costs Project costs consist of the allowable direct costs directly related to the performance of the grant plus the allocable portion of the allowable F&A costs of the organization, less applicable credits (as described below and in the cost principles). A direct cost is any cost that can be specifically identified with a particular project, program, or activity or that can be directly assigned to such activities relatively easily and with a high degree of accuracy. Direct costs include, but are not limited to, salaries, travel, equipment, and supplies directly benefiting the grant-supported project or activity.”

“Office equipment (copiers, laptops, desktop computers, personal handheld computers, fax machines, scanners, etc.) that is used for general office purposes (rather than justified as a specific research purpose) are not allowable as direct costs; they are allowable as an F&A cost.”

NIH Award Example:
"This award does not include funds for the support of computers, and printers as requested in the application. In accordance with OMB Circular A-21, these costs are considered unallowable as direct costs, but, if appropriate, may be charged to the project as F&A costs."

NSF Proposal and Award Policies and Procedures Guide:
“General Purpose Equipment. Expenditures for general purpose equipment are unallowable unless the equipment is primarily or exclusively used in the actual conduct of the research.”

NASA Guidebook for Proposers:
“General purpose equipment (i.e., personal computers and/or commercial software) is not allowable as a direct cost unless specifically approved by the NASA Award Officer. Any general purpose equipment purchase requested to be made as a direct charge under this award must include the equipment description, an explanation of how it will be used in the conduct of the research proposed, and a written certification that the equipment will be used exclusively for the proposed research activities. The need for general purpose items that typically can be used for research and non-research purposes should be explained; Purchase of Personal Computers and/or Software - Such items are usually considered by NASA to be general purpose equipment that must be purchased from general, organizational overhead budgets and not directly from the proposal budget unless it can be demonstrated that such items are to be used uniquely and only for the proposed research.”

FREQUENTLY ASKED QUESTIONS
Q. What criteria may be used to determine whether a computer directly benefits a sponsored project or program?

A. Computer uses that directly benefit a sponsored project or program:

  1. Instrument control
  2. Data acquisition from an instrument
  3. Numerical calculations and simulations
  4. Image and video analysis
  5. Data analysis and manipulation
  6. Data mining
  7. Computer code writing
  8. Data storage for the sponsored project
  9. Preparation of testing materials and recording of participant responses


Computer uses that are not a direct benefit to a sponsored project or program:

  1. Proposal preparation
  2. Progress report preparation for the research results
  3. Publication development related to the research
  4. Presentation creation related to the research
  5. Library resource access (e.g., journals, books, etc)
  6. Administrative activities including email, internet research, budgeting, procurement, human resource management, effort reporting


Q. The researcher cannot perform the research without a computer. Why can’t we charge it to our sponsored project?

A. A computer may be direct charged to a sponsored project as long as it meets the criteria outlined in this policy. 

Q. If my proposal included the budgeted computer cost, and the sponsor awards the full funding amount, isn’t this considered “approved by the sponsor”?

A. The fact that a cost included in a proposal budget is awarded by the sponsor, as requested, does not ensure a determination of allowability. The University is responsible for treating costs consistently and must not include costs associated with our F&A rate as direct costs.
 

V. Procedures BACK TO TOP

VI. Forms BACK TO TOP

VII. Contact Roles and Responsibilities BACK TO TOP

PI & Department Administrator Determines appropriateness of administrative or clerical salaries, computers, and other departmental expenses in the proposal budget
PI & Dept Administrator Prepares appropriate justification for administrative or clerical salaries, computers, and other departmental expenses and the associated proposal budget
Dean / Chair / Director Approves the proposal and associated proposal budget
ORPA Verifies justification for administrative or clerical salaries, computers, and other departmental expenses meets OMB A-21 criteria
ORPA Submits approved proposal, budget, and budget justification to sponsor
ORPA Establishes a project grant and award budget in Coeus and PeopleSoft Financials
PI & Dept Administrator Guides expense requests through proper University channels to ensure adherence to OMB A-21 criteria
PI & Dept Administrator Reviews administrative or clerical salaries, computers and other departmental expenses for allowability and maintains supporting documentation
SRA Verifies appropriateness of administrative or clerical salaries, computers, and other departmental expenses during the award stage
SRA Prepares and submits invoices and financial reports to sponsors as required

VIII. Appendices BACK TO TOP

Appendix A - Normal Direct and Normal F&A Costs

Appendix B - Flow Chart for Evaluating Allowable Direct Costs

IX. Update Log BACK TO TOP

1/6/12

Update to Appendix A on meal reimbursements per federal policies.

4/1/11

Modified "Direct Charging Computers" section to define incidental use; added sponsor examples and FAQs; added Appendix B flow chart

2/25/11

No changes. Copied to web-based policy library.

12/7/10

Copied to University policy template; added “Direct Charging Computers” section; modified policy title to “Direct and Indirect Costs on Federally Funded Sponsored Projects and Programs”

3/2/10

Original policy entitled “Charging of Administrative or Clerical Salaries and General Expenses to Federal Sponsored Projects and Programs"


 

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