Keeping Pandora’s Box Tightly Closed: Applying and Managing Clerical and Administrative Costs to Federal Awards

images (2)Some Types of Federal Awards Can Accept Administrative Costs Under Limited Conditions  

After having it drilled into your head that administrative costs are nearly impossible to justify on federal grants, you may be surprised to learn that there are regulations that allow the charging of administrative costs to Federal awards under certain circumstances. However, it is important to review your institutional sponsored research policies regarding the proposal, documentation and administration of administrative costs on federal awards, especially in light of recent audits in this area. I attended a panel presentation today on this subject at the Financial Research Administration conference given by NCURA that was staffed by Attain consultants, and it was an excellent overview on the topic.

Circular A21, section F6B, and Exhibit C provide guidance on the circumstances under which department administrators may consider charging clerical and administrative costs as a direct charge to a sponsored project. The Cost Accounting Standards section 9905.502 supports the assignment of costs using like circumstances, and consistent allocation of costs between direct and indirect accounts.

Section F6B outlines the following requirements:

  1. The sponsored project must be a “major project” which requires an “extensive amount” of clerical support.
  2. The clerical support personnel must be specifically identified with the project activity in the documentation (budget justification and proposal).
  3. The project must specifically budget for the administrative or clerical costs (and de facto receive approval from the sponsor).

Exhibit C specifies the type of project that would be considered a “major project”, which would typically be considered a P, M or U award from the NIH, or a type of award with one or more of the following types of characteristics:

  • A large complex program
  • An award requiring extensive data analysis
  • A scientific award requiring extensive collaboration which includes making travel and meeting arrangements for large numbers of people
  • Projects where investigators are geographically unavailable to usual sources of administration (so administrators have to travel to them).
  • Database management, coordination of multiple investigator projects

Documentation is No Guarantee That Charges Are Approved – But A Budget and Justification Helps A Lot

When considering the application of administrative salary or costs to a Federal award, it is important to plan for these costs during the proposal stage, and consider the documentation of these costs in the budget and budget justification. This is the strongest type of documentation (which ties the costs and supports their justification to the scientific plan at the time of the proposal). When this is not possible, written documentation of the request and approval of the costs with the justification that are submitted to the funding agency, with the written approval should be obtained.

It’s important to name the personnel (the individual, or at minimum, the position title, if you are funding a position or portion of a position) in your budget justification. When you administer this person’s time, their activity report (if they are paid hourly) or effort report (if they are paid monthly) will tie back to the budget and budget justification. And yes – setting up activity reporting or effort reporting that documents their work on the project is a must. Note that hourly employees cannot provide an effort report due to the type of employment that they typically provide on a project.

Careful reconciliation of administrative costs on an award are necessary to ensure that the charges are hitting the correct account codes, and the proper documentation is obtained and maintained throughout the life of the award. Should the award be audited, this documentation will be needed to substantiate these charges.

The panelists noted that despite receiving approval from funding agencies, and maintaining documentation, some Universities have experienced OIG audits on administrative cost allocations and have found that they were required to remove administrative costs charged to Federal grants at the OIG request. The proposal, budget and grants management documentation will establish a reasonable, consistent allocation method between direct and indirect costs, but it does not guarantee that those costs will remain on the account in the event of an audit.

One other note of caution: an audit on administrative cost allocation methods can easily become an audit about your institution’s F&A rate. This is why it is best to be conservative when proposing, allocating and charging direct costs to grants, and why it is important to have strong institutional controls over this process.

Wondering why it’s hard to get a laptop approved on your PI’s proposal? This is why.

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