University of Vermont

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Cost Accounting Standards

Cost Accounting Definitions (OMB Circular A-21)

Account:  A chartfield in the Chart of Accounts that categorizes the nature of the transaction as a specific type of revenue, expense, asset or liability.

CAS 501 (Consistency in estimating, accumulating, and reporting costs):  A federal cost accounting standard that requires a University cost accounting practice in estimating costs for a proposal that is consistent with accumulating and reporting costs. Consistency in the application of cost accounting practices is necessary to enhance the likelihood that comparable transactions are treated alike.

CAS 502 (Consistency in allocating costs incurred for the same purpose):  A federal cost accounting standard that requires each type of cost to be allocated only once and on only one basis to any sponsored agreement or other cost objective. A cost type must be treated consistently in like circumstances as either a direct cost or as an indirect cost.

CAS 505 (Accounting for Unallowable Costs):  A federal cost accounting standard that facilitates the negotiation, audit, administration and settlement of sponsored agreements. The standard requires the identification of unallowable costs and detailed records that provide a visible way of assessing its accounting status in terms of allocability to sponsored agreement cost objectives.

CAS 506 (Accounting Period):  A federal cost accounting standard that requires Universities to use their fiscal year as their cost accounting period unless certain exceptions occur.

Cost Accounting Standards (CAS 501, 502, 505,  and 506):  Four Cost Accounting Standards (CAS) listed in OMB Circular A-21 that are designed to achieve consistency in cost accounting practices for Educational Institutions.

Direct Costs (OMB A-21, SECTION D.1.): Direct costs are those costs that can be identified specifically with a particular sponsored project, 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. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs. Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.

Documentation:  Providing a detailed explanation and support documents as evidence to substantiate allocability, allowability, and reasonableness for a specific transaction.

Facilities and Administrative (F&A) Costs:  Costs that are incurred for common or joint objectives and therefore cannot be readily and specifically identified with a particular sponsored project. F&A costs, also known as indirect costs or overhead, are those costs associated with maintaining the infrastructure of the University.

Federal Formula Grant: Federal funding for which the allocation methodology is strictly determined in federal statute or regulation. University examples of federal formula grants are the Hatch, McIntire-Stennis, Multi-State, Animal Health, and Smith Lever Acts for Agricultural Research and Extension purposes.

Federal Sponsored Agreement: Any grant, contract, or cooperative agreement received directly by The University of Vermont as well as subawards received by the University under federal awards to other organizations.

General Purpose Equipment: Equipment that is not limited to research, medical, scientific, or other technical activities. Examples include office equipment and furnishings, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction and printing equipment, and motor vehicles.
 Indirect Costs (OMB A-21, Section E.1. & F.1): Indirect costs are defined in OMB A-21 as “those that are incurred for common or joint objectives [of the University] and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity or any other institutional activity.” A number of components comprise these costs, which are categorized as "facilities and administration.” “Facilities” includes “depreciation and use allowances, interest on debt associated with certain buildings, equipment and capital improvements, operation and maintenance expenses, and library expenses.” “Administration” is defined as “general administration and general expenses, departmental administration, sponsored projects administration, student administration and services, and all other types of expenditures not listed specifically under…facilities.”

Major Project: As defined by OMB Circular A-21, Section F 6 b (2), a Major Project is a project or activity that requires an extensive amount of administrative and clerical support that is significantly greater than the routine level of such services provided by academic departments. Major projects are those that are administratively intensive and are not necessarily defined by the amount of funding.

OMB Circular A-110:  Standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations.

OMB Circular A-21: Established principles for determining applicable costs to grants, contracts, and other agreements with educational institutions.

Proportional Benefit Rule: Under some circumstances, a direct expense may benefit two or more sponsored agreements or activities. When the cost’s proportional benefit towards each sponsored agreement and/or activity can be determined without undue effort or cost, then the cost should be allocated based on the proportional benefit.

Reasonable Cost: A cost may be considered reasonable if the nature of the goods or services acquired or applied and the amount involved reflects the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.

Review: A process whereby transactions are assigned as a direct, indirect, or unallowable cost per the federal regulations, sponsored agreement, and University policies.

Unlike Circumstance: An activity or use of a cost item which is substantially greater in amount or different in purpose than the normal use of that cost type.

Last modified December 19 2011 10:19 AM

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