RA60 Cost Management

Contents:

• Purpose
• General Cost Management Principles
• Pre-Award Expenditures
• Budget Realignment
• Cost Transfers
• Further Information
• Cross References

PURPOSE:

To provide policy on costs incurred on sponsored awards to assure compliance with controlling guidance.

GENERAL COST MANAGEMENT PRINCIPLES:

CONTROLLING GUIDANCE

Costs charged to sponsored awards are controlled by specific policy and guidelines. The following are all applicable, with the most restrictive policy or guideline enforced when there are discrepancies:

• University Policy and Guidelines
  • See Penn State Policies
• Specific Agency Guidelines
• Governmental Costing Standards
  • Uniform Guidance 2 CFR Part 200.
• State and Federal Laws and Regulations

Sponsored awards also need to be managed with the highest level of integrity and ethics. Anyone involved in sponsored award administration who believes that a non-compliance issue has arisen must contact the Research Administrator, Financial Officer or the Compliance Hotline.

Additional guidance can be found in RA02 – Stewardship of Sponsored Programs.

DIRECT VS. INDIRECT (F&A) COSTS

There are a number of costs which are typically covered by F&A, including administrative and clerical salaries, general purpose equipment, paper, toner, office supplies, routine photocopying, mailing services, telecommunication costs, and memberships. In special circumstances, it may be permissible to charge such items as direct costs, but only after completing a Cost Accounting Justification Form.  If this form was not completed at the time of the proposal, it MUST be completed when the cost is incurred, and the approved form must be uploaded to the Grant in SIMBA.  Please note that if the expenses were not included in the original proposal, it may be necessary to request the sponsor's prior approval before direct charging such costs. Additional guidance can be found in RA21 - Development of Proposal Budget and the Cost Accounting Standards FAQ.   

NOTE: Although applied through a rate, fringe benefits are a direct cost.  Therefore, directly charged salaries will always have directly applied fringe benefits.

DOCUMENTATION REQUIREMENTS

All costs need to have adequate documentation to support their application to a sponsored award.  The documentation must provide enough detail for a reasonable person to understand the purpose of the cost and how it benefited the sponsored award.  These justifications must be documented in the University's accounting system, i.e., the System for Integrated Management, Budgeting, and Accounting (SIMBA), using the long text or attachments. Additional justification, such as the Cost Accounting Justification Form noted above, or explanations for late transfers, may also be required by the Research Coordinator or Financial Officer, beyond the detail included within the expense transaction.

FALSE CLAIMS

Signatures on reports, including effort certifications, are asserting a claim that the contents of the reports are accurate and appropriate. Thorough review of reports, including effort certifications, is critical before reports are confirmed.  It is the responsibility of the PI to bring to the Research Administrator or Financial Officer any questions regarding reported costs before signing and certifying the costs. Knowingly approving an incorrect report regarding costs charged to a sponsored award is a false claim. See RA02 – Stewardship of Sponsored Programs for additional information regarding compliance with the False Claims Act.

PRE-AWARD EXPENDITURES:

ADVANCED FUND NUMBERS

Occasionally, a college/unit will decide to establish a restricted grant before the agreement has been fully executed. For example, certain federal agencies permit universities to incur costs up to 90 days prior to the begin date of a grant. In other cases, Business Areas will decide to accept the risk associated with establishing a restricted grant, even though the formal agreement has not yet been received, negotiated, and/or executed in the Office of Sponsored Programs. In all such cases, advanced restricted grants (or "advanced funds" as they are more commonly referred to) must be established.

No work should be done and no expenses should be incurred on a project until a grant has been established in SIMBA. It is unacceptable to charge such costs to unrestricted funds or to other restricted accounts.

The unit that established the advanced fund assumes all financial and non-financial responsibility in the event the agreement is never executed. Invoicing cannot occur until an agreement is fully executed.

Even if the Business Area is willing to accept the financial risk associated with incurring costs for a pending project, it is still essential to ensure that the performance of the project will not jeopardize human subjects or animal subjects, expose personnel to health and safety risks, or violate laws and regulations (e.g., performing work for a sanctioned person or country or performing work prior to implementation of required data security controls). Thus, advance funds will not be established until all required compliance checks are complete.  See RP03 – The Use of Human Participants in Research, RP04 – Care and Use of Vertebrate Animals, RP06 – Disclosure and Management of Significant Financial Interests, RA40 – Compliance with Federal Export Regulations, and RAG40 – Guidelines for Ensuring Compliance with Export Control Policy RA40.

BUDGET REALIGNMENT:

Budget realignment is the process of adjusting the original awarded budget.  There are many considerations in determining if a budget can be realigned, including departmental and college restrictions.  Agency or sponsor regulations are the prime determinant if realignment is permitted and within what parameters.  PIs must refer to the award terms and conditions before making changes to the original awarded budget.

See RA63 - Budget Revisions and Other Prior Approval Requirements for detailed information regarding Federal Awards and budget realignment.

COST TRANSFERS:

Departments may request the transfer of an expenditure from one account to another via journal entry. It is important to offer a proper justification for all such transfers. Under most circumstances, a justification should include a) an explanation of why the expense was charged to the wrong Sponsored Program, b) an explanation of why the expense should be allocated to a different Sponsored Program, and c) a description of the actions taken to diminish the likelihood of such errors occurring in the future. See also RA02 ("Specific Issues Relating to Allocation of Costs") and RA10 ("Allocable costs” and “Direct cost allocation principles”). Additional guidance regarding labor transfers can be found at FN2015 Labor Distribution (formerly CR2015) (“changes to labor distributions”).

UNEMPLOYMENT COMPENSATION:

Sponsored awards generally will not cover unemployment compensation as a direct cost of the award. Sponsored awards which recover an F&A rate higher than 15% can recover unemployment costs from a central fund, given that unemployment costs are factored into the F&A rate.  Sponsored awards which recover F&A of 15% or less are not eligible for central payment of unemployment compensation and the Business Area must cover these costs through other non-sponsored funding sources.

FURTHER INFORMATION:

For questions, additional detail, or to request changes to this policy, please contact the Office of the Senior Vice President for Research or the Office of Budget and Finance.

CROSS REFERENCES:

Other Policies may apply, especially:

FN2015 – Labor Distribution

RA02 – Stewardship of Sponsored Program

RA10 – Costing Principles for Sponsored Awards

RA21 – Development of Proposal Budget

RA40 – Compliance with Federal Export Regulations

RA63 – Budget Revisions and Other Prior Approval Requirements

RAG40 – Guidelines for Ensuring Compliance with Export Control Policy RA40

RP03 – The Use of Human Participants in Research

RP04 – Care and Use of Vertebrate Animals

RP06 – Disclosure and Management of Significant Financial Interests

Revision History:

• March 27, 2024 - Updated Cost Transfers section in conjunction with the release of FN2015

• September 18, 2023 - Added "data security controls" as an additional example of a regulatory control that would preclude establishment of an advance fund number.

• March 11, 2021 - Updated SIMBA terminology

• September 19, 2019 - Changed Vice President for Research to Senior Vice President for Research

• March 19, 2019 - Cost Transfer section added

• January 18, 2018 - Unemployment Compensation section added

• February 26, 2016 - This new policy has been created as part of the policy reorganization brought about by implementation of the Uniform Guidance (2 CFR 200).