Office of Research and Project Administration

DAs are responsible for overseeing and implementing financial controls in their departments to ensure that University and federal policies are carried out when managing sponsored research funds. The principal investigator (PI) is responsible for the overall management (both financial and technical) of a sponsored research award at Princeton .

DAs are responsible for the integrity (validity, accuracy and completeness) of transactions and the reporting of financial activities of their departments, project grants, sponsored projects and other types of project grants. It is therefore imperative that DAs understand all applicable regulations, policies and procedures when managing these funds.

Direct Cost Criteria

As stated earlier, direct costs being charged to a sponsored research award must satisfy the following criteria:

1. The costs must be ALLOWABLE as defined by OMB Circular A-21 and/or by the terms of the particular award (see below) and must be in accordance with University policies.
2. The cost must be ALLOCABLE , that is, the project which paid the expense must benefit from it.
3. The expenses must be REASONABLE, that is, the cost reflects what a "prudent person" might pay.

Further, OMB Circular A-21 requires that a university consistently implement cost policies. The key to consistency is the application of Princeton 's policies.

In addition, Princeton 's policies and procedures require that the transaction be sufficiently DOCUMENTED. Sufficient documentation provides clarity so that someone looking at the transaction later may understand and determine that it is allowable, allocable and reasonable.

If costs are not allowable, allocable, reasonable and documented they may NOT be charged to a sponsored research project.

Allowability

For a cost to be allowable, it must conform to:

• terms and conditions of the agreement;
   
• OMB Circular A-21 (federal awards); and
   
• Princeton policy.

Some costs may be an appropriate University expense but are not allowable as a charge to a sponsored project. Some costs may be allowable as a charge to a sponsored project but are not allowable under Princeton University expense guidelines. The following is an example:

• Fund raising is an appropriate expense for Princeton , but cannot be charged, either directly or indirectly, to the federal government, according to OMB Circular A-21.

The terms of an award are applied before other regulations, including OMB Circular A-21. For example, A-21 lists travel as an allowable cost; however, a particular award may stipulate that funds cannot be used for foreign travel expenses. Therefore, foreign travel expenses may not be charged to that particular project.

Just as the PI and DA should review the proposal RFP before beginning the process of developing a research proposal,
the PI and the DA should review the terms and conditions in the NOA and award document before commencing work and charging
expenses to a sponsored research project.

DAs are expected to review and approve transactions to ensure that the expense is included in the approved budget (or in an approved rebudget request); the funds are available in the account; and the transaction is properly documented and deemed to be allowable, allocable and reasonable for the project. The PI or his/her designee is responsible for initiating the request and assuring that the cost is necessary to carry out the scope of work.

As stated in the previous section, prior approvals are required when it is necessary to use funds in a way that differs from the sponsor approved budget. Such approval requests should be made before the cost is incurred. Without this approval, the expenditure is an unallowable cost. Consult the award document, the DA, or the ORPA representative regarding specific questions.

Allocability

An expense is allocable to a project if the item charged, (e.g., salaries, supplies, travel, student tuition) benefited the project. Having current funds available on the project or the inclusion of specific expenses in the approved budget is not sufficient evidence to support allocability.

When allocating charges, ask:

• Are the expenses allocated on a consistent basis?;
• Is the method of allocating expenses between projects sound?; and
• Is the expense allocation clearly documented?

The DA should assist the PI in determining the allocability of the expense. Some expenses are appropriate for a single award while other purchases may be attributed to more than one project and should be allocated based on an "approximation of the degree to which each project benefits." OMB Circular A-21 states:

"... if a cost benefits two or more projects or activities in proportions that may be determined without undue effort or cost, the costs should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, ... the costs may be allocated or transferred to benefited projects on any reasonable basis ..." Section C. 4. d. (3)

The circular further states:

"... Any costs allocable to a particular sponsored agreement under the standards provided in this Circular may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience. "

Reasonable bases of allocation include head count of researchers, floor space, and number of experiments. The department may have some other approved method of allocating costs, which meets the federal criteria. The method of allocation must be documented in the department, current, easily understood by a third party and available for review.

Non-administrative supplies purchased in bulk for multiple ongoing projects may not be distributed in an arbitrary manner - e.g., charged entirely to one project one month and then entirely to another project the second month - (unless that is the way the supplies were actually used.

Would A DA Accept These Charges?

• telephone toll charges allocated on the basis of comparative salaries
• consultant expenses allocated 50-50 for the two projects that (s)he works on.
• lab supplies allocated based on head count from 12 months ago.

The key to effective allocation methodology is to distribute the cost based on the benefit received. Take the example of telephone toll charges allocated on the basis of comparative salaries.

To determine if this is appropriate, the PI and DA must determine whether there was a direct relationship between someone's salary and the amount of phone calls that person made. In this case, there is no relationship; therefore, the allocation should not be based on that relationship.

In the second example, concerning the expenses of a consultant allocated 50/50 for the two projects s(he) worked on the question to answer is whether the consultant worked on the two projects equally. Documentation, such as verification by the principal investigator, must support this determination. If the amount of time the consultant worked on the projects changed, then the allocation must change also.

In the final example, basing costs for lab supplies on a head count from 12 months ago, the primary question is whether supplies were split equally among workers. The second question is whether the staffing remained consistent over the 12-month period. If the answer is yes for both questions, then the allocation methodology may be appropriate. If not, then another methodology for allocating the costs must be used.

It is recommended that DAs update allocation methodologies whenever there is a change in benefit to the project. If circumstances change monthly, then the calculations might have to be done monthly. Sound judgment should be used to make this determination. The key is that cost allocation must be supportable, understandable and reasonable based on the benefit each project receives. Contact ORPA with questions regarding your department's allocation methods.

Reasonableness

A cost is reasonable when it reflects what a "prudent person" might pay for a good or service.

The three questions a DA must ask to determine reasonableness of cost are:

• Is it necessary for performance of the award?;
• Does it advance the scope of work?; and
• Is it consistent with established institutional policies and practices?

Documentation

Documentation must be:

• clear;
• coherent;
• concise;
• complete;
• correct;
• consistent; and
• timely.

The documentation must be easy to understand by any third party either from Princeton or an outside agency. It must also be understandable several years into the future, as audits may occur up to 10 years after the initial documentation. If possible, DAs should include an explanation in the comments area on requisitions. This way, an auditor will have access to necessary documentation through the system and may not have to take up the valuable time of the DA to further understand the transaction.

The DA may assist the PI in properly documenting a project expenses. For supplies and other non-salary expenses, allocability may be documented through purchase/payment records and other files. For salaries and wages, the PI's certification of effort is the primary documentation of allocability, at which time the PI is assuring, after the fact, that salaries were appropriately paid in relation to work performed.

All documentation must be available for audit purposes for at least seven years after the final reports have been filed for grants, and longer for contracts.  

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