What’s Essential
The majority of MIT’s sponsored funds are from federal sources and for these MIT must comply with the policies of the federal funding agency and also the federal cost principles as established by the Office of Management and Budget (OMB). Foundations, industry and other sponsors may impose their own policies on how those funds must be managed, however, when non-federal sponsors are silent, PI’s should follow MIT’s standard policies for managing funds. Consult your Notice of Award for specific guidance.
Why It’s Important
MIT and its PIs are jointly responsible for providing appropriate and compliant stewardship of sponsored funds. Key to this is strict adherence to the cost principles mandated by the sponsor. The consequences of failing to comply may range from sponsor disallowance of specific incurred costs to termination of awards and federal sanctions, depending on the particular costs and circumstances in question.
How To Comply
All MIT personnel responsible for initiating or approving financial transactions must be familiar with the cost principles contained in the OMB Uniform Guidance and also any sponsor-specific requirements. With the help of department administration, PIs are expected to spend sponsored funds in compliance with the sponsor’s requirements and in accordance with the Sponsor Approved Budget (SAB), or the financial plan for any given sponsored project. The federal government and many non-federal sponsors require the comparison of expenditures with the approved budgeted amounts. SABs are uploaded into MIT’s financial systems and PIs and their administrators are encouraged to review expenditures versus approved budgets. Note that many sponsors allow MIT flexibility in deviating from the budget – see Managing Projects for more information.
The “allowability” of a cost is the key concept of cost principles. For a cost to be allowable on a specific sponsored award, it must be reasonable, allocable, and consistently treated—and it must not be subject to limitation per Uniform Guidance.
- A-21 and A-110 are the guidance documents for federal awards made prior to December 26, 2014
- Uniform Guidance, Subpart E is the guidance for federal awards made after December 26, 2014.
- A cost is reasonable if it is necessary for the performance of the specific sponsored award and would have been incurred by a “prudent person” for the particular goods or services obtained
- A cost is allocable if its benefit, either in whole or in part, to the specific sponsored award can be demonstrated. For example:
- If a cost benefits two or more sponsored projects or other activities in proportions that can be readily determined, that cost must be allocated to each activity based on the proportional benefit.
- If a cost benefits two or more sponsored projects or other activities in proportions that cannot be readily determined due to the inter-relationship of the work involved, that cost may be allocated to each activity using a reasonable basis.
Is it Consistent?
- A cost is consistently treated if it is always institutionally treated as either a direct cost of research or an indirect (Facilities and Administrative; F&A) cost of research when incurred for the same purpose in like circumstances.
- A cost is subject to limitations per OMB Uniform Guidance if it is specifically identified as unallowable or subject to limitation.
It is important to note that the “allowability” of a cost is just one aspect of the federal cost principles and that adherence to all cost principles is required to properly and appropriately account for the expenses of conducting research at MIT. With that in mind, MIT has incorporated these federal cost principles into its policies and procedures for the administration of all research awards. Strict adherence to Institute policies, therefore, should ensure compliance with these federal regulations.
Remember to document your costs on sponsored programs, including how the expense benefited the project.
Staff members of the Research Administration Services, Office of Cost Analysis, and the Vice President for Finance Office are available at all times to assist PIs and their department, laboratory, and center (DLC) administrators in the interpretation and application of cost principles.