Guideline Name:


Effective date: June 23, 1998

Sponsored Projects Administration (SPA)


No. 04-40-001.100



I. Guideline statement and reasonII. Related InformationIII. GuidelinesA. Charging Direct costs to Sponsored Projects

1. Allowable Direct Costs on Federally Sponsored Projects

2. Unacceptable Direct Charging Practices

B. Charging Indirect Costs to Sponsored Projects

1. Recognition of Indirect Costs on Sponsored Projects

C. Circumstances for Charging Indirect-type costs as Direct costs

1. Administrative and Clerical Salaries & Wages

a) Program Specific Support

b) Nonfederal Sponsored Projects

2. Non-Payroll Expenses

D. Expressly Unallowable costs

E. Effort Reporting

F. Project Cost Overruns

G. Recharge Centers/Internal Service Organizations

H. Proposal Budgets

- Typical Direct and Indirect Costs Table

- A-21 Unallowable Costs (Appendix)


· For cost allowability on a specific sponsored project, contact the appropriate grant administrator at Sponsored Projects Administration.

· For nonsponsored project accounts contact Irene Barhyte @ 4-7780

· For questions relating to the development of Indirect Cost Rates and effort certification, contact trotterj@ohsu.edu or 4-1193

· General Questions regarding this document should be directed to James Trotter, Director, Sponsored Projects Administration at 494-0355.


I. Guideline statement and reason

This Guideline establishes consistent practices for defining and charging costs as either direct or indirect costs to federally sponsored awards and other university accounts as set forth in the Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions. In accordance with the University Policy No. 04-40-001, Direct and Indirect Charging of Costs, "Principal Investigators, Administrators and Department Chairs who support and/or are engage in sponsored activity shall adhere to this policy and SPA practices, procedures and guidelines established under it."

OHSU is a recipient of federal awards from agencies such as the National Institutes of Health (NIH), the Department of Energy (DOE), and the National Science Foundation (NSF). Therefore, the University is required to submit indirect cost rate proposals to its cognizant agency, the Department of Health and Human Services (DHHS) that are in compliance with the guidelines set forth in OMB Circular A-21. In addition, OMB Circular A-21 requires OHSU to submit and update its Cost Accounting Standards (CAS) Disclosure Statement to DHHS identifying accounting practices, policies, and procedures for assigning costs to federally sponsored programs, and to attest to the consistent treatment of those practices. Adherence to these guidelines by the University personnel is necessary to prevent cost disallowances and penalties by the federal government.


II. Related Information


SPA Policies

- Direct and Indirect Charging of Costs Policy No. 04-40-001

- Cost Transfers Policy No. 04-40-003

- Overdrafts Policy No. 04-40-005


SPA Procedures

- Pending Awards Procedure No. 04-40-001.130


Federal & Agency Policies

- Federal Office of Management & Budget Circular A-21 - Cost Principles for Educational Institutions

- Federal Office of Management & Budget Circular A-110 - Uniform Administrative Requirements

- 48 Code of Federal Regulations Part 9905 Cost Accounting Standards for Educational Institutions

- Grant Policy Statement of NIH and NSF Agency guidelines


A. Charging of Direct Costs to Sponsored Projects


1. Allowable Direct Costs on Federally Sponsored Projects

Sponsors (in particular, federal) will reimburse authorized spending on their awards for direct costs provided the costs are: (1) Reasonable and necessary for meeting the objectives of the project; (2) Allowable according the terms and conditions of the award and in accordance with OMB Circular A-21.J; and (3) Allocable, i.e., the assignment of cost to an activity, project or task based on its relative benefit to the activity, project or task. OMB Circular A-21 further states costs such as:

salaries of technical staff, laboratory supplies (e.g., chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs, and specialized shop costs shall be treated as direct cost wherever identifiable to a particular cost objective. Direct charging of these costs may be accomplished through specific identification of individual costs to benefiting projects, activities, or through recharge centers or specialized service facilities, as appropriate under the circumstances.

Salaries & wages must be charged to sponsored projects based on the actual effort expended on the project. The documentation to support the reimbursement of labor by sponsors is the University's Personnel Activity Reporting (PAR) form which requires certification by the appropriate employee(s).

Non-payroll costs listed above should be charged based on actual incurred costs and their relative benefit to the project or activity. For allocating costs between two or more projects, OMB Circular A-21 Section C.4.d.(3), states:

If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost 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... the costs may be allocated or transferred to benefited projects on any reasonable basis...

A reasonable basis include, actual usage supported by logs/adequate documentation, or for example, project laboratory glassware allocated by the effort/FTEs of those engaged on the interrelated projects. Whichever reasonable basis is used, principal investigators with the assistance of their administrators must be able to demonstrate the benefit of all costs charged to their project(s). This allocation of costs should be made at the time of purchase. If the benefit is spread over multiple projects to serve common shared activities and it is difficult (i.e., cannot be done with relative ease and with a high degree of accuracy) to identify a direct benefit to each activity or project, the cost must be considered an indirect cost. For example, equipment frequently used in a laboratory for seven projects makes it difficult to accurately assign a direct benefit to each project. The cost should be considered an indirect cost and charged to an unrestricted account. As a rule of thumb, if these costs benefit more than four projects/activities, the ability to accurately allocate the cost to the appropriate projects/activities diminishes and therefore becomes questionable as a direct cost.


2. Unacceptable Direct Charging Practices

The following charging practices are inappropriate on federally sponsored projects:

· Any costs allocable to a particular sponsored agreement 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 - OMB Circular A-21 C.4(b)).

· Assigning costs to projects on the basis of the remaining balance to resolve funding problems. In other words one cannot resolve excess of underspending by simply applying or transferring charges to the account with available funds.

· Charging costs incurred for multiple projects or functions to several sponsored projects when there is difficulty determining the benefit of the cost to each sponsored project

· Charging an expense exclusively to an award when the expense has supported other activities

· Rotating charges among projects without establishing that the rotation schedule accurately reflects the relative benefit to each project during that specified period of time.

· Charging the budgeted amount (in contrast to charging an amount based on actual usage)

· Assigning charges to an award before the cost is incurred

· Assigning charges that are part of the normal administrative support for awards (e.g., proposal preparation, accounting, payroll)

· Applying a "departmental tax" to federal agreements for clerical, secretarial, and administrative costs


B. The Charging of Indirect Costs to Sponsored Projects


 1. Recognition of Indirect Costs on Sponsored Projects

Sponsors may reimburse the University for indirect costs incurred on the sponsor's behalf. The reimbursement for federal awards is typically based on a predetermined federally negotiated indirect cost rate applied to the modified direct cost of the award (MTDC). The calculated amount represents the sponsor's share of the University's research or outreach support costs. More specifically, this calculated amount via the indirect cost rate represents the following support costs incurred at OHSU summarized in OMB Circular A-21 broad categories:

A-21 Categories Where indirect costs are incurred within OHSU and type of cost.
General & Administrative · the cost of operating institution-wide central offices such as Corporate Financial Services (Accounts Payable, Payroll, Accounts Receivable), Purchasing, Human Resources, President, Legal, VP of Finance, etc.
Department Administration

· academic college offices for salaries and operating expenses limited to administrative and clerical functions;

· academic departments and research centers for the administrative effort of clerical, faculty and other professional personnel, and non-payroll expenditures in furthering the various missions of the unit

Sponsored Projects Admin. · Pre and Post Award Grant offices, Human Subjects Office, etc.
Building Depreciation · depreciation of University owned buildings over its useful life
Equipment Depreciation · cost of capitalized equipment purchased on nonsponsored accounts depreciated over its useful life based on the American Hospital Association
Interest Expense · external interest incurred for the financing of building construction
Operations & Maintenance · Facilities Management, and department paid expenses for repair & maintenance of grounds, waste disposal, utilities, campus security, etc.
Libraries · Central libraries for books, salaries & wages, etc.

The federally negotiated indirect cost rates for research and outreach are developed by the University in accordance with OMB Circular A-21 and are periodically negotiated with the Department of Health and Human Services (DHHS), the University's federal cognizant agency. Theses rates are based on the allocated share of total indirect costs incurred listed above to support the University's various missions. Again, sponsors are charged indirect costs through the application of the indirect cost rate. To charge normally indirect costs as direct costs when for the most part are included in the indirect cost rate, sponsors are inappropriately charged twice. To prevent double charging, the following are normally considered indirect costs and should not be charged as direct costs to federally sponsored accounts:

· Salaries of administrative and clerical staff for activities such as:

- General departmental administration

- Contracts and grants administration

- Personnel activities

- Accounting and budgeting activities

- Filing

- Processing vouchers

- Routine travel planning

- Routine data entry

- Routine telephone answering

- Newsletter/brochure preparation

- Correcting and organizing data

- Processing and tracking routine purchase orders

- Maintaining databases

· Office supplies such as:

- binders

- business cards

- clocks

- Copying and copy paper

- diskettes

- envelopes

- erasers

- file folders and labels

- letterhead

- paper clips

- pencils

- pens

- rubber bands

- post-its

- push pins

- rulers

- scissors

- staplers, staples, staple pullers

- tape

· Postage

· Local telephone costs

· Telephone equipment and pagers

· Memberships


C. Circumstances for Charging Indirect-type costs as Direct Costs


1. Administrative and Clerical Salaries & Wages

a) Program Specific Support

Although general departmental/divisional support should be considered an indirect activity, OMB Circular A-21 F.6.(b) provides that direct charging of these costs may be appropriate:

The salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and the individual involved can be specifically identified with the project or activity.

Further interpretation by the federal government provides that:

extensive administrative program support, significantly greater than the routine level provided by academic department administrative and clerical staff may be direct charged to a sponsored project if the activity is approved by the funding agency and adequate documentation is available to support the direct charge.

Justification and documentation should be addressed in the budget narrative at the proposal stage and approved by OHSU's Pre-award office. It is expected that the certified effort statements for these individuals would depict a significant percent of effort devoted to these type of projects.

The following examples are illustrative of circumstances where direct charging the salaries of administrative or clerical staff may be appropriate, but is not limited to, the following:

... Performing administrative activities beyond the routine (e.g., preparing a mass mailing)

... Project specific programming

... Extensive data entry

... Extensive research data accumulation

... Extensive interviewing

... Performing laboratory activities specifically related to the award

... Computer research work

... Conducting a telephone survey

... Grant-related transcribing, beyond the routine

... Writing manuscripts for publication

... Developing materials for presentation directly related to the award

... Planning and organizing large conferences directly related to the award

Large, complex programs, such as General Clinical Research Centers, Primate Centers, Program Projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.

Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical records studies.

Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).

These examples are not exhaustive nor are they intended to imply that direct charging of these activities is always appropriate. Where direct charges are made, care must be exercised that all costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities uniformly throughout the University.

b) Nonfederal Sponsored Projects

Clerical and administrative salaries and wages that are required for nonfederal sponsored projects can be charged as direct costs, unless specifically restricted by the sponsor.


2. Non-Payroll Expenses

The cost items in this section are some of the more common departmental costs at OHSU. OMB Circular A-21, Section F.6(b) states:

Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as indirect costs.

However, similar to administrative and clerical salaries & wages, normally indirect type costs may be treated as direct costs under special circumstances when applied consistently throughout the University in like circumstance. The review of the cost items listed in this section is provided as general guidance only.


Basic telephone line and equipment charges and local telephone services are normally treated as indirect costs and included in Departmental Administration costs.

Long distance and fax charges must be charged to a sponsored project or other benefiting activity (e.g., Instruction, Patient Care, Departmental Administration, etc.).


Ordinary and routine postage costs and mail stop charges are treated as indirect costs and included in Departmental Administration costs.

Costs of an extraordinary amount of postage (e.g., for a mass mailing as an integral part of meeting the objectives of a grant to obtain survey data) must be charged to the benefiting direct activity account.

Overnight delivery costs must be charged to the appropriate benefiting account.


Normal reproduction costs are treated as indirect costs and included in Departmental Administration costs.

Extraordinary reproduction costs must be direct charged when the costs are directly identified to a benefiting activity (e.g., the reproduction of a publication or other project exclusive material).


Utility costs are normally treated as indirect costs. If utility costs are associated with an external lease agreement, they should be charged to the benefiting activity.

Repairs & Maintenance

Core service repair and maintenance (as defined in OHSU's Facilities Manual for Operations and Maintenance Policies and Service Guidelines) for institution supported space in OHSU buildings (non-leased) must be treated as indirect costs.

Special need services that are not covered by the core repair and maintenance services (as defined in OHSU's Facilities Manual for Operations and Maintenance Policies and Service Guidelines) must be charged to the benefiting activity (e.g., Research, Instruction, Clinical Activities, Departmental Administration, etc.).

Repair and maintenance costs for equipment that is either installed as part of a OHSU funded capital project or which is an integral part of a central building system must be treated as indirect costs. Repair and maintenance costs for all other equipment, whether fixed or moveable, must be charged to the benefiting activity (e.g., Research, Instruction, Clinical Activities, Departmental Administration, etc.).

Office Supplies

Office supplies are normally treated as indirect costs and included in Departmental Administration costs. However, an extensive amount of office supplies significantly greater than the routine level may be charged to the benefiting activity.

Advertising Costs

Allowable advertising costs must be charged directly to a benefiting activity if the purpose of the cost is for the recruitment of personnel, the procurement of goods and services, the disposal of scrap or surplus materials, and other specific purposes necessary to meet the requirements of a sponsored agreement or other program.

Meetings & Conferences

Costs of meetings and conferences, whose primary purpose is the dissemination of technical information, can be charged to a sponsored project where specifically provided for in the sponsored project.

Sensitive costs items, such as flowers, party balloons, and gifts are not allowable and should be charged to an unallowable object code. These costs should not be charged to Federally sponsored projects.

Award Proposal Development

The development of grant or contract proposals and associated activities, including typing, copying, and mailing, should be departmental administration and treated as indirect costs. Grant proposals for continuation year of non-competitive awards should be charged to the grant as direct costs.

Stipends for Scholarships and Fellowships

Any payment made to an individual under a scholarship or fellowship for a stipend is an allowable direct charge to a federally sponsored program if the purpose is to provide training and it is approved by the sponsoring agency.


D. Expressly Unallowable Costs


In accordance with OMB Circulars A-21 and A-110, the federal government will not reimburse universities for certain costs that it considers unallowable. These costs cannot be included in the development of the indirect cost rate, charged as a direct cost to federally sponsored projects, nor included in ISO's/departmental recharge rates. These circulars require the University to establish screens for potentially unallowable costs, and to certify that unallowable costs are excluded from the University's rates. Such costs include: Alumni activities, development and fund raising, entertainment, lobbying, defense or prosecution of criminal or civil proceedings, selling/marketing, and trustee travel/subsistence. Refer to Appendix A-21 Unallowables for a complete list.

All A-21 unallowable costs must be charged to an appropriate object code, or to a unique account that clearly identifies through the account's activity/function code that the account records A-21 unallowable expenditures in accordance with OHSU's chart of accounts. Departments should exercise due diligence to assure that the appropriate object codes are used to ensure unallowable costs are not directly or indirectly allocated to federally sponsored programs for both labor and nonlabor unallowable costs as follow:

· Labor Costs

Departments should separately budget and expend the salaries and benefits for any person who spends 25% or more of any particular month performing any of the A-21 unallowable activities. For example, if Dean J. Doe spends 35% of her time conducting fund raising activities, that portion of her salary and benefits should be charged to an account with the appropriate function/activity for Development/Alumni.

· Non-Labor Costs

All unallowable nonlabor costs must be charged to the appropriate object code that is easily identifiable as a federal nonreimburseable expense and or recorded in an account/fund that is specifically established as a federal unallowable activity via the indirect cost code (ICC) designation. Contact the Supervisor of Cost Studies @ 494-0710 for assistance.


E. Effort Reporting


Effort reporting (PAR) is required by OMB Circular A-21 and is designed to substantiate effort spent by all employees whose salaries are charged to federal funds and federal flow through funds. The reports reflect effort applicable to each federally sponsored agreement.

The reports reflect after-the-fact reporting of the percentage distribution of employee activity. Charges may be made initially on the basis of estimates made before the services are performed, provided that such charges are promptly adjusted if significant differences are found.

All personnel who were paid on sponsored funds (federal and nonfederal) and/or worked on a sponsored project (particularly principal investigators) are required to complete PAR forms to certify their effort and salary distribution in accordance with University policies and federal regulations. Sponsors cannot be charged labor unless PAR forms are certified in a timely and appropriate manner. It is rare for faculty to certify 100% effort on a federal award; funded by the federal award when also engage in teaching, and/or other institutional activities.

All PAR reporting employees must complete a PAR form quarterly. PAR forms must be certified by the employee. Refer to SPA Procedure, Personnel Activity Reporting-Effort Reporting.

Capturing Cost Sharing by Expanding Coverage Related to Proposal Effort

Cost sharing is defined as program or project costs not reimbursed by the sponsoring agency. Cost sharing costs often may be assigned to an account whose function does not appropriately reflect the function of the cost sharing expenditures. For example, costs incurred as cost sharing on a Research account may be charged to an Instruction account. Capturing cost sharing appropriately, whether mandatory (stipulated as a condition of the agreement) or voluntary (discretionary use of matching funds from gifts, departmental funds, etc.) supports the development of OHSU's indirect cost rate proposal. Effort that is included on a sponsored project, but not funded by the sponsoring agency should be considered cost sharing and should be identified in the accounting system. Cost sharing should be accounted for when employees correctly certify their effort.


F. Project Cost Overruns


Spending on sponsored accounts should be limited to allowable reimbursable limits. Cost overruns when they occur must be absorbed by the Principal Investigator and the department on unrestricted account(s). For the development of indirect cost rates, it is essential that these costs be easily recognizable in the general accounting system by use of the special object code established by SPA. Contact the SPA accountant to move these expenses appropriately. Refer to University Policy, Overdrafts on Sponsored Accounts..


G. Recharge Centers/ Internal Service Organization (ISO)


Organizations within OHSU whose primary mission is providing services at a cost to internal OHSU departments customers are considered Internal Service Organizations (ISO). The Controller's Office has established policies and procedures for charging organizational units for support services that includes all allowable costs associated with providing the products or services.

ISO recharge costs charged directly to a sponsored project are allowable as long as the department charging the project has followed OHSU's Service Center Administrative Procedure and the recharge rate has been approved by Sponsored Projects Administration & Cost Studies Office.

ISOs must also consider the consistent charging of direct and indirect costs in the development of their rates. The criteria for including indirect-type costs as direct costs are:

1. ISOs which provide specialized services that are self supported, a distinct unit and, support the mission of the University should include indirect-type costs that are specifically incurred for the operations of the ISO in developing their rates. Examples of such organizations are Telecommunications, Research Support, Printing Services and Media Resources.

2. Departmental recharge accounts that are established to charge out incidental services or supplies cannot include in their rates indirect-type costs when charging federally sponsored projects.

Departments should not create recharge accounts such as secretarial support pools or Xeroxing and photocopying centers to circumvent this policy.

It is the responsibility of the principal investigator with the assistance of the unit administrator, to justify the direct charge of ISOs' and department recharge accounts' goods and services to federally sponsored projects.


H. Proposal Budgets


Proposal budgets must include reasonable estimates of costs needed to conduct the project and must be developed in accordance with these guidelines. The proposal budget and budget narrative are appropriate places for the principal investigator to document special circumstances or other justification to support costs in the proposal.

The following chart provides a summary for charging costs direct and indirect:

Typical Direct and Indirect Costs



Salaries & Wages/Fringe Benefits

Faculty, technicians, scientists, research assistants, postdoctoral associates, or other technical and programmatic in order to meet the goals of the project.

Salaries & Wages/Fringe Benefits 1

Clerical and administrative activities and classifications such as accountants, secretaries, directors, office personnel, and administrators.

Scientific & Technical Equipment

Computer costs (Software, supplies and services)

Long-Distance Telephone charges

Maintenance agreements related to scientific and technical equipment

Materials (including noncapitalized equipment)

Participant Expenses (NSF)

Supplies [Project Supplies] (items solely consumed by the project)

Services obtained:

- Animal care

- Outside Consultant/Professional

- Internal Service Organization


Subject costs


NOTE: Costs normally charged indirect are charged direct when:

- There is a functional difference in the work performed by individuals in the same job classification;

- Size, nature and complexity of the activity goes well beyond the normal departmental support.

Examples where these circumstances are applicable are center awards, primate center, epidemiology studies and surveys, clinical trials and multidisciplinary awards.

- Costs listed as 'Indirect' can be charged direct on nonfederal agreements if sponsor allows.


Subscriptions, library books, periodicals, etc.

Office Supplies

Equipment (office and general)

Janitorial Services

Photocopy (for general business use)


Repair & Maintenance (buildings, grounds, equipment, remodeling, etc.)

Sanitation services

Telephone (recurring, installation and maintenance)


NOTE: Costs listed in "Direct" become indirect when they are for general institutional purposes or support multiple projects/activities, and they cannot be identified with relative ease and with a high degree of accuracy with those projects/activities.









1. See Circumstances for Charging Indirect-type Costs as Direct Costs




Costs that are specifically designated as unallowable costs by OMB Circular A-21 include:

- advertising expenses except for employee and subject recruitment

- alcoholic beverages

- Costs associated with alumni activities

- bad debts

- commencement and convocation costs

- contingency provision costs

- certain defense and prosecution of criminal and civil proceedings

- entertainment costs

- certain fines and penalties

- goods and services for personal use

- housing and personal living expenses for officers of the institution

- insurance against defective work

- interest, fund raising and investment costs (excluding third party interest expense)

- lobbying costs

- malpractice insurance that does not involve human subjects

- membership in any civic or community organization, country club, social or dining club

- proposal costs (costs of preparing bids or proposals on potential federally sponsored projects, including the development of data to support the institution's proposal)

- public relations costs

- selling and marketing costs

- student activity costs

- subsistence costs of trustees.


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