As recipients of federal funding, higher education institutions must comply with policies that define costs as either direct or indirect. These policies are established to promote responsible stewardship and accountability for sponsored program funding.
All costs proposed or incurred on a sponsored project must comply with sponsor terms and conditions, New York University (NYU) policies and procedures, and applicable federal, state and local regulations.
In addition to programmatic efforts, the Principal Investigator (PI) is ultimately responsible for ensuring appropriate financial management and compliance with sponsor terms and conditions.
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Charges to federal awards must comply with the following criteria:
- Allowable: The charge is allowed in accordance with federal regulations or the terms of the sponsored agreement.
- Allocable: The goods or services proposed are directly attributable to the award.
- Reasonable: The type and amount of the charge is appropriate under the circumstances. (e.g., cost is not excessive).
- Consistently treated: An expense must be treated consistently in similar circumstances, i.e., direct costs or indirect costs.
Direct costs are those expenses that directly further the programmatic objectives of the award. Examples of direct costs include: salaries and benefits, materials and supplies, travel, subcontracts, scientific equipment, service center charges, and other operating expenses. Direct costs cannot be assigned arbitrarily and should adhere to the sponsor’s restrictions.
Facilities and Administrative Costs are also described as F&A or Indirect Costs. F&A expenses are common expenses that are not specifically identifiable to a sponsored project, but rather support the project indirectly. Examples of F&A expenses include space costs, utilities, general and departmental administration costs.
Special Purposes or Circumstances Where Direct Charging of Costs Normally Treated as Indirect Costs May be Appropriate
For direct charging of costs which are typically indirect, the cost must meet the criteria of the “special purpose or circumstance” test.
- Usage is significantly greater than routine;
- Project qualifies as a major project as defined by OMB Circular A-21, Exhibit C;
- The cost is readily identified with a high degree of accuracy with the sponsored project;
- Separately budgeted for, justified in the proposal, and approved by the sponsoring agency.
If a cost benefits two or more sponsored projects, the allocation should be reasonable and based on the proportional benefit received by each project. The criteria for the allocation of costs to two or more sponsored agreements are as follows:
- The cost should be identified specifically, relatively easily and with a high degree of accuracy to a group of sponsored projects.
- Written documentation with the PI or Co-PI ‘s approval must be maintained by the department of the methodology used to allocate the expense.
Frequently Asked Questions
F&A is calculated daily in Peoplesoft based on direct expenditures, as well as the appropriate base; i.e., modified total direct cost.