Background: a brief history of CAS
Congress created the Cost Accounting Standards Board in 1970 and developed 19 standards largely for defense contractors. The standards were extended, first in 1990 to commercial contracts and subsequently in 1994, and four standards were applied to university contracts exceeding $500,000 annually. In 1996, these four standards were applied to all federal grants and contracts to universities.
The four standards will be discussed later in this presentation and are enumerated below. The first two, for which the watchword is "consistency," are the most problematical for universities.
501: Consistency in Estimating, Accumulating and Reporting Costs
502: Consistency in Allocating Cost Incurred for the Same Purpose
505: Accounting for Unallowable Cost
506: Consistency in Using the Same Cost-Accounting Period.
As one of the nation's top 100 universities in terms of federal grant and contract funds, the University was required to come into compliance with CAS standards in 1997.
Questions and Answers
Q. Why is UK required to conform to these standards?
A. Two principal reasons are often cited. The most obvious is the so-called "indirect cost scandals" of the past. The more subtle, but probably more important, is the notion that universities have structured their accounting systems to collect on both the direct and the indirect side for the same type of costs. That is, some universities have allowed secretarial costs as a direct cost on grants and contracts, and have also put secretarial costs into the indirect cost rate. Thus, when the indirect cost rate was applied to grants where the secretarial costs were charged directly, these institutions have succeeded in collecting indirect costs as well.
Q. If the standards apply only to federal grants and contracts, why did the University decide to apply them to all grants and contracts?
A. The answer to this question is difficult to describe without a detailed picture of the manner in which the University calculates its indirect cost rate. The University has one accounting system, and the indirect cost calculation begins with the University's financial statement that includes all costs. In order to calculate an indirect cost rate that would be applicable to the entire University, the CAS rules must apply to the entire University, not just to the federal projects. Other institutions that have wrestled with this same question have come to the same conclusion that CAS will apply to all grants and contracts regardless of source; however, investigators are urged to read the sections of this document dealing with "different purpose and circumstance."
Q. Does CAS apply to subcontractors?
A. CAS is applicable to educational institutions that receive over $25 million per year in federal awards. If UK subcontracts with another university, the agreement requires that institution to comply with its own CAS Disclosure Statement (DS-2).
Q. Can UK, as a subcontractor, be required to comply with the DS-2 of another institution?
A. UK must comply with its own policies; OSPA negotiates such a requirement out of any agreement with another institution.
Q. Did the UK CAS committee reviewed policies of other universities?
A. Yes. There is a wide range of response to CAS--some institutions have general policies and some very specific policies. In addition, many universities already had policies in place which made compliance with CAS relatively easy.
Q. Has CAS increased UK's indirect cost rate?
A. The probable effect will be to lower the rates.