The Medical University of South Carolina

Cost Sharing Policies and Procedures
Revised 6/14/99

Table of Contents

1.0 Introduction

These policies and procedures provide guidance for the Medical University of South Carolina (MUSC) on cost sharing to ensure compliance with federal costing requirements. The objectives of these policies and procedures are as follows:

1) To provide guidance regarding the circumstances in which cost sharing is recognized by the government and external sponsors; including what kind of services, expenditures, or assets may be cost shared.

2) To inform the University community about the contractual, financial, and administrative requirements related to cost sharing.

3) To establish guidelines for documenting and reporting cost sharing to sponsoring agencies.

4) To define University roles and responsibilities for meeting cost share obligations.

 This policy is effective for proposals submitted and awards received on or after July 1, 1998.

1.1 General Statement

Some sponsored projects require that the University participate to some extent in the total cost of the project. Cost sharing or matching (the terms may be used interchangeably) represent the use of institutional funds to supplement project costs not borne by the sponsoring agency.

The policy of the University is to make a cost sharing commitment only when required by the sponsor or by the competitive nature of the award and then to cost share only to the extent necessary to meet the specific requirements of the sponsored project. The cost sharing commitment must be included on the "Proposal Data Sheet" and in the proposed budget and be approved by the responsible University officials.

2.0 Federal Cost Principles and Standards for Educational Institutions

As a recipient of federal grants and contracts, MUSC must comply with the Office of Management and Budget (OMB) Circular A-21 "Cost Principles for Educational Institutions." Circular A-21 also includes the following four Cost Accounting Standards (CAS) applicable to educational institutions:

CAS 501 - Consistency in Estimating, Accumulating, and Reporting Costs.
CAS 502 - Consistency in Allocating Costs Incurred for the Same Purpose.
CAS 505 - Accounting for Unallowable Costs.
CAS 506 - Cost Accounting Period.

CAS 501 relates specifically to cost sharing because it requires that the University account for all funds, including University resources, committed to and incurred on sponsored projects. The university is required to use consistent accounting practices to estimate the cost of a project in the proposal and to accumulate and report the actual costs of the project. For any significant amount of estimated cost in the proposal, accounting records must provide a meaningful comparison with actual costs.

A cost sharing obligation may be incurred in the proposal submission and/or in the award negotiation process.

2.1 Proposal Submission

Cost sharing may be committed in the proposal to the sponsor for one of two reasons: (1) the sponsor (or a particular program of the sponsor) requires cost sharing as a condition of applying for an award; or (2) the University makes a commitment of cost sharing for competitive purposes. However, faculty should not offer cost sharing unless the anticipated level of effort is 5% or more of an individual’s total planned effort. In both situations, cost sharing is explicitly quantified in the proposal budget and becomes the basis for the sponsor's award.

When contributed effort is expected to be less than 5%, the proposal should include the statement that
    "MUSC fully supports the salary of Principal Investigators, but makes no specific
    commitment of time or salary to this particular sponsored project."
This statement assures the funding agency that the faculty member will make a contribution to the project but that the expected level of effort is not a significant portion of the individual’s overall effort.

Keep in mind that rebudgeting of proposed effort, through the Office of Research and Sponsored Programs (ORSP), is generally allowed by sponsors within a specified percentage range. For example, under NIH awards, rebudgeting of salaries within 25% of the proposed effort is allowed without prior approval from the sponsor, unless rebudgeting restrictions are stated on the award notice.

2.2 Negotiation and Receipt of the Award

Cost sharing not quantified in the original proposal budget subsequently may be contributed by the University because sponsor funds are not sufficient to perform the agreed upon scope of work. Examples of this type of cost sharing obligation include:

1) The sponsor does not fund the project at the level requested in the proposal and the full amount is needed to accomplish the scope of work. University resources are "voluntarily" committed to the project and must be identified as cost sharing.

2) An overrun occurs on a sponsored project account. The overrun will be covered by University resources and must be identified as cost sharing.

For further guidance see Exhibit A.

ALL types of cost sharing described above must be documented and identifiable in the University accounting system. (See Section 5)

2.3 Determining a Cost Sharing Obligation

Upon receipt of an award document, the Office of Research and Sponsored Programs (ORSP) will compare the awarded budget to the proposed budget. If the award is less than the proposal, ORSP will contact the PI to determine whether or not the university has incurred a cost sharing obligation. The amount of any obligation included in the original proposal and/or subsequently through negotiation must be documented with the ORSP, specifically the amount of the obligation and the source of funds. Revised budgets may be required if the award is less than the proposal.

3.0 Sources of Cost Sharing

Cost sharing obligations may be funded from the following sources:

1)  University funds provided for the benefit of the specific project (i.e. Chair, Dean, Provost or affiliates accounts; discretionary funds).

2)  Unfunded or Waived F&A (Indirect) costs. Waived F&A (indirect) costs are F&A (indirect) costs that are otherwise available to be recovered but the University has agreed to accept less than the full amount. The difference between the F&A (indirect) costs accepted and the amount that would have been provided at the full rate may be used as cost sharing if approved by the sponsor.

For example, in some circumstances the sponsor does not reimburse F&A (indirect) costs at the full rate due to sponsor policy, government legislation or terms of the agreement. If the difference is to be used as cost sharing it must be approved by the sponsor.

In addition, when direct costs are shared, the University will be cost sharing the associated F&A (indirect) costs.

3)  Another sponsored project account. This is rare and allowable only if approved by both sponsors. Note that federal funds may not be used as cost sharing on other federal awards unless approved.

4)  Third-party contributions. This support is from a non-University source, such as Fisher Pharmaceutical. For contributions other than cash, see Exhibit C for the valuation method.

4.0 Federal Requirements for Cost Sharing

Administrative requirements for including cost sharing on federal grants and cooperative agreements are in OMB Circular A-110, Sub-part C, Section .23, "Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations." Per Circular A-110, for costs to be acceptable as cost sharing, an expenditure must meet all of the following criteria:

1)  Be verifiable in official University records.
2)  Not be included as a contribution for any other federally assisted program.
3)  Be necessary and reasonable to accomplish project objectives.
4)  Be allowable under the applicable cost principles (OMB Circular A-21, Section J),         
     administrative guidelines (OMB Circular A-110) and agency guidelines.
5)  Not be paid by another federal award (except as authorized by the sponsor).
6)  Be obligated during the effective dates of the grant or contract.
7)  Conform to other provisions in OMB Circular A-110 as applicable.

The tracking, reporting and certifying functions are subject to audit by the University’s cognizant federal agency (Department of Health and Human Services), the sponsoring agencies, and internal and external auditors.

4.1 Acceptable Expenditures

In general, costs normally treated as direct costs on sponsored projects may be used to meet cost sharing obligations. Costs that are normally treated as facilities and administrative (indirect) costs on sponsored projects may not be used to meet cost sharing obligations without approval by ORSP.

1)  Examples of expenditures which may be used to meet cost sharing obligations include:

a)  Faculty, staff, or student salaries and applicable fringe benefits
b)  Laboratory supplies
c)  Travel
d)  Equipment(See 5.3)

2)  Examples of expenditures which may not be used to meet cost sharing obligations include:

a)  Expenditures normally treated as indirect per University costing guidelines (see MUSC Direct and Indirect Costing Policies) such as administrative and clerical salaries, office supplies, local telephone, etc.
b)  Unallowable costs, such as alcoholic beverages, entertainment and memberships in community organizations. (See MUSC manual, "A Guide for Determining Allowable Costs to Sponsored Agreements").

5.0 Accounting for and Documenting Cost Sharing Obligations

All cost sharing must be documented and readily identifiable in the University accounting system. The method of cost sharing is determined by the requirements of the sponsored agreement. Whenever cost sharing is proposed, the source of funds must be identified and approval obtained from the person with authority over those funds. Existing MUSC equipment that is part of the inventory against which depreciation is calculated for the purposes of developing facilities and administrative cost rates cannot be used to satisfy cost sharing on sponsored projects (See 5.3).   If the source is identified on the Proposal Data Sheet as "To Be Determined," the funds must be made available by the unit originating the proposal as to actual source at the time of award. Obviously, funds are never made available unless the proposal results in an award. However, some risk is associated with "over-commitments," and all cost sharing commitments, regardless of source, are monitored monthly by the Director of the Office of Research and Sponsored Programs (ORSP) and must be approved at the proposal stage by the Director of Research and Sponsored Programs.

Upon receipt of an award, the ORSP forwards the grant package to the department. If the package contains cost sharing requirements, the department should complete a Chart of Account Maintenance Request (CAMR) form and forward it to Financial Reporting for processing of the cost share UDAK. Grants and Contracts Accounting inputs the budget for the sponsored account and the cost sharing account and then awaits the charges from the PI to be identified. If the PI does not identify charges to be applied to the cost sharing account by the end of the project period, Grants and Contracts Accounting will request that the cost sharing be satisfied in order for the project to be closed out.

Effort of faculty and others will be documented in the University's After-the-Fact (Effort) Reporting System.

5.1 Reporting Sponsored Project Cost Sharing (Mandatory)

As noted in section 1.1 some sponsors or individual programs have a stated cost sharing requirement. Usually, this type of cost sharing must be reported to the agency on a project-by-project basis. When the sponsoring agency requires the University to report cost sharing for a specific project, a separate cost sharing account, corresponding to the sponsored project account, must be established by the department responsible for meeting the cost sharing obligation.

The University is responsible for providing information to sponsoring agencies to demonstrate that the University has fulfilled cost sharing commitments. The Office of Grants and Contracts Accounting is responsible for reporting the cost shared amount to the sponsor.

5.2 Reporting All Other Cost Sharing (Voluntary)

Cost sharing which is not required by the award notice, but "volunteered" by the University, must be tracked by function in the department cost share UDAK by the department responsible for meeting the cost sharing obligation. A separate cost share UDAK, by project, is not required for volunteered cost sharing.

5.3 Equipment Used as Cost Sharing

Proposing the purchase of equipment as University cost sharing should be carefully weighed as there are cost/benefit issues to be considered. For example, federal cost principles (OMB Circular A-21) allow universities to calculate use allowance/depreciation expense on equipment purchased with non-federal funds. This amount becomes a part of the facilities component which contributes to the University's Facilities & Administrative (F&A) cost rate. However, when an item of equipment is purchased in whole or in part with non-federal funds and is cost shared on a federally-funded project, the University is not allowed to include the use allowance/depreciation expense normally associated with the item of equipment in the F&A cost rate calculation. Consequently, this type of transaction will have a negative impact on the F&A cost rate. Use of equipment offered as cost sharing in the performance of a sponsored agreement should be considered only when obtaining the award is dependent upon such cost sharing. Otherwise, Principal Investigators in preparing proposals should not commit the use of equipment as cost sharing, but rather identify the equipment as "available for use in the performance of the sponsored agreement at no direct cost to the sponsor."

The contribution of equipment as cost sharing not only requires documentation, but it must also be tracked separately in perpetuity within the University's Equipment Inventory System. It is necessary to track the equipment separately to prevent charging the government for equipment use allowance/depreciation expense that the University has agreed to fund.

If the use of equipment has been approved by the sponsor as cost sharing then the identified equipment should be flagged in the Fixed Asset Management System and the F&A rate reduced for the period of the project. This action would be an exception to the standard policy, however, it would demonstrate that the equipment use allowance/depreciation expense was not charged as both a direct and indirect expense to the sponsor.

2) During negotiation with the sponsor. In the following four examples only one results in a cost sharing obligation which must be documented:

Example 1:

The sponsor and Principal Investigator (PI) agree to reduce the scope of work which reduces the budgetary requirements. A reduction in budget with a commensurate reduction of the scope of work does not result in cost sharing. There is no cost sharing, either voluntary or mandatory.

Example 2:

The sponsor awards less than the proposed budget but does not agree to reduce the scope of work. The University decides it can still complete the original scope of work within the awarded amount. There is no cost sharing obligation, either voluntary or mandatory.

Example 3:

The sponsor awards less than the proposed budget, but does not agree to reduce the scope of work. The University decides it will need to supplement the award to complete the original scope of work. The institution support is not added to the award resulting in voluntary cost sharing.

Example 4:

The sponsor awards less than the proposed budget, but does not agree to reduce the scope of work. The University decides it will need to supplement the award to complete the original scope of work. The institutional support is added to the award notice resulting in mandatory cost sharing upon acceptance of the award.

See Mandatory and Voluntary Cost Sharing Flowchart for Illustration (Exhibit B).

EXHIBIT B

Cost Sharing Flowchart

The valuation of third-party in-kind contributions is what it would have cost if the University had paid for the item or service at the time of donation. Special valuation of third-party in-kind contributions are:

A. Volunteer Services

Services provided to the University by volunteers are valued at rates consistent with those paid by the University to its employees performing similar work. If the University does not have employees performing similar work, the applicable rates are those paid by other employers for similar work in the labor market in which the University competes for the same type of services. In either case, paid fringe benefits that are reasonable, allowable, and allocable may be included in the valuation.

B. Employees of Other Organizations

When an employer other than the University furnishes the services of an employee, these services are valued at the employee's regular pay (plus an amount of fringe benefits that are reasonable, allowable, and allocable but exclusive of overhead costs), provided they are in the same line of work for which the employee is normally paid. If these services are in a different line of work, then the rules for volunteer services apply.

C. Donated Supplies and Loaned Equipment or Space

When a third party donates supplies, the contributions should be valued at the fair market value of the supplies at the time of the donation. When a third party donates the use of equipment or space in a building but retains title, the contribution is valued at the fair market rental value of the equipment or space. When such donated supplies or loaned equipment or space is used for cost sharing the documented fair market value at the time of the donation should be used to calculate the value of the cost share.

D. Donated Equipment

Valuation of donated equipment should be secured, through the donor, from either the procurement office (if a supplier), fixed asset department (if from a related party) or the department (if private). Since the donor will usually take a tax deduction for the contribution, the donor must substantiate to the Internal Revenue Service the value used for the contribution. Therefore, a letter or other documentation should be obtained from the donor stating the value of the contribution at the time of the donation.