Policy Contents

Please note: This policy is currently under review and subject to change. Please contact the eric_asetta [at] emerson.edu (Executive Director for the Office of Research and Creative Scholarship) with any questions.


OMB Circular A-21 establishes principles for determining costs applicable to sponsored agreements, contracts, and other agreements with educational institutions. This policy statement incorporates the principles of OMB Circular A-21, Cost Principles for Educational Institutions, and provides general guidelines for charging costs to sponsored programs.

General Guidelines and Definitions

Factors Affecting Allowability of Costs

  • Cost should be reasonable. A cost is considered reasonable if the nature of the goods or services acquired or applied and the amount involved reflects the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.
  • Costs should be allocable to sponsored agreements under the principles and methods of Circular A-21. A cost is allocable to a particular sponsored project if the goods or services involved are chargeable or assignable to the project in accordance with the relative benefits received. A “clear and close” relationship should exist between the charge and the science.
  • Circular A-21 emphasizes the importance of consistent application of cost accounting principles. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect or Facilities & Administrative (F&A) costs. Where the College treats a particular type of cost as a direct cost on sponsored agreements, all costs incurred for the same purpose in like circumstances must be treated as direct costs for all activities of the College. Consistent treatment of costs is necessary to avoid inappropriate charges to the federal government or other sponsors for sponsored agreements when sponsored agreements are charged directly for specified costs, then charged again through the Emerson's F&A cost rate.

Responsibility for Compliance

Responsibility for following this policy lies primarily with Principal Investigators (PIs) of sponsored projects.  The Office of Research and Creative Scholarships (ORCS) is responsible for guidance and training, and for promoting compliance through periodic reviews.

Applicability of This Policy Statement

This policy statement applies to all sponsored projects whether sponsored by federal, state, or private sponsors.

Direct Costs

The primary direct cost functions of Emerson Colleges applicable to sponsored projects are Instruction, Research, and Other Sponsored Agreements. Costs incurred to support a sponsored project, (e.g., salaries and wages, fringe benefits, materials and supplies, travel, subcontracts, equipment, specialized service center charges, and other operating expenses) are treated as direct costs and identified through specific identification of the individual costs to the benefiting projects and activities, as appropriate under the circumstances. If a direct cost benefits two or more sponsored agreements/projects, refer to here in this policy statement for more detail on allocation across sponsored agreements.

OMB Circular A-21, Cost Principles for Education Institutions, determines the procedures used for identification of direct costs by functions to benefiting projects and activities applicable to sponsored programs, cost sharing, and institutionally supported projects and activities. Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect costs of sponsored agreements, provided that such costs are consistently treated, in like circumstances, as direct rather than indirect costs. Committed cost sharing expenses are separately budgeted and accounted for in the accounting records and included in the appropriate direct cost bases by function.  Refer to Emerson’s policy statement, Cost Sharing for sponsored projects.

Direct charges to a sponsored project should support the sponsored project's purpose and activity and are those costs that are necessary to meet the project's scientific and technical requirements. Such charges cannot be assigned arbitrarily, or for the purpose of simplified budget management that is unrelated to the sponsored agreement's purpose.  Direct charges to sponsored agreements are expected to adhere to the sponsor's restrictions in the Notice of Award and budget and support the sponsor's programmatic intent.

Acceptable Direct Costs

Examples of acceptable direct costs that meet Circular A-21 requirements cited above and "identifiable to a particular cost objective" are listed in EXHIBIT A.

Items such as salaries of administrative and clerical staff, office supplies, postage, local telephone costs (including monthly service charges), and membership dues are normally treated as indirect costs.  However, for special purposes and circumstances, costs that are normally indirect may be directly charged if certain conditions are met. Refer in this policy statement for further information.

Documentation of Direct Costs

The cost must be identified with activity in the sponsored agreement to which the cost is charged.

For example:

  • Purchases for a specific sponsored agreement must identify the grant's project number on the invoice, requisition, purchase order, or other payment document.
  • Supplies drawn from a central storeroom or inventory must be charged directly to a sponsored agreement if their applicability to the sponsored agreement is recorded at the time of withdrawal (e.g., by means of a log). All such costs must be charged to sponsored agreements based on anticipated usage at the time of withdrawal.
  • Services purchased from recharge centers (e.g. the core facilities) should be charged directly to the sponsored agreement under the guidelines stipulated in Acceptable Direct Costs.

Documentation that links the cost incurred to the sponsored agreement activity should be done by someone who is in a position to know the sponsored project activity.

Documentation must be maintained for a period of three years following the date the final report is submitted for the sponsored project.

Only actual costs may be charged to the sponsored agreement.

Unacceptable Direct Costing Practices

The following direct costing practices are unacceptable because they do not meet A-21 standard for a "high degree of accuracy" in the assignment of costs to sponsored agreements:

  • Rotation of charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each sponsored project;
  • Assigning charges to sponsored project with largest remaining balance;
  • Charging the budgeted amount (in contrast to charging an amount based on actual usage);
  • Assigning charges to a sponsored project in advance of the time the actual cost is incurred;
  • Identifying a cost as something other than what it actually is;
  • Charging expenses exclusively to sponsored projects when the expense has supported non-sponsored activities; and
  • Assigning charges that are part of normal administrative support (indirect costs) for sponsored agreements (e.g., accounting, payroll). Refer to 3.on Indirect Costs in this policy statement.

Indirect Costs (Facilities and Administrative Costs)

Indirect costs are those that are incurred for common or joint activities of the College and, therefore, cannot be identified readily and specifically with a particular sponsored project or any other College activity.

Expenses incurred for general institutional business include charges for administrative and clerical salaries, related fringe benefits, office supplies, postage, telecommunications (including local telephone charges), equipment, and other general costs.  Costs incurred for administrative and support services are identified separately by General Ledger code in the accounting records and recognized as indirect expenses.

In instances where sponsored projects require administrative and clerical support, office supplies, postage, and telecommunications (expenses similar to the charges identified normally as administrative costs), such costs may be charged to sponsored agreements as direct costs when ALL of the following conditions are met:

  • The costs are required by the project scope due to the project's special purpose or circumstance (refer below);
  • The costs can be readily identified specifically with the project with a high degree of accuracy; and
  • The items of costs are separately budgeted for, justified, and approved by the sponsoring agency.

Special Purposes or Circumstances Where Direct Charging of Costs Normally Treated as Indirect Costs May Be Appropriate

The "special purpose or circumstance" of the sponsored project that necessitates the direct charging of costs that are normally considered to be indirect costs should be stated in the "Statement of Work" section of the proposal/acceptance document. The budget page should include a footnote with reference to the "special purpose or circumstance" that applies to the sponsored project.

The need to charge administrative and clerical support costs as direct charges to a sponsored project may occur for projects that involve the following special purpose or circumstance:

  • Private sponsored projects that are proposed and awarded for a different purpose than federal agreements--the work proposed and performed in part is for the benefit of the industrial/commercial sponsor and the College.  The sponsor's concern is with total costs and not whether the costs are direct or indirect.  Private sponsors include private industry, commercial sponsors, foundations, and nonprofit agencies or associations.
  • State sponsored projects that have restrictions on the types of costs that are direct or indirect--such agreements would constitute a different circumstance than costs incurred under federal agreements. Emerson must comply with State agency regulations and statutory requirements. Consequently, costs normally treated as indirect could be treated as direct provided that they are reasonable, specifically identified with the sponsored project, and included in the award budget.
  • Training Grants--since they are for a different purpose (training) than a traditional research project, these project budgets may include costs that are normally considered to be indirect costs. Training grants usually identify a line item budget for "institutional allowance" which authorizes direct charging of normally treated indirect costs as appropriate if they are reasonable, specifically identified with the project, and budgeted in the award.
  • Planning Grants--since they are for a different purpose (planning) than a traditional research project, these project budgets may include costs that are normally considered to be F&A costs. Research planning grants may be used for preliminary work to determine the feasibility of a proposed line of inquiry and/or for other activities that will facilitate proposal development. For these types of projects, the federal agency will fund indirect costs at a specified percentage.
  • Projects that are geographically inaccessible to normal administrative services (i.e., a project that takes place in site(s) that is/are remote from the main office).
  • Large, complex programs, and other sponsored agreements 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. For example, if a project requires substantial mailing expenses in the performance of the project activities or technical work, postage should be charged as a direct cost of the project.
  • Projects whose principal focus includes the preparation and production of manuals, long reports, books and monographs (excluding routine progress and technical reports).
  • Individual projects requiring project-specific database management, individualized graphics or manuscript preparation, human or animal protocol, IRB preparations and/or other project-specific regulatory protocols, and multiple project-related investigator coordination and communications.  If these types of activities are NOT being performed by individuals whose salaries are charged indirectly, then administrative and clerical salaries of the individuals performing these activities could be charged directly to an individual project.  Work must be specifically identified to the project, and the effort funded by the sponsor would also have to be met.

Sponsoring Agency Approval

In order to meet the criteria shown and to charge salaries of administrative and clerical staff or other costs (normally treated as indirect costs) directly to a sponsored program, the project proposal budget is required to identify specifically the administrative and clerical salaries and/or other costs which are requested.  These costs must be justified or explained in the proposal/award narrative and in a footnote to the project budget.  Since these items are specifically set forth in the proposal, we assume that the sponsoring agency has approved this exceptional treatment of administrative and clerical salaries or other costs if they accept the proposal and subsequently fund the project with no exceptions to the cost item.  It is the principal investigator's responsibility to notify ORCS of any changes made to the proposed budget in pre-award negotiation with the sponsor in which the College did not participate.

Further, if a proposal and award has not specifically identified a direct charge requirement for administrative or clerical support or other costs, the College is not allowed to re-budget approved funding into these categories unless specific written approval has been received from the sponsoring agency.

NIH modular grants or similar grants do not require line-item justifications. However, at the Emerson College, a detailed budget should be developed for each modular grant application for internal purposes and justifications in accordance with this policy statement should be documented.

Charging Salaries of Administrative and Clerical Staff--Three-Step Test for Allowing Direct Charging of administrative and Clerical Salaries

The costs are incurred to meet the special purpose or circumstances of the sponsored agreement:

  • A special purpose or circumstance of the project exists such as those listed above;
  • It must be a realistic reflection, through appropriate documentation, of planned or actual effort; and
  • It must be identified in the sponsored agreement budget, fully justified, and approved by the granting agency.

The College can "specifically identify" the individual with the project or activity.

Charge is "explicitly budgeted"--as proposed sponsored agreement budgets are developed, the percentage of effort, salaries, and fringe benefits of administrative and clerical positions must be specifically included and reasonably explained in the budgets. Agency approval is also required. This approval is assumed if the salary is budgeted and not specifically denied either in negotiation between the principal investigator and the sponsor or in the notice of grant award. Re-budgeting authority may not be used to charge administrative or clerical salaries not included in the approved budget.

The determining factors in classifying salaries of administrative and clerical staff as direct costs must relate to the exceptional nature of the project and the extent of administrative duties performed to carry out the project goals and objectives compared to those routinely performed for departmental administration or general institutional administration.

Other Administrative Costs Charged as Direct Costs

Circular A-21 states that "items such as office supplies, postage, local telephone costs, and memberships should normally be treated as F&A costs." Circular A-21 does not absolutely prohibit such costs from being charged directly to a sponsored agreement if "they can be identified specifically with" the sponsored program or can be assigned to its activities "relatively easily and with a high degree of accuracy."

Costs of this kind may be charged directly to sponsored agreements, but only if the cost supports the activity that is directly related to the special purpose or circumstance of the sponsored agreement, and the link between the cost and the activity is close and clear. Assignment of such costs through a general "surcharge" would not typically be close or clear enough to justify them as direct costs.

Allocation of Direct Costs Across Two or More Sponsored Agreements—Proportional Benefit Rule

If a cost benefits two or more sponsored agreements in proportions that can be determined without undue effort or administrative expense, the cost should be allocated to the sponsored agreements based upon the proportional benefit. If a cost benefits two or more sponsored agreements 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.

Proportional Benefit Rule

When the proportional benefit rule is used, the required close linkage of the cost with sponsored agreement activity, as described in 2 of this policy statement, continues to apply. The criteria for allocation of costs to two or more sponsored agreements are as follows:

  • The cost in question should be identified specifically with the group of sponsored agreements relatively easily and with a high degree of accuracy;
  • Credible documentation of this identification must be maintained by the principal investigator (PI); and
  • Administrative costs cannot normally be charged to such groups of sponsored agreements unless the costs clearly meet the criteria for a "special purpose or circumstance" specified above in this policy statement.

Proportional Benefit for Compensation Costs

The proportional benefit rule is applied when the principal investigator (PI) authorizes the distribution of salary and fringe benefits across two or more sponsored agreements. This authorization should reflect the P.I.'s best judgment of the proportional benefit of the salary and fringe benefit costs to each of the affected sponsored agreements.

The quarterly Time & Effort reporting and monthly labor distribution reports verify that the distribution of actual salaries and wages reflects the proportional distribution of compensation.  This method of payroll confirmation reflects "an after-the-fact" reporting of the percentage distribution of activity of employees.  Reports should reasonably reflect the activities for which employees are compensated by the institution.  The system should reflect activity applicable to a group of sponsored agreements. The Time & Effort reports should be approved by the responsible official (in most instances, the PI) who can confirm that the work was performed.

Proportional Benefit for Other Costs

Conditions under which the proportional benefit rule can be used for other costs that directly benefit two or more sponsored agreements include the following:

  • cost in question qualifies as a direct cost under criteria defined in Direct Costs or Indirect Costs of this policy;
  • cost pays for something that specifically benefits two or more sponsored agreements; and
  • without undue effort or administrative expense, a proportional distribution of the cost can be devised. For the sponsored agreements in question, this distribution must reflect, roughly but reasonably, the proportional distribution of the benefits for which the cost was paid. The P.I. must approve the use of proportional benefit and the method of its use.

The proportional benefit rule should only be used for direct costs that clearly benefit a limited number of awards.  It should not be used for direct cost allocated project-level administrative costs.  At Emerson, these are treated as F&A (indirect) costs.  Examples of acceptable methods are described below. Other methods may be acceptable, but should be discussed and approved with the Office of Research and Creative Scholarship.

  • Distribution of allowable direct costs used by two or more sponsored agreements, according to each grant's award percentage of the total awards of all sponsored agreements;
  • Distribution of allowable direct costs used by two or more sponsored agreements, in proportions that reflect the P.I.'s best judgment of the proportions that will reflect the benefit of the cost to each of the sponsored agreements; or
  • Distribution of administrative costs according to the methods described in 3c) above. Administrative costs must meet a special purpose or circumstance as described in above in this policy statement.