A Brief Background of What, Why, When, and Yes - How...

Effective January 1995, institutions of higher education are required to be in compliance with the new Cost Accounting Standards (CAS). These standards will notably affect business policies for universities. Special effort has been undertaken at Mississippi State University to document and develop current policies and accounting practices to adhere with these new Cost Accounting Standards. These rules cover educational institutions receiving a negotiated federal award, (contract, subcontract, or grant) in excess of $500,000, cooperative agreements totaling $25 million or more in the current fiscal year or prior fiscal year of which at least one grant, contract or subcontract was at least $1 million, and institutions that are major recipients of federal research and development funds (top 99). These new CAS criterions are not meant to circumvent or supersede the OMB Circular A-21 previously established guidelines, but work in association with each other. Educational institutions must comply with both CAS and Circular A-21. It is not the government's intent to dictate accounting policy but rather insure that an institution's accounting practices fairly allocate costs among costs objectives. Here at Mississippi State University, major emphasis has been placed on obtaining campus-wide input from both functional and administrative units.

KEY TERMS (click here for commonly used Cost Accounting acronyms)

Cost Accounting Standards Descriptions and Purposes...

The four new standards issued by the Cost Accounting Standards Board (CASB) that apply specifically to institutions of higher education are as follows:

1. CAS 501 - Consistency in Estimating, Accumulating, & Reporting Costs by Educational Institutions.

a. To ensure the institution's practices used in estimating cost for the proposals are consistent with accumulating and reporting practices.

b. To increase the probability that comparable transactions are treated alike.

c. To assist the preparation of reliable cost estimates.

d. To aid comparison with actual performance.

2. CAS 502 - Consistency in Allocating Costs Incurred for the Same Purposes by Educational Institutions.

a. To require that each type of cost is allocated only once and on only one basis to any contract or other cost object.

b. To ensure that the criteria for determining cost allocation are the same for all similar cost objectives.

c. To guard against double counting.

3. CAS 505 - Accounting for Unallowable Costs - Educational Institutions

a. To establish guidelines for identifying unallowable cost when defined or deemed unallowable by authorities.

b. To establish guidelines for accounting treatment of unallowable costs.

c. To ease negotiation, audit, administration, and settlement of contracts.

d. To ensure costs incurred in a business activity are allocable to cost objective whatever allowability.

4. CAS 506 - Cost Accounting Periods

a. To provide criteria for selection of cost accounting time period for estimating, accumulating, and reporting costs.

b. To reduce effects of variation in cost flow within cost accounting period.

c. To enhance comparison of contract cost measurements.

In addition to the above compliance standards, educational institutions that are subject to full or partial CAS coverage will be required to file a Cost Disclosure Statement that details and summarizes the accounting practices of the university. Its main purposes are to show how costs are identified with and charged to contracts. It is a description of the methods and techniques for measurement and allocation of costs. It also summarizes criteria for distinguishing between direct and indirect costs, composition of indirect cost pools, type and composition of a particular item of cost, and the basis on which that cost is measured and allocated to contracts.

Indirect Cost Rates

In a negotiation agreement dated November 28, 2005 , the Department of Health and Human Services, acting as the cognizant federal agency, established the indirect cost rates listed below for the period, location, and activities indicated. These rates apply to all contracts and grants awarded to Mississippi State University. The base for application of the rate is modified total direct cost consisting of salaries and wages, fringe benefits, materials and supplies, services, travel, and subcontracts and subgrants up to $25,000 each.

• Enhance the quality of animal care,
• Meet needs of animal facility users more fully,
• Help animal facilities become more self-sustaining,
• Document requests for NIH grant and contract support,
• Ensure that NIH grant/contract funds are sufficient to cover all animal costs, and
• Improve effectiveness and efficiency of animal research facility (ARF) management.

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