Authority: Vice Chancellor for Finance and Administration
History: First Issued: July 1, 2002. Last Revised: July 22, 2011.
Additional References: After the Fact Cost Sharing Memo
Contact Info: Assistant Director, Systems and Compliance, (919-515-8011), Office of Contracts and Grants
1.1 Cost Sharing is the portion of total project costs not borne by the sponsor agency. Other terms used include matching, third-party, and in-kind contributions.
1.2 Mandatory Cost Sharing is cost sharing that is mandated by the sponsoring agency. This can be in the form of a specified dollar amount or a certain percentage of total costs.
1.3 Required or Committed Cost Sharing is cost sharing that has been included in the proposal and accepted by the sponsor regardless of whether it was mandatory or voluntary. The amount included in the proposal becomes part of the legal requirements of the contract or grant.
1.4 Voluntary Cost Sharing is cost sharing that has not been required by the sponsoring agency or committed to in the proposal.
2. POST-AWARD COST SHARING ISSUES
2.1 The Employee Activity Reporting System (TEARS) is the approved method of documenting effort on a project for monthly employees. Cost sharing should be documented when the Principal Investigators and other University employees spend a significant amount of time on sponsored projects that is not reimbursed by the sponsor. This is true even if their time was not included in the proposal or award agreement as cost sharing (voluntary). Significant effort should be determined based on a review of the individual facts and circumstances of each sponsored project. This judgment would normally be based on the percentage of time an individual will spend on the project and the resulting contribution made to the project.
2.2 Since the definition of significant is determined by individual project review, it is difficult to establish a set percentage to use as a guideline when determining whether effort is significant or not. Historically, 5% or greater has been considered significant. However, the project review could prove that a percentage less than 5% is significant for that particular project. For example, some federal projects require prior approval when the Principal Investigator has not been working on the project consecutively for three months or more. In this case, 1% would be considered significant and the effort would need to be documented in TEARS unless prior approval is obtained from the agency.
2.3 What is considered significant is ultimately left up to the judgment of the Principal Investigator. However, there are certain circumstances when effort must be documented in TEARS. If there will be any direct charges associated with an individual (for example travel or tuition), effort for this individual should be documented either as a direct charge to the project or cost shared. If the salary dollars are needed to meet cost sharing commitments or if it is necessary to document levels of effort as committed in the proposal, the cost sharing must be documented in TEARS regardless of the percentage of time spent on the project. In these special circumstances, effort cannot be considered “insignificant” and thus omitted from TEARS.
2.4 The only exception is situations where travel for a large skilled labor pool is needed for isolated instances of work. The labor pool would need to be individuals with specific and specialized skills. The nature of the work and skills required are such that it would be cost prohibitive to hire outside the University. The work should be infrequent, should be of short duration and should not take time away from the employees normal work assignments. An example would be a project that required measurement of a large number of trees over a weekend. Travel can be paid to University employees in these circumstances even though the effort is insignificant and not documented in TEARS. In these situations labor should be documented on a log that lists the employee name, Human Resources number, dates worked, hours worked, project number and a brief description of the work. This documentation should be kept in the account file maintained by the College/Division and available upon request.
2.5 Federal regulations require that significant cost sharing, regardless of whether it was required by the sponsored agreement, be documented to ensure accurate financial reporting and regulatory compliance in the development of the University’s F&A cost rates. Cost sharing is a significant factor in the calculation of the F&A cost rates. Failure to document and report cost sharing could result in inaccurate F&A cost rates and the refund of F&A cost revenues.
2.6 Cost sharing may become a requirement through reductions in award amounts (as compared to what was requested in a proposal) unless comparable reductions are made in the scope or objective of the work. The reasons for reductions in award amounts should be clearly documented during negotiations with sponsors to avoid unplanned or unnecessary cost sharing. Examples of reasons for a reduction in award amount include: original cost estimate was too high, the scope or objective of the proposal was reduced, or the sponsor wants the University to bear more of the project cost.
2.7 Cost sharing may also be required to maintain the committed level of effort on sponsored projects when rebudgeting results in significant decreases in salaries of the principal investigator or other personnel funded from the project that could impact the outcome of the work.
3. ALLOWABLE COST SHARING AT NCSU
3.1 Cost sharing must be verifiable from University records.
3.2 Expenditures documented as cost sharing must be necessary and reasonable for the proper and efficient accomplishment of project objectives.
3.3 Expenditures documented as cost sharing must be the types of charges that are allowable according to federal cost principles.
3.4 Cost sharing cannot be used or reported more than one time. If cost sharing benefits more than one project, it should be prorated in an equitable manner among the projects (e.g., based on % of each project’s cost to total combined project costs).
3.5 Unless otherwise authorized, expenditures by the federal government under other agreements may not be used as cost sharing for federal projects.
3.6 Mandatory cost sharing must be disclosed in approved budgets when required by the agency.
3.7 Cost Sharing must meet requirements of Cost Accounting Standards (CAS) if it supports a project subject to CAS.
3.8 Cost Sharing must be incurred during the award period.
4. DOCUMENTATION REQUIREMENTS FOR COST SHARING
The College/Division should complete a TEARS Cost Sharing Set-Up for each monthly-paid employee who will be working on but not paid from a project, within sixty (60) days of receipt of a new award or continuation/renewal. Cost sharing established by the TEARS Cost Sharing Set-Up will appear on the employee’s effort report for their review and certification.
The TEARS Cost Sharing Set-Up Form must be used to establish cost sharing percentages (regardless of the level of involvement) in the effort reporting system for:
4.1.1 Significant amounts of time spent on projects beyond the award requirements.
4.1.2 Cost sharing performed in order to maintain committed levels of effort on sponsored projects.
4.1.3 Cost sharing performed in order to meet committed dollar amounts or % of award amounts.
4.1.4 Any award where there will be direct charges associated with an individual (travel, tuition, etc.), unless the exception discussed Paragraph 2.4 can be met.
4.1.5 The purpose of the TEARS Cost Sharing Set-Up Form is to establish cost sharing percentages in the system before effort reports are printed so that the requested percentages are reflected on the effort reports.
4.1.6 Cost sharing by EHRA 9-month faculty during a summer period and bi-weekly paid employees must be documented by an after-the-fact memo. After-the-fact memos documenting cost sharing must be signed by the preparer and the employee (or by a person with first hand knowledge as to how the employee worked) and submitted to the Office of Contracts and Grants.
4.2 Non-Salary MTDC
4.2.1 This includes supplies, travel, special service facilities use rates, and other MTDC costs [except salaries and fringe benefits] which the University will fund. Documentation such as purchase orders, use logs, IDT’s, vendor invoices, journal vouchers, payment authorizations, travel authorizations and travel reimbursements should be maintained by the college/division.
4.3 Equipment and Tuition
4.3.1 This includes the cost of equipment, tuition and other non-MTDC expenditures which the University funds. Documentation such as purchase orders, journal vouchers, vendor invoices, and payment authorizations should be maintained by the college/division.
4.4 Other Contracts and Grants
4.4.1 In some cases, cost sharing requirements may be met through expenditures on other contract and grant accounts. When this type of cost sharing is used, the accounts must be identified by the college/division. If less than total expenditures of the other contract or grant will be used to meet cost sharing requirements, account codes must also be provided. Based on project numbers and account codes provided by the colleges, actual charges documented in the financial system will be used to support this category of cost sharing.
4.4.2 For other contracts and grants to qualify as allowable cost sharing, the technical relationship between the projects must be established. The technical relationship to the project requiring cost sharing can be established by information cited in the other contract/grant proposal linking the work of the projects or by a certification from the college’s Associate Dean for Research stating the projects are technically related. This memo should be provided to the Office of Contracts and Grants.
4.4.3 Special Note: In general you cannot cost share one federal contract or grant against another federal contract or grant. In order to cost share federal dollars against other federal dollars you must receive approval from both federal sponsors. This may be done by clearly disclosing the cost share in all proposal impacted and obtaining written approval from the sponsor(s).
4.5.1 Subcontractors who have agreed, as part of their contract with the University, to participate in our cost sharing requirements make up this category of cost sharing. A standard clause should be included in subcontract agreements citing the subcontractor’s cost sharing and reporting responsibilities. Because subcontractors’ cost sharing will never appear in the University’s accounting system, it is important to obtain this information from them periodically. Their documentation of actual cost sharing to-date should be reported by expenditure category (salaries, fringes, equipment, their F&A costs, etc.), on an invoice or official letterhead, and signed by an authorized representative. Copies of cost sharing documentation obtained from subcontractors must be provided to the Office of Contracts and Grants.
4.6 Third Party/Other
4.6.1 Cost sharing by a third party is not identifiable in the University’s financial system. This type of cost sharing must be reviewed to ensure that it is allowable according to the University’s agreement with the sponsor and that prior approval for this type of cost sharing has been obtained from the sponsor when necessary. In some cases, federal regulations will govern the valuation of third party contributions. Contact the Office of Contracts and Grants to discuss allowability. Documentation provided by third-parties must be captured on official letterhead, with an authorized representative’s signature, and must identify cost sharing by category (salaries, fringes, equipment, etc.) and the value of each. Copies of cost sharing documentation obtained from third-party and other sources must be provided to the Office of Contracts and Grants.
4.7 Multiple Projects Under Parent
4.7.1 This category of cost sharing can be viewed as a second-tier of cost sharing which can develop when multiple projects, referred to as segments, are established under one award. Segments are typically set up to facilitate the work of multiple principal investigators or colleagues of the principal investigator. In other words, when the approved budget is split for reasons internal to the University, some of the responsibility for cost sharing may accompany the segments. When this type of arrangement for meeting the University’s cost sharing requirements occurs, the college/division must identify the segment numbers and the associated cost share obligations for the Office of Contracts and Grants. The cost sharing requirements for each segment should be quantified by the categories described above (Paragraphs 4.1 through 4.6) and are subject to the same documentation and follow-up requirements as the parent project.
4.8 Facilities and Administrative Costs
4.8.1 F&A costs may be calculated and claimed as cost sharing, if not prohibited by the sponsor, on overhead-bearing direct costs that are allowable and documented as cost sharing (effort, supplies, current services, etc.). No documentation by the colleges, other than that required for direct cost sharing, is required.
4.8.2 Cost Sharing in the form of waived or reduced F&A costs is the difference between the applicable University F&A cost rate and the F&A cost actually awarded by the sponsor. Waived F&A costs, if allowed by the sponsor, will be calculated on actual project-to-date MTDC charged to the contract or grant. No documentation is required.
5. UNALLOWABLE COST SHARING
Cost sharing must meet the same criteria as direct costs. In addition to specific costs that are unallowable according to Federal OMB Circular A-21, the following types of cost sharing are unallowable:
5.1 Federal to federal
5.1.1 Federal appropriations and contracts and grants funded directly or indirectly through non-federal sponsors by the federal government are not allowable as cost sharing for another federal project unless the source of cost sharing was explicitly disclosed in both proposals and accepted as cost sharing by the federal agencies or written approval was obtained from both federal sponsors. Federal contracts and grants may be used as cost sharing on any non-federal contract or grant unless prohibited by either sponsor.
5.2 Expenditures included in F&A rate
5.2.1 Costs that are recovered through the University’s federally-approved F&A cost rates, such as building and equipment use, utilities consumption, departmental administrative support and departmental office supplies, are not allowable as cost sharing. Questions regarding expenditures that are recovered through F&A cost rates should be directed to the Office of Contracts and Grants.
5.3 Double counting
5.3.1 Cost sharing can only be committed and reported as cost sharing once. If cost sharing expenditures relate to two or more projects, the expenditures should be prorated in an equitable manner among the projects so that, in total, it is only used and reported once.
5.4 Expenditures incurred prior to award
5.4.1 Expenditure transactions that have already taken place in a period prior to a project’s begin date are not normally eligible as cost sharing. For example, “cost sharing” the PI’s effort during the previous summer for an award with a project begin date of October 1 would not be eligible as cost sharing. If equipment purchases or lab renovations included as part of a proposal have already been completed, these may not qualify as cost sharing. Depending on the agency, the terminology used and the particular situation, each of these cases would require a review by the Office of Contracts and Grants to determine if the expenditures would be allowable by the sponsor.
5.5 Lack of technical relationship
5.5.1 If no technical relationship can be demonstrated between other contracts and grants used as cost sharing and the project requiring cost sharing, the other project expenditures are not allowable as cost sharing.
6. NON-COMPLIANCE WITH COST SHARING REQUIREMENTS
6.1 Failure to meet cost sharing obligations or to adequately document cost sharing can result in cost disallowances by sponsors. It is the responsibility of the principal investigator and the college administrative officers to ensure University compliance with cost sharing regulations and procedures.
7. PROCEDURES FOR CONFIRMING COST SHARING
7.1 Upon receipt of a new award, the Office of Contracts and Grants will review each project for cost sharing requirements.
7.2 If the Office of Contracts and Grants determines that cost sharing is required for a particular project, a cost sharing confirmation memo will be prepared and sent to the college/division business officer.
7.3 The college/division will be responsible for confirming all categories and amounts of cost sharing, supplying additional information needed for certain categories, and returning the memo to the Office of Contracts and Grants within 30 days of receipt.
7.4 Colleges are also required to monitor actual cost sharing during the term of a project. Note: Some agencies require that the University meet their cost sharing commitments by budget period rather than by project period. Based on agency regulations, the frequency of financial reporting and the project period, the Office of Contracts and Grants may determine that cost sharing confirmation on a more frequent basis is necessary to ensure compliance and accuracy of financial reporting.
7.5 Unresolved differences between college responses to confirmation memos will be resolved between the Director of Contracts and Grants, the College Business Officer and the Principal Investigator.
7.6 At the close of a sponsored project, total project-to-date cost sharing must be reported by the college/division in the cost sharing section of the electronic closeout process.