Universities Adjusting to New Regulations for Sponsored Research

By Ken Gewertz

Gazette Staff

With the recent extension of federal cost accounting standards to the academic community, research universities are adjusting to a whole new regulatory environment in their dealings with federal sponsors, according to Stefano Falconi, director of the Office of Cost Accounting.

The U.S. Cost Accounting Standards Board (CASB) was established in 1970 as an independent executive body within the U.S. Office of Management and Budgets, with exclusive authority to promulgate and revise mandatory cost accounting standards for federal contractors.

Originally, universities were exempt from federal cost accounting standards (CAS), but recently this exemption has been eliminated. Most Harvard schools are now covered, with the exception of Medicine, Dental Medicine, and Public Health. These schools are likely to become CAS-covered in the near future when the federal Office of Management and Budget (OMB) issues a revised set of guidelines known as Circular A-21.

The change is part of a trend toward stricter standards in cost accounting procedures that is expected to have profound implications for research universities.

"This change is going to impose more stringent regulatory requirements on us. The whole way we do business is going to change over the next few years," said Richard Pagett, director of research administration.

One factor that makes the situation extremely complicated is that universities, like private contractors, have more than one "product line," Falconi explained. Instruction and research can be regarded as separate, if complementary, "products."

"Unlike private companies that undertake federal contracts -- an aircraft manufacturer that accepts a federal contract to build a fighter jet, for example -- the two product lines share a large number of common resources," Falconi said. "For example, a single building may support a variety of functions -- it may have laboratories, classrooms, offices, a library, even a cafeteria all under the same roof -- and these facilities may be involved in both teaching and research."

When it comes to calculating research overhead, commonly referred to as "indirect costs," disentangling teaching from research costs can be an exceedingly complex process.

The combined effect of CASB and the proposed revision of A-21 is to make this process even more complex.

"The bar has been raised progressively and we've always managed to jump over it, but with greater and greater effort," Falconi said.

In addition to stricter rules regarding indirect costs, CASB also imposes four new "cost accounting standards," similar to those imposed on federal contractors, which Falconi describes as "deceptively simple, but very far-reaching."

For example, one of the new standards states simply that "like costs must be treated consistently in like circumstances."

In practice, this rule may mean that actions by an investigator in one school or department could have serious consequences for investigators in other parts of the University.

Falconi presents the following hypothetical example: suppose a researcher wanted to attend a national conference to present the results of her research, and her travel expenses were not covered by her research grant. Then suppose her department agreed to cover these expenses.

Under the new consistency standard, federal auditors might decide that travel expenses must be covered by a researcher's department throughout the University.

"Everyone's got to start thinking, what are the implications of my picking up this bill?" Falconi said.

The general effect is to give the bookkeeping aspects of managing federal funding a larger role in a principal investigator's activity, Falconi said.

"Our efforts to insulate principal investigators from the federal bureaucracy will certainly continue, but may become less effective as a result of the new regulations," he said.

Falconi's office is in the process of preparing a manual on accounting policies that will inform investigators and department administrators of the numerous changes imposed by A-21 and their implications for University researchers. For further information on these issues, please call the Office of Cost Analysis at 495-0717.