E-50-2 Cost Sharing
I. Purpose
The purpose of this policy is to provide guidance on compliance with federal cost accounting policies to University of Kentucky departments that have grants and contracts. As a recipient of federal grants and contracts, the University must comply with the Office of Management and Budget (OMB) Uniform Guidance Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards. Subpart D, Post Federal Award requirements 2CFR 200.306 outlines the specific criteria which must be met for all cost sharing or matching contributions. Additionally, Subpart E – Cost Principles, specifically 2CFR 200.400, provides criteria around the composition of costs which must be met in subparts 200.403 Factors Affecting Allowability of Costs, 200.404 Reasonable Costs and 200.405 Allocable Costs.
II. Definitions
- Allowable Costs: An expense that is eligible for reimbursement by the federal government or sponsor.
- Cost Sharing: Project costs eligible, but not borne by the sponsor; also known as matching or in-kind contributions.
- Cost Sharing Fund: Fund number associated with the grant/WBS element where all cost sharing expenses are posted. This must be entered on every posting.
- Direct Costs: An expense charged to the sponsor fund that can be directly identified with a specific goal or aim of the project and would not have been incurred or required for any other purpose.
- Facilities and Administrative Costs (F&A): Cost that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. F&A costs are synonymous with “indirect costs.” Examples include expenses for building operations and maintenance, depreciation, interest, library use, general, department and sponsored projects administration.
- Mandatory Committed Cost Sharing: Cost sharing that is required by law, statute or regulation, written in the application guidelines for a specific program, or included in the award document. Mandatory committed cost sharing is recorded in the University’s accounting system and must be reported to the sponsor.
- Third-Party Cost Sharing: Support from a non-University source. Refer to V.3.c.i for documenting third-party cost sharing and V.3.c.2 for valuation of third-party in-kind contributions.
- Unfunded F&A costs: The difference between the University’s full federally negotiated F&A rate applicable for a project and the maximum F&A allowed by the sponsor.
- Voluntary Committed Cost Sharing: Cost sharing that is not required by law, statute or regulation, nor written in the application guidelines, but was offered by the investigator in the proposal. Voluntary committed cost sharing is recorded in the University’s accounting system and must be reported internally.
- Voluntary Uncommitted Cost Sharing: Cost sharing that is not offered in the proposal and is not included in the award document. Voluntary Uncommitted Cost Sharing is not recorded in the University’s accounting system and is not reported internally or externally. Uncommitted cost sharing most commonly results from an investigator’s effort which is over and above that committed in a proposal or award.
III. Responsibilities
- Principal investigator
- Provide timely information to the department, Office of Sponsored Projects Administration and Research Financial Services about cost sharing commitments and changes to those commitments.
- Ensure that department personnel are aware of the cost sharing commitment(s).
- Encourage staff to complete trainings offered to convey policies, prepare documentation, and obtain financial reporting access to grant and cost sharing expenses as needed.
- Review charges posted to ledgers for reasonableness and accuracy on a monthly basis.
- Unit/Department
- Submit an itemized, detailed cost sharing budget for the entire cost sharing commitment to the Office of Sponsored Projects Administration prior to the establishment of the grant/WBS element cost object.
- Charge allowable expenses to cost sharing fund. See V.3.a and V.3.b.
- Ensure the funding of cost share is completed at least quarterly and any outstanding balance is fully funded by the close of the cost object or each fiscal year, whichever occurs earlier.
- Verify that subrecipient cost sharing obligations are met before paying the invoice.
- Provide documentation of third-party cost sharing. See V.3.c.
- Pay for any disallowed costs or penalties imposed by the sponsor due to failure to properly document committed cost sharing.
- Unit/College Head or Designee
- Review and approve proposals that include cost sharing.
- Ensure that funds are budgeted and allocated to meet cost sharing commitments.
- Office of Sponsored Projects Administration (OSPA)
- Review cost sharing commitment prior to submission of the proposal.
- Review awards for cost sharing commitments.
- Approve voluntary cost sharing to be included in the proposed budget.
- Determine when unfunded F&A may be used as cost sharing.
- Code the grant/WBS element for any applicable cost sharing.
- Research Financial Services (RFS)
- Report expenses posted to cost sharing fund and documented third-party cost sharing as required by the financial reporting terms and conditions of the award.
- Calculate F&A costs when allowed to be cost shared to meet a commitment.
- Report to the sponsor in the frequency and format required as outlined in the award.
- Move direct charges from the grant/WBS element to the cost sharing fund to meet the obligation when cost sharing commitments are not met as obligated in the award.
- Process JVs to charge the direct overrun cost object for the responsible unit of the grant/WBS element when refunds to sponsors are required because commitments have not been met.
IV. Policy
- The University will only provide cost sharing when required by the sponsor or in exceptional situations when the institution determines that such a contribution is necessary to ensure the success of a competitive proposal. Consequences of cost sharing include, but are not limited to, the following:
- Tracking and documenting cost sharing is an administrative burden.
- Unfulfilled cost sharing commitments or lack of documentation may result in expenditures not being reimbursed by the sponsor.
- Cost sharing dollars in the aggregate have a negative impact on the University’s Facilities and Administrative (F&A) cost rate: the higher the amount of cost sharing, the lower the resulting F&A rate.
- When cost sharing is mandated by the sponsor, it must be committed only to the extent necessary to meet the specific requirements. Principal investigators and departments may not include voluntary cost sharing commitments in a proposal without prior approvals.
- Criteria for cost sharing
To be acceptable as cost sharing, an expense must satisfy all of the following criteria:- Verifiable from the official University accounting system or third-party certifications
- Incurred during the effective dates of the grant or agreement
- Allowable under the applicable cost principles, OMB Uniform Guidance, Subpart E. Necessary, reasonable and allocable for proper and efficient performance of project objectives
- Itemized in the approved budget if this is a requirement of the sponsor
- Not used as cost sharing for any other sponsored project
- Effort commitments
- The presumption is a principal investigator (PI) will need time and effort to complete the scope of work on a sponsored project. If the sponsored award does not include funds for PI effort, the presumption is the PI’s department will cost share the effort. In rare cases, a justifiable reason may exist to over-ride this presumption if no cost sharing was committed in the proposal to the sponsor or award from the sponsor. Some examples include, but are not limited to:
- Equipment only award
- PI is the mentor on a dissertation award and the funds are for supplies only
- PI is a mentor on an individual fellowship award
- All conditions for closely related work are met AND the PI’s salary is applied to one of the closely related projects AND prior written approval is obtained from the sponsor incurring the cost
- For faculty with less than 12-month appointment contracts, the presumption is a PI will use academic year time and effort to complete the scope of work on a sponsored project. An exception would exist if the project period for the award is limited to the summer (May through August).
- When an individual spends more effort on a project than originally proposed or required by the sponsor, this is considered voluntary uncommitted cost sharing. This effort is not required to be tracked in the University’s accounting system.
- The presumption is a principal investigator (PI) will need time and effort to complete the scope of work on a sponsored project. If the sponsored award does not include funds for PI effort, the presumption is the PI’s department will cost share the effort. In rare cases, a justifiable reason may exist to over-ride this presumption if no cost sharing was committed in the proposal to the sponsor or award from the sponsor. Some examples include, but are not limited to:
- Acceptable expenditures
In general, costs normally treated as direct costs on sponsored projects may be used to meet a cost sharing commitment and costs normally treated as F&A costs on sponsored projects may not.- Examples of expenditures which generally may be used as cost sharing include:
- Faculty, staff or student salaries and applicable fringe benefits. See V.3.b. for details on sponsor salary cap cost sharing.
- Laboratory supplies
- Travel that benefits the project
- Volunteer services (only when the cost sharing is mandatory)
- Examples of expenditures which may not be used as cost sharing are:
- Expenditures not identified directly with the project such as administrative salaries and office supplies.
- Unallowable costs, such as alcoholic beverages, entertainment and membership fees in community organizations.
- Equipment. Proposing the purchase of equipment as University cost sharing must be carefully weighed as there are cost/benefit issues to be considered. The F&A rate includes a depreciation expense for equipment purchased with non-federal funds. When a piece of equipment is cost shared on a federally funded project, the University must document the item as cost shared equipment in the University property system and no allowance may be included in the F&A rate. If cost shared equipment is fabricated or purchased in multiple increments, a "match" account may be required.
- Expenses incurred and/or items acquired prior to the award start date or after the award end date.
- Faculty effort outside the appointment contract (i.e., summer salary).
- Facilities are generally an example of expenditures not used as cost sharing.
- Examples of expenditures which generally may be used as cost sharing include:
V. Procedures
- Proposal submission and cost sharing approval
- Document all cost sharing included in a proposal on the Internal Approval Form (IAF).
- Attach a copy of the regulations or guidelines requiring the cost sharing to the IAF if the program has mandatory cost sharing.
- If there is third-party cost sharing, submit a written letter of commitment outlining the cost sharing from an authorized representative of the third party to OSPA along with the proposal.
- All cost sharing must be reviewed and approved by the unit providing the resources and by the College’s Associate Dean for Research. Approval is indicated by signing the Internal Approval Form (IAF). The signed form should then be forwarded to OSPA prior to proposal submission.
- Voluntary cost sharing to be included in the proposed budget must be reviewed and approved by the Director of OSPA.
- Resources and facilities available at the University that are listed in a resources statement in a proposal are not considered cost sharing.
- Sources of cost sharing
Cost sharing may be met from the following sources:- University funds provided for the benefit of the specific project (i.e., department cost objects, gift cost objects, and dean or vice president cost objects).
- Unfunded F&A costs. A copy of the sponsor’s published policy limiting F&A must be attached to the IAF and submitted to OSPA prior to proposal submission.
- Another sponsored project. This is rare and allowable only if approved by both sponsors. Federal funds may not be used as cost sharing for other federal funds.
- Third party cash or in-kind contributions. Refer to V.3.c.i. for documenting third-party cost sharing and V.3.c.ii. for valuation of third-party in-kind contributions.
- Documenting cost sharing
Documentation is the responsibility of the department/unit designated as the responsible unit on the grant/WBS element.- Posting expenses
- All allowable expenses to be recorded as committed cost sharing must be recorded using the grant/WBS element and the cost sharing fund. The cost sharing funds will be assigned as follows:
0011890000 Fiscal Affairs & Information Technology
0011890100 Research Cost Sharing Fund
0011890200 Medical Center Cost Sharing Fund
0011890300 Provost Cost Sharing Fund
0011890500 Administration Cost Sharing Fund
0011890600 WUKY Cost Sharing Fund - The fund must be entered manually on all cost sharing documents. If the fund is not entered, the expense will post to the sponsor fund, causing the sponsor to be billed for the expenses.
- All allowable expenses to be recorded as committed cost sharing must be recorded using the grant/WBS element and the cost sharing fund. The cost sharing funds will be assigned as follows:
- Effort commitments
- Effort of faculty and staff will be documented through the Cost Distribution Entry Module (CDEM) using the WBS element and applicable cost sharing fund.
- Under OMB definition, Salary Cap Cost Sharing must be classified as committed cost sharing but may not be used to meet a cost sharing obligation (Source: DCA Best Practices Manual F&A frequently asked questions). Salary cap cost sharing is most often applicable to federal agencies with specific restrictions.
- Third party
- Documentation of third-party contributions
- Third-party in-kind (non-cash) cost sharing must be certified in a letter submitted to RFS from an authorized representative of the third party on letterhead with original signature. The letter must identify and explain the method of determining the contributed amount and be quantified in dollars.
- Third-party cash cost sharing will be deposited into a grant/WBS element or gift cost object. The type of cost object will be determined by RFS and OSPA.
- Cost sharing required by agreements with subrecipients must be recorded by the subrecipients on each invoice.
- The department must verify the appropriate level of cost sharing is met before paying the invoice.
- A copy of the invoice must be provided to RFS.
- Valuation of third-party in-kind contributions
The method of valuation of third-party in-kind contributions varies by the type of service or property.- 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 service.
- In either case, paid fringe benefits that are reasonable, allowable and allocable may be included in the valuation.
- 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, the rules for volunteer services apply.
- Donated Supplies and Loaned Equipment or Space
- If a third party donates supplies, the contributions must not be valued in excess of the market value of the supplies at the time of the donation.
- If 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.
- Donated Equipment
- In accordance with Internal Revenue Service regulations, UK Philanthropy and Alumni Engagement (UKPAE) must request a letter from the donor or other documentation stating a value for the contribution. For additional information, see E-22-1 Soliciting, Receiving, Recording and Acknowledging Gifts.
- Valuation of donated equipment must be obtained from UKPAE by the department.
- Volunteer Services
- Documentation of third-party contributions
- Posting expenses
- Funding cost sharing
- Cost sharing commitments must be funded no less than quarterly.
- The principal investigator and department administering the grant/WBS element are responsible for transferring funds from departmental non-sponsored sources into the cost sharing fund either through participation in the auto funding program or through the JV transfer process.
- The JV will debit the source of cost sharing and credit the grant and cost sharing fund.
- JVs may be processed up to the recorded cost sharing commitment.
- Actual expenditures must not exceed the funded amount at the end of a fiscal year.
- Funding JV entries
Salaries 750510 DR Cost Center
Benefits 750515 DR Cost Center
Current Exp 750520 DR Cost Center
Salaries 740510 CR Grant/ WBS & Cost Sharing Fund
Benefits 740515 CR Grant/ WBS & Cost Sharing Fund
Current Exp 740520 CR Grant/ WBS & Cost Sharing Fund
- Cost sharing committed by a source other than the responsible unit on the grant/WBS element (i.e., Vice President for Research) must be funded by that unit using the JV procedure mentioned above. Additional guidance regarding funding mechanisms for cost sharing can be found on the RFS website.
- If the grant/WBS element continues beyond the current fiscal year end, budgeted balances and any positive cash balance in the cost sharing fund will automatically be carried forward.
- At the end of each fiscal year, or by the closure of the grant/WBS element, whichever occurs earlier, all cost share balances must be fully funded. No deficit balance may be carried forward.