Cost Accounting Guidelines: Guidance for Purchase of Personal Computers and Electronic Devices on Sponsored Projects
For awards made before 12/26/14 which are not subject to the Uniform Guidance**Replaced by new guidance 11/25/14**
This document is intended to serve as a guide for the UW – Madison campus regarding the purchase of basic electronic research tools with funds from sponsored projects. The primary categories of purchases addressed are:
- Computers: including, but not limited to desktop computers and laptop computers
- Electronic Devices: including, but not limited to tablets, e-readers, mp3 players, smart phones, cell phones, printers, external hard drives. This is not a complete list and questionable items should be directed to your Dean's office.
Summary: Purchasing Electronic Devices with Sponsored Funds
Purchase of electronic tools requires meeting certain standards set by the sponsor. This document is intended to assist researchers in answering the question: “Can I use sponsored funds to buy a computer?”
Given the multitude of complex and overlapping regulations, what does it take to justify an exception to the Federal cost principles? All research universities grapple with this issue. Particularly in an environment where all sources of funding are limited, researchers are faced with difficult circumstances for purchasing essential research tools, including laptops and other electronic devices.
Federal Projects. In order to meet Federal standards for the purchase of computers and electronic devices, it is necessary to establish a rationale and to offer clear documentation. Otherwise, those items cannot be approved as an expenditure on Federally sponsored projects. All of the following principles must be met:
- The need has been included in the original proposal and completely justified as to the reason it is being included.
- It has been approved by the sponsor as part of the budget approval.
- If the item to be purchased was not described in the budget, there is a complete explanation of the reasons its need was recognized at a later date.
- The project needs sufficiently justify use of the item in a way that is unlike typical purchases of the item.
- The purpose and benefit to the specific project have been fully described in the College/School Authorization Form.
- The project will be negatively impacted by not purchasing the computer or electronic device.
Non-Federal Sponsors. The basic criteria for purchasing electronic research tools are somewhat different on non-Federal projects. The principles in this category include:
- Written sponsor guidelines do not prohibit the purchase of computers and electronic devices.
- The costs must be directly allocable to the project that purchases the equipment.
- The purchase must represent good stewardship of the sponsor’s funds and the project’s stated objectives.
- The costs are reasonable and directly benefit the sponsor’s project.
- All other sponsor required stipulations apply (i.e. rebudgetting tolerances, notifications, etc.)
Federal and Non-Federal Sponsors. If a computer or electronic device is 100% funded from a sponsor’s funds, the device cannot be used for purposes outside the goals of the project on more than an incidental basis. Generally, incidental usage means no more than 5%. Criteria for incidental use include:
- Incidental use never interferes with project use.
- Incidental use is solely for efficiency, such as responding to e-mails not related to the project in a timely manner.
- Incidental use itself would not have justified purchase of the laptop or device.
- Incidental use does not exceed a de minimis amount of 5%.
- Generally, non-project files or data are not stored on the computer.
- The computer is not used for administrative support.
The PI must conform to any specific restrictions or approval requirements of the sponsor and must assure that the computers and electronic devices would not have been purchased except to support the goals of the specific sponsored project.
This guidance is intended to help Principal Investigators and their staffs understand the appropriate treatment of costs for electronic research tools, including personal computers and other electronic devices, in the context of University and Federal requirements. The acquisition of computers and electronic devices must meet the basic Federal criteria of allowability, allocability, and reasonableness. In addition, Federal standards require consistent treatment so that the items purchased can clearly be shown to directly benefit the sponsored project objectives. The Federal government has made clear to the research community that it does not consider computers and other electronic devices to be an appropriate direct cost to sponsored projects in most circumstances. Recent audits of universities and specific disallowance of expenditures for these items have confirmed this point. General purpose computing support is considered to be an administrative cost that should normally be covered by F&A reimbursement.
As a recipient of Federal funds, the University of Wisconsin is required to adopt costing policies in conformance with Federal rules and regulations. We are also required to disclose our accounting practices in a Disclosure State (DS-2) to our cognizant audit agency, the U.S. Department of Health and Human Services. Costs that support sponsored research on both a direct and indirect basis are also defined. The principal Federal guidance in this area is provided by OMB Circular A-21, as well as Circular A-110. A-21 specifically sets the accounting standards for sponsored projects, requiring that costs directly charged to projects must be allowable, allocable, and reasonable, and the circular further requires that the standards be consistently applied. In general, by Federal standards, computers and electronic devices are not an allowable direct cost on federally sponsored projects.
Because computers and electronic devices are typically used for many different activities, including instruction, research, administration, email, and personal use, the Federal government’s default assumption is that these devices are not appropriate as a direct charge to sponsored projects.
In all cases, purchases must conform to the cost principles for educational institutions described in the OMB Circular A-21. Those Federal costing principles specify that charges for computers and electronic devices must meet all of the following conditions:
- They must be allowable.
- Example: (from A21, Exhibit C) “Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature and reporting…”
- The computers and electronic devices are specifically identifiable to the grant and used primarily for the grant.
- They must be necessary for and provide direct benefit to the project.
- The computers and electronic devices must be essential for project activities and their use should be tracked during the life of the project.
- The items must typically be treated consistently across the university as either direct costs or F&A costs.
- If items normally treated as F&A costs are purchased with direct funds, there must be adequate justification to meet the Federal standard for an exception – an “unlike circumstance” in OMB Circular A-21.
- They must be directly allocable.
- The principal use of the computers and electronic devices must be directly related to the purpose, goals, and activities of the sponsored project that purchased them.
- They must be reasonable.
- There must be an informed, prudent decision regarding the cost, utility, and value to the project.
- They must be non-personal in nature.
Consistent Treatment of Costing
OMB Circular A-21 defines direct costs for sponsored programs:
Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be assigned to such activities relatively easily with a high degree of accuracy.
The Circular goes on to introduce the idea of consistent treatment:
Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or F&A costs. Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.
It would be tempting to think that UW could then simply define all costs for computers and electronic devices as direct costs and then move to purchase those items from sponsored projects. The Federal circulars do not allow that conclusion. Instead, A-21 stipulates that those items should normally be treated as F&A costs, not as direct costs to sponsored projects. That provision means that those items can be purchased on Federally sponsored projects ONLY when there is sufficient reason to treat the purchase as an exception to the cost principles, including being in an “unlike” circumstance.
Supplies versus Equipment
Consistent with the Federal definition of equipment, the University has defined equipment as an article of nonexpendable, tangible property with a useful life of more than one year and an acquisition cost of $5,000 or more. Items with a useful life of less than one year or an acquisition cost of less than $5,000 are defined as supplies. That means most personal computers and laptops are defined as supply items, not as equipment. Further, those items are considered to be general purpose in use, as defined by the Federal government, because their usage is not limited to specific scientific purposes.