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Revisions to A-21 adopted; effect on Stanford still unclear

STANFORD -- The Clinton administration on July 15 adopted long-awaited revisions to the federal regulations that govern payment to universities for research costs.

The effect of the new rules on Stanford is unclear, according to Chief Financial Officer Peter Van Etten, although it is expected that the university will lose several million dollars in expenses that now will be unrecoverable.

As expected, the final changes to federal Circular A-21 are almost identical to revisions approved at the 11th hour last January by the Bush administration, then quickly put on hold by President Clinton's representatives in the Office of Management and Budget.

The reforms were published Monday, July 26, in the Federal Register, making them official.

In addition, the federal agency announced its intention to apply the proposed rules of the Cost Accounting Standards Board to colleges and universities.

Rather than simplifying procedures for research institutions - the stated intention of A-21 - this will make cost accounting tasks more complex, according to Reed Brimhall, director of government cost and rate studies at Stanford.

The revisions will affect Stanford in the 1994-95 fiscal year, except that tuition remission - the practice of charging part of graduate student tuition to the faculty-staff benefits pool - will end in Stanford's 1998 fiscal year.

Van Etten said it was impossible to predict the effect of the new rules because "issues that were gray seven months ago remain gray."

The major revisions in A-21 affecting Stanford are:

  • Cap continued on administrative costs - The government intends to continue the 26 percent cap on various administrative expenses that are charged as indirect costs. Last year, Stanford's ongoing costs were estimated at $6 million to $8 million above the cap.

Making matters worse, the government has added student services to the capped category, Brimhall said. This means the university will be unable to collect approximately $2.6 million formerly received to support graduate students.

The new policy provides an optional 24 percent "threshold" rate covering general administration, departmental administration, sponsored projects administration, and student administration and services. In return for choosing the threshold, Brimhall said, the government would "reduce significantly the amount of paperwork required" to justify the administrative costs under the threshold.

Because each point is worth about $1.5 million, the university would recover $3 million less if it chooses the threshold rate. Brimhall will spend part of his summer studying the issue of what it costs in staff time and paperwork to recover the extra $3 million.

  • Direct administrative charges - For years, the university has been able to recover the full cost of administrative charges closely associated with research projects by charging them as "direct" rather than "indirect" expenses. Under the new rules, only administrative costs associated with "major" projects would be direct-charged. Others would go into the capped indirect-cost administrative pool.

The word "major" is not defined in the regulations, which read: "The salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity."

Dean of Research Charles Kruger said that "we will continue our attempt to understand exactly what is intended by the changed language and how to best implement it at Stanford." The change is due to go into effect in Stanford's 1995 fiscal year.

Changes in both direct administrative charges and tuition remission present problems for principal investigators who are submitting long-range proposals.

Kruger said that he and Van Etten would send a memorandum to principal investigators in about a week telling them how to handle these issues in proposals that go beyond Sept. 1, 1994, for direct administrative charges and Sept. 1, 1997, for tuition remission.

  • Identifying university research - The new rules will require Stanford and other institutions to include "university research" in the sponsored research base, Brimhall said. The federal regulation is vague, but it may mean projects funded with university seed money.

Ultimately, this will further reduce the recovery of such indirect costs as space and utilities. In the future, they will be spread over research projects that do not collect indirect costs because they are funded by the university rather than external sponsors.

In the past, university research was included as part of the instruction base.

"We have never tried to figure out how much university research we did," Brimhall said. "Now we have to interpret their definition of university research, then identify how much it is and add it to the organized research base."

  • Tuition remission - As expected, the government said that authorization to charge tuition for research graduate assistants to universitywide fringe-benefit pools would expire in September 1997.

Kruger said the consequences of that action will not be nearly as dire as predicted last year - one published estimate was that Stanford might lose one-quarter of its graduate students.

Several staff members of the Decision Support Systems group, a division of the Stanford Data Center, have been working with Kruger this summer to develop more detailed calculations on the repercussions of the future change.

"The results look encouraging," said Kruger, adding that a large loss of students and a huge bill "are not the way things look right now."

Kruger predicted that by the end of summer, with help from the Decision Support Systems group and Brimhall's staff, "we'll be 90 percent of the way" in developing suggestions for policy changes to be considered by interested groups and the provost.

"We want to make sure we understand the impact in 1997 of remission on sponsored projects," he said, "but also on support of teaching assistants, medical students, fourth-year dissertation fellows and all others affected by tuition remission changes."

In the meantime, Kruger said that for proposals extending beyond September 1997, researchers should show tuition of their graduate students as a direct charge. Indirect costs will not be charged on tuition. And staff benefit charges should not be assessed on research assistant stipends, he said.

  • Complex accounting standards - The Office of Management and Budget apparently has decided to apply rules of the Cost Accounting Standards Board to colleges and universities by incorporating them into A-21.

"What they are doing contradicts where they started," Brimhall said of the original notion that A-21 would simplify policies and procedures.

The new accounting rules will cover such arcane subjects as "consistency of costs" and "accounting for unallowable costs." The agency also will require each university to submit a disclosure statement detailing the institution's cost-accounting practices.

A disclosure statement is a "mammoth document on how we do cost accounting," Brimhall said last year when he began arguing against the proposal.

After the government accepted its disclosure statement, the university would have to file an impact study detailing the effect on grants or contracts any time it wanted to change an accounting policy or practice, a task that would be quite difficult given the number of policies and procedures relating to indirect costs and the conduct of research at Stanford.

The disclosure-statement requirement was to have become effective immediately, but the government has now agreed to include a transition period in the proposed standards, Brimhall said. The length of the transition was not specified. Without that reprieve, Stanford would have been unable to bill the government for costs on many of its contracts until it had submitted the large disclosure statement.


Provisional rates sidebar


Provisional indirect cost of 61 percent accepted for 1993-94

Stanford and the federal government have agreed to a provisional indirect-cost rate of 61 percent for 1993-94, up from 60.3 percent in 1992-93.

The staff benefits rate for the year will be 30 percent, Charles Kruger, vice provost and dean of research and graduate policy, and Peter Van Etten, chief financial officer, announced in a memorandum to principal investigators and others.

To protect sponsored research and instruction programs, the changes in the rates will be implemented in ways that will not reduce direct-cost amounts available to principal investigators on active projects.

Kruger and Van Etten said that negotiations would continue in August with the Office of Naval Research for fixed- with-carry-forward overhead rates for 1993-94. In spring 1994, the university intends to submit an amended proposal for predetermined multiyear rates to begin in fiscal year 1995.

"Our goal," Kruger and Van Etten wrote, "is to obtain certainty and stability in the rate structure to facilitate the budgeting of grants and contracts."

In May, the 1992-93 rate of 60.3 percent was converted by the government from provisional to fixed-with-carry-forward.



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