by Thomas B. Higerd, Ph.D. Professor and Associate Dean, College of Medicine

What is CAS?

CAS (Cost Accounting Standards) was initiated in 1970 by the federal government in response to the excessive prices imposed by defense contractors. Remember the $20,000 toilet seat?

Originally required only of defense contractors, the same standards were extended in 1990 to commercial contractors who received federal awards. Shortly thereafter, the media reported on Stanford University’s use of depreciation on their yacht for calculating indirect costs from federal grants. As a rejoinder, Congressman John Dingell managed to bring educational institutions under these same standards. In 1994, the top 100 research institutions and subsequently those receiving more than $25 million in federal awards in the previous year, were required to develop CAS-compliant policies and procedures on cost reporting. As of last March, 86 had completed their task, but only a handful had been audited for acceptability.

Prior to CAS, federal Circular A-21, “Cost Principles for Educational Institutions,” established standards of practice in reporting expenses associated with federal grants and contracts. CAS was not intended to take the place of or be in conflict with Circular A-21. Eventually, the language of CAS was incorporated into Circular 21 thereby helping clarify and further define certain accounting practices.

CAS is organized into four standards for academic institutions. Liberally translated, they are:

• (501) that the method for estimating costs in the proposal stage must be the same method used when accumulating and reporting actual costs in the project or work phase;
• (502) that costs allocated for similar purposes should be allocated consistently and only once;
• (505) that unallowable costs (costs that cannot be charged to the government, such as party supplies) must still be accounted for in the negotiation and settlement of the project;
• (506) that the time period used in accounting must be applied consistently.

How does this affect MUSC?

MUSC is among the few educational institutions that have not yet developed policies and procedures compliant with CAS. The university has less than eight months to submit to the federal government a detailed document called the Disclosure Statement, stating operating standards. Ultimately, we will be challenged by federal auditors to demonstrate our compliance with these standards.

To arrive at an acceptable Disclosure Statement, MUSC must develop and implement policies that ensure consistency in reporting project costs and align pre-award and post-award accounting processes.

Many of the standards can be viewed as simply developing good business practices that will be supportive of a first-class research institution. Others may be viewed as obsessive accounting processes that are expensive, without merit, and insensitive to the unique role of academic medical centers.

MUSC is not being singled out. It so happens that this institution made the nation’s list of top 100 research universities in the nation, which incidently, conduct 82 percent of federally funded research and development projects. It will be a challenge to develop CAS-acceptable policies and practices that have a minimal impact on MUSC’s stated missions.

Should faculty have an interest?

When David Welch, director of Grants and Contracts Accounting, approached me to serve as CAS faculty liaison, the second question I asked was, “Does this affect faculty?” (My first question was, “Why me?”) The answer is an emphatic “YES.” And while it is true that the policies being developed primarily affect the lives of research faculty, these same policies also affect all faculty and staff who leave their fingerprints on any funds derived from federally-sponsored programs, including grants, contracts, and Medicare/Medicaid reimbursements.

What is the process?

The university has retained the services of Coopers and Lybrand, a large national accounting firm with extensive experience in assisting faculty and staff of academic institutions develop Disclosure Statements. The formal process began some eight months ago and involved the development of a decision-making, 12-member steering committee (the usual VIPs and me) and several smaller working groups composed of faculty and administrative staff.

The seven groups are covering the following topics:

• Clinical Trials (defining clinical trials, requiring budget submittals, and distributing residual funds; Drs. Ed Conradi and Patrick Mauldin, co-chairs)
• Cost Sharing and Effort Reporting (defining shared costs and validating employee participation through salary compensation and effort reports; Jeannine Mathews, chair)
• Direct and Indirect Costs (reviewing and recommending categories of expenses which form the base from which indirect cost rates are calculated; Velma Graham, chair)
• Service Centers and Cores (developing a uniform policy of accounting and costing practices for MUSC’s major service providers; Howard Lundy, chair)
• Proposal Submittal and Rebudgeting (review current practices for consistency and efficiency; Dillard Marshall, chair)
• Affiliates (reviewing and, when necessary, defining affiliation arrangements for the purpose of developing one or more MUSC disclosure statements; Dr. Ken Roozen, chair)
• Fringe Benefits (identifying fringe benefits by employee group and determining fringe benefit rates charged to sponsored programs; Velma Graham, chair)

Each of the groups has met on numerous occasions with partners from Coopers and Lybrand to hammer out a written report. Their reports recommend topic-related policies and procedures for adoption by the steering committee at its first meeting scheduled for the end of this month.

As faculty liaison, I will write a weekly summary covering one group report while providing commentary on issues potentially troublesome to faculty and their staff. Being only one voice, however, I invite you to communicate your thoughts on the issue.

How can you respond?

A report will be selected and summarized each week for The Catalyst. You may read the summary with commentary in printed form or view it through The Catalyst’s web site. The full report is available through MUSC’s web site or David Welch’s office.

Included in these web sites are links to a CAS-specific on-line web discussion group where you may view responses from others and/or provide your own response. I will collect and collate your responses for presentation to the chair of the appropriate working group and to the steering committee.

Any questions, opinions or ideas?

Call 792-4333 or e-mail <higerdtb@musc.edu>

To obtain:

Paper copy of full report call David Welch, 792-2850

Web site of full report <http://www.musc.edu/research/cas/toc.htm>

Web site for The Catalyst <http://www.musc.edu/catalyst/>

Web site for responding <http://www.musc.edu/research/cas/response/>