Cost Sharing

Cost-Share Characteristics

Cost-share, often called cash match, describes the costs of a project which are not paid by the external sponsor. These costs are considered to be “shared” by ECU. This might arise out a requirement of the sponsor or because the proposal committed a resource without providing funds for that resource in the budget. Cost-share might involve cash expenditures by the university or in-kind resources which have identifiable value but for which ECU is not having to pay, like community volunteers.

These costs might include the compensation of personnel assigned to the project, but not paid from the grant account. It might include supplies purchased by a department, but used specifically on the project. Cost-share should not, however, be conceptualized to include a wider sphere of institutional spending on programs or facilities which encompass or support indirectly the project in question. Those types of expenses are not primarily in support of a particular project, but serve broader and myriad institutional interests. As such, they cannot be considered cost-share or match for a specific project.

For the sake of simplicity, “costs of a project” is generally considered to relate specifically to the narrow scope of work described in the proposal and funded by the external sponsor. It is, in fact, problematic to claim as cost-share resources or expenditures that are not clearly and precisely allocable to the project in question. Expenses which are directly related to the actual conduct of the scope of work, such as personnel time, travel costs, and supply purchases, are much easier to justify as cost-share than expenses which are less directly related or which may also benefit other university programs like space, administrative personnel, and general or shared equipment.

Cost Sharing Scenario

• The Good Works Foundation provides $10,000 to ECU to fund a summer camp for first generation college students entering ECU in order to give them an extended orientation to the campus. The grant requires a 1:1 match (or 50% cost-sharing). ECU must spend $10,000 itself and create a $20,000 project. Eligible cost-share would include food for the campers, van mileage, effort of personnel working directly with the campers, per-person insurance costs, and many other expenses related directly to the camp. Many other expenses, however, would be much more difficult to justify as cost-share, including administrative personnel in Student Affairs, costs associated with general freshman orientation, or costs associated with a movie which all entering freshman were shown.
• In this example, the eligible expenses could be precisely allocated to the camp. The ineligible expenses could be argued to have benefited the camp and perhaps the camp could not have happened without them, but they could not be demonstrated to have served only the camp (or have a calculated percentage of a shared cost be attributed to the camp). Cost-share expenses must be clearly documented and anything that can’t be clearly documented should not be proposed as cost-share.

Committed vs. Uncommitted Cost-Share

Cost-share can be committed, or promised, to the sponsor or simply unavoidable to the university in the conduct of a project. Committed cost-share should be distinguished from uncommitted cost-share. Basically, investigators have to keep the promises they make in the proposal, but they should avoid going beyond that. If ECU commits to spend $1,000 on meals for participants in addition to the meals purchased by the grant, we have to document that we did so. The $1,000 is committed cost-share. If ECU actually spent $1,100 on meals, the $100 overage is uncommitted cost-share. ECU definitely spent it and it is definitely allocable to the project, but it was not part of what was committed in the proposal.

It might seem advantageous to report all the cost-share we can document to the sponsor in the interest of demonstrating the fullness of the project and the university’s commitment, but the best practice is to only report the committed cost-share. This is because everything that gets reported becomes auditable. We may have only promised $1,000 in spending, but if we report $1,100 we have to be able to document it all. Suppose an auditor determines that 5% of the meal receipts were not sufficiently documented. If only the $1,000 committed to the sponsor were reported, the disallowed expenses could be replaced out of the $100 of unreported uncommitted cost-share and ECU would still meet its match requirement.

Of further concern is the potential cost of failing to meet the match requirements in the above example. If an auditor determined ECU had only provided 95% of the promised cost-share, ECU could be only accept 95% of the grant. If the grant had a 1:1 match (ECU spends $1,000 to get $1,000), a $50 shortfall in cost-share would only result in a $50 reduction in the grant. If the grant only required a 10% match (ECU spends $1,000 to get $10,000), a $50 (or 5%) shortfall in match would result in a 5% reduction in a $10,000 grant of $500. Committed cost-share must be tracked very carefully and only put on proposal budgets when required by the sponsor.

Mandatory vs. Voluntary Cost-Share

Cost-share usually becomes an issue when a funding agency requires a mandatory match in the proposal guidelines. In order to be eligible to receive an award, ECU must agree to itself pay some portion of the project costs. There are two basic ways to define the amount of the cost-share. The first is a match ratio; the second is a match percentage. Be careful to read the proposal guidelines carefully, as there is some variation in terminology. For example, a 1:1 match is sometimes called a 100% match (match equal to 100% of the grant award) and other times is called a 50% match (match equal to 50% of the total project). Generally, the conversions outlined in the table below are common.

Mandatory cost-share is the price of the grant, but voluntary cost-share over and above that requested by the sponsor is generally unadvised. Some argue that it makes a project more attractive to the funding agency, but this argument forgets that the central focus of the grant making process is ultimately merit. The funding agency has already made clear the amount of cost-share it requires, a proposal lacking merit will not be able to buy the award with promises of additional match. A proposal with high merit, similarly, will not be declined by the sponsor so long as it has met the requirements laid out in the proposal guidelines. Cost-share is important until it meets the level required, beyond that point it is not a significant competitive factor.

Cash Match or In-Kind – Which is Which?

Many projects take advantage of valuable resources provide free of charge and it is common to use the value of these resources to meet cost-share requirements. Such match is considered to be “in-kind” as opposed to cash match. It is principally an accounting concern since cost-share is usually documented by providing records of accounting transactions including receipts and ledger entries, and an in-kind contributions are a type of contribution in which no financial transaction takes place. In-kind contributions require that some sort of documentation be created to take the place of the transaction. Usually, some form of log is maintained and initialed by the investigator and the person providing the in-kind resource.

In-Kind Services Scenario

• A common example would be volunteer labor by the hour. Volunteers are contributing their time, which has value, but are not being paid, so there is no accounting transaction to document the in-kind contribution. The investigator would keep a log of all the hours worked by the volunteers and ask each volunteer to sign off on their time. An important note here is that the value of each hour worked is based upon the work performed, not upon the professional hourly wage of the volunteer. A lawyer may make $100/hour at his firm, but the time he volunteers counting fish in a stream may only be worth $20/hour – that being the cost of the employee that would have been hired had the volunteer not been available.

Note on ECU Personnel

• Time spent by ECU personnel on a project is rarely in-kind, since the personnel are actually getting paid and the payroll records can be used to document the cost-share. If an investigator works for two weeks on a project without their salary being charged to the grant, that is certainly cost-share, but it is not in-kind. ECU can, via the effort reporting system and the payroll records, document precisely the value of that work for the purposes of documenting cost-share. A true in-kind contribution would be volunteer work by ECU personnel completely unrelated to their job functions. If the lawyer in the above example was one of the university’s attorneys, his time counting fish would likely be in-kind contribution.

3rd Party Cost-Share

When ECU works on a grant project requiring cost-sharing in partnership with other institutions, known as third parties, it is common for our partners to contribute cost-share. This is most straightforward when ECU will be passing along a subaward to our partners to fund their portion of the project. The ORA can write the cost-share provisions into the subaward, creating a legal requirement for the subawardee and an incentive to provide adequate documentation (they want us to pay their invoices). When no such subaward is needed, close collaboration with the partners regarding cost-share should be in place from the beginning of the project. Tracking cost-share is tricky enough by itself, doing so in collaboration with others is doubly so. Ultimately, ECU is the prime recipient of the award and is 100% responsible for all the cost-share. If our partner fails to deliver their portion, ECU will have to make it up or forfeit a prorata portion of the award funds.

F&A Cost-Share and Match

Using Waived F&A as Cost-Share

Many sponsors who require cost-sharing also limit the amount of F&A they will pay, often capping it at 10-15%. In such circumstances, the first goal should be to use the portion of F&A the sponsor will not pay to meet the cost-share requirements. Since ECU’s standard F&A rates are well above these common caps, a required cash match of perhaps 25% can be achieved using this method alone. This sort of match is also the easiest to track; our institutional accounting systems will collect all the needed documentation automatically.

Many sponsors will accept this approach, but it may require negotiation. It may be helpful to describe these expenses more fully. Some sponsors will not accept costs labeled “indirect costs” as match, but will permit an allowance for “utilities, space maintenance, and accounting” to count as cost-share. The ORA can assist in contacting the sponsor to conduct this negotiation.

F&A Matches Itself

Mixing F&A and cost-sharing together layers complexity on top of intricacy with lots of slippery math – almost everyone gets confused. A common example of this is when it starts to look like a project will have document more cost-share in order to match the F&A being paid by the sponsor. In the example below, the sponsor awards $10,000 plus $1,000 in F&A (10%) and requires a 1:1 cash match. The investigator assumed that $10,000 in match was needed, but the F&A has run the match requirement up to $11,000.

The $1,000 of F&A in the ECU Match column is calculated on the cost-shared direct costs (the $10,000 directly above it in that column). Basically, F&A is calculated on all direct costs, both those paid by the sponsor and those paid by ECU. Thus, the investigator only need to document the cost-share contributions related to direct costs. The F&A ECU calculates on the sponsor’s portion of the direct costs will be matched by the F&A ECU calculates on the cost-shared portion of the direct costs.

Common Sources of Match Funds

•  Capped F&A (Indirect Costs): When the sponsor will permit it, using F&A costs over and above what the sponsor will pay is the most ready source of substantial amounts of cost-sharing and is by far the easiest to track (since it is tracked automatically). Many sponsors, even while objecting to permitting “indirect costs,” will often allow costs labeled as an allowance for utilities, space maintenance, and accounting. Since F&A is often poorly understood, it can be useful to describe it in more familiar terms.
• Effort (Personnel): Another common source of cost-share is personnel effort. Personnel costs are usually the largest item on a project budget, so the amounts involved are usually at the level required to meet sponsor match requirements. Essentially, some or all of the personnel needed to conduct the project are paid by the university instead of by the sponsor. Keep in mind that using effort in this way definitively commits the personnel to work that amount of time (and certify it) to exactly the same degree as if there salary was being paid by the sponsor. Cost-share effort commitments are more easily overlooked than grant funded commitments – since there are no payroll transactions to serve as reminders – but they are just as binding. For this reason, be sure to coordinate closely with chairs and deans before committing effort as cost-share.
• Partner Institutions: Collaborative projects involving several institutions often receive grant funding to enhance or expand a project that was to some extent already in place even without the grant. Since both institutions have already committed to proceed, ECU’s partners may have delegated personnel or resources to a project that could be used to meet cost-share requirements. The amounts involved can be significant, which is both useful for the grant proposal and challenging for financial reporting once the award is received.

Partners Within ECU

When projects serve a wide variety of interests on campus, it is common for multiple units to contribute funds in support. This approach can work quite well so long as a couple issues are well managed. First, it is vital to get clear written commitments from personnel with authority to designate the funds, generally chairs, deans and vice-chancellors. These commitments will come months before an award is received, and the commitment honored, so careful records are essential. It should also be clear that the contributing units will transfer their contribution into a designated account specific to the project, rather than expecting that they will themselves spend the funds out of their accounts, which would make the cost-share tracking much more difficult.