Federal Grants Compliance 101

Federal Grants Compliance 101 June 4, 2014 YOUR MISSION OUR SOLUTIONS Huron Consulting Group Inc. All Rights Reserved. Huron is a management consulting firm and not a CPA firm, and does not provide attest services, audits, or other engagements in accordance with the AICPA's Statements on Auditing Standards. Huron is not a law firm; it does not offer, and is not authorized to provide, legal advice or counseling in any jurisdiction. Agenda TODAY S SESSION WILL INCLUDE THE FOLLOWING TOPICS. Introduction to Research Compliance Regulations Governing Sponsored Awards Compliance Focus Topics: Direct Charging Practices Service/Recharge Centers Effort Reporting Cost Sharing Cost Transfers Financial Management and Monitoring Other Regulatory Topics (Non-Financial) Best Practices for Compliance Programs 2 1

Introduction to Research Compliance Introduction to Research Compliance PERSPECTIVE ON THE CURRENT INDUSTRY LANDSCAPE The research administration environment grows increasingly complex with changing regulations, inconsistencies among agencies, lack of information (meaningful and timely reports), thus generating more risk than institutions recognize. There remains a vast disconnect between: The award environment, during which the funding agency and the PI focus primarily on the research itself The degree of flexibility that is perceived to exist while the research is being conducted The audit environment when an award is closed and subsequent audits take place Current environment will likely place increased emphasis on accountability during a time when many institutions are faced with significant financial pressures and pressures to reduce staff. 2

Introduction to Research Compliance COMPLEXITY VIA DIVERSITY Complexity is found in research and fiscal areas and in the diversity of constituents: Research & Fiscal Areas Genomics Stem cell research Clinical trials Technology transfer Faculty owned start-ups University equity interests Conflict of interest International collaborations Interdisciplinary research Subcontracts Human subject protections Electronic payment Grants.gov Cost accounting standards Constituents Investigators, research assistants, staff, technicians Students, grad students, parents of students Board members, taxpayers Federal agencies, external auditors Suppliers, donors, corporate sponsors, investors Human subjects, advocacy groups (PETA, etc.) University administration, college and departmental administration Introduction to Research Compliance REGULATORY ENVIRONMENT Results of audits and investigations include: In the first half of FY 2009, financial penalties resulting from audits of sponsored research totaled: $274.8 million in audit receivables $2.2 billion in investigative receivables In the last decade the number of annual criminal convictions of individuals or entities that engaged in improper compliance activities nearly quadrupled, to: 222 criminal convictions (6 months of FY09) Additionally, there were 239 civil actions False claims/whistleblower (qui tam) suits allow an individual who knows about a person or entity submitting false claims to bring a suit on behalf of the government The individual may receive a portion (15-30%) of the damages recovered : 3

Introduction to Research Compliance CONSEQUENCES OF NON-COMPLIANCE Exceptional status of awards Suspension/termination of award Special terms and conditions of award Greatly reduced flexibility in the management of federally provided resources Negative publicity Large financial settlements Audit findings Disallowance of costs Significant difficulty negotiating F&A rates Extrapolation to additional grants Introduction to Research Compliance SETTLEMENT LANDSCAPE 4

Introduction to Research Compliance TRENDS IN FUNDING AND COMPLIANCE Trends related to research compliance at universities include: Volume of activity Complexity Scrutiny Demand for accountability Large investments in facilities Pressure to maintain/reduce administrative cost The Perfect Storm Introduction to Research Compliance AREAS OF CURRENT COMPLIANCE EMPHASIS Key areas of federal compliance focus: Financial Cost transfers Clinical trial billing Cost sharing Direct charging practices Effort reporting Financial reporting Program income reporting Recharge centers Subrecipient monitoring Unallowable costs Technical/Research Animal subject protections (IACUC) Human subject protections (IRB) Biosafety (IBC) Conflicts of interest Environmental health & safety Export controls Invention disclosure & reporting International agreements Data management Scientific overlap Scientific misconduct Other support BOLD topics will be covered in more depth, but first 5

Regulations Governing Sponsored Awards Regulations Governing Sponsored Awards OFFICE OF MANAGEMENT AND BUDGET (OMB) OMB's predominant mission is to assist the President in overseeing the preparation of the federal budget and to supervise its administration in Executive Branch agencies. In helping to formulate the President's spending plans, OMB evaluates the effectiveness of agency programs, policies, and procedures, assesses competing funding demands among agencies, and sets funding priorities. OMB ensures that agency reports, rules, testimony, and proposed legislation are consistent with the President's Budget and with Administration policies. In addition, OMB oversees and coordinates the Administration's procurement, financial management, information, and regulatory policies. In each of these areas, OMB's role is to help improve administrative management, to develop better performance measures and coordinating mechanisms, and to reduce any unnecessary burdens on the public. 6

Regulations Governing Sponsored Awards OMB CIRCULARS The OMB Circulars provide guidance for research institutions to administer, audit and charge federally funded sponsored programs. OMB Circular A-110 (Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations) A-21 (Cost Principles for Educational Institutions) A-122 (Cost Principles for Non-Profit Institutions) A-87 (Cost Principles for State, Local, and Indian Tribal Governments) A-133 (Audits of States, Local Governments, and Non-Profit Organizations) Regulation Purpose Obtain consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations. Provide principles for determining the costs applicable to research and development, training, and other sponsored work performed entites under grants, contracts, and other agreements with the Federal Government. Obtain consistency and uniformity among Federal agencies for the audit of non-federal entities expending Federal awards Regulations Governing Sponsored Awards OMB CIRCULAR A-110 This Circular sets forth standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations. Subpart A - General Subpart B Preaward Requirements (forms for application, special award conditions, etc.) Subpart C Postaward Requirements (financial management, cost sharing, allowable costs, period of availability of funds, etc.) Subpart D After the Award Requirements http://www.whitehouse.gov/omb/circulars/a110/a110.html 7

Regulations Governing Sponsored Awards OMB CIRCULARS A-21, A-122, A-87 These Circulars establish principles for determining costs applicable to grants, contracts, and other agreements for the specific type of recipient entities Defines the financial framework for administering Federally sponsored research Describes the basis for calculating facilities and administrative ( F&A or indirect) costs Provides a reference section for determining how to charge specific, common costs http://www.whitehouse.gov/omb/circulars/a021/a021.html http://www.whitehouse.gov/omb/circulars_a122_2004 http://www.whitehouse.gov/omb/circulars_a087_2004 Regulations Governing Sponsored Awards 45 CFR APPENDIX E (OASC-3) Though not a circular, this regulation establishes principles for determining costs applicable to research and development under grants and contracts with hospitals Defines the financial framework for administering Federally sponsored research, specifically at hospitals Provides the same types of information includes in the related Circulars OASC-3 remains in effect even with the Uniform Guidance http://www.gpo.gov/fdsys/granule/cfr-2010-title45-vol1/cfr-2010-title45- vol1-part74-appe/content-detail.html 8

Regulations Governing Sponsored Awards OMB CIRCULAR A-133 This Circular sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards Who is required to have an audit conducted? Who is exempt from having an audit conducted? What is the frequency? Must comply with GAGAS (Generally Accepted Government Auditing Standards) Must comply with GAAP (Generally Accepted Accounting Principles) Must comply with regulations stated in OMB Circulars (e.g. A21, A122, A110) http://www.whitehouse.gov/omb/circulars/a133/a133.html Regulations Governing Sponsored Awards OMB CIRCULAR A-133 Audits of States, Local Governments, and Non-Profit Organizations Applies to non-federal entities that expend $500,000 or more in a year in Federal awards Required annually (or biennial in specific cases) and usually conducted with an institution s Financial Statement audit Performed by an independent audit firm A-133 provides specific guidance to auditors Compliance Supplement http://www.whitehouse.gov/omb/circulars/a133/a133.html 9

Regulations Governing Sponsored Awards WHO ENSURES COMPLIANCE A NATIONAL PRIORITY? An Office of Inspector General (OIG) is an entity created by Congress to be independent and act within each sponsoring governmental institution (NIH, NSF, etc.) The OIG within a sponsoring institution serves as an objective unit within the federal departments and agencies to review the administration of federal funds Primary OIG activities include: Conducting an annual work-plan based on laws and regulations; specific government concerns; significant management and performance challenges; and results of previous reviews Carrying out audits, evaluations, investigations, and legal activities Coordinating and recommending policies; prevents and detects fraud and abuse; keeps constituents informed about corrective actions Regulations Governing Sponsored Awards OTHER REGULATORY GUIDELINES Federal Acquisition Regulations (FAR) The FAR was established to codify uniform policies for acquisition of supplies and services by agencies of the federal government. Website: http://www.acqnet.gov/far/ NIH Grants Policy Statement The National Institutes of Health Grants Policy Statement (NIHGPS) is intended to make available to NIH grantees, the policy requirements that serve as the terms and conditions of NIH grant awards. Website: http://grants.nih.gov/grants/policy/policy.htm#gps. 10

Regulations Governing Sponsored Awards OTHER REGULATORY GUIDELINES NSF Grants Policy Manual The Grant Policy Manual (GPM) is a compilation of basic NSF policies and procedures for use by the grantee community and NSF staff. Its coverage includes the NSF award process, from issuance and administration of an award through closeout. Website: http://www.nsf.gov/pubs/manuals/gpm05_131/index.jsp Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE The OMB issued the Uniform Guidance in December 2013 to consolidate eight separate OMB circulars, each with its own unique rules and requirements, into a single regulation governing federal grants to IHEs, non-profits, and tribes. Reforms to Audit Requirements Merges and consistently aligns OMB Circular A 133 and Circular A 50. Reforms to Cost Principles Merges and updates OMB cost principle Circulars A 21, A 87 and A 122 and 45 CFR Part 75. Reforms to Administrative Requirements Updates OMB Circulars A 102, A 110 and A 89 The Uniform Guidance will go into effect at the end of 2014 includes: Current Language from Existing Circulars Revised Language Clarifying and Updating Current Requirements New Language Adding New Requirements 11

Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE: SUBPART C PRE-AWARD REQUIREMENTS Section Regulation Requirement Institutional Impact Section 200.204, 205, 207 (Merit and Risk) Merit and Risk must be Evaluated Evaluation Criteria Must be Disclosed Proposal Review Includes a Risk Based Approach Merit Based Selection vs. Eligibility Criteria Transparency in the award making process Section 200.203 (Advanced Notice) Section 200.203 (Standard Format) Opportunities Must be Made Public With Limited Exceptions, ALL Opportunities Must be Open for 60 Days Standard Set of Data Elements Agency Restriction on Additional Elements Requirement for 60 day notice of funding opportunities Standard format for announcements of funding opportunities Section 200.210 (Standard Award Information) Federal Awards MUST Include: Award Information General Terms and Conditions Agency or Award Specific Terms and Conditions Performance Goals Provide a standard set of information in Federal Awards. 23 Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE: SUBPART D POST-AWARD REQUIREMENTS Section Regulation Requirement Institutional Impact Section 200.303 (Internal Controls) Section 200.328 (Financial/Program Management) Section 200.306 (Cost Sharing) Section 200.318 322 (Procurement Standards) Section 200.331 (Sub recipient Monitoring) Non Federal Entities Applicable Standards Agency Collection of Performance Data Measurement of Performance Institutional Accountability Voluntary Cost Sharing Required Cost Sharing Voluntary Committed Cost Sharing Inclusion in Research Base for F&A Calculation Federal Guidance Prevails Small Purchase Threshold Changed to $150K Avoidance of Unnecessary and Duplicative Items Procurement Methodologies Financial and Performance Report Review Pass Through Entity Management Decision Pass Through Entity Follow up Establish and effectively utilize Internal Controls Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings. Set standards for financial and program management. Institutions are responsible for oversight. Continue to use standard forms and tools. Institutions will also be accountable to the federal government to demonstrate responsible procurement and costing practices. Adds the OMB clarification in to Requirements Does not include VUCS Educate PI s on the fact that cost sharing is not required P card and other small purchase guidelines should be reviewed based on the $3,000 federal limit Institutions need to continue to emphasize accountability May be able to justify some administrative effort charged directly to awards 24 12

Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE: SUBPART E COST PRINCIPLES Section Regulation Requirement Institutional Impact Section 200.430 (Effort Reporting) Section 200.413 (Direct Charges) Section 200.453 (Computing Devices) Section 200.453 (Unused Supplies) Section 200.XXX (Cost Studies) High Standards for Internal Controls and Processes for Reviewing After The Fact Changes Consolidation of Standards for Documentation of Personnel Expenses o Documented Policies and Procedures o Account for 100% o Cost Share Removal of Specific Guidance, References and Examples Direct vs. Indirect Determination Administrative and Clerical Salaries Elimination of Major Project Example Computers, Associated Supplies and Accessories Impact on Administrative Requirements for Acquisition Costs < $5,000 Capitalization Threshold Residual Inventory Determination of Funds to be Returned to Federal Government Operating Large Research Facilities Elimination of Cost Studies Requirement Effort reporting does not go away Organization is the decision maker and doesn t have to follow the examples since they were removed Greater flexibility on the implementation side, but applicable standards remain Consistency is a foundational element Institutions will need to have specific definitions Move staff from indirect to direct cost An institutional policy may be needed Doesn t have to be solely dedicated to research Need to make sure the charge is essential and allocable Need sponsor approval Less than $5,000 can be kept Reduction in administrative burden 25 Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE: SUBPART E COST PRINCIPLES Section Regulation Requirement Institutional Impact Section 200.436 (Reimbursed Depreciation) Elimination of Restrictions on the Use of F&A Reduction in administrative burden associated with monitoring and accounting for depreciation or use allowances. Section 200.449 (Lease/Purchase) Section 200.433 (Contingency Costs) Section 200.419 (Disclosure Statements) Section 200.414 (F&A Rate) Elimination of Lease/Purchase Analysis ACO Notification Allowable When Causes are Indeterminable Conditional Requirements Change in DS 2 Threshold Streamlined Agency Review of Changes in Accounting Practices Requirement to Accept Negotiated Rates De minimis MTDC Rate Four Year Extension Sub Recipient F&A Rates Reduction in administrative burden associated with undergoing the lease purchase analysis in order to justify the incurrence and charging of interest costs (as a direct or indirect charge) on federally sponsored programs.. Institutions may budget for contingency amounts in grantee proposed budgets and, if awarded, these amounts will be incorporated into the awarded amounts. Institutions must estimate these amounts using broadly accepted cost estimating methodologies and specify this practice in the budget documentation of the proposal. DS 2 OIG strongly emphasized its importance of the DS 2 so its importance may increase in the future De minimus rate will help small and new institutions Automatic 4 year extension realities does not apply to hospitals and may not be a good strategy given the limitations 26 13

Regulations Governing Sponsored Awards NEW! UNIFORM GUIDANCE: SUBPART F AUDIT REQUIREMENTS Section Regulation Requirement Institutional Impact Section 200.5XX Single Audit Threshold Change Designation of a Senior Accountable Official Agency Cooperative Audit Resolution Practices Internal Control/Material Weakness Emphasis Timey Audit Reporting Appendix XI Compliance Supplement Future Updates Section 200.511 and 200.521 Valid Reasons for No Further Action Management Decisions Expeditious Corrective Action Reduces the pool of audited entities and focuses audit attention on the highest risk areas of program oversight. No changes were made to the Compliance Supplement process at this time. Future changes to the Compliance Supplement may be made Auditees must review and respond to and address all audit findings as quickly as possible, and not wait until audit reports are submitted. Section 200.512 and 200.513 Reliance on Federal Audit Clearinghouse ACO Coordination Pass Through Entity Verification Multiple agency audits and additional agency audits should be better coordinated and in line with each other. The requirements for subrecipient monitoring are substantively unchanged from existing guidance. 27 Compliance Focus: Direct Charging 14

Compliance Focus: Direct Charging LINK TO OMB CIRCULAR A-21, A-122, A-87: COST ACCOUNTING STANDARDS The Cost Accounting Standards include four requirements: 501: Consistency in estimating, accumulating and reporting costs 502: Consistency in allocating costs incurred for the same purpose 505: Accounting for unallowable costs 506: Consistency in using the same cost accounting period The CAS outline the framework for charging costs to federally sponsored projects. In order to be charged to a sponsored project, a cost must be: Reasonable Allowable Allocable Consistently Treated Compliance Focus: Direct Charging COST ACCOUNTING STANDARDS: REASONABLE A cost is reasonable if: The nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made (OMB Circular A-21) Considerations in determining reasonableness: Cost is necessary for the operation of the institution or performance of an award Cost is consistent with institutional policies 15

Compliance Focus: Direct Charging COST ACCOUNTING STANDARDS: ALLOWABLE A cost is allowable if: It conforms to any limitations or exclusions set forth in the regulations that govern the award (e.g. A-21, A-110, institution or system policies, etc.) or in the sponsored award. Considerations in determining allowability: What is allowable per the notice of award or award document? What are the sponsor terms and conditions available via the website or other location? What are your institutional policies (e.g. travel policies)? How does cost-reimbursable versus fixed price (as in Clinical Trials) impact allowability? Compliance Focus: Direct Charging COST ACCOUNTING STANDARDS: ALLOCABLE A cost is allocable if: The goods or services involved are chargeable or assignable to such cost objectives in accordance with relative benefits received Incurred for the benefit of only one project or can be readily assigned to multiple projects which benefit from cost Considerations in determining if the cost is allocability: It is incurred solely to advance the work under the sponsored award It benefits both the sponsored award and other work of the institution It is necessary to the overall operation 16

Compliance Focus: Direct Charging COST ACCOUNTING STANDARDS: CONSISTENTLY TREATED A cost is treated consistently if: The costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only with respect to final cost objectives. This assures that the same types of costs are not charged to awards both as direct costs AND as F&A costs. Considerations in determining if the cost is consistently treated: How has this cost been classified on other sponsored awards? How was this cost classified when calculating our F&A rate? Is the an unlike circumstance? A sponsored project or activity, due to its size and nature, requires administrative or clerical services, supplies, postage and/or telecommunications costs that are well beyond the core of departmental support routinely provided for departmental activities. Compliance Focus: Direct Charging DIRECT OR INDIRECT COST? Copying Charges Scenario 1 Charges are for copying and dissemination of research materials created as part of the scope of work on the award. Unique to the scope of work. Scenario 2 Charges are for copying of journal articles of general interest in the PI s field. General research administrative cost. YES Able to be charged directly to the award. NO Not allocable to a specific award. 17

Compliance Focus: Direct Charging DIRECT OR INDIRECT COST? Administrative Support Scenario 1 A large volume of research data needs to be entered for a federal award. Scenario 2 Typing of correspondence, journal articles, expense reimbursements, etc. Unique to the scope of work. General research administrative cost. YES Able to be charged directly to the award. NO Not allocable to a specific award. Compliance Focus: Direct Charging DIRECT OR INDIRECT COST? Software Purchase Scenario 1 A specific software program must be purchased in order to develop and run analysis for a research project. Unique to the scope of work. Scenario 2 A software program (such as Microsoft Office) must be purchased in order to type technical reports. General research administrative cost. YES Able to be charged directly to the award. NO Not allocable to a specific award. 18

Compliance Focus: Direct Charging IMPACT OF THE UNIFORM GUIDANCE Major Impact Area: Clerical and Administrative Salaries OLD: Generally considered indirect costs previously allowed as direct charges only when the project fit the definition of a major project NEW: There are no further references in major projects Administrative and clerical salaries, as well as other items of cost, can be charged directly to a federal award when it is appropriate, allocable and meets the conditions outlined in the federal guidance. These costs must be included in the original budget or institutions must have prior approval for rebudgeting for these costs Compliance Focus: Direct Charging IMPACT OF THE UNIFORM GUIDANCE Major Impact Area: Computing Devices (computers, laptops, software) OLD: Generally considered indirect costs as allocability of these major purchases was difficult to assign with a high degree of accuracy NEW: Computing devices are now considered supplies and can be allocated directly to sponsored awards as long as consistent, supported allocation methodologies are used 19

Compliance Focus: Direct Charging WHAT IS A SERVICE/RECHARGE CENTER (2 TYPES) Definition: Specialized Service Facilities (SSF): Animal facilities Linear accelerators Magnetic centers Cell sorters Flow cytometers Air testing labs - Material costs must be directly charged based on actual service usage and established rates - If the costs of the SSF are immaterial, they may be allocated as indirect costs Compliance Focus: Direct Charging WHAT IS A SERVICE/RECHARGE CENTER (2 TYPES) Definition: Recharge Centers: Institution Wide: Non-SSF centers that are operated by the institution to provide support internal and external to the institution, including: Telecommunications Copy centers Publication services Mail services Facility repair and maintenance services Department Wide: Centers operating within an academic division or department to provide support to the division or department activities. Copy center Mail services Electrical shops Mechanical shops or Equipment fabrication facilities 20

Compliance Focus: Direct Charging SERVICE/RECHARGE CENTERS: MAJOR COMPLIANCE CONSIDERATIONS Rates should recover no more than the cost of the good or service Rates must break-even over time Rates don t discriminate between users Note that you can still charge less to non-federal users but must ensure that federal users are not subsidizing or paying more than actual cost Surplus from service center shouldn t be used to fund unrelated activities Rates may include depreciation expense only, not the full cost of equipment Depreciation included in SC rates can t also be in the F&A rate Compliance Focus: Effort Reporting 21

Compliance Focus: Effort Reporting WHAT IS EFFORT? Definition: Effort is the proportion of time spent on any activity and expressed as a percentage of the total professional activity for which an individual is employed by the institution. Effort must be: A reasonable estimate Equal 100% Not based on a 40 hour week Compliance Focus: Effort Reporting WHY IS EFFORT IMPORTANT? Effort reporting provides support for salary charged to sponsored programs: Labor expenses represent ~2/3 of direct research costs Salary expense is often the first area reviewed by auditors Reports document that effort commitments have been met Reports supports both salary charging and salary cost sharing Salary is charged to sponsored projects based on an estimate of how effort will be expended. Effort reports are used to document how effort was actually expended in order to verify that charges are appropriate Alternative = timecards (!) 22

Compliance Focus: Effort Reporting EFFORT VERSUS PAYROLL Effort reports often present total percentages of payroll distributions across sources (sponsored projects and non-sponsored funds) to be used as a starting point. It is often assumed that payroll distribution is monitored and revised based on effort expended/changes to workplans. Payroll percentages should be in line with dedicated effort and may need to be revised based on actual expended effort. The new Uniform Guidance has some important impacts on effort reporting requirements the terms effort reporting and certification are not used. Compliance Focus: Effort Reporting IMPACT OF THE UNIFORM GUIDANCE The Uniform Guidance moves away from prescriptive effort reporting procedures. No specific requirements for activity reports or personnel action forms No specific rules regarding effort reporting frequency No guidance on who may document (certify?) compensation costs Institutions have flexibility to implement appropriate internal to document/support compensation costs. Wait and see. How will auditors review internal controls? 23

Compliance Focus: Effort Reporting MAJOR COMPLIANCE CONSIDERATIONS Managing Commitments: Investigators and other research personnel commit effort during the proposal stage Commitment of an individual s effort must be < 100% Cost share included Total distribution of effort dedicated to all institutional activities for an individual must not be greater than 100% Cost share included 100%, or nearly 100% research effort, is not realistically possible for individuals with significant non-research obligations to the institution (administrative, clinical or teaching) Key personnel must request prior approval to reduce their effort on sponsored programs by more than 25% Compliance Focus: Effort Reporting MAJOR COMPLIANCE CONSIDERATIONS 100% Effort: Effort reporting is not based on a standard work week for faculty and exempt staff The hours will vary from individual to individual Effort should be consistent with the expectations of the individual s institutional appointment(s) Effort should include all compensated activities no unpaid hours Be consistent in considering effort during proposal and effort reporting 24

Compliance Focus: Effort Reporting MAJOR COMPLIANCE CONSIDERATIONS Institutional Base Salary (IBS): Definition: The annual compensation paid by an institution for an employee's appointment, whether that individual's time is spent on research, teaching, patient care, or other activities. The base salary excludes any income that an individual is permitted to earn outside of duties for the applicant/grantee organization. IBS should not change as the number of grants a PI has increases or decreases. Payments that may or may not be considered IBS: Additional appointments (Department chair; formal committee members) Temporary additional responsibilities (e.g., teaching additional classes) Consulting (internal, external) Compliance Focus: Effort Reporting MAJOR COMPLIANCE CONSIDERATIONS Summer Effort and Summer Salary: Charges for summer sponsored research activities must be consistent with the level of effort provided during that time period. It is not compliant for an individual who is absent from research for a substantial period of the summer session (vacation?) to charge full salary to sponsored research and report 100% research activity on effort reports. NSF Regulations: Limits salary compensation for senior project personnel to no more than two months of their regular salary in any one year (regardless of summer vs. academic year) 25

Compliance Focus: Effort Reporting MAJOR COMPLIANCE CONSIDERATIONS Salary Cap: NIH and certain other sponsors limit the salary that can be charged on awards NIH cap assumes a 12-month, full-time commitment, so if the appointment is anything less, need to pro-rate the applicable cap Other caps NIH K award Cap must be considered when charging salary Cap cost sharing needs to be reflected on the effort report Compliance Focus: Effort Reporting CASE QUESTION A PI has the following effort commitments on sponsored projects: 20% effort charged, 5% effort cost shared on Project A (assume no companion cost share account) 10% effort charged on Project B 5% effort cost shared on Project C Assuming that effort ends up being consistent with commitments, how should the effort be reported? 1. 20% on A, 10% on B, 5% on C, 65% non-sponsored 2. 25% on A, 10% on B, 5% on C, 60% non-sponsored 3. 25% on A, 10% on B, 5% on C, nothing else needs to be reported because it s non-sponsored 26

Compliance Focus: Effort Reporting CASE QUESTION A PI has the following effort commitments on sponsored projects: 20% direct charged effort, 5% cost share effort on Project A (assume no companion cost share account) 10% direct charged effort on Project B 5% cost share effort on Project C Assuming that the PI dedicated effort exactly consistent with these original commitments, how should the PI effort be reported? 1. 20% on A, 10% on B, 5% on C, 65% non-sponsored 2. 25% on A, 10% on B, 5% on C, 60% non-sponsored 3. 25% on A, 10% on B, 5% on C, nothing else needs to be reported because it s non-sponsored Compliance Focus: Cost Sharing 27

Compliance Focus: Cost Sharing WHAT IS COST SHARING? Total Project Costs Sponsor Paid Costs Shared Costs Recipient Org. Cost Share Third Party Cost Share Compliance Focus: Cost Sharing TYPES OF COST SHARING Definition: The portion of project costs not born by the sponsor. These costs are either born by the institution or potentially a third party. Cost Share Type Matching Mandatory Voluntary Definition Matching is generally used to refer to a statutorily specified percentage of program or project costs that must be contributed by a grantee in order to be eligible for Federal funding. Cost share based on sponsor stipulations that cost sharing or matching funds are required as a condition of receiving an award. Cost share offer by an institution in a proposal when the sponsor does not stipulate that cost sharing is required but the grantee incurs costs (e.g. additional effort, supplies) not reimbursed by the sponsor. Voluntary Committed Voluntary Uncommitted (VUCS) 28

Compliance Focus: Cost Sharing TYPES OF COST SHARING Voluntary Uncommitted Cost Sharing (VUCS): Costs of the project are quantified in the project proposal (including the budget narrative) but not included in the costs to be borne by the sponsor Cost Share is committed 9and this commitment must be met) when that proposal is accepted by the sponsor VUCS must be documented and accounted for just like mandatory cost sharing. Compliance Focus: Cost Sharing COST SHARE REQUIREMENTS A-110 (Current): Provided for in the budget when required by the federal agency Conforms to other A-110 provisions May include un-recovered F&A, with agency approval Verifiable from institutional records Not included as a contribution for any other federally assisted program Costs considered cost share must be allowable under the cost principles, and necessary and reasonable to accomplish program objectives Not paid under another federal award (except where authorized by statute) 29

Compliance Focus: Cost Sharing IMPACT OF THE UNIFORM GUIDANCE Uniform Guidance (Upcoming): Only to be considered in making an award decision if a requirement and the assessment/evaluation criteria is outlined in the funding announcement Required only in special circumstances and when approved by sponsor agency leadership Compliance Focus: Cost Sharing MAJOR COMPLIANCE CONSIDERATIONS Salary Cap: While not referred to as cost share, the salary cap, in fact, imposes cost share Example: PI annual salary is $300,000; if salary cap is $199,700, difference is $100,300 PI budgets 15% effort to the project Budget shows salary to grant at $29,955 for PI salary (15%) PI certifies 15% effort to the project Cost share is $15,045 ($100,300 x 15%) As cost share, salary over the cap is included in the F&A base 30

Compliance Focus: Cost Sharing MAJOR COMPLIANCE CONSIDERATIONS Equipment Cost Share: Institution receives donated equipment to be used as cost share Fair Market Value of the equipment at time of donation is $80,000 Equipment has a useful life of 10 years Institution may claim $8,000/yr as cost share Waived Indirect Costs: Sponsor requires $25,000 in cost sharing as an eligibility criteria for submission of an application with a $100,000 direct cost cap The institution wants to match using the F&A cost rate Institution (current F&A rate of 50%) proposes to charge F&A at 25% to the sponsor Unrecovered F&A results in $25,000 cost sharing Compliance Focus: Cost Sharing CASE STUDY EXERCISE Example: PI annual salary is $120,000 PI proposes (commits) 50% effort to project Budget shows PI salary to grant at $30,000 Charged 25% but PI certifies 50% to the project $120,000 x 50% = $60,000 Less paid from grant = ($30,000) Cost Share = $30,000 or 25% 31

Compliance Focus: Cost Transfers Compliance Focus: Cost Transfers WHAT IS A COST TRANSFER? Definition: A cost transfer is an after-the-fact reallocation of an expense, either salary or non-salary costs, associated with a sponsored program after the expense was initially charged to another sponsored program or non-sponsored program Cost transfer requirements: Timely Supported Reasonable Allocable Allowable 32

Compliance Focus: Cost Transfers WHAT IS A COST TRANSFER? Cost transfer processes, for identified, processing review and approval must have adequate internal controls to enable monitoring. Frequent, tardy, and inadequately supported transfers, particularly if they involve projects with significant cost overruns or unexpended fund balances, raise serious questions about the appropriateness of the transfers and the overall reliability of the university's accounting system and internal controls. Compliance Focus: Cost Transfers COST TRANSFER EXAMPLES Differences between certified effort (%) and salary charged (%) may require a redistribution of payroll (cost transfer) Important to ensure that a review and follow-up procedure occurs at your institution Correction of an error of mis-keying the account number when providing a sponsored fund to be charged Recategorization of a charge from one expenditure type to another Under no circumstances may a Cost Transfer be made with the sole intent of using up the unexpended balance in a federal award account 33

Compliance Focus: Cost Transfers COST TRANSFER REQUIREMENTS The propriety of Cost Transfers on federally funded projects is well documented The accounting system (technology and supporting policies and procedures) allows for adequate internal controls An appropriate review and authorization process is in place for cost transfers on sponsored projects (specifically federally assisted projects) The government expects that costs are charged appropriately at the time incurred and that significant adjustments should not be required if adequate financial management practices and policies exist. Compliance Focus: Cost Transfers MAJOR COMPLIANCE CONSIDERATIONS Auditors tend to focus on late cost transfers (over 90 days from the discovery of the error), particularly payroll transfers, because they are easy targets and difficult to defend if not properly documented. Payroll transfers are particularly vulnerable because the original charge may have already been verified as correct. Cost transfers that are particularly suspect: Transfers to or between federal projects Transfers to a federal project occurring at the end of the project, thereby giving the appearance of utilizing funds inappropriately Transfers with an inadequate explanation Transfers between projects that clear an overrun on one of the projects Payroll transfers that are recorded in the accounting system but not in the payroll system 34

Compliance Focus: Cost Transfers MAJOR COMPLIANCE CONSIDERATIONS: RED FLAGS Despite being a compliance issue in and of itself, cost transfers are often the symptom for other post award compliance and management issues Observed Activity Frequent cost transfers at the start of projects, especially late cost transfers Late or high volume of cost transfers coinciding with effort report due dates High volume of cost transfers through the life of the award High volume of cost transfers near the end of an award or after Potential Root Issue Late award setups, Parking charges Labor distributions not being monitored; Effort reports used to manage labor Bad management of funds or accounting practices Surpluses or shortfalls being transferred on or off of federal awards Compliance Focus: Cost Transfers CASE STUDY EXERCISE: THE GOOD, THE BAD AND THE UGLY Cost Transfer Request Form ANY University Section 1 Identification of Cost: Personnel Costs Non-Personnel Costs Section 2 Justification for Transfer Specifically, explain why the expense(s) was not originally charged to the correct project. Section 3 EXCEPTION Late Cost Transfer Request Complete this section in the space provided only if you are requesting the transfer of expenses older than 90 days. Please transfer the $100 charge for lab equipment. I incorrectly charged fund 12345 instead of 12354. This was a data-keying error that I noted once the month closed and we reconciled our accounts. Section 4 Certification I certify that the above-mentioned costs are appropriate charges to the project and project to which the costs are being transferred. Dept Grants Admin Date 35

Compliance Focus: Cost Transfers CASE STUDY EXERCISE: THE GOOD, THE BAD AND THE UGLY Cost Transfer Request Form ANY University Section 1 Identification of Cost: Personnel Costs Non-Personnel Costs Section 2 Justification for Transfer Specifically, explain why the expense(s) was not originally charged to the correct project. Section 3 EXCEPTION Late Cost Transfer Request Complete this section in the space provided only if you are requesting the transfer of expenses older than 90 days. Request for these expenditures on an overspent sponsored project to be transferred to another sponsored project that still has an available balance. Her sponsored project (fund 11111) overlapped a great deal with her other sponsored project (fund 22222) and so costs can justifiably be transferred to fund 22222. Section 4 Certification I certify that the above-mentioned costs are appropriate charges to the project and project to which the costs are being transferred. Dept Grants Admin Date Compliance Focus: Cost Transfers CASE STUDY EXERCISE: THE GOOD, THE BAD AND THE UGLY Cost Transfer Request Form ANY University Section 1 Identification of Cost: Personnel Costs Non-Personnel Costs Section 2 Justification for Transfer Specifically, explain why the expense(s) was not originally charged to the correct project. Section 3 EXCEPTION Late Cost Transfer Request Complete this section in the space provided only if you are requesting the transfer of expenses older than 90 days. Section 4 Certification I certify that the above-mentioned costs are appropriate charges to the project and project to which the costs are being transferred. Request for a cost transfer of revenue from an expired cost-reimbursable fund. Expenses had already been transferred off the fund resulting in a cash surplus on the fund. I spoke with Joe this morning, and wanted to formally request that we move the balance of fund 12345 to the Dept. Special Purpose Fund. It would allow us more flexibility in expending the funds if we could move them. Thanks for your consideration. Dept Grants Admin Date 36

Compliance Focus: Financial Management and Monitoring Compliance Focus: Financial Management and Monitoring FINANCIAL MANAGEMENT AND MONITORING TOPICS Billions of federal dollars are awarded every year to institutions in the form of grants and contracts. Considering the level of (tax-payer!) dollars at stake financial management is a key are of compliance focus. Key topics related to the financial management and monitoring of sponsored projects include: Sponsored Project Billing Overdrafts Subrecipient Monitoring Financial Reporting Award Closeout 37

Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING Sponsored projects can be billed via a variety of methods depending on the sponsor and the terms included in the award documents. Billing Terms Cost-Reimbursable Fixed Fee Milestone-Based Method Institution uses its own funds, incurs the expense and requests reimbursement from the sponsor only after disbursements have been made. Letter of Credit: Reimbursement is requested and received via a Draw Down. Non-Letter of Credit: Reimbursement is requested via an invoice. The institution will be paid a set amount for completion of the project, regardless of the cost incurred to do so. Scheduled: Payments are made for a pre-established amount on a defined timeline Advance Payments: The full amount of the award if paid in full up-front The amount and timing of payments are based on technical milestones or deliverables throughout the life of the project (samples analyzed, patients enrolled, etc.) Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING: FEDERAL REGULATIONS OMB Circular A-110 (and Uniform Guidance): Recipients are to be paid in advance, provided they maintain or demonstrate the willingness to maintain: (1) written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient, and (2) financial management systems that meet the standards for fund control and accountability as established in Section. Reimbursement is the preferred method when the requirements in paragraph (b) cannot be met. 38

Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING: FEDERAL REGULATIONS OMB Circular A-110 (and Uniform Guidance): Unless otherwise required by statute, Federal awarding agencies shall not withhold payments for proper charges made by recipients at any time during the project period unless (1) or (2) apply. (1) A recipient has failed to comply with the project objectives, the terms and conditions of the award, or Federal reporting requirements. (2) The recipient or subrecipient is delinquent in a debt to the United States. Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING: SPOTLIGHT ON LETTER OF CREDIT BILLING LOC is the most common billing and payment method used by federal government sponsors. The LOC mechanism is intended to minimize the time elapsing between the transfer of funds from the Federal Government and disbursement by a grantee. LOC also minimizes the time between expenditure being incurred and when funds are transferred. Frequency of draws is usually determined by the institution. Reimbursement should NOT be requested for: Charges that don t meet the direct cost criteria (allowable, allocable, reasonable, consistent) Charges over the approved budget Charges outside of the approved budget period Charges incurred in advance of the receipt of the award document 39

Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING: SPOTLIGHT ON LETTER OF CREDIT BILLING Best practices and requirements for managing the LOC Draw: Ensure that the funds are fully disbursed within three business days of receipt Immediately returning all undisbursed Federal funds to the sponsor Reconciling the amount drawn and cash on hand for each quarter by completing the quarterly FFR (as required by certain sponsors) Draw actual expenditures rather than relying on estimates Compliance Focus: Financial Management and Monitoring SPONSORED PROJECT BILLING: SPOTLIGHT ON ADVANCED FEDERAL PAYMENTS Requirements for advanced payments for federal awards: Advance payments must be kept in an interest-bearing account. This practice mandated by sponsor agencies Interest earned should be returned to sponsor or applied against future expenses Unspent funds are generally required to be returned to the federal sponsor Review the award documents to determine proper treatment 40

Compliance Focus: Financial Management and Monitoring OVERDRAFTS: WHAT IS AN OVERDRAFT? Definition: An overdraft occurs on a sponsored award when the expenditures, both direct and indirect, incurred by the PI exceed the authorized budget provided by the sponsor. Some institutions use other terms: Account Deficit or Deficit Account Overspent Account Budget Overdraft Compliance Focus: Financial Management and Monitoring OVERDRAFTS: ROOT CAUSES Sponsored project overdrafts result from a variety of circumstances, many of which can be avoided: Delayed account set-up Subcontract execution delays Encumbrances or obligations are not considered. Projections not included in financial system Cycle time for payroll or non-payroll cost transfers No systematic control over recharge center charges that post to an account or fund automatically Lack of review of budget statements No consequences for lack of compliance 41

Compliance Focus: Financial Management and Monitoring SUBRECIPIENT MONITORING: WHAT IS A SUBRECIPIENT, WHY ARE THEY MONITORED? Definition: A subrecipient is a non-federal entity that expends Federal awards received from a pass-through entity to carry out a Federal program, but does not include an individual that is a beneficiary of such a program. A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency. Definition: Subrecipient Monitoring is the process of providing oversight on subawards throughout their lifecycle including: Obtaining the appropriate information prior to submitting the proposal Reviewing appropriateness of subawardee Executing an agreement consistent with A-133 requirements Acquiring signed A-133 certification statements (from other A-133 institutions) Compliance Focus: Financial Management and Monitoring SUBRECIPIENT MONITORING: COMPLIANCE CONSIDERATIONS Prime Awardees (Pass-Through Entities) are responsible for: Ensuring that federal funds are used for authorized purposes in accordance with laws, regulations and provisions of the prime recipient Ensuring that performance goals are met Monitoring the activities of the subrecipient to ensure compliance (e.g., request organization s financial statement, documentation of expenditures invoiced, and/or limited scope audits) Ensuring that subrecipients expending $500K ($750 K under the Uniform Guidance) or more annually have met the audit requirements for that fiscal year (e.g. request audit certification) Issuing a management decision on audit findings within 6 months of receipt of the subrecipient s audit report 42