Financial Management


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  • Financial Management

    1. 1. Sponsored Research Financial Management: Current Pre and Post-Award Issues
    2. 2. Sponsored Research Financial Management: Current Pre and Post-Award Issues <ul><li>Moderator/Team Leader: </li></ul><ul><li>Jerry Fife </li></ul><ul><li>Assistant Vice Chancellor for Research Finance </li></ul><ul><li>Vanderbilt University </li></ul><ul><li>Faculty: </li></ul><ul><li>Michelle Fortnam </li></ul><ul><li>Associate Director, Internal Audit Department </li></ul><ul><li>Stanford University </li></ul><ul><li>Bob Galloway </li></ul><ul><li>Professor of Biomedical Engineering </li></ul><ul><li>School of Engineering </li></ul><ul><li>Vanderbilt University </li></ul>
    3. 3. Sponsored Research Financial Management: Current Pre and Post Award Issues <ul><li>Faculty (continued): </li></ul><ul><li>F. Edward Herran </li></ul><ul><li>Director, Office of Sponsored Projects </li></ul><ul><li>Memorial Sloan-Kettering Cancer Center </li></ul><ul><li>Cynthia White </li></ul><ul><li>Director, Research Office </li></ul><ul><li>Washington University at St. Louis </li></ul>
    4. 4. The Basics of A-21 Cost Allowability
    5. 5. A-21 Standards for Cost Allowability <ul><li>Reasonable </li></ul><ul><li>Allocable </li></ul><ul><li>Treated Consistently </li></ul><ul><li>These standards apply to both proposals and active projects. If an unallowable cost is included in a proposal, the cost does not become allowable if it is not removed during the review process </li></ul>
    6. 6. A-21 Standards for Cost Allowability (cont’d.) <ul><li>All sponsored project awards contain terms and conditions (T&C's), which supersede all other regulations; therefore it is essential that the Research Administrator read, understand and abide by them </li></ul>
    7. 7. Unallowable for Federal Reimbursement <ul><li>Expenses that are unallowable for federal reimbursement may be reasonable and necessary business expenses permitted by the University. Departments may incur these expenses but they must code them as unallowable. </li></ul>
    8. 8. Allowability <ul><li>For a cost to be allowable, it must conform to: </li></ul><ul><ul><ul><li>Terms and conditions of the agreement </li></ul></ul></ul><ul><ul><ul><li>A-21 (federal awards) </li></ul></ul></ul><ul><ul><ul><li>Institutional policy </li></ul></ul></ul>
    9. 9. Allowability (cont’d.) <ul><li>Some costs may be an appropriate University expense but are not allowable to charge to a sponsored project. For example, fund raising is an appropriate expense for a University, but cannot be charged, either directly or indirectly, to the federal government, according to OMB A-21 . </li></ul>
    10. 10. Unallowable Costs can be: <ul><li>Unallowable by University </li></ul><ul><li>University expenses that are: </li></ul><ul><ul><li>NOT reasonable </li></ul></ul><ul><ul><li>NOT necessary </li></ul></ul><ul><ul><li>NOT allocable </li></ul></ul><ul><ul><li>NOT permitted by University policy </li></ul></ul><ul><li>These expenses will not be paid for by University. </li></ul><ul><li>If incurred, they must be paid for by the individual. </li></ul><ul><li>Unallowable </li></ul><ul><li>for reimbursement by Federal Government </li></ul><ul><li>University expenses that are: </li></ul><ul><ul><li>Reasonable </li></ul></ul><ul><ul><li>Necessary </li></ul></ul><ul><ul><li>Allocable </li></ul></ul><ul><ul><li>Permitted by University policy </li></ul></ul><ul><li>but are unallowable for federal reimbursement. </li></ul><ul><li>These expenses: </li></ul><ul><ul><li>can be paid for by </li></ul></ul><ul><ul><li>must be coded as unallowable </li></ul></ul><ul><li>Unallowable by Sponsor </li></ul><ul><li>Expenses that do not conform to the sponsors terms and conditions and OMB Circular A-21 (if applicable), or are: </li></ul><ul><ul><li>NOT reasonable </li></ul></ul><ul><ul><li>NOT necessary </li></ul></ul><ul><ul><li>NOT allocable </li></ul></ul><ul><li>These expenses will not be paid for by the sponsor. </li></ul><ul><li>University may pay for the expenses, code as appropriate. </li></ul>
    11. 11. Allowability <ul><li>Section J of OMB A-21 lists examples of allowable and unallowable costs </li></ul><ul><li>Some unallowable expenses include: </li></ul><ul><li>Alcoholic beverages </li></ul><ul><li>Alumni activities </li></ul><ul><li>Commencement </li></ul><ul><li>Entertainment (incl. </li></ul><ul><li>Non-business meals) </li></ul><ul><li>Fines and penalties </li></ul><ul><li>Goods for personal </li></ul><ul><li>use </li></ul><ul><li>Social memberships </li></ul><ul><li>Fund raising </li></ul>
    12. 12. Reasonable <ul><li>A cost must be reasonable in order to charge it to a sponsored project. Reasonableness is defined as that which reflects the action of a prudent person. The three questions a person must ask to determine reasonableness of cost are: </li></ul><ul><ul><li>Is it necessary for performance of the award? </li></ul></ul><ul><ul><li>Does it advance the scope of work? </li></ul></ul><ul><ul><li>Is it consistent with established institutional policies and practices? </li></ul></ul>
    13. 13. Allocable <ul><li>Allocation is the process of assigning a cost, or a group of costs, to one or more cost objectives. </li></ul><ul><li>Costs may be allocated only if they advance the work of the project. </li></ul><ul><li>The cost must be assigned to the project in proportion to the benefit that the project will receive. </li></ul><ul><li>Fund availability should not be used to determine allocability. </li></ul>
    14. 14. Consistent <ul><li>Requires Costs Incurred for the Same Purpose, In Like Circumstances, to be Handled Consistently as Direct or Indirect Costs </li></ul>
    15. 15. Consistent (cont’d.) <ul><li>Particularly applicable to costs identified in section F.6.b of A-21 (clerical and administrative salaries, office supplies, postage, memberships and local phone service. </li></ul>
    16. 16. A-21 Section F.6.b <ul><li>Identifies costs that are normally treated as indirect </li></ul><ul><ul><li>Clerical and administrative salaries </li></ul></ul><ul><ul><li>Office supplies </li></ul></ul><ul><ul><li>Postage </li></ul></ul><ul><ul><li>Local phone service </li></ul></ul><ul><ul><li>Memberships </li></ul></ul>
    17. 17. Possible Exceptions to Section F.6.b <ul><li>Costs that are normally treated as indirect can be treated as direct under exceptional circumstances. </li></ul><ul><li>Must meet all three of the criteria: </li></ul><ul><ul><li>Major Project (Project with needs beyond that normally provided by department) </li></ul></ul><ul><ul><li>Specifically Identified </li></ul></ul><ul><ul><li>Explicitly Budgeted </li></ul></ul>
    18. 18. Specific Identification? <ul><li>Criteria for charging an administrative expense directly to a major project </li></ul><ul><ul><li>Cost must be specifically tied to a particular sponsored project </li></ul></ul>
    19. 19. Specific Identification? <ul><li>Criteria for charging an administrative expense directly to a major project </li></ul><ul><ul><li>Must be able to show how the project benefited from the expense using: </li></ul></ul><ul><ul><ul><li>Documentation </li></ul></ul></ul><ul><ul><ul><li>Or a system </li></ul></ul></ul>
    20. 20. Administrative Charging (Direct) <ul><li>When all three criteria are met: </li></ul><ul><ul><li>The expense can be charged directly to the project </li></ul></ul><ul><ul><li>This does not necessarily provide approval to charge any other administrative costs to the project. </li></ul></ul><ul><ul><li>In addition, the cost must meet the allowability criteria </li></ul></ul>
    21. 21. Major Project <ul><li>Requires an extensive amount of clerical or administrative support </li></ul><ul><li>Requires effort that is significantly more than is normally provided by the department/unit </li></ul>
    22. 22. Examples of Possible Major Projects <ul><li>Large Complex Projects - Center grants, program project grants </li></ul><ul><li>Projects requiring: extensive data accumulation, analysis, reporting, surveying or tabulation </li></ul><ul><li>Projects requiring extensive amounts of travel and meeting arrangements </li></ul>
    23. 23. Examples of Major Projects <ul><li>Projects where the principal focus is preparation and production of manuals, large reports, books, monographs </li></ul><ul><li>Projects that are geographically inaccessible to normal departmental administrative services </li></ul><ul><li>Projects requiring specific database management, manuscript preparation, human or animal Protocols or multiple project-related investigator coordination </li></ul>
    24. 24. Salaries and Wages
    25. 25. Institutional Base Salary (IBS) <ul><li>Must conform to university policies, consistently applied (A-21) </li></ul><ul><li>Must be paid from the applicant organization and may not be increased as a result of obtaining grant funds (A-21 and NIH Grants Policy Statement) </li></ul>
    26. 26. Institutional Base Salary (IBS) <ul><li>Current Framework </li></ul><ul><li>Paid by the applicant organization </li></ul><ul><li>May not be increased as a result of receiving grant funds </li></ul><ul><li>Clinical practice compensation is considered part of IBS if guaranteed by the university, shown on the appt. form and paid through the university and included in the university’s effort reporting system </li></ul>
    27. 27. Institutional Base Salary (IBS) <ul><li>AAMC/COGR Proposal </li></ul><ul><ul><li>Institutions with affiliated practice plans may include salary and effort as part of charges to NIH grants </li></ul></ul><ul><ul><li>Affiliated is defined as those instances where the institution pays or directs the salary decisions for those included in the practice plan. </li></ul></ul>
    28. 28. Institutional Base Salary (IBS) <ul><li>How about VA appointments? </li></ul><ul><li>More on this during our effort reporting discussion </li></ul>
    29. 29. Salary and Wage Issues <ul><li>Salary increases </li></ul><ul><li>Supplemental Compensation or Overloads </li></ul><ul><ul><li>Additional compensation provided over and above the IBS </li></ul></ul><ul><li>Bonuses </li></ul>
    30. 30. Salary Increases <ul><li>Pending promotion </li></ul><ul><ul><li>Ok to include if assured </li></ul></ul><ul><li>How should they be applied? </li></ul><ul><ul><li>Must be fund source neutral </li></ul></ul><ul><ul><li>Must be applied consistently </li></ul></ul>
    31. 31. Supplemental Compensation or Overloads <ul><li>A-21 indicates that faculty undertake research as a part of their normal responsibilities; however, it does recognize there are exceptions if: </li></ul><ul><li>The duties are across departmental lines </li></ul><ul><li>Involves a separate or remote operation, and work performed is in addition to regular departmental load and, </li></ul><ul><li>The charges are approved in writing by the sponsoring agency </li></ul>
    32. 32. Salary Overloads <ul><li>Does disclosing an overload in the proposal constitute approval? </li></ul>
    33. 33. Bonuses <ul><li>Depends on the circumstances – No clear guidance </li></ul><ul><li>What do you think about? </li></ul><ul><ul><li>Bonuses in lieu of salary increases </li></ul></ul><ul><ul><li>Bonuses based upon market competition </li></ul></ul><ul><ul><li>Bonuses based upon achievement of departmental goals </li></ul></ul><ul><ul><li>Bonuses based on financial success </li></ul></ul>
    34. 34. Fringe Benefits
    35. 35. Fringe Benefits <ul><li>Some typical fringe benefit </li></ul><ul><li>components: </li></ul><ul><ul><li>FICA </li></ul></ul><ul><ul><li>Retirement </li></ul></ul><ul><ul><li>Health Care </li></ul></ul><ul><ul><li>Life Insurance </li></ul></ul><ul><ul><li>Disability </li></ul></ul><ul><ul><li>Worker’s Compensation </li></ul></ul><ul><ul><li>Unemployment Insurance </li></ul></ul>
    36. 36. Fringe Benefits <ul><li>Two methods for budgeting and charging: </li></ul><ul><li>Using an estimated rate for budgeting and then charging actual </li></ul><ul><li>Developing, negotiating and charging rates </li></ul><ul><ul><li>Accomplished by pooling fringe benefit costs and then comparing to salaries and wages. </li></ul></ul>
    37. 37. Supplies
    38. 38. Supplies <ul><li>Two Types </li></ul><ul><ul><li>Laboratory (chemicals, gases) </li></ul></ul><ul><ul><li>Office (printer paper, sharpies, post it notes) </li></ul></ul>
    39. 39. Supplies <ul><li>What does A-21 say about office </li></ul><ul><li>supplies? </li></ul><ul><li>“ In developing the departmental administration cost pool, special care should be exercised to ensure that costs incurred for the same purpose in like circumstances are treated consistently as either direct or F&A costs.” </li></ul>
    40. 40. Supplies <ul><li>So does A-21 say anything else on this </li></ul><ul><li>topic? </li></ul><ul><li>“ Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs.” </li></ul>
    41. 41. Supplies <ul><li>Does this mean that office supplies used in a laboratory must meet the major project definition to be direct charged or does the type of usage make the determination? </li></ul>
    42. 42. Equipment
    43. 43. Equipment <ul><li>What is equipment? </li></ul><ul><li>Split funding </li></ul><ul><li>Fabricated equipment </li></ul><ul><li>Service agreements </li></ul><ul><li>Lease/purchase analysis </li></ul><ul><li>Already available but underutilized </li></ul>
    44. 44. What is Equipment? <ul><li>A-110 Definition </li></ul><ul><li>Nonexpendable tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per year </li></ul><ul><li>Institutions can set a lower amount consistent with institutional policy </li></ul><ul><li>Remember this when dealing with other universities </li></ul>
    45. 45. Equipment (Split Funding) <ul><li>Basis for split funding </li></ul><ul><li>Equipment benefits more than one project </li></ul><ul><li>Cost sharing </li></ul><ul><ul><li>Can non-federal amount be depreciated in your F&A rate? </li></ul></ul>
    46. 46. Fabricated Equipment <ul><li>What is your institutional policy? </li></ul><ul><li>Implications of proper budgeting and charging </li></ul><ul><ul><li>Proper classifications of costs (CAS 501) </li></ul></ul><ul><ul><li>F&A budgeted and charged correctly </li></ul></ul>
    47. 47. Service Agreements <ul><li>Direct or F&A cost? </li></ul><ul><li>Split funding </li></ul><ul><li>What if the equipment was not purchased from the project? </li></ul>
    48. 48. Lease/Purchase Analysis <ul><li>A-110 </li></ul><ul><ul><li>“Where appropriate, an analysis is made of lease and purchase alternatives to determine which would be the most economical and practical procurement for the Federal Government.” </li></ul></ul><ul><ul><li>What is your institutions policy? </li></ul></ul><ul><ul><li>When is this addressed? </li></ul></ul>
    49. 49. Already Available but Underutilized <ul><li>A-110 says procurement standards should avoid the purchase of unnecessary items </li></ul><ul><ul><li>Is underutilized equipment covered in this statement? </li></ul></ul><ul><ul><li>How do institutions determine what is available and underutilized? </li></ul></ul><ul><ul><li>When is this determined? </li></ul></ul><ul><ul><ul><li>During proposal processing </li></ul></ul></ul><ul><ul><ul><li>Before purchase </li></ul></ul></ul>
    50. 50. Subcontract, Consultant or Vendor?
    51. 51. Subcontract or Sub award <ul><li>Distinguishing Characteristics: </li></ul><ul><ul><li>Performs substantive programmatic work under a grant or contract </li></ul></ul><ul><ul><li>Bears responsibility for programmatic decision making and measurable performance requirements </li></ul></ul><ul><ul><li>Must adhere to Federal compliance requirements if the source is a Federal award </li></ul></ul><ul><ul><li>Retains intellectual property rights if a university </li></ul></ul>
    52. 52. Vendor <ul><li>The procurement of goods or services from an organization which provides the goods and services to many different purchasers as part of its normal business operations within a competitive environment </li></ul><ul><li>Not subject to the same compliance requirements as a subcontractor (if the source is a Federal award) </li></ul>
    53. 53. Consultant <ul><li>An individual with the following </li></ul><ul><li>characteristics: </li></ul><ul><li>Not an employee of your institution </li></ul><ul><li>Proven professional or technical competence and provides this to your organization </li></ul><ul><li>Is not controlled with regard to the manner of performance or the result of the service </li></ul><ul><li>Considered a work for hire and does not retain any rights to the end product </li></ul>
    54. 54. Subcontract, Consultant or Vendor? <ul><li>Given the definitions, what </li></ul><ul><li>actions are taken to ensure the </li></ul><ul><li>proper mechanism is used? </li></ul>
    55. 55. Subcontracts <ul><li>Actions to be taken </li></ul><ul><ul><li>Incorporating into the primes proposal </li></ul></ul><ul><ul><li>Cost analysis (rates) </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Monitoring (technical, fiscal) </li></ul></ul><ul><ul><li>Billing (approvals) </li></ul></ul><ul><ul><li>Recognizing the culture of the subcontractor </li></ul></ul>
    56. 56. Other Costs
    57. 57. Participant Support Costs <ul><li>Costs paid on or behalf of participants </li></ul><ul><li>in connection with conferences, </li></ul><ul><li>meetings, symposia, training activities </li></ul><ul><li>and workshops. Includes: </li></ul><ul><ul><li>Transportation costs </li></ul></ul><ul><ul><li>Registration fees </li></ul></ul><ul><ul><li>Per diem </li></ul></ul><ul><ul><li>Stipends </li></ul></ul><ul><ul><li>Other related costs </li></ul></ul>
    58. 58. Participant Support Costs <ul><li>Participant characteristics: </li></ul><ul><li>Not employees of the grantee </li></ul><ul><li>Generally not a federal employee although there are exceptions if there is no duplication of funding </li></ul><ul><li>Participant support costs are generally not subject to F&A costs </li></ul>
    59. 59. Other Costs <ul><li>What other costs should we discuss? </li></ul><ul><ul><li>F&A costs </li></ul></ul><ul><ul><ul><li>Waivers </li></ul></ul></ul><ul><ul><ul><li>As cost sharing </li></ul></ul></ul><ul><ul><ul><li>On-campus vs. off campus </li></ul></ul></ul><ul><ul><li>Travel </li></ul></ul><ul><ul><li>Others? </li></ul></ul>
    60. 60. How about budgeting and modular grants?
    61. 61. Procurement Cards
    62. 62. Procurement Cards <ul><ul><li>Different Models </li></ul></ul><ul><ul><li>Which expenses? </li></ul></ul><ul><ul><li>Who gets one? </li></ul></ul><ul><ul><li>Dollar Limits </li></ul></ul><ul><ul><li>Benefits vs. risks </li></ul></ul>
    63. 63. Effort Reporting
    64. 64. Recent Government Activities <ul><li>Whistleblower Suits </li></ul><ul><li>Northwestern University - $5.5 million </li></ul><ul><li>Johns Hopkins University – $2.6 million </li></ul>
    65. 65. Recent Government Activities <ul><li>DHHS Office of Inspector General </li></ul><ul><li>Review to determine extent that A-133 audits assess and document compliance with time and effort reporting requirements </li></ul><ul><li>Pilot audits focusing on the relationship between effort proposed and effort charged </li></ul>
    66. 66. Other Planned DHHS Pilot Audits <ul><li>Cost Transfers – Were they made in accordance with federal regulations and were they justified? </li></ul><ul><li>Cost Sharing and Matching – Were the amounts committed provided? </li></ul><ul><li>Subrecipient Monitoring – Were appropriate procedures in place to monitor their expenditures and were site visits made? </li></ul>
    67. 67. Recent Government Activities <ul><li>DHHS Office of Inspector General– </li></ul><ul><li>Fall 2003 </li></ul><ul><li>Sought recommendations for developing Compliance Program Guidance (CPG) for recipients of NIH grants to prevent fraud and abuse </li></ul><ul><li>Identified effort reporting as a risk area and sought suggestions </li></ul>
    68. 68. Recent Government Activities <ul><li>National Institutes of Health (NIH) has issued </li></ul><ul><li>an effort reporting “clarification” in its </li></ul><ul><li>Grants Policy Statement as follows: </li></ul><ul><li>“ Clinical compensation may be considered in the institutional base salary as long as all criteria are met: 1) clinical practice compensation must be guaranteed by the university, 2) clinical practice compensation must be reported on the university’s appointment form and paid by the university, and 3) clinical practice effort must be included and accounted for in the university’s effort reporting .” </li></ul>
    69. 69. What Are the Issues Behind the Recent Problems? <ul><li>The basis for calculating effort </li></ul><ul><li>The basis for calculating institutional base salary (IBS) </li></ul><ul><li>Faculty understanding of effort reporting </li></ul><ul><li>How are effort and compensation estimated, tracked and reconciled? </li></ul><ul><li>Are all institutional effort and compensation systems aligned? </li></ul>
    70. 70. What Are the Issues Behind the Recent Problems? <ul><li>Pre and post award processes are uncoordinated </li></ul><ul><li>Lack of effective training </li></ul><ul><li>Unclear and/or undocumented definition of full time appointment </li></ul><ul><li>Appointment letters/annual letters vague or unclear on effort commitments </li></ul>
    71. 71. Other Potential Risk Areas <ul><li>VA Appointments </li></ul><ul><li>Supplemental Compensation </li></ul><ul><li>Using different IBS for grant budgets vs. payroll allocation and grant charges </li></ul><ul><li>Investigators with greater than 5 awards </li></ul><ul><li>Investigators with K awards </li></ul>
    72. 72. An Example <ul><li>Dr. Jones Works 70 Hours/Week </li></ul><ul><li>in the Following Fashion: </li></ul><ul><li>35 Hrs. on NIH Grants </li></ul><ul><li>21 Hrs. in Patient Care Activities </li></ul><ul><li>10 Hrs. on Teaching Activities </li></ul><ul><li>4 Hrs. on Dept./Institutional Activities </li></ul>
    73. 73. Correct Allocation on Personnel Action Form <ul><li>NIH/federal grants 50% </li></ul><ul><li>Cost of practice 30% </li></ul><ul><li>Unrestricted 20% </li></ul>
    74. 74. The Myth of the 40 Hour Week <ul><li>Some assume that faculty are only </li></ul><ul><li>responsible for reporting 40 hours/week and </li></ul><ul><li>thus could erroneously report effort as </li></ul><ul><li>follows: </li></ul><ul><li>NIH/federal grants 88% </li></ul><ul><li>Unrestricted/cost of practice 12% </li></ul><ul><li>* Assumes research comes first </li></ul>
    75. 75. What can be done to mitigate risk? <ul><li>Test to determine if there are problems for: </li></ul><ul><li>Review appointment letters for clarity </li></ul><ul><li>Who signs </li></ul><ul><li>Faculty with VA appointments </li></ul><ul><li>Faculty with >5 awards </li></ul><ul><li>Faculty with K awards </li></ul><ul><li>Train, train, train </li></ul>
    76. 76. How Much Money Do I Have Left?
    77. 77. How Much Money Do I Have Left? <ul><li>Faculty needs/desires </li></ul><ul><ul><li>Budgetary flexibility </li></ul></ul><ul><ul><li>The ability to know how much money is available </li></ul></ul><ul><ul><li>Encumbrance system for salaries </li></ul></ul><ul><ul><li>Real time encumbrance system for other purchases </li></ul></ul>
    78. 78. How Much Money Do I Have Left? <ul><li>Given these needs/desires, how </li></ul><ul><li>can research administrators help </li></ul><ul><li>in the areas of: </li></ul><ul><ul><li>Budgetary flexibility </li></ul></ul><ul><ul><li>Balance systems to facilitate vs. control </li></ul></ul><ul><ul><li>Building a departmental system vs. relying on the general ledger to do it all </li></ul></ul>