Sponsored Research Financial Management: Current Pre and Post-Award Issues

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Sponsored Research Financial Management Current
Pre and Post-Award Issues
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Sponsored Research Financial Management Current
Pre and Post-Award Issues

• Moderator/Team Leader
• Jerry Fife
• Assistant Vice Chancellor for Research Finance
• Vanderbilt University
• Faculty
• Michelle Fortnam
• Associate Director, Internal Audit Department
• Stanford University
• Bob Galloway
• Professor of Biomedical Engineering
• School of Engineering
• Vanderbilt University

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Sponsored Research Financial Management Current
Pre and Post Award Issues

• Faculty (continued)
• F. Edward Herran
• Director, Office of Sponsored Projects
• Memorial Sloan-Kettering Cancer Center
• Cynthia White
• Director, Research Office
• Washington University at St. Louis

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The Basics of A-21 Cost Allowability
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A-21 Standards forCost Allowability

• Reasonable
• Allocable
• Treated Consistently
• 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

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A-21 Standards forCost Allowability (contd.)

• All sponsored project awards contain terms and
  conditions (TC's), which supersede all other
  regulations therefore it is essential that the
  Research Administrator read, understand and abide
  by them

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Unallowable for Federal Reimbursement

• 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.

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Allowability

• For a cost to be allowable, it must conform to
• Terms and conditions of the agreement
• A-21 (federal awards)
• Institutional policy

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Allowability (contd.)

• 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.
  

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Unallowable Costs can be
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Allowability

• Section J of OMB A-21 lists examples of
  allowable and unallowable costs
• Some unallowable expenses include

• Fines and Penalties
• Goods for personal use
• Social memberships
• Fund raising

• Alcoholic beverages
• Alumni activities
• Commencement
• Entertainment (incl. Non-business meals

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Reasonable

• 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
• Is it necessary for performance of the award?
• Does it advance the scope of work?
• Is it consistent with established institutional
  policies and practices?

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Allocable

• Allocation is the process of assigning a cost, or
  a group of costs, to one or more cost objectives.
  
• Costs may be allocated only if they advance the
  work of the project.
• The cost must be assigned to the project in
  proportion to the benefit that the project will
  receive.
• Fund availability should not be used to determine
  allocability.

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Consistent

• Requires Costs Incurred for the Same Purpose, In
  Like Circumstances, to be Handled Consistently as
  Direct or Indirect Costs

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Consistent (contd.)

• 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.

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A-21 Section F.6.b

• Identifies costs that are normally treated as
  indirect
• Clerical and administrative salaries
• Office supplies
• Postage
• Local phone service
• Memberships

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Possible Exceptions to Section F.6.b

• Costs that are normally treated as indirect can
  be treated as direct under exceptional
  circumstances.
• Must meet all three of the criteria
• Major Project (Project with needs beyond that
  normally provided by department)
• Specifically Identified
• Explicitly Budgeted

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Specific Identification?

• Criteria for charging an administrative expense
  directly to a major project
• Cost must be specifically tied to a particular
  sponsored project

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Specific Identification?

• Criteria for charging an administrative expense
  directly to a major project
• Must be able to show how the project benefited
  from the expense using
• Documentation
• Or a system

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Administrative Charging (Direct)

• When all three criteria are met
• The expense can be charged directly to the
  project
• This does not necessarily provide approval to
  charge any other administrative costs to the
  project.
• In addition, the cost must meet the allowability
  criteria

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Major Project

• Requires an extensive amount of clerical or
  administrative support
• Requires effort that is significantly more than
  is normally provided by the department/unit

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Examples of Possible Major Projects

• Large Complex Projects - Center grants, program
  project grants
• Projects requiring extensive data accumulation,
  analysis, reporting, surveying or tabulation
• Projects requiring extensive amounts of travel
  and meeting arrangements

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Examples of Major Projects

• Projects where the principal focus is preparation
  and production of manuals, large reports, books,
  monographs
• Projects that are geographically inaccessible to
  normal departmental administrative services
• Projects requiring specific database management,
  manuscript preparation, human or animal Protocols
  or multiple project-related investigator
  coordination

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Salaries and Wages
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Institutional Base Salary (IBS)

• Must conform to university policies, consistently
  applied (A-21)
• 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)

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Institutional Base Salary (IBS)

• Current Framework
• Paid by the applicant organization
• May not be increased as a result of receiving
  grant funds
• 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 universitys effort reporting
  system

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Institutional Base Salary (IBS)

• AAMC/COGR Proposal
• Institutions with affiliated practice plans may
  include salary and effort as part of charges to
  NIH grants
• Affiliated is defined as those instances where
  the institution pays or directs the salary
  decisions for those included in the practice
  plan.

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Institutional Base Salary (IBS)

• How about VA appointments?
• More on this during our effort reporting
  discussion

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Salary and Wage Issues

• Salary increases
• Supplemental Compensation or Overloads
• Additional compensation provided over and above
  the IBS
• Bonuses

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Salary Increases

• Pending promotion
• Ok to include if assured
• How should they be applied?
• Must be fund source neutral
• Must be applied consistently

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Supplemental Compensation or Overloads

• A-21 indicates that faculty undertake research
  as a part of their normal responsibilities
  however, it does recognize there are exceptions
  if
• The duties are across departmental lines
• Involves a separate or remote operation, and
  work performed is in addition to regular
  departmental load and,
• The charges are approved in writing by the
  sponsoring agency

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Salary Overloads

• Does disclosing an overload in the proposal
  constitute approval?

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Bonuses

• Depends on the circumstances No clear guidance
• What do you think about?
• Bonuses in lieu of salary increases
• Bonuses based upon market competition
• Bonuses based upon achievement of departmental
  goals
• Bonuses based on financial success

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Fringe Benefits
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Fringe Benefits

• Some typical fringe benefit
• components
• FICA
• Retirement
• Health Care
• Life Insurance
• Disability
• Workers Compensation
• Unemployment Insurance

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Fringe Benefits

• Two methods for budgeting and charging
• Using an estimated rate for budgeting and then
  charging actual
• Developing, negotiating and charging rates
• Accomplished by pooling fringe benefit costs and
  then comparing to salaries and wages.

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Supplies
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Supplies

• Two Types
• Laboratory (chemicals, gases)
• Office (printer paper, sharpies, post it notes)

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Supplies

• What does A-21 say about office
• supplies?
• 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 FA costs.

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Supplies

• So does A-21 say anything else on this
• topic?
• Items such as office supplies, postage, local
  telephone costs, and memberships shall normally
  be treated as FA costs.

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Supplies

• 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?

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Equipment
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Equipment

• What is equipment?
• Split funding
• Fabricated equipment
• Service agreements
• Lease/purchase analysis
• Already available but underutilized

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What is Equipment?

• A-110 Definition
• Nonexpendable tangible personal property having a
  useful life of more than one year and an
  acquisition cost of 5,000 or more per year
• Institutions can set a lower amount consistent
  with institutional policy
• Remember this when dealing with other
  universities

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Equipment (Split Funding)

• Basis for split funding
• Equipment benefits more than one project
• Cost sharing
• Can non-federal amount be depreciated in your FA
  rate?

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Fabricated Equipment

• What is your institutional policy?
• Implications of proper budgeting and charging
• Proper classifications of costs (CAS 501)
• FA budgeted and charged correctly

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Service Agreements

• Direct or FA cost?
• Split funding
• What if the equipment was not purchased from the
  project?

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Lease/Purchase Analysis

• A-110
• 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.
• What is your institutions policy?
• When is this addressed?

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Already Available but Underutilized

• A-110 says procurement standards should avoid the
  purchase of unnecessary items
• Is underutilized equipment covered in this
  statement?
• How do institutions determine what is available
  and underutilized?
• When is this determined?
• During proposal processing
• Before purchase

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Subcontract, Consultant or Vendor?
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Subcontract or Sub award

• Distinguishing Characteristics
• Performs substantive programmatic work under a
  grant or contract
• Bears responsibility for programmatic decision
  making and measurable performance requirements
• Must adhere to Federal compliance requirements if
  the source is a Federal award
• Retains intellectual property rights if a
  university

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Vendor

• 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
• Not subject to the same compliance requirements
  as a subcontractor (if the source is a Federal
  award)

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Consultant

• An individual with the following
• characteristics
• Not an employee of your institution
• Proven professional or technical competence and
  provides this to your organization
• Is not controlled with regard to the manner of
  performance or the result of the service
• Considered a work for hire and does not retain
  any rights to the end product

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Subcontract, Consultant or Vendor?

• Given the definitions, what
• actions are taken to ensure the
• proper mechanism is used?

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Subcontracts

• Actions to be taken
• Incorporating into the primes proposal
• Cost analysis (rates)
• Competition
• Monitoring (technical, fiscal)
• Billing (approvals)
• Recognizing the culture of the subcontractor

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Other Costs
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Participant Support Costs

• Costs paid on or behalf of participants
• in connection with conferences,
• meetings, symposia, training activities
• and workshops. Includes
• Transportation costs
• Registration fees
• Per diem
• Stipends
• Other related costs

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Participant Support Costs

• Participant characteristics
• Not employees of the grantee
• Generally not a federal employee although there
  are exceptions if there is no duplication of
  funding
• Participant support costs are generally not
  subject to FA costs

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Other Costs

• What other costs should we discuss?
• FA costs
• Waivers
• As cost sharing
• On-campus vs. off campus
• Travel
• Others?

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How about budgeting and modular grants?
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Procurement Cards
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Procurement Cards

• Different Models
• Which expenses?
• Who gets one?
• Dollar Limits
• Benefits vs. risks

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Effort Reporting
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Recent Government Activities

• Whistleblower Suits
• Northwestern University - 5.5 million
• Johns Hopkins University 2.6 million

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Recent Government Activities

• DHHS Office of Inspector General
• Review to determine extent that A-133 audits
  assess and document compliance with time and
  effort reporting requirements
• Pilot audits focusing on the relationship between
  effort proposed and effort charged

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Other Planned DHHS Pilot Audits

• Cost Transfers Were they made in accordance
  with federal regulations and were they justified?
• Cost Sharing and Matching Were the amounts
  committed provided?
• Subrecipient Monitoring Were appropriate
  procedures in place to monitor their expenditures
  and were site visits made?

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Recent Government Activities

• DHHS Office of Inspector General
• Fall 2003
• Sought recommendations for developing Compliance
  Program Guidance (CPG) for recipients of NIH
  grants to prevent fraud and abuse
• Identified effort reporting as a risk area and
  sought suggestions

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Recent Government Activities

• National Institutes of Health (NIH) has issued
• an effort reporting clarification in its
• Grants Policy Statement as follows
• 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
  universitys appointment form and paid by the
  university, and 3) clinical practice effort must
  be included and accounted for in the universitys
  effort reporting .

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What Are the Issues Behind the Recent Problems?

• The basis for calculating effort
• The basis for calculating institutional base
  salary (IBS)
• Faculty understanding of effort reporting
• How are effort and compensation estimated,
  tracked and reconciled?
• Are all institutional effort and compensation
  systems aligned?

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What Are the Issues Behind the Recent Problems?

• Pre and post award processes are uncoordinated
• Lack of effective training
• Unclear and/or undocumented definition of full
  time appointment
• Appointment letters/annual letters vague or
  unclear on effort commitments

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Other Potential Risk Areas

• VA Appointments
• Supplemental Compensation
• Using different IBS for grant budgets vs. payroll
  allocation and grant charges
• Investigators with greater than 5 awards
• Investigators with K awards

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An Example

• Dr. Jones Works 70 Hours/Week
• in the Following Fashion
• 35 Hrs. on NIH Grants
• 21 Hrs. in Patient Care Activities
• 10 Hrs. on Teaching Activities
• 4 Hrs. on Dept./Institutional Activities

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Correct Allocation on Personnel Action Form

• NIH/federal grants 50
• Cost of practice 30
• Unrestricted 20

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The Myth of the 40 Hour Week

• Some assume that faculty are only responsible for
  reporting 40 hours/week and thus could
  erroneously report effort as follows
• NIH/federal grants 88
• Unrestricted/cost of practice 12
• Assumes research comes first

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What can be done tomitigate risk?

• Test to determine if there are problems for
• Review appointment letters for clarity
• Who signs
• Faculty with VA appointments
• Faculty with gt5 awards
• Faculty with K awards
• Train, train, train

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How Much Money Do I Have Left?
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How Much Money Do I Have Left?

• Faculty needs/desires
• Budgetary flexibility
• The ability to know how much money is available
• Encumbrance system for salaries
• Real time encumbrance system for other purchases

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How Much Money Do I Have Left?

• Given these needs/desires, how
• can research administrators help
• in the areas of
• Budgetary flexibility
• Balance systems to facilitate vs. control
• Building a departmental system vs. relying on the
  general ledger to do it all