Top Risks in Sponsored Projects Financial Compliance: A Specific Focus on Direct Costs vs. F

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Top Risks in Sponsored Projects Financial
Compliance A Specific Focus on Direct Costs vs.
FA Costs

• Barbara Siegel, Acting Deputy Director of Grant
  and Contract Administration
• Tracy R. Walters, Director of Grant and Contract
  Financial Administration

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Overview

• Top Audit and Compliance Risks
• Institutional Fiscal Requirements
• Challenges to University Compliance
• Consequences of Noncompliance
• On the Horizon

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Top Compliance RisksSource Huron Consulting

• Cost Transfers
• Effort Reporting
• Subrecipient Monitoring
• Direct Charging of Administrative Costs
• Charging Costs at End of Award Period
• Appropriate Cost Charging
• Recharge Centers / Service Center Rates
• Fixed Price Agreements
• Financial Status Reports
• Mandatory Cost Sharing

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Institutional Fiscal Requirements

• Meet federal cost accounting standards and comply
  with federal regulations in order to transact
  business with federal agencies.
• Federal government wants assurance and
  verification that colleges and universities
  expend federal awards efficiently and
  effectively.

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Institutional Fiscal Requirements

• The Disclosure Statement (DS-2) is a document
  that explains (fiscal roadmap) how the University
  performs its cost accounting practices. The
  federal government wants to know how Yale treats
  direct costs and facilities administrative
  costs (FA), also referred to as direct
  indirect costs, and complies with Cost Accounting
  Standards (CAS). In addition, it wants an
  assurance that institutions actually follow their
  disclosed practices.
• DS-2 provides formal guidelines for
• Charging direct FA costs
• Tracking reporting cost sharing
• Tracking reporting time effort
• Accounting for Service Centers
• Without an approved DS-2, future federal funding
  is at risk.
• Required by Office of Management Budget (OMB)
  Circular A-21.

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Institutional Fiscal Requirements

• Disclosure Statement (DS-2)
• Educational institutions subject to OMB Circular
  A-21 that received aggregate sponsored agreements
  totaling 25 million or more during their most
  recently completed fiscal year shall disclose
  their cost accounting practices by filing a
  Disclosure Statement.

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Institutional Fiscal Requirements

• Cost Accounting Standards (CAS) Applicable to
  Educational Institutions
• OMB Circular A-21, Subsections C.10-14 impose 4
  of the 19 CAS on educational institutions
• CAS 501 Consistency in estimating, accumulating
  and reporting costs
• CAS 502 Consistency in allocating costs
  incurred for the same purpose
• CAS 505 Accounting for unallowable costs
• CAS 506 Cost accounting period must coincide
  with Institutions fiscal year

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Institutional Fiscal Requirements

• CAS 502 Consistency in allocating costs
  incurred for the same purpose
• Requires that all costs incurred for the same
  purpose, in like circumstances, be treated as
  either direct costs only or FA costs only with
  respect to final cost objectives
• Prohibits charging as a direct cost any cost for
  which other costs incurred for the same purpose,
  in like circumstances, have been included in any
  FA cost pool to be allocated to that or any
  other final cost objective.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Federal OMB Regulations Circular A-21
• A cost is allocable to a sponsored agreement if
• (1) it is incurred solely to advance the work
  under the sponsored agreement
• (2) it benefits both the sponsored agreement and
  other work of the institution, in proportions
  that can be approximated through use of
  reasonable methods or
• (3) it is necessary to the overall operation of
  the institution and, in light of the principles
  provided in this Circular, is deemed to be
  assignable in part to sponsored projects
• Where the purchase of equipment or other capital
  items is specifically authorized under a
  sponsored agreement, the amounts thus authorized
  for such purchases are assignable to the
  sponsored agreement regardless of the use that
  may subsequently be made of the equipment or
  other capital items involved.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Federal OMB Regulations Circular A-21 contd
• Any costs allocable to a particular sponsored
  agreement under the standards provided in this
  Circular may not be shifted to other sponsored
  agreements in order to meet deficiencies caused
  by overruns or other fund considerations, to
  avoid restrictions imposed by law or by terms of
  the sponsored agreement, or for other reasons of
  convenience.
• Any costs allocable to activities sponsored by
  industry, foreign governments or other sponsors
  may not be shifted to federally sponsored
  agreements.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Health and Human Services (HHS) Policy
• A direct cost is any cost that can be
  specifically identified with a particular
  project, program, or activity or that can be
  directly assigned to such activities relatively
  easily and with a high degree of accuracy. Direct
  costs include, but are not limited to, salaries,
  travel, equipment, and supplies directly
  benefiting the grant-supported project or
  activity.
• Most organizations also incur costs for common or
  joint objectives that, therefore, cannot be
  readily identified with an individual project,
  program, or organizational activity. Facilities
  operation and maintenance costs, depreciation,
  and administrative expenses are examples of costs
  that usually are treated as FA costs.
• The organization is responsible for presenting
  costs consistently and must not include costs
  associated with its FA rate as direct costs.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Application of Federal Regulations
• Costs charged to sponsored projects must be
  allowable, that is,
• Allowable To be allowable, costs must be
  reasonable and necessary be allocable to
  federally sponsored projects under the principles
  and methods provided in OMB Circular A-21 be
  given consistent treatment and conform to any
  limits or exclusions set forth in A-21 or the
  terms and conditions of the award (defined
  specifically in OMB Circular A-21 Section J
  General Provisions of the cost principles).
• Reasonable and Necessary A cost may be
  considered 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.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Application of Federal Regulations contd
• Costs charged to sponsored projects must be
  allocable, that is,
• Allocable A cost is allocable to a particular
  cost objective (i.e., a specific function,
  project, sponsored agreement, department, or the
  like) if the goods or services involved are
  chargeable or assignable to such cost objective
  in accordance with relative benefits received or
  other equitable relationship.
• Consistently treated All costs incurred for the
  same purpose, in like circumstances, are either
  direct costs only or FA costs only with respect
  to final cost objectives.
• Conform to any limitations or exclusions Costs
  must conform to any limitations or exclusions set
  forth in these principles or in the sponsored
  agreement as to types or amounts of cost items.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Application of Federal Regulations contd
• Direct costs of sponsored projects must be
  incurred solely to advance the work of the
  project (or interrelated projects) and be
  reasonable and necessary for the performance of
  the project
• Costs must be allowable as either an indirect or
  direct cost only, not both
• Cost accounting standards require institutions to
  be consistent in the way that costs are
  estimated, accumulated and reported and in the
  treatment of costs as either direct or indirect
• Institutions must exercise caution when direct
  charging costs normally considered as facilities
  and administration (FA) types of expenses

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Yale Policies
• Under federal regulations and sponsor
  requirements, departmental types of expenses
  (including but not limited to administrative or
  clerical salaries, office supplies, postage,
  local telephone costs, photocopy costs, network
  charges, cell phones, etc) should normally be
  treated as an FA cost and recovered through the
  FA cost rate.
• In unlike circumstances where the nature of the
  work performed on a project requires extensive
  departmental support, some administrative-type
  expenses may be treated as direct costs.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Yale Policies
• Federal vs. Nonfederal
• Many non-federal sponsors do not fully reimburse
  the University for its Facilities and
  Administrative (FA) costs (commonly referred to
  as indirect costs) on sponsored awards. In
  recognition of this practice, Yale expects these
  non-federal sponsored projects to directly pay
  for costs which are normally FA costs if
• the terms and conditions do not specifically
  prohibit such costs and
• a benefit exists to the sponsored project.
• While some state awards appear to be state
  funded, Yale Federal pass-through awards received
  from a state agency must be treated as Federal
  Funded (may not be easily identifiable)
• State contracts that stipulate the University
  must comply with OMB Circular A-21 regulations
  within the contract must be treated as a Federal
  Funded Award.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Common FA Type Expenses
• Administrative and Clerical Salaries
• ITS Communications Charges
• Local Telephone and Internet Charges
• Cellular Telephone Charges
• Dues and Memberships
• Office Equipment (Facsimiles, Copiers, Printers)
• Computer Desktop/Laptop Purchases
• Books and Periodicals
• Paper Supplies and Envelopes
• Lab Coats and Laundering
• Annual Safety Cabinet/Hood Certifications
• Malpractice Insurance
• Entertainment

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Key Concepts
• Ensure that costs directly charged to an award
  are for the direct benefit of the project.
• Use and follow University guidelines on proper
  cost allocation methodologies.
• Ensure accountability and fiscal integrity of
  expenses.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Key concepts
• Unlike circumstances A cost normally treated
  as an FA cost may be appropriate as a direct
  cost on a federally sponsored project if
• The cost is allowable (defined as necessary,
  reasonable, and allocable) and permissible under
  the law, terms and conditions of the award, and
  the circumstances are unlike
• Unlike circumstances may be determined by the
  nature of the project (see examples in OMB A-21,
  Exhibit C)
• The project is considered a major project
  (Note There are some projects that are not
  considered major but may still qualify as
  unlike circumstances.)

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Key concepts
• Examples of "major project" where direct charging
  of administrative or clerical staff salaries may
  be appropriate
• Large, complex programs such as General Clinical
  Research Centers, Primate Centers, Program
  Projects, environmental research centers,
  engineering research centers, and other grants
  and contracts that entail assembling and managing
  teams of investigators from a number of
  institutions.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Major Project Examples contd
• Projects which involve extensive data
  accumulation, analysis and entry, surveying,
  tabulation, cataloging, searching literature, and
  reporting (such as epidemiological studies,
  clinical trials, and retrospective clinical
  records studies).
• Projects that require making travel and meeting
  arrangements for large numbers of participants,
  such as conferences and seminars.
• Projects whose principal focus is the preparation
  and production of manuals and large reports,
  books and monographs (excluding routine progress
  and technical reports).

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Major Project Examples contd
• Projects that are geographically inaccessible to
  normal departmental administrative services, such
  as research vessels, radio astronomy projects,
  and other research fields sites that are remote
  from campus.
• Individual projects requiring project-specific
  database management individualized graphics or
  manuscript preparation human or animal
  protocols and multiple project-related
  investigator coordination and communications.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Non Personnel Examples
• ITS Communications Charges
• Dedicated line used to conduct a telephone survey
  or 24 hour Hot-line specified within a
  projects scope.
• T-1 Line used exclusively for computational
  analysis or constant transmission of study data
  associated with a specified project.
• Toll-free (i.e., 1-800) line for study
  participants to contact researchers regarding a
  study.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Non Personnel Examples (contd)
• Computer Desktop/Laptop Purchases
• May be allowable as a direct cost in specific
  situations where the nature of the research
  requires a computer, e.g., the computer is
  attached to a piece of equipment and is required
  for collection and/or analysis of
  information/data for the sponsored project or the
  computer needed to record data while in the
  field, such as an archaeological site.
• Because a computer is potentially used for many
  different activities (instruction, research, and
  administration), it may not easily be assigned to
  any one of these activities. Thus, computer
  costs are normally an FA expense and included in
  the Universitys FA rate calculation.
• There are some sponsors that prohibit the
  purchase of computers while others require that
  the computer must be exclusively used for the
  research. Yet other sponsors state primarily.
  

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Non Personnel Examples (contd)
• Cellular Telephone Charges
• Dedicated specifically and exclusively for safety
  measures involving project staff required to work
  in high crime areas or potentially dangerous
  populations
• Dues and Memberships
• Not typically allowable as a Direct cost
• Books and Periodicals
• Books and subscriptions not available in the
  University or departmental library and
  specifically identifiable to a project.
• Paper Supplies and Envelopes
• Project surveys, mailings and return metered
  envelopes supporting projects involving human
  participants.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Exceptional Circumstances Proposals
• The project scope of work must qualify as a
  major project under which exceptions could be
  granted
• The budget should include exceptional costs
• The budget justification must describe the
  rationale for the exceptional costs.
• The project narrative should also describe the
  exceptional circumstances
• Institutional approval and Sponsors acceptance
  is required Provided that the expense is
  budgeted, justified and not specifically denied
  in the notice of award.

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Challenges to University ComplianceDirect Costs
vs. FA Costs

• Challenges of policy/procedure Implementation
• Yale Policy/Procedures and Departmental Training
• Understanding what is treated as a direct cost
  and when there may be acceptable exceptions for
  the direct charging of FA type expenses
• Breaking old habits and routines

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Consequences of Non-Compliance

• Disallowance of costs
• Published and publicly available audit findings
• Greater audit oversight
• Adverse effects on Facilities Administrative
  rate negotiations
• Loss of future funding
• Loss of University credibility

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On the Horizon

• Increasing number of federal desk reviews,
  federal on-site visits and cost reviews.
• Tougher A-133 compliance supplements and audits.
• Greater emphasis placed on the Statement on
  Auditing Standards No. 112 (SAS112)
• Substantially increases policy and procedural
  documentation of institutions internal control
  processes.
• Lowers the bar on audit findings
• An inappropriate or disallowed charge may result
  in findings regardless of materiality of charges.

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Resources

• OMB Circular A-21
• (http//www.whitehouse.gov/omb/circulars/a021/a21
  _2004.html)
• OMB Circular A-133
• (http//www.whitehouse.gov/omb/circulars/a133/a13
  3.html)
• Understanding SAS 112 (http//www.aicpa.org/Profes
  sional2BResources/Accounting2Band2BAuditing/Aud
  it2Band2BAttest2BStandards/Practice2BAids2Ban
  d2BTools/Understanding2BSAS2BNo2B112.htm)
• NIH Grants Policy Guidance
• (http//grants.nih.gov/grants/policy/policy.htm)
• NSF Proposal and Award Policies and Procedures
  Guide (New and Effective January 2009)
• (http//www.nsf.gov/pubs/policydocs/pappguide/nsf
  09_1/index.jsp)

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Resources

• NSF Proposal and Award Policies and Procedures
  Guide
• (http//www.nsf.gov/pubs/policydocs/pappguide/nsf
  08_1/index.jsp)
• Policy 1403 Charging of Administrative or
  Clerical Salaries and Certain Other Expenses to
  Federal Funds (http//www.yale.edu/ppdev/policy/14
  03/1403.pdf)
• Policy 1405 Charging of Facilities and
  Administrative Type Expenses to Non-Federal
  Sponsored Projects (http//www.yale.edu/ppdev/poli
  cy/1405/1405.pdf)
• Procedure 1305 PR.04 Unallowable Costs
  (http//www.yale.edu/ppdev/Procedures/gc/1305PR.04
  UnallowbleCosts.pdf)
• Direct Charging of Network and Certain Other
  Administrative Costs to Sponsored Awards
• (http//www.yale.edu/researchadministration/docum
  ents/NetworkChargingCentralCampus041007.pdf

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Questions

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