Why Should I Care About Financial Compliance?

1. Why Should I Care About Financial Compliance? • At the highest level: • Maintains relationship of trust between sponsors and institution • Provides necessary stewardship to properly safeguard investments in research

2. Why Should I Care (cont’d) • Withholding of future awards • Audit findings/cost disallowances • criminal/civil/administrative penalties • Loss of flexibility (exceptional status)

3. Why Should I Care (cont’d) • Reputational risk with sponsors, donors, faculty and students • Public embarrassment • Loss of Public confidence • It’s the right thing to do

4. Agenda • Sample questions we hope to answer today • Life Cycle of the Award • The Facilities and Administrative Rate • The Regulations Governing Financial Compliance

5. Agenda, cont’d • Effort Reporting • Cost Transfers • Program Income

6. Sample Questions we hope to answer through today’s session: • What is the “life cycle of the award • What items matter at the proposal time? • Why do we care if F&A are proposed as direct costs on the award?

7. Sample Questions cont’d: • What teeth do the A-21, CAS, and A-110 regulations have? • Who cares after the award is approved, anyway? • Does the amount of cost sharing influence anything else down the line?

8. Sample Questions cont’d: • Why not waive the F&A? • Why rush to set up the account? • What risk is there if PI effort is over 100%? • Isn’t the F&A rate like a huge calculus problem?

9. The Life Cycle of an Award - Function/Process Hierarchy14 Phases • Phase I: PI Conducts Research and Identifies Funding Opportunities • Phase II: Internal Review & Routing of Proposal

10. The Life Cycle of an Award – cont’d • Phase III: Central OSR Review & Submission of Proposal to SponsorPhase IV: Negotiate with Sponsor • Phase V: Receive Funding/Award • Phase VI: Set Up Account(s)

11. The Life Cycle of an Award – cont’d • Phase VII: Enter Budget in GL • Phase VIII: Schedule Deadlines • Phase IX: Transact Against Award

12. The Life Cycle of an Award – cont’d • Phase X: Conduct Post-audit • Phase XI: Report on Award • Phase XII: Collect Money

13. The Life Cycle of an Award –cont’d • Phase XIII: Close Award and Account • Phase XIV: Cost Analysis: Prepares F & A rate proposals, negotiates with Feds, supports audit

14. Financial Compliance is multifaceted and should have a wide impact on how we think about each transaction OR Compliance touches everything

15. The F&A rate calculation • Expressed as a percentage: • Indirect costs of research = F&A% • Direct costs of research

16. A “Direct” Cost is one that • Can be identified specifically with a particular project or activity • Can be directly assigned to an activity with relative ease and a high degree of accuracy

17. Conversely, an “Indirect” cost is • Incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, instructional activity or other institutional activity

18. Please see supplemental handout #1 on Direct /F&A Costs

19. Functions of An Institution • Instruction • Organized Research • Other Sponsored Activities • Other Institutional Activities

20. The question to be answered with the A-21 function code is: • What are we using the funds for? • Not, what is the source of the funds?

21. Please see supplemental handout #2 F&A Cost Calculation – Overview

22. What Is OMB Circular A-21? • Guidelines for determining costs applicable to Grants, Contracts, and other agreements with educational institutions • Revised approximately seven times since 1979

23. OMB Circular A-21 • Definitions of terms : • Instruction • Organized Research • Other Sponsored Activities • Other Institutional Activities

24. Factors Affecting Allowability of Cost: Cost must be: • reasonable • allocable • treated consistently • conform to any specific guidance set forth in A-21

25. Reasonable Cost: • Does the cost incurred reflect an action that a “prudent person” would have taken under the circumstances prevailing at the time?

26. Allocable Cost: • A cost is allocable to a sponsored agreement or F&A rate if it is shown that the cost benefits the agreement or the operations of the institution through reasonable methods

27. OMB Circular A-21 • General Provisions for selected items of cost • Provides principles to be applied in establishing the allowability of direct and F & A costs

28. OMB Circular A-21, cont’d • Differences between Circular and Research agreement - the agreement governs

29. CAS for Educational Institutions • 501: Consistency in estimating, accumulating and reporting costs • 502: Consistency in allocating costs incurred for the same purpose • 505: Accounting for unallowable costs

30. CAS for Educational Institutions, cont’d • 506: Consistency in using the same cost accounting period • CASB-Disclosure Statement • FYI--Defense Contractors follow 19 CAS Standards!

31. CAS 501 Requires consistency in the way costs are • proposed • accumulated • reported

32. CAS 501 Impacts Cost Sharing • OMB A-110 defines Cost Sharing as any project cost not borne by the sponsor. • Could be any cost sharing identified and quantified in the narrative or the budget • Cost Sharing is a direct cost.

33. Cost Sharing/Matching • Non-Federal Contribution/Participation to a Federally Sponsored Agreement (OMB Circular A-110, Section 23) • Mandatory - Required by the sponsor as a condition for making an award

34. Cost Sharing/Matching, cont’d • Voluntary - Not required by the sponsor but may become a legally binding commitment if reflected in proposal budget

35. Cost Sharing/Matchingcont’d • What can be included: • Real Dollars: • Contributed Effort • Equipment • Other Non-Labor Costs • In-Kind Contributions

36. Cost Sharing/Matchingcont’d Costs must be • Verifiable • Not counted toward more than one Federal program • Necessary and reasonable

37. Cost Sharing/Matchingcont’d • Allowable • Not funded by other Federal funds unless specifically authorized • Provided for in the budget when required

38. Cost Sharing • Also may include: • Grant or contract over-expenditures identified at the end of the project • Pre-planned change in project scope resulting in increased effort with no additional sponsored funding • Faculty salary effort over the NIH salary cap

39. CAS 502 • Requires consistency in the way the same type of cost is allocated in the F&A rate • The same type of cost cannot be both a “direct cost” and an “indirect cost”

40. Costs Defined as Direct in A-21 and in a typical Disclosure Statement • PI salary • Technician salary • Lab supplies

41. Costs Defined as Direct in A-21 and in a typical Disclosure Statement, cont’d • Research equipment • Technical consultants related to the projects

42. Costs Defined as F&A in A-21 and in a typical Disclosure Statement, cont’d • Department administrator salary • Postage • Memberships • Office supplies

43. CAS 502 F&A costs may be charged directly to an award if three circumstances exist: • The cost can be specifically identified with the project with a high degree of accuracy.

44. CAS 502, cont’d • The project has characteristics that make it one of “different purpose and circumstance”, and • The cost is identified in the budget and approved by the sponsor. These are the rules for federally supported projects.

45. CAS 502, con’t • Now what do we see in practice? • Rotation of charges • Charging projects with largest balance • Charging the budgeted amount • Charging projects in advance of when cost is incurred

46. CAS 502, con’t • General Rule - administrative costs should not be charged directly to federal awards • there are some (few) exceptions • Administrative costs can be charged directly to nonfederal awards

47. CAS 505 • Requires an accounting of unallowable costs • In the OR base and in the F&A pools • Examples: • Alcohol (G&A, O&M, DA) • Flowers, gifts –Bad debt expense • Parking tickets (O&M) - Lobbying costs

48. CAS 506 • Requires consistency in the same use of accounting periods • This one is not an issue for many universities if all entities within the university use the same FY

49. Summary of CAS Issues • CAS has made recovery of costs much more difficult • Cost Sharing lowers the rate (higher base, lower rate) • Many non-reimbursed administrative costs are incurred to ensure we are doing things correctly!

50. OMB Circular A-110 Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations