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Exploring the Life Cycle of Costs:Budget to Audit

Jerry Fife

Mary Ellen Sheridan

Jane Youngers

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A Seamless Enterprise

• Budget

• Spend

• Closeout

• Report

• Audit

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Description of Handouts

• Project Summary

• PI’s suggested budget

• Selected readings from A-21

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Focus on Federal $

• A 21 Cost Principles

• A-110 Administrative Requirements

• Cost Accounting Standards

• A-133 Audit

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Take Home Point #1

• Communication

• Communication

• Communication

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Proposal Budgeting: Start With the Basics

• A-21 (our costing “bible”, incorporates Cost Accounting Standards)

• A-110 (cost sharing and matching requirements)

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Proposal Budgeting: Start With the Basics

• programmatic requirements

• institutional policies and procedures

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Proposal Budgeting: A-21/Cost Accounting

Standards• To be allowable, costs must be:

- allocable- reasonable- consistent

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Proposal Budgeting: A-21/Cost Accounting

Standards• To be allowable, costs must be:

- consistency requirement reinforced in CAS 501

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Cost Accounting Standards (CAS)

• The basics

–Began in 1994, extended to Grants & Cooperative Agmt. in 1996 (A-21)

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–Four Standards and Disclosure Statement

–Standards apply to all federally sponsored agreements

–Disclosure statement applies to institutions receiving $25M

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• Only two of the Standards apply to our conversation today–501 Consistency in

Estimating, Accumulating and Reporting Costs

–502 Consistency in Allocating Costs Incurred for the Same Purpose

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CAS 501

• Your budgeting practices need to be aligned with your accounting/reporting system

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CAS 502

• Cannot Assign as Direct Cost if Included in Indirect Cost Pool

• Cannot Assign to Indirect Cost Pool if Charged as Direct Costs

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CAS 502• “Normal” Indirect Costs

–Administrative/Clerical Salaries

–Office Supplies–Postage

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CAS 502• “Normal” Indirect Costs

–Basic (Local) Telephone Charges

–Memberships

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CAS 502

• Cost categories in our case study that may have CAS implications include:

–Clerical Assistance

–Postage/Telephone

–Subcontract Costs

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CAS Take Home Message

• Know your institution’s CAS policies and follow them consistently

• If your institution does not have a policy refer to A-21

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Proposal Budget: A-21

Other important areas of A-21:

• “j” section

• f.4 - .9 especially f.6.b.

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Budget Construction

• Familiarize yourself with sponsor proposal guidance–allowable costs–format–cost justifications

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Budget Construction

• Stay in communication with PI

– Unless NIH modular grant, costs can usually be lumped into major categories

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Budget Construction

• Stay in communication with PI– Degree of itemization within

categories depends on sponsor (and sometimes on type of potential award)

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Major Budget Categories

• Personnel costs (salaries and benefits)

• Consultants

• Equipment

• Supplies

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Major Budget Categories

• Travel

• Other

• Subawards

• F & A

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Personnel Costs: Salaries and Wages

• Faculty salaries

–institutional policy on academic year recovery

–summer salary

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Personnel Costs: Salaries and Wages

• Faculty salaries–committed effort–salary cap (NIH)

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Personnel Costs: Salaries and Wages

• Technical support

• Graduate research assistants

• Admin/clerical support

• Quote hourly rates? (almost never)

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Personnel Costs: Benefits

• Approved vs. budgeting rates

• Do you have different rates for different types of personnel?

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Consultants

• Rate of pay (NSF cap)

• IRS tests

• Travel costs for consultants

• Consultant agreements

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Equipment

• What is your institutional capitalization policy?

• Sponsor’s definitions of equipment

• General purpose equipment

• Documentation of cost sharing

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Supplies

• How much to itemize?

• What about office supplies?

• What is software?

• What are pc’s?

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Travel

• Adhere to:

–institutional policy

–agency guidelines

• Okay to cost on per trip basis

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Other

• Catchall category for most misc. costs–human subject fees–maintenance contracts–printing/postage

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Other

• Catchall category for most misc. costs

–animal per diem–phone charges

• Watch out for unallowables

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Subawards

• Subawardee budget incorporated into prime budget in toto

• Review subawardee costs for allowability

• Get rate agreements

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F & A Costs

• Consult program guidelines for allowability/amount

• Use negotiated rate agreement

• On or off campus

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F & A Costs

• Type of project

• Use correct direct cost base

• Fixed for life of award

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Cost Sharing & Matching

• Don’t offer if you don’t have to

• A-110 offers guidance

• A-21 clarification regarding faculty committed effort

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Cost Sharing & Matching

• Must be able to document for audit purposes

• Must be for costs within the project period

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Jane’s Take Homes on Budgeting

• Prepare budgets with audits in mind

• Just because something is in budget doesn’t mean that it will be an allowable expenditure

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Jane’s Take Homes on Budgeting

• Don’t cost share (including faculty committed effort) unless you have to

• Costs that will be unallowable as direct charges will also be unallowable as cost sharing

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Getting the Award

•Meet with PI to Review Award Notice

•Identify Special Terms & Conditions

•Plan Project - Project/Budget must overlay

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Setting up new account

• Use the award notice

• Check begin and end date

• Track cost sharing

• Use accounting system- subaccounts/object codes

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Advance Accounts

• Pre-award Expenditures –Expanded Authority(90 days)

• Beware of regulated research- human subjects, animals

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How many accounts?

–Associate accounts (aka “Parent-Child”)

–Simplify project management through accounting

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Personnel

• PI – Over the cap salary

• Verify effort commitments

• Work with human resources

• Consulting

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“Watch out” Categories

• Research subject fees

• Service center/recharge operations

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Subrecipient• Approved if in the award budget

• Verify agreement has been executed

• Monitor invoicing- confirm technical process with PI

• A-133 sub recipient monitoring (letter, no findings)

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Equipment

• Documentation per A-110

• Bidding

• Sole Source

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Travel

• Foreign travel – is prior approval necessary?

• Use of US carrier/code sharing

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Cost Sharing Diligence

• Document expenditures as they occur – avoid charge transfers

• Voluntary Committed Cost Share – Faculty effort

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Cost Sharing Diligence

• Share of equipment purchase• Monitor compliance with award

requirements

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Daily Life of Account Management

–Rebudgeting flexibility – Expanded Authority

–Consistency

–Reasonableness

–Allowability/Allocabilty

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Letter of Credit

• After the fact- Avoid payment of interest to FEDS

–Chicago uses a weekly balance

• In advance- Interest due on cash balances that exceed 3 days

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Mary’s Top Ten Award Management Take

Homes:

1. Communicate

2. Read award notice

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3. Set up account correctly & completely

4. Finalize all required certifications & agreements

5. Review ledgers monthly6. Prepare for closeout well in

advance

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7. Update account distributions promptly

8. Make transfers immediately

9. Confirm all charges are within project period

10. If in doubt, Ask! Ask! Ask!

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Close Out Phase

• Keys for Success

–Good communication between department & central offices

–An early alert system

–“Do it right the first time” philosophy

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Close Out Phase

–Management reporting to anticipate reporting workload

–Maintain a strategy for prioritizing reports

–Subcontracts reporting 60 days after termination

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Close Out Phase

–Strategy for dealing with trailing charges

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Close Out Phase

• Financial Reporting

– Final review of costs for:Allowability W/in grant/contract periodAllocability

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Close Out Phase

• Financial Reporting

– Other possible reviews:CASCost sharingCorrect F&A rate applied?

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Close Out Phase

• Other possible reviews/activities–NIH salary cap compliance–Budget restriction compliance–Proper object code assignment–Send back any unused funds

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Close Out Phase

• Other activities

–Encumbrances

–Cost Overruns

–Subcontracts

–Parent/Child accounts

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Close Out Phase

• Other Reports

–Property

–Patent/Inventions

–Other close out documents

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Close Out Phase

• “The report is submitted, now what needs to be done”?–Freeze/lock–Make sure balance is zero

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Close Out Phase

• “The report is submitted, now what needs to be done”?

–Prepare file for archiving

–Make sure it is marked to achieve proper retention requirements

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Close Out Phase

• Consequences of late or poor financial reporting–Sanctions–Withholding of awards–A-133 audit findings

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Close Out Phase

• Consequences of late or poor financial reporting–Exceptional Status–Lost of credibility with sponsors

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Audit Phase

• “Audit Me First” Costs

–Inappropriate/Unauthorized costs

–Unallowable costs

–Improper cost allocations

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Audit Phase

–Equipment purchased at the end of the project

–Overdrafts–Assignment of costs based on fund

availability or project expiration–Late cost transfers

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Audit Phase

• Possible scenarios for audit in today’s environment

–A-133

–Whistleblower

–Contract Close out

–Random Audit (Your lucky day!)

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Audit Phase

• Question: When should I be prepared for an audit?

• Answer: Always be prepared for an audit!

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Audit Phase

• How should I prepare for/handle an audit?–Review file in advance of audit–Know if you have any

weaknesses

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Audit Phase

• How should I prepare for/handle an audit?–Designate a central contact for all

audit activities –Always have a person accompany

auditors when visiting departments/faculty

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Audit Phase

• How should I prepare for/handle an audit?–Always have a person accompany

auditors when visiting departments/faculty

–Always be truthful

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Audit Phase

• How should I prepare for/handle an audit?

–Answer questions concisely but don’t be chatty

–Always request an entrance/exit interview

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Audit Phase

• How should I prepare for/handle an audit?

–Accept the fact that there may be differences and know the avenues for resolution

–Keep your boss informed

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Supplemental handout #4