A Practical Approach to Managing Effort Reporting Impacts from Cost Transfers

1. A Practical Approach to Managing Effort Reporting Impacts from Cost Transfers David Ngo, University of Wisconsin-Madison Ashley Whitaker, Nova Southeastern University Brian Korblick, Huron Consulting Group

2. Agenda What are Cost Transfers? Acceptable Reasons for Cost Transfers Salary Cost Transfers Audit Risks related to Cost Transfers Handling Cost Transfers related to Effort Reporting • Cost Transfers resulting from effort certification • Cost Transfers initiated outside of system • Before Certification • After Certification • Proactive” Cost Transfers Case Study: UW Cost Transfer Tool Case Study: NSU Effort/Cost Transfer Business Processes

3. Cost Transfers An after the fact reallocation of costs Moving an expense that was not properly allocated NIH Grants Policy Statement • Cost transfers… that represent corrections of clerical or booking errors should be accomplished within 90 days of when the error was discovered • The grantee should have systems in place to detect such errors within a reasonable timeframe; untimely discovery of errors could be an indication of poor internal controls

4. OMB Circulars A-21: “Any costs allocable to a particular sponsored agreement under the applicable cost principles 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.” A-110: “Unless the Federal awarding agency authorizes an extension, a recipient shall liquidate all obligations incurred under the award not later than 90 calendar days after the funding period or the date of completion as specified in the terms and conditions of the award or in agency implementing instructions.” A-133: Annual audit is conducted to “determine whether the auditee has complied with laws, regulations, and the provisions of contracts or grant agreements.” The annual Compliance Supplement provides auditors with specific instructions for reviewing adherence to the cost principals and of the institution’s internal controls.

5. Acceptable Reasons • Reflect correct usage when multiple projects benefit • Transfer pre-award costs • Remove unallowable costs • Unacceptable Reasons • To meet deficiencies caused by overruns or other fund considerations • To avoid restrictions imposed by law or by the terms of sponsored agreement • For other reasons of convenience

6. Common Occurrences Causing Cost Transfers • Delay in Award Setup • Terms being negotiated • Execution between Sponsor/Institution • Compliance (IRB, IACUC, Bio, OAR/COI, Effort) • Budget (Reduction, Restriction, F&A) • Start/end date • Clerical error • PI realizes specific experiment expenses were charged to the wrong project • Old account number • Cost overrun at end of project

7. Case Study • Funding the Commitment • Derek Zoolander is a 9 month faculty who is paid $140,000/year. Derek is awarded a grant from 7/1/12-12/8/12. His budget calls for him to be paid $20,000. What is his effort commitment? • Figure out calendar months • $140,000/9 months = $15,555 monthly • Payroll yearly/monthly = $20,000/$15,555 = 1.3 salary months • Figure out dates • 8 days in Dec = (8/31) = .26 months • + 5 full months from Jul-Dec = 5.26 project months • Figure out effort • 1.3 salary months/5.26 project months = 25% effort

8. Cost Transfers – Auditor Concerns Is the main reason for the transfer to maximize federal funds? Does the organization demonstrate good fiscal stewardship of Federal funds? • Frequent errors in recording costs, and / or a delay in the time it takes to identify errors may indicate the need for accounting system improvements, enhanced internal controls or both Is the transfer supported by sufficient written justification with appropriate reviews and sign off’s? • Are adequate policies and procedures in place? Have those policies and procedures been followed?

9. Cost Transfers – High Risk Transactions Red Flags • Greater than 90 days • In last two months of award • Moving overdrafts from one federal award to another • Not following institutional policy • Inadequate explanations • Adjustments to effort certifications Recent Audits • Mayo Clinic - $6.5M Fine OIG Work Plans • http://www.oig.hhs.gov/publications/docs/workplan/2009/WorkPlanFY2009.pdf

10. Recent Effort Reporting Audits & Settlements St. Louis UniversityOverstatement of Effort $1 million Weill Cornell Medical College Committed Effort $2.6 million Yale UniversityEffort Reporting and Cost Transfers $7.6 million Florida State UniversitySalary/Non-salary disallowances $3.0 million in requested refund Fort Valley State Lack of an Effort Reporting System $500,000 settlement Ohio State University Commitments and Cost Sharing $1.7 million in questioned costs Effort Reporting Non-Compliance: Significant Audits & Settlements Louisiana Board of Regents Effort Reporting, Cost Sharing $1.9 million questioned costs University of Nevada-Reno Effort Reporting System Georgia Institute of Technology Effort Reporting System University of DelawareEffort Reporting University of Alaska-AnchorageEffort Reporting and Grants Management University of Wisconsin – Madison Effort Reporting System California State University - Fresno Effort Reporting Commitments and Cost Sharing University of Michigan Effort Certification University of Notre Dame Subrecipientmonitoring and Effort Reporting Arizona State University Effort Reporting System

12. Cost Transfers and Effort Reporting Cost Transfers resulting from effort certification Cost Transfers initiated outside of system • Before Certification • After Certification “Proactive” Cost Transfers

13. Question for Audience When effort fluctuates, how do you handle the salary? (ex: yearly 30% commitment: 10% effort Jan-Jun and 50% effort Jul-Dec) Effort Regulations Require Us To… Change commitments when needed, and document the changes Fulfill commitments Charge salary in a way that’s congruent with actual effort Certify effort in a way that’s congruent with what actually happened Transfer salary charges off of a grant if the level of effort does not justify the salary charges

14. Once effort is certified, paid effort and certified effort must be “trued up” Cost Transfer amounts are determined by calculating the difference between the paid effort and the certified effort, taking into account the policy on variance threshold

15. Cost Transfers that are createdbefore an effort card is certified and processed are applied to the effort statement as normal. Handling Cost Transfers that are created after the effort card has been closed will depend on your institutional policy. Consider: • Does the cost transfer remove or add charges to a sponsored project? • Does the cost transfer result in charges moving between sponsored projects? • Does the cost transfer prompt, or is a result of, recertification of effort?

16. Case Study: Ron Burgandycertified effort on project 1 (NSF), but did not work on project 1. He worked on project 2 (NIH) and should have certified effort on project 2. • Does you’re your policy allow for recertification of effort? • If so, does time (90 day rule) factor into the approval? • Initial questions to ask: • Why was expense originally charged to the first account? • Why should charges be applied to the proposed account? • Questions to consider if over 90 days: • Why wasn’t this noticed earlier (before 90 days)? • What actions are being taken to eliminate the need for future CT’s of this type?

17. University of Wisconsin Cost Transfer Tool

27. Nova Southeastern University Salaried Cost Transfer Business Process

28. NSU’s Set-Up of Salary Charges and Certification of Effort NSU allows for the opening of accounts early when deans have approved employees to work on a project. • PIs email the grants accounting office and copy the dean when requesting an account to be opened early. Employee salary is charged to sponsored projects initially based on commitments and/or estimates of the effort in the approved budget. Effort cards are created based on these estimates of effort in the payroll/financial source system. Cost transfers that are generated prior to effort certification adjust the estimates so that the effort card at certification reflects the most current data in the payroll/financial source system. Actual effort is certified quarterly in an electronic effort reporting system.

29. NSU’s Salaried Cost Transfer Process Important to Note: • The transfer of salary and wages must correspond to the percentage of effort actually expended (certified) on the sponsored project. • Salaried cost transfers are addressed in our effort reported policy; this policy is cited in the cost transfer policy. Cost transfers are generated based on our policy’s threshold (5% variance from payroll to certified effort). Departmental effort coordinators run a report that identifies cost transfers resulting from effort certification (decentralized). Effort coordinators indicate if the transfer should be processed equally among all pay periods in the quarterly certification period or if a grant period affects the transfer (i.e. start/end dates).

30. NSU’s Salaried Cost Transfer Process Continued Effort coordinators send the report, with administrative instructions, if applicable, to the Payroll Manager via email, copying the Central Effort Administrator and their Grant Accountant. • Cost transfers must be sent by the close of the certification period. As cost transfers are processed in the source system, they are loaded into the effort reporting system. • Cost transfers must be processed within 30 days after the close of certification. If the effort certification results in a permanent change, then the estimates set up in the payroll/financial system are updated to reflect this change. Changes to commitments or a reduction of effort of more than 25% are to be communicated to the Office of Sponsored Programs BEFORE the change occurs. Cost transfers that are in contrast with effort certification (i.e. recertification/adding charges to a sponsored project) are not allowed. Removing charges from a sponsored project is always allowed and is not considered recertification.

31. Important Items to Consider when Creating a Salaried Cost Transfer Process Who is in the certification flow? How often you certify is important, especially if certification is tied to reconciliation of charges on sponsored projects. How do you ensure that cost transfers are reconciled in the financial (source) and effort reporting systems? Centralized or decentralized process? Defining recertification and is it allowed at your institution?

32. Important Items to Consider when Creating a Salaried Cost Transfer Process Do you allow salary transfers between sponsored projects? Who has the authority to approve a cost transfer? Is this different for before or after effort certification? Handling transfers onto a sponsored project when someone has not worked on a sponsored project before, how far back do you allow charges? Documenting effort on a project for which there is no account set up. How to handle sponsored projects that end before effort is certified? How to ensure that reductions in effort of 25% or more are identified?

33. Mitigating Potentially Unwanted Outcomes Ensure that salaried cost transfers are reconciled in the payroll system. Ensure that cost transfers that are the result of recertification of effort are properly justified and documented. Ensure that PIs and other certifiers are properly trained so that they understand the importance of accurate effort certification. As certification is a “reasonable estimate” be wary of specific cost transfers (Salaried cost transfer changing effort from 25.23% to 25.67%).

34. Mitigating Potentially Unwanted Outcomes Salaried cost transfers are one instance where transfers at the end of the grant period are OK, as long as they result from the recent effort certification. Where systematic errors are identified, modify the business process to correct and ensure that employees take steps to eliminate future systematic cost transfers. Allow for advance accounts with the caveat that only salary for current employees can be charged. • If the dean or department head has allowed employees to start work on a project, the account number should be opened to accommodate the effort associated. • The department must take responsibility for costs if the funds do not materialize.

35. Questions? David Ngo, dvngo@rsp.wisc.edu Ashley Whitaker, ashlport@nova.edu Brian Korblick, bkorblick@huronconsultinggroup.com