Accounting System Basics +++

1. Accounting System Basics +++ Department of Health & Human Services National Institutes of Health Division of Financial Advisory Services, OALM, OD Ray Woodruff, Chief, Indirect Cost Branch Dan Milstead, Deputy Director, DFAS Eleventh Annual SBIR/STTR Conference Omaha, Nebraska June 30 – July 1, 2009

2. Today’s Agenda • Financial solvency • Accounting System Essentials • Know the rules • Audit requirements

3. Financial Solvency So, why is NIH so concerned that my company is financially solvent? • NIH needs to know that you have sufficient capital to fund the company’s infrastructure • NIH does not want to put research dollars at risk by funding an insolvent company • There is much more of a focus given the current economic situation

4. Financial Solvency Questions that NIH will ask in assessing your company’s financial solvency: • Did the auditors cite a ‘going concern’ issue? • Has the company considered filing for bankruptcy? • Balance sheet: are current ratios acceptable? • Any judgments, suits or liens? • Does the company have a line of credit?

5. Financial Solvency More about current ratios: • Current ratios are one of the most reliable measures of liquidity for an organization. • Current ratios are calculated by dividing current assets by current liabilities. • A ratio or $2 of current assets to every $1 of current liabilities is highly desirable (a 2:1 ratio); however a ratio of 1:1 or higher is generally satisfactory.

6. Financial Solvency Calculating a current ratio: • sample calculation

7. Accounting System Essentials • Project cost accounting system • Segregate by type of cost • Adequate timekeeping system Issues that you must address before receiving an award (the Big 3):

8. Accounting System Essentials Your accounting system must be able to accumulate and segregate costs by project (i.e. must identify receipts and expenditures for each grant or contract) Project (job) cost accounting system

9. Accounting System Essentials Sample: Project Cost Report Sample: Project Cost Report

10. Accounting System Essentials A review of your Chart of Accounts must demonstrate that direct, indirect and unallowable costs can be separately identified. Segregate by type of cost

11. Accounting System Essentials Sample: Chart of Accounts Sample: Chart of Accounts

12. Accounting System Essentials ALL employees must complete timesheets Adequate timekeeping system

13. Accounting System Essentials • Account for total time worked, not just the time worked on Federal awards • Report hours or increment of hours – not % of effort • Separately track direct, indirect and PTO • Be signed and dated by the employee and approved by a supervisor • Timesheet changes must be made by the employee and initialed by the employee To be acceptable, timesheets must:

14. Accounting System Essentials Sample: Timesheet Sample: Timesheet

15. Accounting System Essentials Timesheets: the GOOD SAMPLES the BAD the UGLY

16. Accounting System Essentials Timekeeping – exceeding standard hours: Q1: How many hours should be recorded on the timesheet? ANSWER A salaried employee that works a standard 40 hour week earns $10 per hour, or $400 per week (40 hrs. x $10/hr). Suppose that employee works 50 hrs. in any given week as follows: • NIH Grant = 40 hours • Other – non-Federal (IR&D) = 10 hours

17. Accounting System Essentials Timekeeping – exceeding standard hours: A salaried employee that works a standard 40 hour week earns $10 per hour, or $400 per week (40 hrs. x $10/hr). Suppose that employee works 50 hrs. in any given week as follows: • NIH Grant = 40 hours • Other – non-Federal (IR&D) = 10 hours Q2: How much salary should be charged to the NIH Grant? ANSWER

18. Accounting System Essentials More information on timekeeping requirements and responsibilities, and a sample timesheet, can be found on the DFAS website: http://oamp.od.nih.gov/dfas/forprofittime effort.asp

19. Know the Rules! Administrative Requirements are found in: 45 CFR Part 74 • accounting system standards • property management • purchasing rules • reporting & record keeping http://www.hhs.gov/opa/grants/toolsdocs/45cfr74.html

20. Know the Rules! Cost Principles are found in: FAR Part 31.2 This document specifies whether specific items of cost are allowable or unallowable. http://www.arnet.gov/far/

21. Know the Rules! NIH Grant Policy Statement “...is intended to make available to NIH grantees, in a single document, the policy requirements that serve as the terms and conditions of NIH grant awards.” http://grants1.nih.gov/grants/policy/nihgps_2003/index.htm

22. Audit Requirements • The Department of Health & Human Services did! • HHS specifies requirements for audits of for-profit organizations in Title 45 CFR Part 74.26(d)* Audit? Who said anything about having an audit? *http://www.gpoaccess.gov/cfr/retrieve.html

23. Audit Requirements • it expended $500,000 or more under HHS awards in the fiscal year AND • at least one of the awards is an HHS grant A for-profit organization is required to have an audit if:

24. Audit Requirements • Audit period – The audit period is the awardee’s fiscal year (i.e., not the grant budget period, the grant project period or the Government’s fiscal year.) • Audit due date – The earlier of: • 30 days after you receive the auditor’s report OR • 9 months after the end of your fiscal year

25. Audit Requirements Audit reports should be submitted to: Department of Health and Human Services OIG / Office of Audit Services National External Audit Review Center 1100 Walnut St, Suite 850 Kansas City, MO 64106-2197

26. Additional Information Visit our website at: http://oamp.od.nih.gov/dfas/dfas.asp or Contact: Dan Milstead 301-496-4401 daniel.milstead@nih.gov

27. Questions / Comments