Cost Sharing The Double Edge Sword

1. Cost SharingThe Double Edge Sword Dennis J. Paffrath – University of Maryland, Baltimore Executive Director, Sponsored Programs Administration dpaffrat@umaryland.edu 410-706-6723

2. Pre Award Cost Sharing Issues • A policy should be put in place so that all parties involved in research (science and administration) have a guide as to how cost sharing should be handled The policy should outline: • Definitions and terms • Purpose • Background • Procedures, and • Responsibilities

3. UMAB’s Policyhttp://www.ord.umaryland.edu/policies_procedures/costshare.html

4. Proposal Review • The Sponsor guidelines need to be reviewed for any cost sharing requirements. If required, cost sharing is considered mandatory. If not, cost sharing is considered voluntary. • Mandatory is the portion of the University contribution to a sponsored project that is required by sponsor • Voluntary is that portion of the sponsored project that the University and/or non-Federal third parties contribute to a project at their own initiative.

5. Proposal Review • If either cost sharing type is included in a proposal the following must be asked: • Is an internal budget included in the proposal outlining the costs? • Are the cost sharing costs directly allocated to the project? • Are the cost sharing costs listed in the budget allowable by the sponsor? • Can F&A be included as cost sharing? • Has the PI listed cost share in the abstract or technical portion of the proposal?

6. Cost Share Documentation • Does your university require a cost sharing form to be completed? • University of Maryland Baltimore requires: • Listing of Over-Salary Cap • Cost Share commitments • In-kind cost sharing contributions • Chartstring Information (Peoplesoft account #) • Signatures of PI, Division Chief or Center Director, Department Chair and Dean

7. UMAB’s cost share formhttp://www.ord.umaryland.edu/policies_procedures/costshare.html

8. UMAB’s cost share form

9. UMAB’s cost share form

10. Award set up • Who handles the Award set up at your university? • At UMAB, the pre-award staff sets up the award. • Review award, if award cut then cost share should also be reduced • Companion account is set up along with the main account.

11. Post Award Cost Sharing Issues • Documenting cost sharing • Special issues with Voluntary Committed Cost Sharing (VCCS) • Cost sharing and F&A rates • Special issues with voluntary uncommitted cost sharing (VUCS) • Cost sharing compliance issues and strategies

12. Cost Sharing Overview • Cost Sharing, OMB Circular A-110, Section __.23 • Cost sharing reflects the grantee’s contribution to a sponsored project • May include cash, property, equipment, and services • Unrecovered F&A may be included with sponsor approval

13. Documentation Basics • Costs offered in satisfaction of a cost sharing obligation: • Must be verifiable, i.e., supported by adequate documentation • Allowable under the applicable Federal cost principles • Allocable • Generally may not be paid for by the Federal government under another award • No “double counting”

14. Documenting Compensation Costs Tendered as Cost Share • Understand the capabilities of your T&E system • Some systems can only allocate actual salary • Reports may have to be manually adjusted to reflect committed effort expended but not charged • Use of “companion” accounts • Proposal budget is a guide to level of commitment, but is not necessarily definitive • Need to educate system users on how account for cost sharing

15. Three Types of Cost Sharing • Mandatory • Required by the sponsor as a condition of award • Voluntary committed • Proposed by the institution but not required by the sponsor • E.g., proposal promises 30% effort but requests 20% salary support • Voluntary uncommitted • Neither required by the sponsor nor proposed by the institution

16. Voluntary Committed Cost Sharing Issues • Investigators may have an incentive to propose cost share – But • Too much cost sharing may depress the F&A rate • There may be inadequate sources of cost share • Failure to document cost share may create significant liability • Repayment obligation • Potential False Claims Act liability

17. Financial Treatment of VCCS • Voluntary committed cost sharing must be tracked and accounted for • Budget proposes 30% effort, no salary support requested – 30% must be tracked as cost sharing • 30% effort commitment, 30% effort provided, grant charged 10% of IBS -- must track the 30% provided • Compare with voluntary uncommitted cost sharing • Budget proposes 30% effort and salary support; faculty member actually provides 50% effort – 20% of the effort need not be tracked

18. F&A and Cost Sharing • General rule: cost sharing is part of organized research direct costs and must be included in F&A denominator • Effect of rule: cost sharing tends to depress the F&A rate • Exception: voluntary uncommitted cost sharing need not be included in the base • January 2001 OMB memo

19. How Indirect Cost Rates Are Determined • Organized research F&A rate = (F&A costs of organized research) divided by (Organized research direct costs) • Example: F&A costs of $6 million Organized research direct costs of $10 million F&A rate = $6 million/$10 million = 60%

20. The Effect of Cost Sharing on Indirect Cost Recovery • Govt requires that all voluntary committed cost sharing go into the organized research base: • $6 million in research indirect cost pool and $10 million in organized research base results in a 60% indirect cost rate ($6 mill./$10 mill.) • If $2 million in voluntary cost sharing is added to the base, rate is 50% ($6 mill./$12 mill.) • 50% times $10 million = $5 million; $1 million in indirects must be absorbed by grantee

21. Voluntary Uncommitted Cost Sharing • OMB Memorandum M-01-06, January 5, 2001 • No requirement to document or take into account voluntary effort over and above effort committed in grant proposal • E.g., Faculty member commits to 20% effort, provides 30% effort but charges the project 20% of IBS • 10% of the effort need not be reported as organized research • No impact on F&A rate • Where and how do you report voluntary uncommitted cost sharing?

22. Sources of Compliance Risk • Inadequate or no procedures • T&E system limitations • Departments and centers with multiple cost sharing obligations • Are there enough unencumbered sources of support to go around? • Increases the potential for “double counting” • Willingness to reduce or waive F&A recovery • Increases financial pressure on the specific department/center and the entire institution

23. Cost Sharing Audits • Georgia State University • Auditors reviewed $8.9 million in costs under a Cooperative Agreement between 2003 and 2004 that required over $4 million in cost sharing. • Auditors identified significant weakness in GSU’s monitoring of subawardee costs and cost sharing that resulted in $404,211 of questioned costs. • Auditors also noted several compliance deficiencies and internal control weaknesses with respect to maintaining proper documentation of payroll and other direct expenses, as well as cost sharing. • New Mexico Highlands • NSF identified “material” internal control deficiencies including a lack of procedures to properly track cost sharing • University of Hawaii • Inadequate documentation for roughly $1.7M of labor cost sharing contributions

24. Compliance Guidance • Create policies and procedures for documenting cost sharing that are just as rigorous as those used to support direct charges • Create a separate account for each project with a cost sharing commitment • Track and report cost sharing on an ongoing basis; don’t wait until the project is over • Develop systems that can identify Federal flow-through dollars • Ensure that the effort reporting system tracks cost shared salaries • Carefully review proposals with a cost sharing commitment to ensure the commitment can be met • Require PIs to specifically identify sources of cost share • Monitor the amount of foregone F&A

25. Contact Information • For additional information please contact: Dennis J. Pafrath Executive Director, Sponsored Programs Administration University of Maryland Baltimore dpaffrat@umaryland.edu