Current Issues in Effort Reporting: Problems and Potential Solutions

1. 1 Current Issues in Effort Reporting: Problems and Potential Solutions NCURA Annual Meeting Monday, November 5, 2007 Patrick Fitzgerald Associate Dean for Research Administration Harvard University Faculty of Arts and Sciences

2. 2 A-21 Section J.10 �Compensation for personal services� (not �effort reporting�) Covers amounts paid by the institution for services rendered during the period of performance under sponsored agreements, including salaries, wages & fringe benefits Costs are allowable to the extent they conform to the established policies of the institution, are consistently applied and are determined and supported per J.10. Reliance is placed on estimates in which a �degree of tolerance� is appropriate

3. 3 A-21 Requirements After-the-fact confirmation of personnel costs charged to sponsored agreements Signed by the employee, principal investigator or responsible official(s) using suitable means of verification that the work was performed Must be incorporated into institution�s official records Reports will reasonably reflect the activities for which employees are compensated by the institution

4. 4 A-21 Requirements The institution�s effort reporting system must provide for modification of an individual's salary distribution commensurate with a significant change in the employee's work activity A-21 doesn�t define �significant� change Time is expressed in terms of percent of total activity (�effort�)�not hours Frequency of reporting varies depending upon method of certification

5. 5 A-21 Requirements Effort reporting system should be part of institution�s official records System will provide for independent internal evaluations to ensure compliance Government rationale: Labor charges are majority of direct costs of research and other (non-university) recipients of federal funds have much more stringent requirements

6. 6 A-21 Requirements Examples of Acceptable Methods for Payroll Distribution: Plan-Confirmation After-the-fact Activity Records Multiple Confirmation Records Since these are examples, we should be able to choose other methods which satisfy the General Principles in J.10.b.(1)

7. 7 Effort Reporting � Areas of Risk Individuals completing effort reports do not understand requirements: Differences in functions/activities (e.g. (dept research vs. organized research, indirect effort vs. direct effort) may not be clear to those certifying Individual certifying does not have suitable means of verification There is a variance between percentage of time/salary and percent of effort Certify budgeted amount rather than actual effort Compensated vs. uncompensated effort

8. 8 Effort Reporting � Areas of Risk Multiple sources of pay (e.g., affiliated entities, hospitals, faculty practice plan) NIH salary cap Summer salaries Cost transfers not incorporated into certification (i.e., salary dollars are transferred to/from a project after the certification process and there is no �recertification�)

9. 9 Effort Reporting � Areas of Risk Reporting Faculty Effort Faculty instructional effort and research effort are often inseparable (�inextricably intermingled�) Faculty �research� effort often includes administrative (indirect) activities, e.g., proposal development 100% Effort is confusing Where does compensated end and uncompensated begin? Committed versus uncommitted effort Faculty often spend little time doing �hands on� (direct) research

10. 10 A-21 Section J.10d. Salary rates for faculty members Charges for work performed on sponsored agreements by faculty members during the academic year will be based on the individual faculty member�s regular compensation�. In no event will charges to sponsored agreements exceed the proportionate share of the base salary for that period

11. 11 A-21 Section J.10d. Salary rates for faculty members �Since intra university consulting is assumed to be undertaken as a university obligation requiring no compensation in a addition to full time base salary, the principle also applies to faculty members who function as consultants or otherwise contribute to a sponsored agreement conducted by another faculty member of the same institution�.�

12. 12 A-21 Section J J.10.d.(2) Periods outside the academic year Work performed during summer months will be paid a rate not in excess of the base salary divided by the period to which the base salary relates.

13. 13 Accounting for Cost Shared Effort Whether mandatory or voluntary, a commitment become a condition of the award A commitment of effort in a proposal triggers a requirement to track and certify the actual effort Cost sharing expenditures must be verifiable from recipient�s records Cost shared effort must also be properly classified for cost accounting purposes (i.e., F & A rate calculation) Faculty cost-shared effort should be identified to the appropriate project

14. 14 NSF Audit of University Effort Reporting Systems* Approximately one third of all NSF awards to universities are for salaries and wages, amounting to $1.3 billion annually Over the past 4 years, 8 prominent universities settled with the Dept. of Justice and agreed to pay over $30 million because scientist/researchers charged excessive labor costs to federally funded research projects * Per presentation by J. Schneck at August 2007 NECA meeting

15. 15 NSF Audit of University Effort Reporting Systems NSF reviewed A-133 audits of 357 universities from FY00-04 and found 58 with deficiencies: No certification of effort reports No after-the-fact confirmation from the appropriate person Variances between effort report and billed salaries not resolved No policy on effort reporting-continual late reports Effort reports not maintained Timesheets not signed

16. 16 NSF Audit of University Effort Reporting Systems NSF OIG Audit Focus: Adequacy of internal controls to ensure salaries and wages are allowable, allocable and reasonable Simply questioning the allowability of costs is not enough to assure appropriate accountability for federal dollars

17. 17 NSF Audit of University Effort Reporting Systems NSF OIG Audit Focus: Goal is to help institutions recognize weak internal controls and to strengthen them so that future funding will be better managed Overall, our intention is to assess the adequacy of University effort reporting nationwide

18. 18 NSF Audit of University Effort Reporting Systems: �Primary Issues� A recent audit found that business managers approved and signed effort reports, for about 50% of the salary and wage costs charged to NSF, without verifying actual effort expended A significant portion of the effort reports reviewed to date were not submitted timely Planned effort not corrected when significant changes occur, instead wait until the end of period

19. 19 NSF Audit of University Effort Reporting Systems: Possible Causes of Deficiencies University policies and procedures need improvement, for example People that approve effort reports not aware they need direct knowledge or documentation that support the effort reports Timeliness guidelines not established or not clear Policies out of date and/or not enforced Effort report training not required Dept. Chairs not held accountable for ensuring effort reports are completed within the turnaround period Required independent evaluation not done

20. 20 NSF Audit of University Effort Reporting Systems: Recent Developments Effort reports not capturing cost sharing PI�s not reporting any level of effort devoted on sponsored awards Time spent writing new grant proposals charged directly to existing grants Employees charging 100% of their time to NSF grants but not capturing indirect effort Confusion over limitation on summer salaries

21. 21 What Can Universities do to Minimize Risk and Audit Findings? Engage faculty so they are better informed on the �why� of effort reporting as well as �how� It�s difficult to convey A-21 requirements in email or memos; face time can be helpful, cite examples The PI agreed to fulfill the grant terms and conditions, which includes effort reporting, when he/she accepted the federal funds If PI doesn�t follow the institution�s policy, the government views the costs as unallowable PI has the knowledge of who is working on which project, not the administrator�PI should certify

22. 22 What Can Universities do to Minimize Risk and Audit Findings? Assess the Effectiveness of Your Institution�s Effort Reporting Policies How frequently do we certify and how successful are we at getting all the reports? How much time do we allow for certification, and how successful are we in getting timely reports? Who is responsible for signing and how do they �verify� the effort that each individual expends on each project? Revise the Policy is it�s too onerous!

23. 23 What Can Universities do to Minimize Risk and Audit Findings? Keep it Simple! Complicated policies are more difficult to comply with and to monitor If we are going to ask faculty to certify effort electronically, this may be more difficult than getting a paper signature Every new system is a challenge and an exercise in change management, especially for department administrators�don�t underestimate the impact We will be audited against our policies and A-21!

24. 24 What Can Universities do to Minimize Risk and Audit Findings? Implement an Independent Internal Evaluation of Your Effort Reporting Process Who is best able to do this at your institution (without creating noncompliance reports)? If you aren�t monitoring compliance with your policy, you are increasing the risk of noncompliance It�s better to not have a policy than to have a policy which is not monitored enforced

25. 25 What Can Universities do to Minimize Risk and Audit Findings? Manage the high-risk areas Charging 100% of an individual�s salary to a grant(s) is problematic Does the individual have any administrative responsibilities? Does the individual engage in proposal preparation? The government�s expectation is that the individual spends no time on non-grant related activities; charging 95% would provide some flexibility What is faculty�s understanding of summer salary? Remember that salary is commensurate with effort; both the amount and the timing.

26. 26 What Can Universities do to Minimize Risk and Audit Findings? Institutional policy on payroll certification/effort distribution should define what a �significant� change in effort is Avoid explicit cost sharing commitments in proposals (which trigger effort reporting) Suggested wording for Harvard proposals: �The full academic year salaries of members of the Faculty of Arts and Sciences are paid by the University with the understanding that they will ordinarily teach and conduct research freely and flexibly and not make substantial, specific quantified commitments of time and effort to specific organized research projects. �

27. 27 Contact Information Patrick Fitzgerald Email: pwf@fas.harvard.edu Phone: 617-495-4083 Fax: 617-496-7400