Direct Charges and Effort Reporting For Federally Sponsored Projects

1. presented by Steve Todd, Associate Director James Mizell, Sr Accounting Manager VUMC Finance Academic and Research Enterprise Clinical Research Center Direct Charges and Effort ReportingFor Federally Sponsored Projects

2. Government Shows Growing Concern over Effort Reporting Errors and inaccuracies in effort reporting are costly and can put our research programs, as well as those of the entire institution, in jeopardy. Recent settlements between medical institutions and the US Department of Justice over alleged misuse of federal grant money:

3. Direct Charge Understanding Direct Charges Guidelines

4. Regulatory Guidelines for Direct Charges to Federally Sponsored Projects • Sections C, D and J of OMB Circular A-21 deal with direct costs, allowability, and unallowable costs. • Cost Accounting Standards (CAS) regulate consistency in reporting costs, allocating costs incurred for the same purpose in like circumstances, and accounting for unallowable costs. • In accepting a federally-sponsored grant or contract, Vanderbilt agrees to abide by certain federal rules and regulations regarding the use of the funds.

5. Direct Costs Defined • Costs that can be identified specifically with a particular sponsored project, or • That can be directly assigned to such activity relatively easily with a high degree of accuracy

6. Is the cost…

7. Reasonable “A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.” (OMB Circular A-21, Section C.3)

8. Allocable Costs incurred for the benefit of only one project or costs that can easily be assigned to multiple projects which benefit. A cost is considered allocable if the goods or services involved are assignable to the sponsored project in accordance with the relative benefits received by the project.

9. Lab Supplies Order in eProcurement

10. Consistent A cost charged to a federally-sponsored project should be given treatment consistent with the treatment such a charge would receive if it was charged to a non-federal funded project. It does not matter what it is, what matters is how it is used.

11. Allowable A cost is considered allowable if the cost meets the three tests – reasonable, allocable, and consistent - and is considered allowable according to the award agreement, Generally Accepted Accounting Principles (GAAP) and other applicable regulations. (See pages 12-14 of VU Guidelines for Budgeting and Charging Direct Costs for additional information.)

12. Accounting for Unallowable Costs Many costs which are specifically identified as unallowable for federally-sponsored grants or contracts may be allowable if paid for from institutional or non-federal funds. Federal regulations specifically prohibit many costs from being charged to federally-sponsored grants or contracts.

13. Specifically Prohibited Costs • Advertising for general promotion of University • Alcoholic beverages • Fundraising • Antiques • Bad debt write-offs • Charitable contributions • Commencement expenses • Decorative Objects • Entertainment • Fine/original Art • Fines and penalties • First class / business class travel differentials • Flowers • Gifts and Awards • Goods / services for personal use • Lobbying • Membership in airline travel clubs • Selling or marketing products or services of the University • Social events • Membership in civic, social or country clubs

14. Effort Reporting

15. OMB Circular A-21“Cost Principles for Educational Institutions” The principles that govern how colleges and universities must document time and effort on federal grants and contracts appear primarily in OMB Circular A-21. Section J.10.b(2) of Circular A-21 (revised 5/10/04) sets forth six standards for payroll distribution that provide a reasonably clear outline of a compliant time and effort reporting system. Key points are: • The system of allocation of salaries based on effort must be “incorporated into the official records of the institution.” • The system must “reasonably reflect the activity for which the employee is compensated by the institution.” • The system must provide some form of “after-the-fact confirmation or determination” of the reasonableness of the salary allocations to federal grants. • Employee salary allocations must be confirmed by the employees themselves or by “responsible persons with suitable means of verification that the work was performed.” • The payroll distribution system “may reflect categories of activities expressed as a percentage distribution of total activities.” • “Significant changes in the corresponding work activity must be identified and entered into the payroll distribution system.”

16. Why This Is Important To You In accepting a federally-sponsored grant or contract, Vanderbilt agrees to abide by certain federal rules and regulations regarding the use of the funds. OMB Circular A-21 deals with direct costs, allowability, and unallowable costs and requires that charges to federal grants and contracts be: • Reasonable • Allocable • Consistent • Allowable Reference Vanderbilt University’s Allowable Cost Guidelines for more information.

17. Why This Is Important To You Through the federal mandate for effort reporting systems, institutions must obtain certifications from all individuals working on a federally sponsored project. Accurate time and Vanderbilt professional effort reporting is a federal and institutional requirement. These records are subject to audit by our: • Internal auditors, • External auditors, and/or • Federal sponsors.

18. What Goes Into VU Professional Effort • Effort percentages must be based on average of the actual amount of time spent on your VU professional work. • The number of hours each week may substantially exceed 40 hours. • VU professional time, includes, but is not limited to research, clinical, teaching, and administrative activities. It may include time spent at other locations or from home (e.g. reading journals relevant to research being performed).

19. Exclusions from Effort Reporting • Any outside activity for which compensation is paid (or would ordinarily be expected to be paid) directly to you as an individual from sources outside the University (e.g. consulting, NIH, VA, or volunteer work, such as President of AHA). • For activities deemed excluded from your VU effort, it is critical the Vanderbilt-funded staff (including administrative staff) not perform duties related to the work.

20. What You Must Know • If you are charged to federally sponsored projects, you must certify your effort each time your federal sources of salary change or if no changes, you must certify at least yearly. • Vanderbilt requires the Effort Report to be certified by the individual performing the work (rare exceptions). • The system used at Vanderbilt for salaried employees to certify effort is ePAC–electronic Personnel Action Change. • Hourly employees certify monthly for the previous month’s paid effort. • You are responsible for the accuracy of your effort report and should be comfortable with explaining it to an auditor.

21. Common Effort Reporting Compliance Problems • Failure to include all institutional effort in the effort percentage calculation (teaching, administrative, clinical, grant writing) • Inaccurate statements of effort on federal projects • Faculty charged 100% to sponsored research • Failure to account for unfunded effort • Failure to adjust for significant changes in effort levels between effort reports • Use of a “normal” 40-hour work week as the basis for the effort percentage calculation

22. Example Assume that Dr. Jones works an average of 50 hours each week performing the following activities: • 20 hours federal research (including evenings and weekends) • 10 hours seeing patients (including evenings and weekends) • 10 hours teaching medical students • 5 hours attending departmental, institutional, committee and other general meetings. • 5 hours teaching fellows new laboratory techniques on T-32 grant

23. Assume that Dr. Jones works an average of 50 hours each week performing the following activities: • 20 hours federal research (including evenings and weekends) • 10 hours seeing patients (including evenings and weekends) • 10 hours teaching medical students • 5 hours attending departmental, institutional, committee, other general meetings. • 5 hours teaching fellows new laboratory techniques on T-32 grant Example Based on above, what is the allocation of effort? • Dr. Jones’ Vanderbilt denominator is ? hours 50 hours = 100%

24. Assume that Dr. Jones works an average of 50 hours each week performing the following activities: • 20 hours federal research (including evenings and weekends) • 10 hours seeing patients (including evenings and weekends) • 10 hours teaching medical students • 5 hours attending departmental, institutional, committee, other general meetings. • 5 hours teaching fellows new laboratory techniques on T-32 grant Example Based on above, what is the allocation of effort? • Dr. Jones’ Vanderbilt denominator is 50 hours • Research: 20 hours = • Patient care: 10 hours = • Instruction (non-grant related): 10 hours = • Administrative (non-grant related): 5 hours = • Sponsored research training: 5 hours = 10% 10% 40% 20% 20%

25. Assume that Dr. Jones works an average of 50 hours each week performing the following activities: • 20 hours federal research (including evenings and weekends) • 10 hours seeing patients (including evenings and weekends) • 10 hours teaching medical students • 5 hours attending departmental, institutional, committee, other general meetings. • 5 hours teaching fellows new laboratory techniques on T-32 grant Example Based on above, what is the allocation of effort? • Dr. Jones’ Vanderbilt denominator is 50 hours • Research: 20 hours = 40% • Patient care: 10 hours = 20% • Instruction (non-grant related): 10 hours = 20% • Administrative (non-grant related): 5 hours = 10% • Sponsored research training: 5 hours = 10% 10% 10% 40% 20% 20%

26. Example for Discussion Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt

27. Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt Example Based on above, what is the allocation of effort? • Excluded Time is ? Hours

28. Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt Example Based on above, what is the allocation of effort? • Excluded Time is Hours • Dr. Jones’ Vanderbilt denominator is ? Hours 5 50 hours = 100%

29. Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt Example Based on above, what is the allocation of effort? • Excluded Time is Hours • Dr. Jones’ Vanderbilt denominator is Hours 5 50 50 hours = 100%

30. Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt Example Based on above, what is the allocation of effort? • Excluded Time is Hours • Dr. Jones’ Vanderbilt denominator is Hours • Research: 45 hours = • Teaching/Administrative: 5 hours = 5 50 10% 90%

31. Assume that Dr. Jones works an average of 55 hours each week performing the following activities: • 45 hours federal research (3 ROIs) • 5 hours on outside activities for other compensation to review grants for outside agencies and working as the editor of JCI (external publication) • The remainder on teaching and administrative activities for Vanderbilt Example Based on above, what is the allocation of effort? • Excluded Time is Hours • Dr. Jones’ Vanderbilt denominator is Hours • Research: 45 hours = 90% • Teaching/Administrative: 5 hours = 10% 5 50 10% 90%

32. Effort Certification – Non-exempt • Non-exempt staff must certify their effort once a month for the earnings periods paid in the previous month when working on a federally sponsored project. The effort certification resides in ePAC. Users will be prompted via email when certification is ready. • The effort certification statement reads as follows: “I certify that I have first hand knowledge of (or have used suitable means of verifying) work performed by this individual and that the salary distribution for the period covered is reasonable in relation to the work performed.”

33. In this example, the employee is moving 4 hours of time recorded from center 4041234567 to center 3043456789. Click OK to complete the transfer of hours. You will need to complete this action as many times as necessary so that the hours allocated match actual hours worked on each grant/project for each week.

34. Click SAVE in order to see your total time allocated, including the hours you moved, in the TOTALS & SCHEDULE tab. Also, notice the addition of the MOVED AMOUNTS tab.

35. Effort Certification - Exempt • For exempt employees, certifications are made using ePAC (the electronic Personnel Action Change application). Simply click the appropriate button to approve the certification. • The effort certification statement reads as follows: “I certify that I have first hand knowledge of (or have used suitable means of verifying) work performed by this individual and that the salary distribution for the period covered is reasonable in relation to the work performed.”

36. ePAC electronic Personnel Action Change

37. What is ePAC? • Vanderbilt’s web-based system with electronic workflow for plan confirmation and effort certification (electronic Personnel Action Change) • Faculty/staff notification of effort certification requirement based on occurrence of designated events: • Earnings Distribution Changes (EDC) • Retroactive Distribution Changes (RDC) • Annual Certification (ACR) • Final Certification (FCR) • Electronic workflow approvals • On-line tracking of distribution of personnel action change status • Interfaces to update Human Resource Management system for position, job, and distribution changes and to financial systems for retroactive distribution changes

38. ePAC Effort Certification Email example

39. Certifying a PAC • Earnings Distribution Change (EDC) or Retroactive Distribution Change (RDC) will be listed in the Distributions Worklist • Final Certification Record (FCR) or Annual Certification Rerecord (ACR) will be listed under the Certifications tab

46. Research Compliance Experts (RCEs)Clinical Departments As of December 2012 Anesthesiology – Stephen Bruehl Emergency Medicine – Alan Storrow Hearing and Speech – Jim Bodfish Medicine – Blackwell, Su, Biaggioni, Andl, May, Fowke, Wilson, George, Brandt, Hulgan, Elasy, Pozzi, Aune Neurology – Subramaniam Sriram Ob-Gyn – Kaylon Bruner Tran Ophthalmology – John Kuchtey Ortho – Ginger Holt Otolaryngology – David Zealear PMI (Pathology) – Larry Swift Psychiatry – Ron Cowan Pediatrics – William Russell, John Phillips, Candice Fike, Michael Aschner, Lynn Walker Radiology – Bruce Damon Radiation Oncology – Michael Freeman Section of Surgical Sciences – James Goldenring

47. Research Compliance Experts (RCEs)Basic Departments As of December 2012 Biochemistry – Frederick Guengerich Biostatistics – Chun Li Cell Biology – Steve Hann Cancer Biology – Fiona Yull Informatics – Paul Harris PMI (Microbiology) – Chris Aiken Molecular Physiology – David Piston Pharmacology – Brian Wadzinski

48. Useful Links OMB Circular A-21 http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html OMB Circular A-110 http://www.whitehouse.gov/omb/circulars/a110/a110.html OMB Circular A-133 http://www.whitehouse.gov/sites/default/files/omb/assets/a133/a133_revised_2007.pdf Administrator’s Resource (Online Reference Guide) https://medschool.mc.vanderbilt.edu/dept_managers/ VU Policies for Post-Award Management & Compliance https://dof.mc.vanderbilt.edu/are/pages/ggc/pub/policy.aspx VU Faculty Research Effort Reporting and Certification Online Training https://medschool.vanderbilt.edu/foto/ VU Staff Effort Reporting and Certification Online Training http://vanderbilt.mzinga.com/app/servlet/goTo?Page=CourseInfo&DirectLinkID=223619 Medical Center Compliance Office http://www.mc.vanderbilt.edu/compliance NIH Grants Policy Statement http://grants.nih.gov/grants/policy/nihgps_2012/index.htm • Includes “Who to Contact” section for • Finance: Academic & Research Enterprise

49. . .