OSR Brown Bag Series

1. Washington Update: Will Effort Reporting Be Replaced by Payroll Certification? December 9, 2011 ChicagoDecember 12, 2011 Evanston Bruce Elliott Executive Director OSR-Chicago OSR Brown Bag Series

2. To Enhance Faculty Productivity and Administrative Efficiency • Effort Reporting should be discontinued in order to place the emphasis on research outcomes • Allow the direct charging of costs associated with Project Management when those activities can be specifically identified with an individual project • Research Communications and Similar Equipment that are necessary for the effective conduct of research activities should be allowable as direct costs • Reduce Subrecipient Monitoring requirements for those subrecipients subject to A-133  • The Negotiated F&A Rate should be reimbursed by all Federal funding agencies on all Federally-sponsored research unless statutorily prohibited. • Prohibit arbitrary restrictions on F&A cost recoveries associated with Bulk Purchase or High-Volume Transactions Request for Information (RFI): Recommendations to Reduce Cost and Burden Associated with OMB A-21 and Related Cost Principles and Administrative Requirements

3. OMB should enforce cost reimbursement rules and prohibit federal agencies from practices and/or policies inconsistent with the cost principles outlined in Circular A-21 • F&A limitations on NIH T32 and K awards • NIH K award salary limitations • NIH policy on recovery of F&A on genomic arrays • NSF 2-month salary limitation • DOD CDMRP arbitrary salary caps NU Response to RFI

4. Clarify general purpose and special purpose equipment in Circular A-21(computers) • Ensure that rate setting practices by government negotiators are consistent and fair across all institutions • Financial reporting requirements should ensure transparency and accountability without imposing undue cost and burden on research universities • Eliminate effort reporting or replace it with a more effective and less burdensome alternative NU Response to RFI

5. A-21 requires institutions to confirm after-the-fact that PR charges to sponsored programs are commensurate with the effort provided • Effort reports are prepared for a single individual and show the percentage of effort for each activity that the individual participated in during the reporting period • Effort percentages total 100%, signifying that they cover all effort for the individual’s appointment • The individual certifies the accuracy of the effort reported • Effort reports support salary charges to grants and contracts when the percentage of an individual’s compensation that is charged reasonably reflects the effort percentage shown for the grant or contract activity Effort Reporting and A-21

6. Effort Reports Provide Limited Internal Control Value • Some argue that since original charges to projects are based on before-the-fact estimates that effort reports provide a control to ensure that charges are based on actual effort. In fact, effort reports almost never change charges to sponsored projects • Effort is Difficult to Measure • Simple concept on surface but how does one measure effort? Is time the measurement? People’s level of focus and effort is variable • Many effort report signers say that they can’t quantify their total effort or quantify effort on a project. This makes it very difficult for them to see any creditability in the effort reporting system Rationale for Proposing an Alternative to Effort Reporting

7. Untimely Reporting • FSRs due 90 days after budget. Under certain circumstances effort reports are not distributed before the FSR is due • For quarterly and semester systems, several months of salary expenses might not be certified by the effort reporting system prior to submitting the FSR • Confusing When All Forms of Remuneration are Considered • Not unusual for individuals providing effort to federal sponsored projects to also be supported through fellowships, which are not compensation. • Exclusion of fellowship type funding from effort reporting systems leads to confusion and a perceived underreporting of effort devoted to sponsored project Rationale for Proposing Alternative to Effort Reporting

8. Regulations require institutions to distribute thousand of effort reports to be approved and returned even when there is no change to PR data • Expensive System • Effort reporting systems are expensive to install and expensive to operate • National consensus that effort reporting is administratively burdensome. Faculty time is better spent on research activities Rationale for Proposing Alternative to Effort Reporting

9. Research outcomes are understood to be captured by advancing the science. There should be universal recognition that accounting systems and audits do not have the capacity to measure the value of science. • The PR distribution system must demonstrate compliance with cost principles and assuring stewardship should be foundation of sound PR distribution system. • Institutions need to demonstrate that they have proven systems and practices to account for federal funds. COGR/FDP/AAU Recommended Common Understanding between Research Institutions and Federal Government

10. ER is incorrectly assumed to be the best system to measure institutional compliance with cost principles. Official PR system, coupled with internal controls that identify changes in PR distribution, are better measures of compliance • ER doesn’t harm an institution’s compliance system but it represents inefficient additional “bolt-on” layer of reporting and distracts from correct measures of compliance • ER results in regulatory overload and cost burden – which Administration and Congress wish to minimize • Faculty productivity should be first driver to any solution. Reducing faculty burden, whether related to effort reporting or not, should be ongoing goal. COGR/FDP/AAU Recommended Common Understanding between Research Institutions and Federal Government

11. Should universities eliminate effort reporting?Will universities be able to eliminate effort reporting?What would we replace it with? Would the replacement meet the ultimate goals of reducing administrative burden, saving costs, and allowing PIs more time on science?

12. Payroll Certification varies from effort reporting in several ways • In effort reporting, an individual’s “effort” is the key to determining appropriate charges to federal projects • The payroll certification system is a project-based methodology vs. a person-based methodology in ER • It utilizes the concept that “charges (versus “effort”) • are reasonable in relation to work performed” • This concept is taken from A-21, the J.10.c.1.(e) section: “At least annually a statement will be signed by … principal investigator[s] …stating that salaries and wages charged to sponsored agreements as direct charges … are reasonable in relation to work performed.” Payroll Certification: A Proposed Alternative to Effort Reporting

13. PR allocations are made by PI consistent with anticipated work and proposed budget • COGR has tried to not be prescriptive.  COGR recommendations have been principle-based.  With that said, the thinking has been that percentages would be out of the equation.  Still. it would be the institution's call on how to approach. • The payroll certification system requires annual project certifications signed by PIs. The project’s budget year establishes the payroll certification’s reporting year. Certifications would be completed at end of budget period, versus specific times established for all projects for effort reporting • A payroll certification system would focus on the goal: correct charging of salaries to the project. PIs would not be certifying “effort.” Rather, they would be certify that salaries “are reasonable in relation to work performed.” PIs certify all salaries on one form. • This concept is taken from A-21, the J.10.c.1.(e) section: “At least annually a statement will be signed by … principal investigator[s] …stating that salaries and wages charged to sponsored agreements as direct charges … are reasonable in relation to work performed.” Basic Elements of Payroll Certification

14. While this reasonable-in-relation-to-work-performed concept is not precise and judgment is involved, the concept is easier to understand and makes more sense than documenting “effort”. PR is more ultimate than effort. Effort is a bolt-on to PR • Because payroll certifications are focused on supporting only direct compensation charges, PIs will be able to attest to the accuracy of some of OMB’s specific costing requirements like Faculty Summer Salaries. • Since payroll certifications are based on project budget years, they can be completed prior to submission of Financial Status Reports; therefore, the system will always be timely. • Payroll certification system is very cost effective. Implementation is easy because salary information already exists within University systems. Operating costs of the system are very reasonable because the volume of transactions would be dramatically reduced (up to 90% less), and monitoring processes are already in place (end dates of budget years are widely known throughout the university). Basic Elements of Payroll Certification

15. PR allocations are made by PI consistent with anticipated work and proposed budget • From the start of a project, the PI will know that salary and wage charges, to be appropriate, must meet the conditions of the PR certifications – individuals worked on the project and charges reasonable in relation to work performed. • Monitoring is efficient with PR certification. PIs can access the project’s expenditure information on any given day. There is a consistent message throughout the period of the project. • Contrast this system with the ER system that 1) does not hold any one person accountable for salary and wage charges, 2) does not address federal special costing issues, and 3) uses effort reports that add up to 100 percent, even though signers cannot measure effort. Enhanced Accountability and Compliance

16. How will Payroll Certification Work?

17. Payroll certifications are for one year periods which correspond to the budget years of sponsored projects • Print out form • Review the salary and wage charges for the project and for cost sharing (if applicable) to assure compliance with federal costing requirements per OMB Circular A-21 and applicable University policies. For payroll expenses to be correctly charged: • All individuals must have worked on the project • Salary charges must be reasonable in relation to work performed • No individual performed proposal preparation activities while their salary was charged to the project • All faculty that received summer salaries, met summer salary restrictions • All individuals (applies only to NIH awards) paid at a rate in excess of the NIH approved rate had their salary charges adjusted to comply with NIH’s salary cap requirements Instructions for Completing PayCert Forms

18. • The PI certifies for everyone contributing working on the project • PI signs and dates certification form that all salaries charged to the project and the committed cost sharing provided during the period are reasonable in relation to work performed • The PI will incorporate PR certification in the annual progress report • Return report within 60 days to allow FSRs to be prepared in a timely manner Instructions for Completing PayCert Forms

19. SPONSORED PROJECT PAYROLL EXPENSE REPORT

20. COMMITTED COST SHARING PAYROLL EXPENSE REPORT

21. Federal Sponsored Project and Cost Sharing Account (if necessary) Account Number: Project Title: Principal Investigator: Accounting Ledger or Report Title: Date of Accounting Ledger or Report: Reporting Period: I have reviewed the attached Sponsored Project Payroll Expense Report for the above cited sponsored project and, if applicable, I have also reviewed the attached cost sharing payroll expense report. My review of the payroll expenses was to ensure that 1) all individuals worked on this project, 2) salary or wage charges were reasonable in relation to work performed, and 3) the federal costing requirements as shown in the instructions were met. To the best of my knowledge and belief these salary and wage expenses have been correctly charged. ________ _________________________ _Principal Investigator Signature OPTIONAL ADDITIONAL SIGNERS Example Payroll Certification Form

22. Comparison of ER to Payroll Certification

23. Several school are participating in an FDP demonstration • Ongoing FDP PR Certification demonstration should be expanded. • A-21 audit standards during demonstration have been suspended • Goal: extend demonstration and if successful have OMB provide clearance to transition away from ER FDP Demonstration

24. Effort reporting systems have many downsides. Many see no value in a system that is trying to measure the immeasurable – “effort” • A payroll certification system would focus on the goal: correct charging of salaries to the project. • Did all the people who had compensation charged to the project actually work on the project? • Were the charges to the project reasonable in relation to work performed? • Did the University comply with all the special costing requirements? • Time devoted to effort reporting could be better spent on other activities Summary

25. Audience Participation!If OMB approves payroll certification as an alternative to effort reporting, what should NU do?

26. Bruce Elliott • 3-1780 • b-elliott@northwestern.edu • References: • Council on Governmental Relations (COGR) • Federal Demonstration Partnership (FDP) Thank You!