NCURA 2008

1. � NCURA 2008 1

2. � NCURA 2008 2 Agenda Introduction Award Life Cycle Managing Spending on Awards/Cost Transfers Billing and Letter of Credit Draws Accounts Receivable Cash Management Financial Reporting Award Closeouts Best Practices

4. � NCURA 2008 4 Introduction � Grants Life Cycle

5. � NCURA 2008 5 What is our focus today?

7. � NCURA 2008 Managing Spending on Awards After the award accounts are set-up in the accounting system and all parties are notified, financial activity and monitoring is generally a shared responsibility between researchers, department administrators and the Post-Award Office Establish reasonable practices for reviewing expenditures What documentation is involved during award spending? What is the sign-off/approval process? Are expenditures reviewed or sampled? Are there any controls in place to monitor award spending? 7

8. � NCURA 2008 Best Practices � Expenditure Processing Ensure that expenses charged to a sponsored project meet applicable cost accounting standards � (allowable, allocable, reasonable, and consistent) Assign personnel to project as soon as you have the info to enable you to do so! Make sure controls are in place for �high risk� transactions Equipment Subaward invoices Purchasing Cards Last minute expenditures (within 30-60 days of end date especially big ticket items) Foreign Travel (Fly America Act) 8

9. � NCURA 2008 9 Definition A cost transfer is an after-the-fact reallocation of the cost associated with a transaction from one activity/account to another. NIH Grants Policy Statement (03/01), part II, subpart A, for cost transfers states: The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official of the grantee, consortium participant, or contractor. An explanation merely stating that the transfer was made �to correct error� or �to transfer to correct project� is not sufficient. Transfers of costs from one budget period to the next solely to cover cost overruns are not allowable. �It should be noted that frequent errors in the recording of costs may indicate the need to review the accounting system and/or internal controls.�

10. � NCURA 2008 10 Cost Transfers named as area of focus in FY 2006 and 2007 DHHS OIG work plans Insufficient documentation and/or explanation for cost transfers Lack of written approval by PI and/or delegated institutional official Significant number of late cost transfers (greater than 90 days after original charge) Transfers in the last month of the award or after the award has expired Costs transferred from an account in overrun status to an account with large balance Significant number of cost transfers from departmental account to sponsored accounts Cost Transfer Red Flags

11. � NCURA 2008 11 Best Practices � Cost Transfers Transfers should only be made to correct errors, not to manage account balances Transfers must be made in a �timely� manner � generally <90 days Reason for transfer must be well documented AND justified Evaluate the number of both salary and non-salary cost transfers Review the documentation for a sample of cost transfers to ensure it includes Description of the error Description of how the cost benefits the project it is being moved to Certification of transfer by responsible organizational official Review the documentation for a sample of late cost transfers to ensure it includes an explanation for the lateness of the cost transfer request Review advance account policy and procedures to ensure they are effective in getting investigators to set up advance accounts

13. � NCURA 2008 13 Billing - Typical Award Billing Terms Cost reimbursable Letter of credit (LOC) Non-letter of credit Advanced and scheduled payments Milestone-based reimbursement e.g. clinical trials Award billing terms should be indicated on the NGA The Notice of Grant Award (NGA) is the legal document issued to notify the grantee that an award has been made and that funds may be requested A grantee indicates acceptance of an award and its associated terms and conditions by drawing funds from the designated payment system

14. � NCURA 2008 14 Cost Reimbursable - Letter of Credit Some federal agencies reimburse grant recipients through a letter of credit No physical invoice is sent to the federal agency Funds are received by the institution by requesting (�drawing�) funds Access via specialized payment website or phone Pre-determined draw limit specified in NGA Draw amount may be executed for all university grants as opposed to an individual basis LOC mechanism is intended to minimize the time elapsing between the transfer of funds from the Federal Government and disbursement by a grantee Also to minimize time between expenditure being incurred and when funds are transferred Frequency of draws is usually determined by the institution and is drawn by the central post-award office Draw should coincide with expenditures (i.e., payroll and F&A postings)

15. � NCURA 2008 15 Cost Reimbursable - Letter of Credit Draw amount: Expected Disbursement Amount -�Federal Cash Balance On Hand = Total Amount Requested Draw should be adjusted for costs: Charged directly to the grant that don�t meet the direct cost criteria (allowable, allocable, reasonable, and necessary) Over the approved budget Outside of the approved budget period In advance of the receipt of the award document Pre-award spending Payment is typically made within 1-2 working days via a wire transfer Examples of the Systems utilized by Federal Government to process draws are: PMS, ASAP, Fastlane and G5

16. � NCURA 2008 16 Cost Reimbursable - Letter of Credit Best Practices Develop a report or system that allows you to draw only up to the award amount and not overruns If possible, draw actual expenditures rather than relying on estimates Make sure the reconciliation process for letter of credit accounts is accurate and ties to reports sent to the government

17. � NCURA 2008 17 Cost Reimbursable � Non Letter of Credit Some agencies require an invoice for individual awards based on actual costs incurred Typical when dealing with modest sponsors (e.g. state or local governments) Sponsors may require a specific billing format If not, a standard invoice form should be created The amount due should be easily identifiable Each invoice should have its own unique identifying number for tracking purposes The remittance address should be easily identifiable to ensure checks get mailed to the appropriate location Other instructions, such as returning the remittance copy of the invoice with payment, should be clearly labeled Frequency of invoicing is typically monthly, but is set by the agency and is completed by the central post-award office Payment is typically made 1-2 months after the invoice is sent

18. � NCURA 2008 18 Advanced and Scheduled Payments Some agencies will make payments when an award is made or based on a pre-determined schedule Typically no invoicing is required Payment is typically made monthly or quarterly as determined by the agency Unspent funds generally required to be returned Advance payments must be kept in an interest-bearing account Practice mandated by sponsor agencies Interest earned should be returned to sponsor or applied against future expenses

19. � NCURA 2008 19 Milestone Based Reimbursement Some agencies will make payments based on a deliverable met or product completed e.g. clinical trials Typically invoicing or other documentation is required and is typically completed by the Principal Investigator�s department Payments may or may not cover expenditures Sponsors include pharmaceutical companies, their clinical research organizations and state agencies

20. � NCURA 2008 20 Standardize billing when possible Work with Pre-Award office to eliminate special condition billing and the need to provide back-up with each invoice. Set up attributes in database to track billing terms for all awards. Track all payments expected, not just those where a physical invoice is required. Establish attributes in system to identify frequency of reporting, forms and special instructions Create a lockbox for payments to be sent. All contracts and invoices should include this remittance address. Create a system to track surplus funds, calculate interest per University policy Best Practices

22. � NCURA 2008 22 Accounts Receivable - Definition Accounts receivable for sponsored awards is defined as: Allowable expenditures (up to the award amount) - Cash received = Accounts Receivable Billed Receivables - the amount that has been billed to the sponsor Unbilled receivables - the amount of expenditures that have not been invoiced (up to the award amount).

23. � NCURA 2008 23 Ways to Manage A/R Be proactive when negotiating payment and billing terms Monitor expenditures closely Avoid overspending accounts Work with PI to ensure deliverables are submitted in a timely manner Bill timely Follow up on outstanding invoices (example on next slide) Analyze trends, address issues with specific sponsors, and identify ways to correct inefficiencies

24. � NCURA 2008 24 Reconcile A/R to accounting system on a regular basis If departments must be involved in the invoicing, make sure the central office approves the invoice and established the A/R Don�t allow the department to receive the payment The �Send and Hope� collection process is not effective! Establish standard dunning notices and send them on a regular basis. Set goals for collections Consider establishing a collection person or team to deal with past due accounts Document everything Develop a plan of attack (e.g. big $ first or small corporations first, etc.) Collections � Best Practices

25. � NCURA 2008 25 Best Practices � Accounts Receivable Develop reports to give meaningful data on outstanding receivables for both central and departmental administrators Develop a target mix for aging Dedicate staff to A/R to follow-up, or else it will get buried! Set goals for collection (# of invoices, $$$, older than xx days, etc.) �Nag approach� works better than �cross your fingers approach� Create list of high risk sponsors � get the word out and stop doing business with them Track ALL receivables � don�t ignore scheduled payments or you might get burned. DOCUMENT, DOCUMENT, DOCUMENT!

27. � NCURA 2008 27 Financial Reporting Financial Reporting � Definition: An official statement of awarded funds Allow for removal of unallowable costs and adjustments Generated from General Ledger Sponsor specific Report requires are specified by sponsor SF269 Required by Health and Human Services Report completed by Post Award Office Interim outlay report Due 90 day after End Date of award Information includes: Total amount authorized by sponsor Total amount spent Un-obligated balance

28. � NCURA 2008 28 Financial Reporting SF272 Federal cash transaction report Cash management report required by the United States government Report can take two forms: Letter of Credit Non-Letter of Credit SF272A Federal cash transaction report continuation Required by the United States government for continuation grants

29. � NCURA 2008 29 Expanded Authorities � Federal Awards Per the Grants Policy Statement, allows the institution to, without prior approval from NIH (under most circumstances): �Carryover of unobligated balances from one budget period to the next; Re-budget funds for any direct cost item that the applicable cost principles identify as requiring the Federal awarding agency�s prior approval; Extension of final budget period of a project period without additional NIH fund; Transfer of performance of substantive programmatic work to a third party (by consortium agreement)� SNAP (Streamlined Non-Competing Award Process) � NIH Federal Awards FSR is required only at the end of a competitive segment rather than annually Not all awards under Expanded Authority, will receive SNAP privileges however. Financial Reporting

30. � NCURA 2008 30 Financial Reporting � Best Practices Key Items to Remember 1) FSRs must be filed timely! Reporting deadlines are specified in the award documents of a grant or contract Due at the end of both the budget period and project period within 90 days after the expiration date of the award If more frequent reporting is required, the NGA will specify both the frequency and due date 2) Include allowable activity and supported by general ledger documentation 3) Follow program requirements specified in the Notice of Grant Award 4) Presence of & adherence to the institution�s policy requiring review and written approval 5) Documented reconciliation of the FSR to the G/L

31. � NCURA 2008 31 Best Practices Key Items to Remember 6) Failure to submit complete, accurate, and timely reports may result in: Closer monitoring by the sponsor Penalties or enforcement actions Delayed sponsor payments New, Supplemental and Continuation awards may be delayed Loss of administrative flexibility No cost extensions Prompt authorization of carry forwards Expanded Authorities and SNAP privileges

33. � NCURA 2008 33 Closeout Requirements Project End Date = Budget End Date < Today�s Date Budget = Expenses = Receipts Institutions may reduce budget to equal final expenditures Open commitments/encumbrances = zero (0) Financial Reporting complete Final Invoice complete Request for final payment Financial invention/patient reporting complete All terms and conditions met PI and/or department concurrence received Document that certifies that PI has completed project

34. � NCURA 2008 34 Potential solutions to meeting deadlines: Send notices of expiring awards well in advance of the expiration date Create reports to track closing awards Require written request from the department if deadlines cannot be met Develop a policy for writing off small balances �Freeze� award once final financial report is sent Closeout of Awards

35. � NCURA 2008 35 What Risks Exist if Awards are not Closed? Unallowable expenditures may have posted to the project that should be removed. Debits or credits may have posted that were not captured on the financial report or final invoice. The total expenditures reported do not match the expenditures currently reflected on the project. Sponsors may withhold incremental funding or final payments until they receive outstanding reports. Financial report Progress or technical reports Failure to close out an award, not issued under FDP or Expanded Authorities could result in a loss of carryover funds. Awards not issued under FDP or EA require a carryover request if the Principal Investigator wishes to have use of the funds in the next funding period. Expenditures may continue to post to the award once funding has been deobligated. Risk: Overspending the award IDC may not be calculated correctly, thus the institution is not recovering as much of its costs as it could. This could be caused by: Incorrect base Incorrect rate Erroneous adjustments made during the lifetime of the award

36. � NCURA 2008 36 Best Practices � Award Close-Out Timing is everything! Involve the department early in the close-out process Communicate expectations and deadlines Determine what exactly needs to be accomplished to consider an account �closed�. Although different parties may be responsible for �parts�, someone needs to be responsible for the �whole�. Create reports to track completion of the various items you�ve identified as necessary for close-out. Try to avoid unnecessary paperwork and delays in closing awards, develop a write off policy for small balances.

37. � NCURA 2008 Recommended Practices These are recommended practices that will improve the closeout process and reduce the risk of an error: Institution should establish an internal closeout procedure that is routinely followed, regardless of award type (Federal, non-federal) Benefits: Training Standardization Increase sponsor/auditor confidence Notifications: Letters to the PI/Departments should be issued 60 or 90 days in advance of the award closing Issued automatically through the operating system or manually generally through the Post Award Office. 37

38. � NCURA 2008 38 Recommended Practices Continued� Frequent review of expenditures (A-21 example to follow) Timely final invoicing and reporting Due dates change from project to project. Make sure you read the notice of grant award carefully! PI and/or department agreement or concurrence of final expenditures Cumulative amount, as well as, type or class of expenditures. Maintain a terminated project/awards list This should be reviewed on a monthly basis. Can be housed within your operating system, MS Access, MS Excel, or in a 3-ring binder at your desk.

39. � NCURA 2008 39 Recommended Practices Continued� Aged accounts receivable Follow up on delinquent payments to ensure all funds are collected prior to closing the account. Frequent review of this list and following up with the sponsor should decrease the number of days an invoice is outstanding and allow you to close the award in a more timely manner. Develop a closeout checklist Documentation should be filed in the file folder Signed copy of the checklist noting the date closed. Screen prints or GL report printouts showing final expenditures, cash receipts, revenue and unliquidated obligations. PI and/or department agreement or concurrence of final expenditures. Record retention Closed files should be kept for an appropriate number of years � in accordance with federal and university guidelines. Closed or archived files should be easily accessible