LBNL Financial Management General Overview, Core Principles, Key Concepts, and Best Lab Practices

1. LBNL Financial ManagementGeneral Overview, Core Principles, Key Concepts, and Best Lab Practices Presented by Doug Goodman, OCFO Field Operations Manager

2. Table of Contents TopicPage # • Course Objectives 3 • Office of Chief Financial Officer (OCFO) – Key Information 4 • Resource Stewardship & “The 10 Financial Commandments” 7 • Budgeting, Funding, and Cost Concepts and Processes 9 • Funds Control Concepts and Best Practices 31 • Accounting Concepts and Processes 47 • Procurement & Property Management Concepts and Processes 63 • Financial Information Systems Concepts 68 • Travel and Conference Services – Key Information 70

3. Training Objectives • Provide an overview of Berkeley Lab financial management • Provide financial management core principles and key concepts, and why they are important • Become familiar with and embrace funds control best practices at the Berkeley Lab

4. OCFO Organization

5. OCFO - Lead Organizational Contacts The OCFO’s senior leadership team is comprised of: • Jeffrey Fernandez, Chief Financial Officer, ext – 5547, JAFernandez@lbl.gov • Cynthia Jones, CFO Administrator, ext – 4242, CMJones@lbl.gov • Anil More´, Operations Manager, ext – 5254, AVMore@lbl.gov • Linda Wuy, Business Manager, ext – 7418, LDWuy@lbl.gov • Minh Agon Huebner, Budget Officer, ext – 5293, MAHuebner@lbl.gov • Jeanne Kissel, Controller, ext – 5957, JTKissel@lbl.gov • Derrol Hammer, Procurement & Property Mgr, ext – 6019, DJHammer@lbl.gov • Jeff Weiner, Sponsored Projects Officer, ext – 7143, JWeiner@lbl.gov • Chuck Axthelm, Business Systems Analysis Mgr, ext- 4461, CAAxthelm@lbl.gov • Doug Goodman, Field Operations Manager, ext – 7632, DGoodman@lbl.gov The CFO’s website is: http://www.lbl.gov/Workplace/CFO

6. OCFO – Financial Policies and Procedures • The Lab’s website for its financial policies and procedures manual can be found at: http://www.lbl.gov/Workplace/CFO/fpt/policies/index.html • The site is designed to provide an authoritative guide and information source that will serve as the basis for financial accountability, compliance, sound business practices, and effective financial decisions at the Lab • Lab’s Financial Policies and Procedures manager is Michele Mock and she can be contacted at ext – 2415 or MMMock@lbl.gov • This manual can also be accessed through the Lab’s Regulations and Procedure Manual (RPM), the Lab’s official manual for its administrative and operational policies and procedures. The RPM’s website is: http//www.lbl.gov/Workplace/RPM/

7. Financial Management Starts with Stewardship Webster’s on Stewardship: “It’s the careful and responsible management of something entrusted to one's care” The concept of stewardship is at the very heart of how we view financial management at the Laboratory - it’s everyone responsibility!

8. The Lab’s 10 Financial Commandments Core financial management principles that ethically guide actions and behavior --- they are located on the OCFO website 1. Don’t spend dollars you don’t have -- Funding must be in UC Contract 31, not just in the Approved Funding Program (AFP) or contract award 2. Spend funding only on the purpose for which it is intended 3. Don’t mix funding sources for projects without documented rationale • Do not charge research costs to an indirect budget (except for LDRD); e.g., overhead, organization burden, recharges • Have a causal-beneficial relationship between the cost elements of an indirect budget and its corresponding distribution base.

9. The Lab’s 10 Financial Commandments (Cont’d) • Maintain consistency in cost distribution over time • Use Full Cost Recovery – No subsidies • Record all costs of a project in the accounting period for which services were performed or goods delivered (includes accruing for all appropriate costs in the correct period of performance to that project) • Transfer costs only if necessary, appropriate, fully documented and justified (as outlined in the LBNL Resource Adjustment Policy) • Comply with DOE funding categories and related thresholds (colors of money) • $50K for Capital Equipment, $5M for General Plant Project (GPP), and $2M for Major Item of Equipment (MIE)

10. Critical Elements of a Budget • Identifies Project Manager/PI and funding source • Description of work scope and deliverables • Resource requirements and cost details • Time dimension • Period of performance • Phases of work/resource level fluctuations • Budget assumptions documented

11. Direct vs. Indirect Costs • Direct costs are specifically identifiable with a particular project • Indirect costs those that are not defined as a Direct cost • Under similar circumstances, the same type of costs can not be treated as a direct cost in one area and as an indirect cost in another area

12. What is an Indirect Budget? • An Indirect Budget is a means of allocating costs which benefit multiple projects, examples include: • HR centers • Janitorial services • Payroll • Types of indirect budget at LBNL • Overheads • Institutional (e.g., G&A, LDRD, IGPP, etc) • Divisional (e.g., Org. Burdens) • Recharges/Service centers (e.g., Procurement charge, Telecom, Fleet, CSO, etc)

13. Elements of an Indirect Rate Calculation An Indirect budget rate calculation consists of the three steps: • Identifying the cost pool (budget) • Identifying the allocation base • Calculating the rate Example: Fleet budget (GSA vehicle lease, fuel costs, fleet management, etc.) = $1,343,000 Base: number of miles driven = 695,555 mi FY07 Fleet recharge rate = $1.93/mi

14. LBNL Allocation Hierarchy

15. Reporting Purposes: Direct Costs • Costs that are specificallyidentifiable with a particular project. • Labor (salaries & benefits) • Materials, Subcontracts, Procured Services,& Travel • Service center charges (e.g., CSO, Shop, Electricity, Telecom, Procurement and Travel burdens)

16. Effort Measures • Headcount • Effort Hours • Work Months (WM) • Full Time Equivalents (FTE)

17. Cost of Labor - Overview • The total cost of labor of an LBNL employee to an activity depends on • Compensation rate • Employee classification/Payroll burden rate • Time reported in LETS • Charged to a work project • Charged to a leave project/account • Organization code • Project ID (proxy for source/use of funds)

18. Cost of Labor Is More Than Salary • Indirect allocations are added to an employee’s salary • Check the LBNL Rate Handbook on the CFO web site for current rates • Rates can change during a year • Most rate changes are retroactive to beginning of fiscal year • Rate Handbook can be found at the following website: http//www.lbl.gov/Workplace/CFO/assets/doc/bgt/internal/rate_handbook.xls • Rate Handbook also contains various labor price-outs based on type of funding (e.g., DOE, WFO) used

19. Why the Federal Budget is Important to Lab • U.S. Department of Energy (DOE) provides ~80% of LBNL’s annual funding • DOE is funded through the Federal Government’s Annual Appropriations process The Flow of $$$...Congress DOELBNL • Decisions made during the process determine how much funding DOE receives – the more the better! • How the money DOE receives is to be spent is also determined in the process (earmarks, limitations, etc.)

20. Passage of an Appropriations Bill… in Pictures subcommittee hearings FULL subcommittee hearings FULL Conference Committee In a perfect world – enactment on Oct 1

21. October Chicago Operations/BSO obligation Allocation January Congressional Resolution Congressional Appropriation OMB Apportionment President’s Budget December OMB Recommendation DOE Allotment September DOE Review & Consolidation LBNL Approved Funding Program March LBNL Budget Request Contract 31 Modification FY 2008 Prior Year (PY) FY 2009 Current Year (CY) FY 2010 Budget Year (BY) Federal Budget Cycle The Federal budget is passed into law each year by Congress and is signed by the President - until UC Contract 31 is modified, you do not have funds to spend!

22. Impact of a Continuing Resolution (CR) • A CONTINUING RESOLUTION is legislation enacted by Congress to provide budget authority for federal agencies to continue operating if the fiscal year ends without a new appropriation in place --- no new program/project starts • A CR or multiple CR increments are strong possibilities at the start of any Fiscal Year • Instead of receiving annual funding “up-front”, under a CR, funding is received in increments based on the prior year or the lower of House or Senate mark funding level • Under a CR we are still responsible for managing costs within funding control levels (9 digit B&R)

23. Managing Through a CR • Requires careful Divisional management and coordination with HQ Programs • What happens if you do not have enough funding? • Divisions are expected to spend their carryover, then stop work until additional funds arrive • Work for Others projects should be minimally affected by a Continuing Resolution • New starts are OK with a signed contract • Work closely with Federal Agencies other than DOE that may be affected – they would also be under a CR

24. Direct (External) Funding Sources • Dept of Energy (DOE) Headquarters/ Office of Science (SC) – our largest funding sponsor • By Field Work Proposal (FWP) through federal budget development process • Work For Others (WFO) DOE • Integrated contractors • Other DOE Operations Offices • WFO Non-DOE • Federal agencies • Non-federal entities • Other Sources • Cooperative Research and Development Agreements (CRADAs) • Gifts • Licensing agreements (Royalties) • Contracting Supported Research (CSR)

25. DOE Calls for Research Proposals • DOE: Annual Field Budget Submission (FBS) - March timeframe • DOE Order 130.1 established DOE’s budget formulation process and overall framework for each stage of the DOE budget process. Submission includes project level budget & FTE requests for: • DOE (non-NNSA) programs – Office of Science (our largest sponsor), Fossil, EERE • Work for Others programs • Crosscut exhibits and schedules • National Nuclear Security Administration (NNSA): Planning, Programming, Budget, and Evaluation (PPBE) Process • NNSA’s process that directs their budget formulation and execution processes. PPBE was established to address those needs within NNSA that are unique from DOE’s. Each major NNSA program has a separate call for data • LBNL submissions include budget and FTEs for Non-Proliferation and National Security • “Off Cycle Calls”: Various Programmatic solicitations for Proposals throughout the Fiscal Year (FY) • Office of Science: “Funding Opportunities” via GRANTS.GOV

26. DOE Work Authorization System • DOE Work Authorization System provides the DOE/Lab framework for the disbursement of funds • DOE Work Authorization System (WASs) statements include programmatic guidance memos • DOE Order 412.1A = Work Authorization Process • Chicago Operations Office will NOTfund without a WAS document in hand from the relevant DOE HQ Program Office (e.g. Office of Science, EERE)

27. Budget and Reporting (B&R) Codes B&R is an alpha-numeric code assigned by DOE to all funding sources (DOE accounts) • Associated with all funding and costs • Facilitates identification of funding/costs for specific research areas or projects on a DOE complex wide basis • Referenced in a Work Authorization Statement (WAS)

28. Work for Others • Contract between LBNL or DOE and a Federal or Non-federal sponsor for contract R&D work to be performed by LBNL • A unique Laboratory capability • Work must fit within mission of LBNL • Cannot compete with private sector • All costs are recovered from the sponsor • Requires DOE approval

29. Authorities for Sponsored Research at LBNL • Only Sponsored Projects Office (SPO) has authority to submit proposals and accept awards on behalf of LBNL • Delegation from UC through Lab Director • Principal Investigator (PI) does not have authority to submit proposals or accept awards • SPO website: www.lbl.gov/workplace/CFO/SPO

30. Have SPO Review the Solicitation • Before investing time and effort in a proposal,let SPO review the solicitation to determine LBNL’s eligibility • Three basic types of solicitations • U.S. Govt. – Request for Proposals (RFP’s) • U.S. Govt. – Other Solicitations (BAA’s, RA’s) • Non-Federal Solicitations

31. What is Funds Control? A systematic approach to ensure that: • Funds are expended solely for their authorized and/or appropriated purposes; • Obligations and costs are incurred within applicable time limits (e.g., funds are available before being obligated); and • Funds are obligated and expended within their authorized amounts.

32. Why is Funds Control Important to the Lab? • Promotes ethical behavior and public trust in the scientific mission • Enables the Lab to operate in an open manner, with less intrusive external oversight pressure • Avoids unallowable costs, which means more funds going to research • Avoids negative audit exposure • Avoids negative press • Funds control violations of may result in UC have to prematurely re-compete Contract 31 with DOE • Avoids the individual being personally liable if performing responsibilities legally & appropriately

33. Legal and Administrative Requirements LBNL has various legal and administrative requirements to ensure that we do not spend funds in excess of our Total Obligational Authority (Carryover + Budget Authority): • Anti Deficiency Act of 1885 • Appropriations Law • DOE Directives • DOE Contract 31, Appendix B • Good Business Practices

34. Cost Allowability – Key Concepts Reasonableness • Ordinary and necessary to conduct Lab business • Does not exceed what would be incurred by a prudent person in the conduct of competitive business • Compliant with UC Contract 31, sound business practices, applicable laws and regulations

35. Cost Allowability – Key Concepts Allocability • Cost incurred specific to the cost objective • Benefits both the Project and other work, and cost can be distributed to them in a reasonable proportion to the benefits received • Is necessary to overall operation of Lab business

36. Allowability Isn’t Always Clear Cut • There is no “complete list” in UC Contract 31 • There may be grey areas that require analysis and interpretation – ask for help when in doubt • Lab resources for guidance and assistance • Financial Policy and Training Office • Office of Contract Assurance • Budget Office • Controller’s Office

37. What is an Unallowable Cost? • Item or type of cost specifically identified or determined to be unallowable under an applicable law, regulation, or UC Contract 31 • Unallowable costs can result in financial and/or criminal liabilities • Examples include: alcohol, contributions, entertainment, gifts, interest, lobbying, souvenirs, and food in most instances

38. How To Avoid Unallowable Costs Take the cost allowability test: • Reasonable – ordinary and necessary to conduct Lab business, does not exceed what would be incurred by a prudent person in the conduct of competitive business, and compliant with UC Contract 31? • Allocable – charged to the correct project or cost pool? • Within dollar limits of UC Contract 31? • Compliant with UC Contract 31 terms? • Consistent with good business practices?

39. What is an “Unauthorized Commitment?” • Contractual agreement or commitment, written or oral, made by an individual who lacks sufficient authority to enter into them on behalf of the Lab • Examples of unauthorized commitments include: • Authorizing a vendor/subcontractor to perform work without written, delegated authority • Authorizing work that exceeds the total allowable cost or extends beyond the current term of a subcontract • Requesting or accepting materials or services from a vendor when a purchase order has not been awarded

40. Time and Effort Reporting • It’s a high Lab priority to report time and effort in a timely, accurate, and complete manner • Compliance with Federal Law, Fair Labor Standards Act • Accurate and timely reporting of Project costs • Ensures employees are paid correctly & accurate leave taken • Employees report & certify their own time and effort • Supervisors approve their employees’ time & effort • Senior management is responsible for ensuring that time and effort reporting in their Division is properly managed

41. Signature Authority at LBNL Roles and Responsibilities • The Lab Director has ultimate responsibility • Per Standing Order of the Regents 100.4 “UC Delegation of Authority” • In order for an employee to obtain signature authority (e.g., for financial transactions), approval from one of the following must be on file in OCFO: • Laboratory Director • Deputy Director • Associate Laboratory Director • Chief Financial Officer • Division Director • Department Head • Business Manager (or designee)

42. What Does Your Signature Ensure? • Understanding of transaction and your approval • Information, supporting documentation is complete and accurate • Allowable, reasonable, and justified • Allocable to project(s) being charged • Adequate funds at hand to cover expense • Awareness of your authority level ($ limit) • ETHICS and ACCOUNTABILITY

43. Funds Control - Best Practices

44. Funds Control Success = The Team Funds Control depends on a cohesive division team: • Division Director • Department Head • Principal Investigator • Project Manager • Group Lead • Business Manager • Resource Manager • Resource Analyst • Field Operations Manager (provides advice & consultation services)

45. Funds Control Best Practices What are the Critical Success Factors? • Communication • Effective, explicit, and continuous • Financial Reporting • Timely, accurate, and complete • Division review and monitoring • Timely accruals of costs • Proactive corrective action(s) taken • Sufficient checks & balances and internal controls

46. Funds Control Best Practices What We Need to Communicate/Monitor • Financial summaries & details throughout the entire budget development and execution processes • Appropriate cost elements and the level of resources needed • A project’s financial performance conforms with existing Funding/Spend Plan • Identifying potential funds control problems and violations before they occur

47. What is Accounting? • Process of recording, classifying, reporting, and interpreting the financial data of an organization • Demonstrates financial position of organization’s operations • Must be objective, consistent, unbiased, and compliant with applicable regulations/laws

48. What is GAAP? • Generally Accepted Accounting Principles • A common set of accounting principles, standards, and procedures for financial accounting, recording and reporting • Lab is required to follow GAAP and it shapes our accounting policies and procedures • GAAP is recognized by authoritative bodies, such as: • Financial Accounting Standards Boards (FASB) • Federal Accounting Standards Advisory Board (FASAB) • Governmental Accounting Standards Board (GASB)

49. What is a Balance Sheet? • Statement of financial position at a specific date • Contains three major sections: • Assets, Liabilities, and Equity • The accounting equation: Assets = Liability + Equity

50. What is an Income Statement? • Report showing revenue, expenses, and net income for a period of time • Operating results for the accounting period are reflected in equity / net position on the balance sheet