A Practical Approach to Managing Effort Reporting

Impacts from Cost Transfers

David Ngo, University of Wisconsin-MadisonAshley Whitaker, Nova Southeastern University

Brian Korblick, Huron Consulting Group

Agenda1. What are Cost Transfers?2. Acceptable Reasons for Cost Transfers3. Salary Cost Transfers4. Audit Risks related to Cost Transfers5. Handling Cost Transfers related to Effort Reporting

Cost Transfers resulting from effort certification Cost Transfers initiated outside of system

o Before Certificationo After Certification

Proactive” Cost Transfers6. Case Study: UW Cost Transfer Tool7. Case Study: NSU Effort/Cost Transfer Business Processes

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Cost Transfers• An after the fact reallocation of costs • Moving an expense that was not properly allocated • NIH Grants Policy Statement• Cost transfers… that represent corrections of clerical or booking

errors should be accomplished within 90 days of when the error was discovered

• The grantee should have systems in place to detect such errors within a reasonable timeframe; untimely discovery of errors could be an indication of poor internal controls

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OMB CircularsA-21: “Any costs allocable to a particular sponsored agreement under the applicable

cost principles may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.”

A-110: “Unless the Federal awarding agency authorizes an extension, a recipient shall liquidate all obligations incurred under the award not later than 90 calendar days after the funding period or the date of completion as specified in the terms and conditions of the award or in agency implementing instructions.”

A-133: Annual audit is conducted to “determine whether the auditee has complied with laws, regulations, and the provisions of contracts or grant agreements.” The annual Compliance Supplement provides auditors with specific instructions for reviewing adherence to the cost principals and of the institution’s internal controls.

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Acceptable Reasons

• Reflect correct usage when

multiple projects benefit

• Transfer pre-award costs

• Remove unallowable costs

Unacceptable Reasons

• To meet deficiencies caused by

overruns or other fund

considerations

• To avoid restrictions imposed by

law or by the terms of sponsored

agreement

• For other reasons of convenience5

Common Occurrences Causing Cost Transfers Delay in Award Setup• Terms being negotiated• Execution between Sponsor/Institution• Compliance (IRB, IACUC, Bio, OAR/COI, Effort)• Budget (Reduction, Restriction, F&A)• Start/end date

Clerical error• PI realizes specific experiment expenses were charged to the wrong

project• Old account number

Cost overrun at end of project6

Case Study Funding the Commitment• Derek Zoolander is a 9 month faculty who is paid $140,000/year. Derek is

awarded a grant from 7/1/12-12/8/12. His budget calls for him to be paid $20,000. What is his effort commitment?

• Figure out calendar months– $140,000/9 months = $15,555 monthly– Payroll yearly/monthly = $20,000/$15,555 = 1.3 salary months

• Figure out dates– 8 days in Dec = (8/31) = .26 months– + 5 full months from Jul-Dec = 5.26 project months

• Figure out effort– 1.3 salary months/5.26 project months = 25% effort

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Cost Transfers – Auditor Concerns• Is the main reason for the transfer to maximize federal

funds?• Does the organization demonstrate good fiscal stewardship

of Federal funds? • Frequent errors in recording costs, and / or a delay in the time it

takes to identify errors may indicate the need for accounting system improvements, enhanced internal controls or both

• Is the transfer supported by sufficient written justification with appropriate reviews and sign off’s?• Are adequate policies and procedures in place? Have those

policies and procedures been followed?

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Cost Transfers – High Risk Transactions• Red Flags• Greater than 90 days• In last two months of award• Moving overdrafts from one federal award to another• Not following institutional policy• Inadequate explanations• Adjustments to effort certifications

• Recent Audits• Mayo Clinic - $6.5M Fine

• OIG Work Plans• http://www.oig.hhs.gov/publications/docs/workplan/2009/WorkPlanFY2009.pdf

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Recent Effort Reporting Audits & Settlements

Effort Reporting Non-Compliance:

Significant Audits & Settlements

University of Michigan Effort Certification

Arizona State University Effort Reporting System

St. Louis University Overstatement of Effort$1 million

University of Notre DameSubrecipient monitoring and Effort Reporting

University of Nevada-Reno Effort Reporting System

Weill Cornell Medical College Committed Effort $2.6 million

University of Wisconsin – MadisonEffort Reporting System

Georgia Institute of TechnologyEffort Reporting System

Yale UniversityEffort Reporting and Cost Transfers $7.6 million

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University of Alaska-AnchorageEffort Reporting and Grants Management

University of DelawareEffort Reporting

Louisiana Board of RegentsEffort Reporting, Cost Sharing$1.9 million questioned costs

Ohio State UniversityCommitments and Cost Sharing$1.7 million in questioned costs

California State University - FresnoEffort Reporting Commitments and Cost Sharing

Fort Valley StateLack of an Effort Reporting System$500,000 settlement

Florida State UniversitySalary/Non-salary disallowances$3.0 million in requested refund

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Institution/Date SUNY Stony Brook

Aug-12

Florida State

July -12

Univ Notre Dame

Mar-12

Univ Alaska-

Anchorage

Aug-11

CSU – Fresno

Mar-11

Univ Delawar

e

Mar-10

Wash U

Feb-10

Fort Valley State

Jan-10

U Nevada-

Reno

Jan-10

UW Madison

Nov-09

Univ Michiga

n

Aug-09

ASU

Aug-09

Suitable means of verification X X XInappropriate charges, cost transfers

X X X XLack of salary documentation X X X X XInternal control weaknesses X X X X X X XEffort reporting training, policies X X X X X X X XCertification doesn’t include all activities

X X X XSalary above NSF cap X X XNo independent internal evaluation of system

X X X X X X XLate certifications X X XEffort reporting system weaknesses X X X X

Cost Transfers and Effort Reporting• Cost Transfers resulting from effort certification• Cost Transfers initiated outside of system• Before Certification• After Certification

• “Proactive” Cost Transfers

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Question for Audience• When effort fluctuates, how do you handle the salary? (ex: yearly 30%

commitment: 10% effort Jan-Jun and 50% effort Jul-Dec)

Effort Regulations Require Us To…• Change commitments when needed, and document the changes• Fulfill commitments• Charge salary in a way that’s congruent with actual effort• Certify effort in a way that’s congruent with what actually happened• Transfer salary charges off of a grant if the level of effort does not

justify the salary charges

• Once effort is certified, paid effort and certified effort must be “trued up”

• Cost Transfer amounts are determined by calculating the difference between the paid effort and the certified effort, taking into account the policy on variance threshold

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• Cost Transfers that are created before an effort card is certified and processed are applied to the effort statement as normal.

• Handling Cost Transfers that are created after the effort card has been closed will depend on your institutional policy.

• Consider:• Does the cost transfer remove or add charges to a sponsored project?• Does the cost transfer result in charges moving between sponsored projects?• Does the cost transfer prompt, or is a result of, recertification of effort?

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Case Study: Ron Burgandy certified effort on project 1 (NSF), but did not work on project 1. He worked on project 2 (NIH) and should have certified effort on project 2. Does you’re your policy allow for recertification of effort? If so, does time (90 day rule) factor into the approval? Initial questions to ask:• Why was expense originally charged to the first account?• Why should charges be applied to the proposed account?

Questions to consider if over 90 days:• Why wasn’t this noticed earlier (before 90 days)?• What actions are being taken to eliminate the need for future CT’s of this

type?

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University of Wisconsin

Cost Transfer Tool

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Nova Southeastern University

Salaried Cost Transfer Business Process

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NSU’s Set-Up of Salary Charges and Certification of Effort• NSU allows for the opening of accounts early when deans have

approved employees to work on a project. • PIs email the grants accounting office and copy the dean when

requesting an account to be opened early.• Employee salary is charged to sponsored projects initially based on

commitments and/or estimates of the effort in the approved budget.• Effort cards are created based on these estimates of effort in the

payroll/financial source system.• Cost transfers that are generated prior to effort certification adjust the

estimates so that the effort card at certification reflects the most current data in the payroll/financial source system.

• Actual effort is certified quarterly in an electronic effort reporting system.

NSU’s Salaried Cost Transfer Process• Important to Note: • The transfer of salary and wages must correspond to the percentage

of effort actually expended (certified) on the sponsored project. • Salaried cost transfers are addressed in our effort reported policy;

this policy is cited in the cost transfer policy. • Cost transfers are generated based on our policy’s threshold (5%

variance from payroll to certified effort). • Departmental effort coordinators run a report that identifies cost

transfers resulting from effort certification (decentralized). • Effort coordinators indicate if the transfer should be processed equally

among all pay periods in the quarterly certification period or if a grant period affects the transfer (i.e. start/end dates).

NSU’s Salaried Cost Transfer Process Continued• Effort coordinators send the report, with administrative instructions, if applicable,

to the Payroll Manager via email, copying the Central Effort Administrator and their Grant Accountant. • Cost transfers must be sent by the close of the certification period.

• As cost transfers are processed in the source system, they are loaded into the effort reporting system. • Cost transfers must be processed within 30 days after the close of certification.

• If the effort certification results in a permanent change, then the estimates set up in the payroll/financial system are updated to reflect this change.

• Changes to commitments or a reduction of effort of more than 25% are to be communicated to the Office of Sponsored Programs BEFORE the change occurs.

• Cost transfers that are in contrast with effort certification (i.e. recertification/adding charges to a sponsored project) are not allowed. Removing charges from a sponsored project is always allowed and is not considered recertification.

Important Items to Consider when Creating a Salaried Cost Transfer Process• Who is in the certification flow? • How often you certify is important, especially if certification is tied to

reconciliation of charges on sponsored projects.• How do you ensure that cost transfers are reconciled in the financial

(source) and effort reporting systems? • Centralized or decentralized process? • Defining recertification and is it allowed at your institution?

Important Items to Consider when Creating a Salaried Cost Transfer Process• Do you allow salary transfers between sponsored projects? • Who has the authority to approve a cost transfer? Is this different for

before or after effort certification?• Handling transfers onto a sponsored project when someone has not

worked on a sponsored project before, how far back do you allow charges?

• Documenting effort on a project for which there is no account set up. • How to handle sponsored projects that end before effort is certified? • How to ensure that reductions in effort of 25% or more are identified?

Mitigating Potentially Unwanted Outcomes• Ensure that salaried cost transfers are reconciled in the payroll system.• Ensure that cost transfers that are the result of recertification of effort

are properly justified and documented.• Ensure that PIs and other certifiers are properly trained so that they

understand the importance of accurate effort certification.• As certification is a “reasonable estimate” be wary of specific cost

transfers (Salaried cost transfer changing effort from 25.23% to 25.67%).

Mitigating Potentially Unwanted Outcomes• Salaried cost transfers are one instance where transfers at the end of

the grant period are OK, as long as they result from the recent effort certification.

• Where systematic errors are identified, modify the business process to correct and ensure that employees take steps to eliminate future systematic cost transfers.

• Allow for advance accounts with the caveat that only salary for current employees can be charged. • If the dean or department head has allowed employees to start work

on a project, the account number should be opened to accommodate the effort associated.

• The department must take responsibility for costs if the funds do not materialize.

Questions?

• David Ngo, dvngo@rsp.wisc.edu

• Ashley Whitaker, ashlport@nova.edu

• Brian Korblick, bkorblick@huronconsultinggroup.com

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