12 Grant Management

By Tammie Bain, BS, JD, and Jennifer Laporte, MPA, CRA[1]

Introduction

What does it mean to be compliant in grants management? It means an institution is fulfilling its sponsor-required obligations as part of accepting a sponsor’s funds to conduct research or perform an activity. Institution-wide solutions to ensure grant management compliance may include all areas from grant personnel to institutional support functions (such as payroll services) to upper leadership (such as conflict of interest committees). A successful compliance program requires careful documentation and cohesiveness of policies, practices, procedures, and controls, as well as a strong sense of who is responsible for various activities and role delineation.

To understand which laws, rules, and regulations apply to any sponsored study, we must understand the nature of the various funding mechanisms. Grants from government entities are considered public assistance. The funding agency does not direct the science and expects very little in return for the funds—primarily financial and technical reports, as well as disclosure of patents and listing any publication resulting from the sponsored study. The goal of a study funded by a grant is not to provide a specific outcome, but to increase knowledge. Contracts are mechanisms under which the funding entity acquires specific goods, services, and/or technology. Unlike grants and cooperative agreements, and in addition to other laws, rules, and regulations, federal contracts are subject to Federal Acquisition Regulations (FARs), which are addressed in the chapter covering contracts. When a contract is issued, the funding agency is very much involved in developing the research plan, scope of work, and/or protocol as well as management/oversight of the institution’s performance. The contract sets specific deliverables and schedules. Federal cooperative agreements are a hybrid of grants and contracts. With these cooperative agreements, the government has a more hands-on approach than with grants, but without the same level of control under a contract. These agreements do set specific deliverables, but the recipient has greater control in how to meet the objectives. Further, these mechanisms are considered public assistance, rather than acquisitions, and are not subject to the FARs. The primary goal of a cooperative agreement is to increase knowledge, but with a higher expectation for a specific outcome than what is expected under a grant. For the purposes of this chapter, the term “grant” will include cooperative agreements.

The vast majority of federal funding provided by grants is issued by the National Institutes of Health (NIH) under the U.S. Department of Health and Human Services (HHS). Therefore, NIH has played a significant role in establishing rules governing studies funded with federal dollars. The NIH is referenced frequently throughout this chapter.

Because consequences for non-compliance associated with non-governmental funding do not typically include penalties mandated by state or federal law, this chapter focuses on grants issued by governmental bodies, primarily federal. This is not to undermine the importance of complying with the rules, guidelines, and policies of our generous non-governmental partners. Many non-governmental sponsors require funding recipients to comply with all NIH requirements; therefore, the requirements discussed in this chapter may be applicable to awards made by state, local, commercial, and nonprofit entities. Even though there might not be legal penalties for non-compliance with the terms of these awards, institutions may have other consequences that are almost as serious (i.e., destroying your relationship with the sponsors).

Grant awards are made to institutions, not individuals. All recipients of government grant funds must comply with all applicable federal laws, regulations, rules, guidelines, and policies. In addition, grantees must comply with all terms and conditions stated in the NIH Notice of Award (NOA), which may include both standard and special conditions. With NIH awards, pay particular attention to Section IV of the NOA which contains any special terms and conditions. Further, the activities, regardless of funding source, must comply with state and local laws and regulations applicable to the institution, individuals working on the study, and the activity itself. Rarely is an institution required to sign an NOA; however, it is still a legally binding document. In particular, drawing funds from the HHS Payment Management System means that grantees agree to the terms and conditions of the grant award, thereby establishing the legal rights and obligations of the parties.

OMB Circulars, Uniform Guidance, and the Code of Federal Regulations

Historically, the laws, rules, and regulations governing federal funding provided under grants were codified in OMB Circulars. These documents, issued by the federal Office of Management and Budget (OMB), provide the rules applicable to all federal funding agencies each time they distribute public assistance (i.e., issue grants). The funding agencies in turn flow these requirements to all grant recipients. In an effort to streamline funding requirements and make terms consistent among many federal agencies, the requirements in OMB Circulars are now consolidated into a single set of requirements within the Code of Federal Regulations (C.F.R.), namely, 2 C.F.R. Part 200. This set of regulations is referred to as the Uniform Guidance and became effective December 26, 2014. Unlike the OMB Circulars, the CFRs are directly enforceable against institutions and individuals.

According to the Government Publishing Office (GPO) website, which houses federal documents, “The Code of Federal Regulations (C.F.R.) annual edition is the codification of the general and permanent rules published in the Federal Register by the departments and agencies of the Federal Government. It is divided into 50 titles that represent broad areas subject to federal regulation.”[2] The Uniform Guidance, cited as 2 C.F.R. Part 200 , means that the information is in Title 2, Part 200.

The Uniform Guidance is applicable to all grants awarded after the effective date of the Uniform Guidance, as well as those preexisting awards that have since been amended to add incremental funding. In the rare event an institution has an award issued prior to the effective date (which has not been amended to state that the Uniform Guidance will govern), the OMB Circulars still apply. For the vast majority of awards now in effect, the Uniform Guidance is the roadmap grant recipients use to ensure successful stewardship of their federal funds. Under particular grants, some federal agencies may have more specific rules and/or exceptions, but the Uniform Guidance contains the basic guidelines for any and all federal funding under grants, as well as some rules for federal contracts.

Don’t forget that the funding announcement and notice of award often contain requirements applicable after receiving an award. For instance, the Uniform Guidance and Federal Acquisition Regulations (FARs) both govern federal funding through contracts. Recipients of funding provided under cooperative agreements should follow both the Uniform Guidance and any other regulations and policies issued by the funding entity. For instance, cooperative agreements with the U.S. Department of Defense (DoD) are also governed by the DoD Grant and Agreement Regulations (DoDGARs), codified in Title 32 of the CFR.

Note that the federal government provides separate rules for specific types of entities, broken into broad categories such as federal, state, and local governments; tribal governments; institutions of higher education; and for-profit and nonprofit entities. Therefore, it is important that you understand whether your institution is a for-profit, nonprofit, higher education, or governmental entity to determine which subparts of the Uniform Guidance govern federal funds received by your institution. If in doubt, ask your office of general counsel to provide you with more information.

Risk Areas

Grants management compliance has some risk areas. The Uniform Guidance lists these risk areas as (not an exhaustive list):

  1. Facilities and administrative costs

  2. Salary administration (effort reporting, institutional base salary, and salary cap)

  3. Cost considerations (administrative and clerical costs, allowable costs, and service/recharge centers)

  4. Cost transfers

  5. Subrecipient monitoring

  6. Cost sharing

  7. Accounting procedures

  8. Noncompliance with assurances and special terms and conditions of award

  9. Financial reporting

  10. Cost accounting standards

  11. Documentation/permission

Facilities and Administrative Costs

Facilities and administrative (F&A) costs are often referred to as overhead or indirect costs. They are the very real costs of conducting studies funded by external parties. These costs are typically very difficult to allocate to any particular study underway at an institution. Therefore, the costs are pooled and a set rate or percentage of direct costs is calculated and applied to all sponsored studies. Please note that most higher education institutions use the percentage of direct costs methodology.

The Uniform Guidance defines F&A costs as “those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored study, an instructional activity, or any other institutional activity.”[3] More specifically, the Uniform Guidance defines facilities as “depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses.”[4] It defines administrative as “general administration and general expenses such as the director’s office, accounting, personnel and all other types of expenditures not listed specifically under one of the subcategories of ‘‘Facilities’’ (including cross allocations from other pools, where applicable).”[5] Where you capture your F&A costs depends upon the category of your institution. For example, library costs may be captured under facilities or administrative, nonprofit organizations would capture them under administrative costs, and institutions of higher education would capture library costs under facilities. This is important in that the facilities cost is capped at 26%; therefore, it is advantageous to capture library costs under administrative costs.

These rates are negotiated with the federal government through either the U.S. Department of Health and Human Services (DHHS) or the DoD Office of Naval Research (ONR). The correct agency is often referred to as the “cognizant agency.” The cognizant agency is typically determined by the institution identifying which one provides the most funds to the institution in the three years prior to negotiation, with DHHS as the default agency when this cannot be determined (i.e., the institution does not receive funding from either agency). The negotiated rates must be accepted by all federal agencies with some exceptions due to special circumstances (i.e., required by law or regulation).

Many institutions have separate F&A rates negotiated for broad categories of research, instruction, and public service. Some of these categories are frequently subdivided into on- and off-campus rates. Off-campus rates are reduced, as campus facilities will either not be used or minimally used; therefore, the F&A rate captures only the administrative costs. Institutions may also have separate negotiated rates for general research and clinical trials. Because the work performed in clinical trials is so specific, an institution is able to directly budget some costs that might otherwise be considered administrative (recruitment efforts, screening efforts, nursing staff, etc.), and the rate is reduced in proportion. Furthermore, because many state or local government entities receive state funding to cover facilities, they may have reduced rates, covering only the administrative portion, for studies funded by state agencies.

The Uniform Guidance, under Appendix III to Part 200, provides guidelines for establishing an F&A rate for institutions of higher education. For nonprofit organizations, guidelines are in Appendix IV.

While a simplified method to calculate the F&A rate exists for smaller institutions, typical institutions of higher education calculate the F&A rate by adding all allowable but not readily allocable facilities and administrative costs associated with the sponsored activity, and then divide that total by all direct costs of the sponsored activity. For certain institutions that do not have an F&A rate established with the federal government, the Uniform Guidance now allows a de minimis rate of 10%.

It is important to be consistent across all funding mechanisms and all categories of sponsors when determining whether certain expenses will be recovered as direct or indirect costs. If a category of costs is used to calculate the indirect cost rate, with rare exceptions, that category of costs cannot be charged to any grant as direct costs, even when an institution is able to clearly allocate such costs to a specific study. For instance, if an institution captures office supplies in their F&A rate, no office supplies may be charged to a grant, even if they can clearly show that the supplies were used solely for one specific study. An institution may be able to obtain an exception to this by clearly explaining the items purchased were not in fact general office supplies, but special products required for that study (i.e., beaker labels that can withstand experimental conditions, such as high heat, which general supply labels cannot do).

Unallowable Costs in F&A Proposals

Although this may vary by type of entity seeking an F&A rate, the following is a non-exhaustive, general list of costs not allowed in calculating F&A rates for institutions of higher education:

  1. Advertising, with some exceptions (such as personnel recruitment, procurement of goods and services, and disposal of surplus materials)

  2. Alcoholic beverages

  3. Bad debt expenses

  4. Commencement and convocation costs

  5. Direct costs

  6. Goods or services for personal use, including housing and personal living expenses

  7. Insurance against defects and/or medical liability

  8. Losses on other sponsored agreements or contracts, including cost-sharing agreements or any under-recovery through negotiation of flat amounts for F&A costs

  9. Memberships, subscriptions, and professional activity costs

  10. Pre-award costs, except as may be authorized by the funding entity

  11. Student activity costs, with limited exceptions

  12. Travel costs

Supersession

The Uniform Guidance, as stated in §200.104, clearly supersedes the OMB Circulars. “As described in §200.110 Effective/applicability date, this part supersedes the following OMB guidance documents and regulations under Title 2 of the Code of Federal Regulations.

OMB Guidance Documents

  1. A–21, ‘‘Cost Principles for Educational Institutions’’ ( 2 CFR part 220 );

  2. A–87, ‘‘Cost Principles for State, Local and Indian Tribal Governments’’ ( 2 C.F.R. Part 225 ) and also FEDERAL REGISTER notice 51 Fed. Reg. 552 (January 6, 1986) ;

  3. A–89, ‘‘Federal Domestic Assistance Program Information’’;

  4. A–102, ‘‘Grant Awards and Cooperative Agreements with State and Local Governments’’;

  5. A–110, ‘‘Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations’’ (codified at 2 C.F.R. Part 215 );

  6. A–122, ‘‘Cost Principles for Non- Profit Organizations’’ ( 2 C.F.R. Part 230 );

  7. A–133, ‘‘Audits of States, Local Governments and Non-Profit Organizations,’’; and

  8. Those sections of A–50 related to audits performed under Subpart F— Audit Requirements of this part.”

2 C.F.R. Part 200 Subsection E (200.400 through 200.520) (Previously A-21: Cost Principles for Educational Institutions)

This is one of the most important sections of the Uniform Guidance and contains the Cost Principles for grant funding. These principles address the general grant ‘mantra’ – reasonable, allowable and allocable expenses. They also address direct costs, indirect costs, provisions for selected cost items, and audit requirements.

Subrecipient Monitoring

When an award is granted to an institution, the applicant institution receiving the award is referred to as an awardee, or pass-through entity (PTE) (per the Uniform Guidance). As a recipient of federal funds, the PTE is fully responsible for meeting all obligations described in the proposal and award. The proposal itself becomes part of the award; therefore, the PTE is legally obligated to do everything promised in the proposal.

A proposal budget can include costs that will be distributed to another entity. There are two ways that costs can be distributed: either to a subrecipient or contractor. The Uniform Guidance draws a distinction between these two. The relationship between awardee and contractor is one of procurement. A contractor provides goods or services through their normal business. Such goods or services benefit the study, but are ancillary to it. Federal award compliance requirements are not passed-through to contractors.

A subrecipient‘s performance is measured according to whether the federal award’s objectives are met. Applicable federal program requirements from a federal award flow down to subrecipients and are identified in subaward agreements. The PTE is fully responsible for its subrecipients’ activity (or lack thereof) during the study. Subpart D of the Uniform Guidance requires a PTE to perform a risk assessment of and monitor its subrecipient, and also follow up on audit findings.

An awardee is referred to as a PTE because it receives federal funds and passes-through a portion of those funds to another entity–—the subrecipient. The PTE should examine the subrecipient, determine the overall level of risk the subrecipient presents, and develop an appropriate monitoring plan based on the level of risk. As part of a subrecipient monitoring plan, it is imperative that the PTE and the subrecipient enter into a contractual relationship once an award is made. The contract (often referred to as a subaward, or subgrant) should always include the appropriate federal award information as required by the Uniform Guidance, any specific requirements required by the federal award itself to be flowed down, as well as specific terms or conditions as determined by the risk assessment. The subaward agreement should identify the source of funds as well as regulations applicable to the study. The terms and conditions of the subaward should make clear the following (and note that this list is not exhaustive):

  1. If applicable, no study should ever begin without approval(s) of a subrecipient’s IRB, Institutional Animal Care and Use Committee (IACUC), and/or its committee governing hazardous materials. And note that any DoD funding obligates an institution to also obtain approval of the Human Research Protection Office (HRPO) (DoD’s IRB) if human subjects are involved in a study and approval of Animal Care and Use Review Office (ACURO) (DoD’s IACUC) if any vertebrate animals will be involved in a study. Even if an IRB and/or IACUC have approved a study, an institution cannot spend DoD funds until its oversight committees have also approved the study or any changes to the protocol. Further, any serious adverse events or information which may affect a study subject’s participation in the study, should be reported to the appropriate oversight committee of the awardee.

  2. A subrecipient should provide its audit certifications on an annual basis during the study period.

  3. A PTE should have access to all records and financial statements related to the study to ensure that subrecipient is in compliance with the Uniform Guidance.

  4. A PTE should be allowed to inspect subrecipient facilities to ensure the study is progressing as agreed upon by reviewing information, facilities and equipment, and/ or operations.(Failure of the subrecipient to meet its obligations and conduct the study in accordance with the timeframe set forth in the proposal and award does not relieve the PTE from meeting its obligations.)

  5. A subrecipient may only use its federally negotiated F&A rate and provide documentation evidencing its current rate. Additionally, if the subrecipient does not have a negotiated rate, they can use the Uniform Guidance de minimus rate of 10%.

  6. Any and all payments to the subrecipient are subject to the PTE’s review and approval, and if any costs are not in agreement with the budget and/or deemed not to be reasonable, allocable and allowable, the PTE has the right to refuse payment for such costs. In addition, if the costs are not incurred during the period of performance, the PTE has the right to refuse payment for such costs, unless approval has been obtained from the funding agency. (If the federal agency determines that a cost is not reasonable, allocable, and/or allowable, at minimum, that amount must be refunded by the PTE regardless of whether the subrecipient reimburses the PTE; therefore, strong language in the subcontract is advisable.)

  7. Payments should further be tied to the timely progress of the study and submission of reports to the PTE in accordance with the proposal and award. (Failure of the subrecipient to provide progress/final reports does not relieve the PTE from the duty of submitting its own reports to the agency in a timely manner.)

  8. A subrecipient should document any cost share commitments made. The final invoice should be tied to adequate proof of such cost share.

  9. A subrecipient should make assurances that neither it nor any key personnel working on the study has/have been debarred or suspended from receiving federal assistance.

  10. All reports that a subrecipient provides to the PTE should be clearly identified in the subaward. Reports could include: technical/progress, financial, and Invention Statement reports. Reports could be required on a regular basis, such as annual, quarterly, monthly, as-needed basis, or at the end as a final report.

An important part of federal award compliance is the ongoing monitoring of the subrecipient by the PTE. Ongoing monitoring includes actions such as crosschecking the subrecipient against federal debarment/suspension lists to confirm the subrecipient is not on them, requiring regular progress reports, and performing desk or site reviews. Additionally, the Uniform Guidance requires the PTE to review annual audit findings and issue timely management decisions about the findings.

Review of Proposals

Proposal review prior to submission is the first line of defense when it comes to compliance. It is imperative that the individual reviewing the proposal be familiar with the funding opportunity announcement, sponsor’s guidelines, Uniform Guidance, and other applicable CFRs, as well as the grant applicant’s institutional policies and procedures. Here’s the basic information that should always be reviewed from an institutional perspective:

1. Narrative

The proposal narrative should not include commitments that do not match the budget. These may be easy to miss when preparing the budget or making final revisions to the text. For example, the narrative may include a specified level of institutional commitment, such as cost sharing, equipment purchase, salary support, or travel costs, which are not shown in the budget. Regardless of whether a commitment is in the budget, the applicant institution is responsible for providing the commitment promised upon award. Therefore, no review is complete if every portion of the proposal has not been read. While it may be possible to renegotiate with the sponsor at award time, the likelihood of the sponsor awarding additional funds is remote and an institution cannot be assured the sponsor will reduce the promised commitment in the proposal.

2. Budget

The budget is the most likely location for issues that could become compliance concerns upon award. These are the areas to closely review:

  1. Costs: All costs must be allowable, reasonable, and allocable, as described in the Uniform Guidance Subpart E Cost Principles.

    1. Allowable: According to 2 C.F.R. § 200.403 , allowable costs must be necessary and reasonable for the study, conform to any limitations or exclusions of the award, be consistently treated, be determined according to generally accepted accounting principles, not be used as cost share for another federal study, and be adequately documented. It is a good idea to remember that you start with the Uniform Guidance, CFRs, the agency guidelines, and the Funding Opportunity Announcement (which will prevail if there are any discrepancies). The funding announcement should be reviewed for restrictions on which specific costs are allowable. While every rule has its exceptions, costs for items such as administrative support (recovered in F&A rate), alcohol, meals, electronic devices (especially if for student use), capital improvement, etc., should be reviewed carefully.

    2. Reasonable: Cost reasonableness is addressed in 2 C.F.R. § 200.404 , where it notes that costs should not exceed what a prudent person would incur under the same circumstances.

    3. Allocable: According to 2 C.F.R. § 200.405 , costs are allocable when they can be assigned to the award in proportion to the benefit received by the study. Be sure it is possible to clearly ascertain that the costs are directly related to the advancement of the study. Any costs not allocable to the study (in whole or in part) are captured in the institutional F&A return. An example of an easy mistake is charging 100% of the cost of equipment to a study and then using that equipment for general purposes, teaching, or another sponsored study. If equipment purchased under an externally funded study will be used for any purpose other than the study funding the purchase, you must charge to that study only the percentage you will use the equipment on that study.

  2. Salaries: Salary should be an appropriate percentage of the employee’s institutional base salary. If it is the policy of the applicant institution to show any stipends received by the investigator or other personnel outside the base salary (i.e.,increases for serving as department chair or other administrative duties), only the base salary should be used. While a reasonable inflation each year to capture salary increases is often allowable (as is inflation to capture any anticipated increase due to promotion, tenure, etc.), sponsor guidelines should be reviewed for limits. Additionally, some sponsors (NIH, for example) have a policy of only reimbursing up to a specified salary cap. Review sponsor guidelines for instructions on how to budget employees who have institutional base salaries over the sponsor’s cap.

    For investigators at academic institutions, determine if their salary is paid based on a 9-month (academic) or 12-month (calendar) contract year. If paid on a 9-month year, it is acceptable to budget for funds to cover their effort during the summer, providing the applicant institute’s policy regarding summer salary is followed as well as any sponsor limits.

    In addition, include fringe benefits, unless they are captured in the applicant institution’s F&A rate. Some institutions have a policy to use a percentage calculation; others use actual costs. Whichever method the applicant institution uses to determine the fringe rate, it should be used consistently. An institution should not use one calculation that would provide a higher rate for federal budgets and a second calculation that would produce a lower rate for non-federal budgets.

  3. Cost Share: In the budget, cost share refers to costs identified as part of the study covered by the applicant institution or a third party. Most institutions have a policy requiring multiple levels of approval and possibly limits cost sharing. While many investigators believe that cost sharing makes their proposals more competitive, this is rarely the case. The funding opportunity announcement should be reviewed for information on whether cost share is counted in proposal evaluation. It is important to follow institutional policy and see that all requisite approvals are obtained. In the event that cost share is approved, it is important to communicate with the investigator and/or departmental staff all of their responsibilities once the award is made. If there are any subrecipients proposing cost share in the proposal, the applicant institution will be responsible for meeting the full commitment, even if the subrecipient fails to meet its obligations. It is imperative that all documentation is received in accordance with all institutional policies, evidencing the required cost share by the subrecipient.

  4. F&A Rate: Once an F&A rate is established with a cognizant federal agency, your institution must use that rate for all federal proposals, unless otherwise stated in the funding opportunity announcement or that agency’s guidelines. Any deviation from the institution’s negotiated rate should require approval by the appropriate institutional authority. Many investigators believe that a lower F&A rate will make their proposal more appealing to the agency—this is not necessarily true, and definitely not true for federal agencies. As some institutions have multiple rates, make certain the budget uses the correct institutional rate—research, instruction, community service, as well as on-campus or off-campus. When it comes to compliance, consistency is of utmost importance.

  5. Tuition: For most federal agencies, tuition is an allowable expense. However, there are some specific federal and non-federal programs that do not allow this expense. The Funding Opportunity Announcement (FOA) should be reviewed carefully for restrictions. In addition, follow the applicant institution’s policy. Some institutions do not charge tuition to sponsors, even if it is an allowable expense. Consistency is key—so, if there is an institutional policy, apply it regardless of the source of funds.

  6. Course Buy-Out: If the investigator’s effort interferes with his/her teaching load, some agencies pay their salary during all or part of the academic year, or they pay an amount sufficient to pay an adjunct or visiting professor to cover the investigator’s academic duties. If these funds are requested, it is important that it be fully described and justified in either the narrative or budget justification.

  7. Modified Total Direct Costs (MTDC) and Facilities & Administrative (F&A) Costs: Modified total direct costs are all costs to which the F&A multiplier can be applied. For example, costs such as equipment and tuition cannot go into the base total for calculating F&A for most agencies. The proposal budget should be a best estimate of study direct costs and the F&A calculation should be done correctly.

One note of caution with regard to cost or recharge centers is that overhead costs are frequently rolled into the prices charged for the services provided by one or all of those centers. Therefore, when preparing budgets, know if your cost center or recharge center costs should be removed from the base when calculating F&A.

3. Subrecipients

Remember that the applicant institution is responsible for all aspects of the study, including those proposed to be undertaken by a subrecipient. Therefore, the applicant institution must also review the subrecipient’s budget. The applicant institution will be responsible for any unallowable costs in the subrecipient’s budget. In addition to ensuring compliance, this can prevent possible friction between the investigators. Watch for cost share issues and accurate F&A use. Further, it is advisable to obtain the F&A rate document from any subrecipients at the proposal stage.

Effort Reporting

It is important to remember that effort and payroll go hand in hand. Also remember that salary and fringe represent a significant portion of all federal funding. Therefore, effort reporting is one of the strongest ways for a sponsor to meet its duty to ensure the hard-earned dollars of taxpayers are spent appropriately. Accordingly, an awardee should have internal controls that ensure salaries and wages that are charged to a grant are accurate as well as allowable and allocable to the grant. Anyone who is funded on a federal grant must understand that their payroll is connected and interdependent on effort reporting and certification. The description of the roles and responsibilities for key staff is essential. The budget should include compensation only for those persons involved in the conduct of the study, and the percentage of their effort for the study should be specified accurately. Charges should be based on an appropriate percentage of their institutional base salary and applicable fringe rate. Remember, when someone certifies his/her effort, they are making a legally binding commitment to the accuracy of that statement; therefore, it is important that we impress upon our research team the need to be forthcoming with all information. Keep in mind that while salary often is the same percentage as the amount of effort an investigator puts into a study, it is possible that the percent of effort could be higher than the amount of salary charged, resulting in institutional cost share of the difference. Salary can never be higher than the percentage of effort.

Cost Transfers

Cost transfers are costs transferred between sponsored program accounts, or between an administrative account and sponsored program account. Expenditures should be charged to correct funding sources, however under certain circumstances a transfer is required to correct an incorrectly charged expense. An institutional procedure establishing regular review of expenditures helps ensure proper allocation of costs. It is important to document the reason behind a cost transfer so that the allowability, allocability, and reasonableness of an expense is clear. Simply stating that a cost transfer was made to correct a mistake is not an adequate explanation, and cost transfers done to cover budget shortfalls or for convenience should not be allowed. Cost transfers should be done in a timely way. They can occur at the end of a study, but should not occur with charges that are 90 days old or older. This is a major red flag for auditors. If you must move charges 90 days or longer after a study closes, it is imperative to provide a thorough explanation for doing so. Costs incurred toward the end of a study are highly scrutinized. They should be made for the purpose of study goals. They should not be made to spend out remaining funds. Likewise, cost transfers onto a federal grant toward the end of a study are more likely to be reviewed and questioned. Cost transfers can send up a red flag to show an organization’s poor financial management of the grant. In addition, moving salary costs after effort reporting is also a red flag for auditors. If this is necessary, document the action with a full explanation of why it is required after the person has already certified his/her effort. It is also advisable to provide a statement on how this error will be avoided in the future.

Cost Sharing

Cost sharing or the provision of matching funding represents those costs of a sponsored study borne by the grantee institution, or a third party, rather than the sponsor. Certain criteria consider cost sharing allowable and view them both positively and negatively. An applicant institution should have a policy to define how cost share is handled. The policy should clearly state institutional rules relating to acceptability, approval, and documentation. Cost share can be mandatory (required by the specific program), voluntary committed (not required by the program but is quantified in the proposal), or uncommitted (not required by the program and not specifically identified in the proposal). The goal of an institutional policy should be to ensure funds are available for studies, but also that resources are allocated appropriately. Cost sharing can significantly impact your F&A rate (it goes into the denominator of the calculation), so institutions must be fully aware of the sum total of all cost sharing activities. Mandatory and voluntary committed cost share should be tracked and regularly reported to the sponsor. Resources committed as cost share to a federally funded study cannot be devoted to another.

Basic Responsibilities for Best Practices

Organizations should be certain that their current policies and procedures are clearly communicated to staff, and that their practices comply with those policies and procedures. This should include role delineation and clearly assigned and accepted roles and responsibilities for all sponsored studies. If you accept federal dollars, your institutional leadership should be knowledgeable and supportive to ensure that proper oversight is provided. Any education program must include both externally mandated and institutionally determined compliance requirements. The most successful programs create a climate that encourages compliance, including appropriate incentives and protections for employees who report noncompliance. Institutions should engage in ongoing risk assessments to monitor changes in regulations and compare them with institutional policies and procedures to evaluate the compliance program’s effectiveness.

Accounting Basics

In order to maintain correct and appropriate billing, as well as compliance with policies, a separate account must be established for each study. Program income must be identified and accounted for by study. There are four alternatives: additive, deductive, combination, and matching funds.

Expenses should be charged in accordance with:

  • Award terms and conditions

  • Any policy statement of the funding entity

  • Salary rate limitation

  • Cost accounting standards

  • The Uniform Guidance

  • Any other terms and conditions provided by the sponsor, including contract terms within a cooperative agreement

All expenses must be appropriately documented and monitored. Any late expense submission is risky and inefficient. It should be discouraged in grants accounting. Actual expenses should be periodically compared with the budget and verified as accurate (i.e., reasonable, allocable, allowable, and consistently charged). Any mischarges should be corrected in a timely manner (cost transfers) and, when required, prior approvals should be obtained. Any subrecipient’s expenses should be consistently monitored, as they are the PTE’s responsibility.

The bottom line for managing grant dollars is to establish a system that provides information regarding payroll and fringe benefits, and a process for reviewing and approving cost reimbursement. In order to have effective management, an institution must deal with issues regarding effort reporting, cost overruns, and cost containment, and determine if any unallowable cost has been charged to the grant.

Financial Reporting

All financial status reports (FSRs) for federal awards should be submitted to the sponsor through the appropriate mechanism (i.e., NIH Commons) on a timely basis. All reporting of expenses and program income must agree with institutional accounting records. Timely report submission must adhere to the sponsor’s deadlines.

NOTE: NOAs or other award documents and/or sponsor guidelines will specify if more frequent or other financial reporting is required.

Conclusion

Grants accounting and management are important elements of research compliance. Although there are many instances where the efforts to comply with regulations seem to outweigh their benefits, follow the rules and account for any expenditures and your institution can successfully and compliantly complete a grant from the letter of intent through grant closeout.

 
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42 C.F.R. Part 200 (2014).
52 C.F.R. Part 200 (2014).
1Tammie Bain, BS, JD, is Assistant Director, Industry Contracts for Emory University Office of Technology Transfer in Atlanta, GA; Jennifer Laporte, MPA, CRA, is Sponsored Programs Manager for Morgridge Institute for Research in Madison, WI.

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