Financial Management of Sponsored Research

Robert Rono, CPA, M.B.A., M.Sc.Business Official

Moi University College of Health Sciences/Moi Teaching and Referral Hospital

Did the Hard Work End with the NoA?• After the Notice of Award (NoA), the real work begins: The

award has been received, negotiated, and accepted• Review award details against proposal

CAREFULLY READ THE NoA

Gears That Drive and Support Research Enterprise

• Protection• Award compliance• Project management• Procurement• Intellectual property• Technology transfer• Financial management

Know Regulations and Cost Principles• To be allowable, costs must be reasonable, be allocable, be

given consistent treatment, and conform to any limitation or exclusions, types of costs, cost transfers, shared costs

• Office of Management and Budget Circulars:– A-21: Cost Principles for Educational Institutions– A-122: Cost Principles for Non-Profit Organizations

http://www.whitehouse.gov/OMB/circulars/

Know Regulations and Cost Principles (cont.)• Agency-specific regulations: NIH Grants Policy Statement

(NIHGPS), Section 7• http://grants.nih.gov/grants/policy/nihgps_2012/index.htm• USAID Standard Provisions for Non-Governmental Institutions• Exercise:– OMB A-21 Section J

Project Costs• Direct costs can be identified specifically with a particular

sponsored project, an instructional activity, or any other institutional activity, or they can be directly assigned to such activities with a high degree of accuracy (OMB Circular A-21).

• Indirect costs (F&A): Costs associated with implementing a contract or grant that cannot be specifically allocated to a specific project, grant, or contract. These are costs for activities or services that benefit more than one project, and their precise benefits to a specific project are often difficult or impossible to trace.

• Accurately identify and understand the full cost of research activities to be able to sustain the research enterprise.

Project Launch: A Key Step in Project Financial Management• Best practice—launch/orientation meeting:

Principal Investigator and his/her team; project management staff, who will include supply chain staff, finance staff, the compliance officer, the contract specialist, and the human resources manager

Financial and Contractual Risks in Sponsored Projects• Scientific nonperformance/not reporting/ problems with

human subjects protection• Noncompliance withfunding agency and own institution’s

policies (Proc, HR, Fin GM, IRB) and contractual obligations• Underbudgeting• Financial mismanagement (funds used for other purposes/

nonallowable costs)

Financial and Contractual Risks in Sponsored Projects (cont.)• Exchange rate risks (international grants)• Cash flow risks• Credibility of institution/PI at stake• Funder not paying as per agreement or under escape clause• Inadequately set up finance management section

Post-Award• Ultimate role of RA and institution– Fiscal responsibility: An obligation to successfully perform

and complete a committed task with the committed funds/grant

• Role of the PI– Scientific management of the sponsored project– Financial management of the sponsored project– Compliance management of the sponsored project

Finance Section Set-Up• Customized financial management policy• Central or semi-autonomous?• Structure—segregation of duties, qualified staff• Internal control environment: internal audit• Financial management system—CRITICAL!• Statutory reporting/donor reporting/mainstreaming reports to

larger institution• Audits—donor required, institutional/country required (who

pays? audit fatigue?)

Monitoring Expenditures• Monitoring requires that:– Actual expenses are periodically compared with original

budget– Actual expenses are accurate (i.e. reasonable, allocable,

allowable, necessary, and consistently charged)– Mischarges are corrected in a timely manner– Prior approvals are obtained when required– Subrecipient expenses are monitored

Variance Analysis• Budget vs. actual expenses– Actual expenses should be compared at least monthly to the

original budget to ensure:• You will not end up with a deficit or large balance (a large

balance could indicate lack of progress or that too much money was awarded)

• Total funds for any cost category have not been exceeded if restricted on the NoA

Compliance Issues/Responsibilities• FMS Standards: NIH cannot support the research unless it has

assurance that its funds will be used appropriately, adequate documentation of transactions will be maintained, and assets will be safeguarded

• “A grantee’s failure to establish adequate control systems constitutes a material violation of the terms of the award” (NIHGPS)

Compliance Issues/Responsibilities (cont.)• Compliance with sponsor’s regulations or policies as well as

institution’s policies• Examples of compliance issues: Timesheets/activity reports,

allowable and nonallowable costs, exchange rates, interest repayments, auditing requirements, etc.

Financial Reporting• Varies considerably from funding institution to funding

institution• Timely reporting is a contractual requirement• Report allowable expenses in line with budget, with reasons

for overspends• Use correct exchange rate• Authority to “sign off” on financial reports• Use sponsor templates/uploads• Interim reports/final status reports• Final report exercise

Audits• Be aware of OMB A-133 audit requirements and of sponsor

programmatic audit requirements—RIG Pretoria list• Review the project file once notified of an audit• Identify a liaison during the process• Request entry and exit meetings• Give concise truthful answers• Know avenues of resolution in case of conflict of interpretation

with auditors• Keep leadership in the loop

Enforcement ActionsA grantee’s failure to comply with the terms and conditions of an award may cause NIH to take one or more enforcement actions, depending on the severity and duration of the noncompliance• Modification of terms of award (more stringent)• Suspension, termination, and withholding of support• Other actions (e.g., suspension, disbarment, civil action)• Recovery of FUNDS

Foreign Organization System (FOS) Review• Documentation forwarded in advance by NIAID/NIH contractor:– Foreign Organization Systems (FOS) Review document in

English– Tentative site visit agenda– List of documents to be kept ready for the visit

• One-week visit • Primarily work with the administration, HR, and accounting and

finance staff to conduct the FOS review• Meeting with the PI at the beginning of the review to brief

him/her about the visit objectives and again on the last day to discuss the final FOS and recommendations, if any

Issues of Financial Interest in Sponsored Projects• Indirects—real cost, rates, expenses, distributions• Institutional base salary—research, teaching, care, consult• Consolidated financial reporting—local standards/IFRS/GAAP• Prior approvals—rebudget, capex, international travel• No-cost extensions/supplements—budgets, justification• Cost transfers, overruns, accelerated or delayed expenditure• IRB fees—not allowed on NIH grants, timing of payment,

indirect support

Issues of Financial Interest in Sponsored Projects (cont.)• Pre-award costs: A grantee may, at its own risk and without

NIH prior approval, incur obligations and expenditures to cover costs up to 90 days before the beginning date of the initial budget period of a new or renewed award

• Pre-award costs are allowable only if such costs: – Are necessary to conduct the project, and – Would be allowable under the grant, if awarded, without

NIH prior approval (NHGPS)