OMB Circulars Applicable to

Higher Education (Research)Michael Anthony

University of WashingtonAugust 16, 2011

2 CFR, Part 220 (Formerly A-21)Cost Principles for Educational Institutions

• Establishes principles for determining costs applicable to grants, contracts, and other agreements with educational institutions

• Designed to provide the Federal Government bear its fair share of total costs

• Determined in accordance with GAAP except where restricted or prohibited by law

2 CFR, Part 220 (Formerly A-21)Objectives & Applicability

• “Provides principles for determining costs applicable to research and development, training, and other sponsored work performed by colleges and universities under grants, contracts, and other agreements with the Federal Government.“

• These agreements are commonly referred to as sponsored agreements or sponsored projects

2 CFR, Part 220 (Formerly A-21)Definitions

• Major functions of an institution as:• Instruction

• Organized research

• Other sponsored activities

• Other institutional activities

• Allocation process - Assigning a cost, or a group of costs, to one or more cost objective (reasonable, allocable, allowable)

• Direct costs - Costs that can be identified with a sponsored project, instructional activity, or other institutional activity

• F&A costs – Costs incurred for common or joint objectives

2 CFR, Part 220 (Formerly A-21)Definitions

• Basic consideration of costs• Limitations

• Treatment of unallowable costs

• Consistency in estimating, accumulating and reporting costs

• Cost accounting period

• Disclosure statement (DS-2)

2 CFR, Part 220 (Formerly A-21)Facilities & Administrative Costs

• Establishes criteria for assigning F&A costs• Establishes categories of F&A costs:

• Depreciation (building & equipment)

• Interest

• Operations & maintenance

• Library

• General university administration

• Departmental administration

• Sponsored projects administration

• Student administration and services

2 CFR, Part 220 (Formerly A-21)General Provisions for selected Costs

• Section J

• Cites 54 types of costs and their allowability as either direct or F&A costs

• Section J.10.• Compensation for personal services

• Provides guidelines for effort or payroll certification

• Illustrates 3 acceptable methods for complying with this requirement

2 CFR, Part 215 (Formerly A-110)Administrative Requirements for Grants and

Other Agreements • Financial and program management

• Payment

• Cost sharing

• Program income

• Revision of budget and program plan

• Allowable costs

• Period of availability of funds

2 CFR, Part 215 (Formerly A-110)Administrative Requirements for Grants and

Other Agreements • Property standards

• Procurement standards

• Reports and records

• Termination and enforcement standards

• After the award • Closeout procedures

• Subsequent adjustments

Circular A-133Audits of States, Local Governments and Non-

Profit Organizations • Outcome of Single Audit Act of 1984

• Intended to establish standards for consistency and uniformity among Federal agencies for audits• Establishes auditee requirements• Establishes scope of audits including findings,

reporting, major program definitions and risk criteria• Establishes audit requirements (14 compliance

requirements)

Circular A-133Audits of States, Local Governments and Non-

Profit Organizations • Compliance requirements

• Activities allowed or unallowed• Allowable costs/cost principles• Cash management• Davis-Bacon Act• Eligibility• Equipment and real property management• Matching, level of effort, earmarking• Period of availability of Federal funds• Procurement and suspension and debarment• Program income• Real property acquisition and relocation assistance• Reporting• Subrecipient monitoring.• Special tests and provisions.

Effort ReportingCompliance Overview

Michael AnthonyUniversity of Washington

August 16, 2011

TOPICS TO BE COVERED

WHY WE DO EFFORT REPORTING• The purpose of effort reporting is to certify salaries charged

to federally funded sponsored projects was a reasonable reflection of effort.

• Certification of effort is required by the Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions.

• Must have suitable means of verification of effort

• Part of the annual OMB A-133 compliance audit

• Level of precision

INSTITUTIONAL BASE SALARY (IBS)

• Annual compensation paid for an employee's appointment.• Includes time is spent on • Research• Instruction• Administration• Service• Clinical activity

INSTITUTIONAL BASE SALARY (IBS)

• Excludes any income an individual is permitted to earn outside of duties for the university. At the UW this includes work at:• Veterans Administration Medical Center (VAMC)*

• Children's Hospital Regional Medical Center (CHRMC)*

• Fred Hutchinson Cancer Research Center (FHCRC) *

• Outside Professional Work

* Paid direct by those organizations

INSTITUTIONAL BASE SALARY (IBS)

• Salary components included:• Regular Salary (including A/B Salary) • Summer Salary • Paid Professional Leave • Salary for Retired Faculty • Administrative Supplements (chairs/deans) • Endowed Supplements

INSTITUTIONAL BASE SALARY (IBS)

• Salary sources included:• State

• Grants and Contracts

• Gifts and Endowments

• Clinical Practice Plan Salary

• Other funds (local funds and departmental clinical salary paid through the university)

COST SHARED EFFORT

•When effort is funded by non-federal sources and contributed to a sponsored project.• Includes:• Institutional contributions

• Third party contributions

• Volunteer effort

TYPES OF COST SHARING

• Mandatory - Required by statute or program provision as a condition of the award.

• Committed - Cost sharing quantified in the sponsored proposal without corresponding funding requested or awarded.

• Salary Cap – When faculty salary exceeds the statutory limit set by NIH, Substance Abuse and Mental Health Services Administration (SAMHSA), and Agency for Healthcare Research and Quality (AHRQ).

• Shift – When salary for committed effort is changed from being charged directly to grant to non grant sources.

• Voluntary Uncommitted – Effort of PI or other key personnel over and above the level of effort committed

SALARY CAP

• Statutory limit on the salary base amount that can be awarded and charged to NIH, SAMHSA and AHRQ grants and contracts.

• Individuals with salaries over the cap must provide cost sharing from non-federal funds for that portion of their salary over the salary cap.

• Cap for 1/1/2011-12/31/2011 = $199,700 annually (unchanged from 2010)

SALARY CAP

• Salary components • Regular salary • Summer salary • Paid professional leave • Salary for retired faculty • Administrative supplements • Endowed supplements • Clinical salary • Sick leave

SALARY CAP

Example Dr. Einstein

• 100% appointment;

• 10% effort committed on this project

• Institutional base salary $225,000

• Current cap is $199,700

• Salary proposed from NIH: $19,970 (10% * $199,700)

• Salary cost shared: $2,530 (10% * ($225,000 - $199,700)) Departments should ensure adequate non-sponsored funding is available to

cover the amount over the salary cap!

SHIFT IN FUNDING• When salary for committed effort is changed from being

charged directly to grant to non grant sources.

• Creates a cost share situation

• At the UW process determined by whether reduction in effort or the shift in funding source is short term or long term. • Short term: less than three months does not require OSP or

Sponsor approval.

• Long term: three months or more will require the department to work through OSP to contact the sponsor for prior approval.

K-AWARDS

• NIH Career Development Awards (K-awards)• Provides support for new faculty to develop research

skills. • Primarily for researchers at the beginning of their

careers and to provide transition to full independent research awards.• Some awards designed to provide research time for mid

career or senior faculty.• The specific terms of a K-award vary among Institutes• Careful attention should be given to the requirements of

each award.

K-AWARDS

• Require high level of commitment, normally 75% of the researcher’s total effort. • Sponsor support limited to $75,000 • May be funded at a higher level depending on NIH Institute. • Cost share may be necessary to meet 75% effort

requirement.• Effort commitment reductions require sponsor approval.• Candidate's remaining effort (typically 25%) may be

devoted to other university activities. • NIH may require ‘other’ activities be consistent with the

objectives of the K-award.

K-AWARDS

• Appointment• Faculty (applicant) must have fulltime appointment

at the institution.• Minimum percentage of applicant’s commitment

required for proposed K-award experience must be covered by the appointment.• Responsibilities outside the UW appointment are

unrestricted, however, cannot be used to meet any minimum effort requirement.

K-AWARDS

• Salary Cap• If faculty’s (applicant’s) salary exceeds NIH

salary cap, "cap" cost sharing is required. • At the UW Cap cost sharing is documented

separately from K-award cost sharing on the FEC effort report.• Salary cap cost share is included in the 75%

effort required by the K-award.

K-AWARDS

• Clinical Effort• Clinical activity related to goals of the K-award may be included

in the effort toward fulfillment of required 75% effort.

• Intention to use clinical activity as part of the K-award effort should be noted in the proposal.

• Proposal Writing• Limited charging of bid and proposal preparation, as a direct

charge to the K-award, is allowable since it is the goal of these awards to train young investigators in all phases of research.

K-AWARDS•Reduction of Effort•Mentored K-awards• Encourage faculty members to apply for

other grants• Allow PI to reduce effort during last two

years of grant if• Named PI on a competing NIH research project

grant, or • Recipient will become sub-project director on

competing multi-component research or center grant, or a cooperative agreement.

K-AWARDS•Reduction of Effort (cont’d)•Written approval is required for

reduction of effort:• Do not Include the reduction in the

progress report only • Reduce effort independently • Contact NIH directly

• Request must include concurrence signature by OSP

K-AWARDS

• Concurrent effort with non-federal awards• Intended to assist faculty in establishing base in

research and research techniques.•Some concurrent effort with non-federal grants

may be allowed. • If known, the concurrent effort should be

written directly into the proposal. •Other circumstances, faculty should work with

OSP to receive permission from both sponsors for the concurrent effort.

K-AWARDS

• Concurrent effort with federal awards• Allows awardees to reduce effort on K

award in final two years of award• Awardees who compete successfully for

peer-reviewed research awards from any Federal agency• Programmatic policy of other Federal

agency allows such an arrangement.

K-AWARDS

• Concurrent effort with federal awards (cont’d)• Proposed/awarded effort required on award

may be reduced to no less than 6 person-months (50% full-time professional effort at the grantee organization)

• Sufficient effort from research award so total level of commitment remains at 9 person-months (75% full-time professional effort) or more for duration of the mentored K award.

K-AWARDS

• Faculty with VA appointments• Minimum percentage of K-award (typically 75%)

must be covered by institution appointment. Appointment is assumed to be, at a minimum, no less than 35 hours.• May not use any VA time to satisfy the

requirements of the K-award, even with VA approval. • UW:

• VA appointment should be no more, or be reduced to, no more than 2/8ths upon receipt of the K-award.

• Up to 5/8ths may be permitted with Chair and Dean’s Office approval

100% REPORTING

• Federal government requires effort reports reflect 100% of compensated effort (IBS). • Continued audit challenges that institutional

records not reflecting a total of 100% not compliant with federal regulations.•Must account for total compensation except

as specifically excluded.

EMPLOYEES LESS THAN 100%•When effort reports reflect 100% then• Will not be reflective of person’s FTE

• Cost share commitments will be based on the percentage of their part time appointment, i.e., prorated.

• Salary should be prorated to determine if over the salary cap (only applies to NIH, SAMHSA and AHRQ grants and contracts).

When Does This Happen?

• Employees who leave institution during an effort reporting cycle • Faculty paid on A/B compensation program

who do not have full research funding (happens when no bridge funding available) • True part time employees• Anyone who is not earning their full time rate • Faculty with VA and UW appointments

EMPLOYEES LESS THAN 100% FACULTY

• Determining Effort – Direct salary requested should represent a percentage of institutional base salary (IBS), not the full time rate. • Example

• Faculty member has a full time rate of $100,000 and a 50% appointment

• Requesting 10% salary support• Commitment represents 10% of the 50% appointment or….

• Salary: 10% of the 50% salary, $5,000 ($100,000 x 50% x 10%)

• Person Months: 10% of 50% time, .6 person months

• Percent Effort: 10% of 50% time, or 5%

Note: When preparing a proposal, the cost share should also be calculated in person months

SALARY TRANSFERS & RE-CERTIFICATIONS

• Required when salary charges do not reasonable reflect effort devoted to a sponsored project.

• Departments should manage salaries proactively to avoid/minimize need for transfers.

• ‘Red flag’ to Federal auditors especially if additional salary transferred at end of grant.

SALARY TRANSFERS & RE-CERTIFICATIONS

• Changes required after effort report certified• The effort will need to be corrected

• It will need to be recertified by employee or someone having suitable means of verification

CHANGE IN LEVEL OF EFFORT• Most federal sponsors have requirements regarding change

in status and level of effort of the PI and key personnel.• Typically grantee required to notify sponsor in writing if the

PI or key personnel specifically named in the award will:• Withdraw from the project entirely, • Be absent from the project during any continuous period of 3

months or more, • Reduce time devoted to the project by 25 percent or more

from the level that was approved at the time of award • Sponsor must approve any alternate arrangement

proposed by the grantee, including any replacement of the PI or key personnel named in the award.

CHANGE IN LEVEL OF EFFORT

1. Proposal: 10% effortChanged to: 5% effort

Change in level of effort is 50% and needs prior approval.

2. Proposal: 50% effortChanged to: 40% effort

Change in level of effort is 20% so prior approval is not needed.

3. Proposal: 50% effort (25% paid from grant budget & 25% committed cost sharing)

Changed to: 40% effortChange in level of effort is 20% so prior approval is not needed.

WORK PERFORMED ON PERSONAL TIME

• Federal government presently does not recognize ‘personal’ time relative to university work.

• Considers that institutional compensation is for whatever time is required to ‘do the job’

• Reassessing this but currently cannot use this reasoning

RED FLAGS TO AUDITORS

• Faculty paid 100% on sponsored projects• Teaching

• Committee work

• Grant writing effort

• Student counseling

•Who certified effort report

RED FLAGS TO AUDITORS (cont’d)

• Salary transfers• Timing – If at end of grant may be for the

convenience of spending down unexpended funds• If effort report already certified what happened

that now requires a change and re-certification

•Timeliness of the certification•Actual effort compared to committed effort

RECENT AUDIT FINDINGS• From annual A-133 Compliance audits:

• Inadequate process to compare proposed effort to actual effort

• Proposed effort not met• Effort report not certified by person with suitable means of

verification• Reports not completed in a timely manner (no Federally

defined time period. Institution tested to determine compliance with their policy)

• Incorrect/inconsistent institutional base salary (IBS) used in calculating proposed/actual effort

• Late or missing retroactive salary corrections.

RECENT AUDIT FINDINGS (cont’d)• From DHHS OIG audits:

• Overstated commitments in proposal (exceeding 100% effort)• Inadequate process to compare proposed effort to actual effort• Proposed effort not met

• From individual audits by Federal agencies:• Overstated commitments in proposal (exceeding 100% effort)• Inadequate process to compare proposed effort to actual effort• Proposed effort not met• No allowance for non sponsored activity (e.g., proposal writing)• Overlapping effort (same effort claimed on more than one project)• Salaries charged to grants for individuals not working on the grant

Questions?