Office of Research and Project Administration

SPONSORED PROGRAMS COMPLIANCE

8. Financial Management/Audit Realities

Administrative Responsibilities/Issues:

Although Principal Investigators (PI) are ultimately responsible for the fiscal management of their research projects, often the administrators of the department are relied upon to manage the day to day financial activity of these projects. Some useful tips that when applied will improve internal controls related to the research fiscal activity, thereby reducing the risk of an audit finding, include:

• Each project should have a file containing relevant information to the administrator's function. The file should contain:

  • Award notice
  • Budget/application
  • Budget modifications
    
    

  These documents should be reviewed to identify:

  • Any special restrictions or requirements for the award
  • Percent effort of key personnel
  • Names of individuals anticipated to expend effort on the project
    
    
• If the project has been approved by the awarding agency and the start date has passed, but negotiations have not been completed, or if the awarding agency has approved pre-award costs, a contingent account should be established. Note: there are various criteria that must be met for costs to be categorized as pre-award cost:
  

  • The approval of pre-award spending is made and documented in accordance with University procedures prior to incurring the costs.
    
  • Cost must be incurred within 90 days of the beginning date of the award or budget period.
  • Pre-awardcosts must be adequately justified to indicate that advanced funding is necessary for the effective and economical conduct of the project.
    
  • Cost must be allowable under the conditions of the forthcoming grant.
    
    
• Ledgers should be filed chronologically by project and reviewed monthly. Steps involved in a thorough monthly review of the ledgers include the following:
  

  • Verify that any expected corrections to prior months have been reflected in the current ledger. Typically, a "running" list of corrections, and departments making the change (Office of Research Accounting and Costing Standards (ORACS), Payroll and Employee Records Center (PERC) etc.) is the best means of ensuring no needed corrections are missed and is also an efficient way of making second requests for corrections.
  • Identify if there has been re-budgeting. If so, verify that the sponsor allows this.
  • Scan ledgers for unusually large expenditures. Were they expected? If not, obtain verification, documentation, and discuss with PI how they intend to stay within budget.
  • Compare current month's charges by major expense class against prior months. Inquire about significant variations. Lower expenses may be an indicator that the ledger is incomplete; higher expenses may indicate inappropriate or unallowable charges, or that the program is in danger of exceeding its budget.
  • Compare a projected actual (actual charges to date plus anticipated charges for the remainder of the program) to the program budget. Investigate variances.
  • Review the ledgers to determine if proper subcodes have been used for transactions, i.e. if capital equipment is purchased (useful life greater than 2 years and cost of at least $1,000), it should be charged to the 2600 subcode series to ensure proper treatment for indirect cost calculation and inclusion in the fixed asset database. Additionally, using improper subcodes can also adversely affect the actual-to-budget comparisons, resulting in improper conclusions regarding the financial status of the project.

    • If staffing permits, ideally the person performing this review would be someone other than those with authorization privileges as defined in the grant documents. The person reviewing the individual transactions in the ledger would initial the expenditure to indicate that it is appropriate and resides in the correct subcode. If there is not sufficient staffing to accomplish this segregation of duties, the PI's review will need to be more in-depth.
  • Is there adequate, appropriate documentation for the transactions? Are they appropriately authorized? Appropriate/adequate documentation will withstand the test of time - Would an outside auditor reviewing the documentation three years from now understand the transaction without verbal explanation?
  • Are the transactions reasonable, allocable, and allowable?
  • Are transactions relating to subcontractors reasonable given the arrangement? Is adequate documentation provided? Are they in line with the budget?
  • Does the effort charged to the account for key personnel match the award? Investigate differences. If the effort is lower, is there a percent effort that is cost shared; is the cost shared effort verifiable and documented?
  • Has the percentage effort for a key personnel changed more than 25% from what was stated in the award? If so and it is not an error, has the sponsor been notified and approval obtained? Does the reduction of effort indicate a change of scope in the project? If so, has the sponsor been notified and approval obtained? Documentation of such should be retained in the file.
  • For projects that include a cost sharing commitment, has the cost sharing occurred and is it charged to the appropriate account? Is there appropriate, sufficient documentation retained?
  • Has there been a change in key personnel? Has this change been communicated to and approved by the sponsor? Is there documentation of such?
  • For NIH awards, do any personnel charged to the account have an annual salary in excess of the salary cap applicable to the award's budget period? If so is it properly reflected as a salary reversal to subcode 1070? Has the amount been updated for any salary increases and/or changes in who is working on the project?
  • For charges that are allocated to the account, is the basis consistent with past practice? · Have the correct fringe benefit rates been applied? Compare the fringe benefit rate applied (per the payroll reports) to the published fringe benefit rates per the Budget Office.
  • Compare indirect cost rate applied on the account with the indirect cost rate applicable to the program - the applicable rate is the rate in effect at the time the proposal was submitted. Any differences may be followed up with the ORACS representative.
  • Document explanations for any cost transfers reflected in the ledger.
  • Are there any circumstances that have occurred that require sponsor approval? PI should provide proof of approval for any identified circumstances.
  • Ensure that Procurement Card transactions follow established guidelines. http://www.urmc.rochester.edu/purchasing/how-to-purchase/purchasing-card.cfm
  • Has all program income been correctly recorded?
  • Is the project nearing its completion date? If so, are there any specific actions needed?
    
    
• It may be helpful to create spreadsheets that will assist in the various analyses, including, but not limited to:
  

  • Budget compared to Actual
  • Prior period actual compared to current period actual
  • Cost Sharing Analysis
  • Budgeted effort ($ and %) compared against Actual effort ($ and %).
  • Salary cap analysis
  • Equipment purchases listing
  • Check list of circumstances that require sponsor approval
  • List of projects that have the potential to generate program income.
  • Ledger review sheet. For an example of a template, visit http://www.rochester.edu/adminfinance/audit
    
    
• Upon completion of the review, results should be discussed with the PI. The PI should document, i.e. initial ledgers or complete a ledger review sheet, the review and approval of the ledgers. This should be done on a timely basis.
  
  
• When processing expense vouchers:

  • Determine that appropriate personnel have authorized transactions. Authorized personnel are identified on the Proposal Sign-Off Form submitted to ORPA. If authorized person has changed from what was indicated on the Proposal Sign-Off form, send updated sign-off form to ORPA.
  • Determine that all costs have appropriate documentation attached.
  • Verify internal consistency and mathematical accuracy.
  • Determine that quantity received agrees with quantity billed.
  • Determine that expenses are reasonable, necessary, allowable and allocable.
  • All documentation supporting the transaction should be attached to the transaction-type document (e.g. travel and conference reports, requisitions, petty cash vouchers, requests for payments, etc.) and filed in an organized manner.
    
    
• Conflict of interest statements must be completed annually for all individuals in the department.
  
  
• The University requires everyone who has technical responsibilities to the University or who participates in an internally or externally sponsored research program at the University to complete an Intellectual Property Agreement (refer to section 5). Ensure that all employees working on sponsored research projects have a completed form on file.
  
  
• Cost Sharing Commitment Forms are required for all mandatory cost sharing regardless of the type of activity. In addition, the forms must be completed for voluntary committed cost sharing pledged for a research proposal. Refer to the University's Policy and Procedures for the Administration of Cost Sharing at http://www.rochester.edu/ORPA/policies/costshr01.pdf
  
  
• Policies and procedures relating to the internal management of Sponsored Research Programs are contained in, or accessible through, this web portal. All departmental personnel should be educated on the contents of this portal. The expectation of compliance with the policies and procedures documented herein should be communicated to all departmental personnel.