The focus of this chapter is regulatory requirements related to the financial management of a research grant. The specific areas of consideration are the audit climate, reporting on compensation for personnel expenses for research grants, and problematic elements of the Uniform Guidance.1
THE AUDIT CLIMATE
Research institutions are subject to frequent federal audits. Institutions receiving more than $750,000 in federal grants are required to undergo a yearly audit known as a Single Audit, formerly known as an OMB A-133 Audit. 2 The Single Audit is designed to ensure that recipient institutions of federal grants comply with federal program requirements for how federal dollars can be spent. The Single Audit Act was intended to reduce burden on grant recipients that were previously subject to multiple ongoing audits, and it established standards for achieving consistency and uniformity among federal agencies for the audit of states, local governments, and nonprofit organizations (e.g., research institutions) expending federal grant awards.
In addition to the annual Single Audit, research institutions are subject to agency-specific audits undertaken by federal grant-making agencies’ inspectors general, which are established in departments and agencies of the federal government as formalized by the Inspector General Act of 1978.3 The Act required the creation of independent and objective units within agencies to:
1Text in this chapter has been revised from the prepublication version to incorporate minor editorial corrections, including clarification of the relationship between offices of inspectors general and their agencies and the difference between audits and investigations.
2Audits of States, Local Governments, and Non-Profit Organizations (Circular No. A-133) (Washington, DC: Office of Management and Budget Compliance), https://www.whitehouse.gov/sites/default/files/omb/assets/a133/a133_revised_2007.pdf.
3Inspector General Act of 1978, Pub. L. No. 95-452, 5 U.S.C. App. (1978) [As Amended Through Pub. L. No. 113-126, Enacted July 07, 2014]. While 12 inspectors
- “Conduct and supervise audits and investigations relating to the programs and operations of” [these departments and agencies]…;
- Provide leadership and coordination and recommend policies for activities designed (A) to promote economy, efficiency, and effectiveness in the administration of, and (B) to prevent and detect waste, fraud and abuse in, such programs and operations; and to
- Provide a means for keeping the head of the establishment and the Congress fully and currently informed about problems and deficiencies relating to the administration of such programs and operations and the necessity for and progress of corrective action.”4
The Inspector General Reform Act of 20085 amended the 1978 Act in a number of ways. Reforms included the establishment of the Council of Inspectors General on Integrity and Efficiency (CIGIE), an independent entity within the executive branch comprising inspectors general and other federal agencies’ administrators. CIGIE was created “to address integrity, economy, and effectiveness issues that transcend individual Government agencies; and increase the professionalism and effectiveness of personnel by developing policies, standards, and approaches to aid in the establishment of a well-trained and highly skilled workforce in the offices of the Inspectors General.”6 As required in the 2008 Reform Act, each inspector general provides semiannual reports to Congress summarizing the inspector general’s activities during the previous 6 months.
Nature of Concern
Concerns have been raised about a lack of understanding amongst federal agencies, inspectors general, and research institutions regarding what constitutes compliance with financial policies and procedures. There are concerns about the
general offices were initially established under the 1978 Act, there are currently 57 different and autonomous offices of inspectors general. Inspectors general of the largest departments and agencies are appointed by the President of the United States and confirmed by the U.S. Senate (e.g., the inspector general of the Department of Health and Human Services, the parent agency of the National Institutes of Health). Inspectors general for some federal agencies with smaller budgets and smaller staffs are appointed by the head of the designated federal entity. In the case of the National Science Foundation (NSF), the inspector general is appointed by the National Science Board (NSB).See Inspectors General: Reporting on Independence, Effectiveness, and Expertise (GA0-11-770) (Washington, D.C.: U.S. Government Accountability Office, 2011), http://www.gao.gov/products/GAO-11-770.
4Inspector General Act of 1978, Pub. L. No. 95-452, 5 U.S.C. App. (1978) [As Amended Through Pub. L. No. 113-126, Enacted July 07, 2014].
5Inspector General Reform Act of 2008, Pub. L. No. 110-409 (2008).
6See “CIGIE Governing Documents,” Council of the Inspectors General on Integrity and Efficiency, accessed September 9, 2015, https://www.ignet.gov/content/cigie-governing-documents.
extent to which inspectors general, agencies, and research institutions partner in the proactive promotion of economy, efficiency, and effectiveness in the administration of federal grants. Not uncommonly, audits of research institutions lead to initial findings (inspectors general–alleged misuses of substantial federal funds, meriting further investigation). Such findings may be announced and publicized before the completion of an in-depth investigation, causing institutional concern that such preliminary findings may cause unwarranted reputational harm to the investigated institution. Not uncommonly, final audit findings that end in discussion and negotiation between designated agency staff and institutional staff resolve the audit with penalties that are significantly smaller than what was reported in initial findings. Institutions regret that, in contrast to preliminary findings, final resolutions receive little or no attention.
Audited institutions are also concerned about a lack of transparency regarding the specific criteria used by auditors to determine which institutions are likely candidates for an agency audit, what types of institutional policies and procedures raise the highest levels of concern among inspectors general, and what measures institutions can adopt to ensure findings of financial compliance and bring about a reduction of the likelihood of being chosen to undergo often multiyear, time-consuming agency audits.
Examples of audits and investigations illustrate the benefits and costs of such activities. Numerous audits end in final audit resolutions requiring only modest sums to be paid to the government following inspectors general audits (see Box 6-1). Some investigations have resulted in findings that reveal significant misuse of funds by research institutions that have received federal research funding, and the result has been that those institutions paid a penalty for the misuse of federal funds and remitted sums that had been misspent. In addition, those institutions have taken steps to strengthen their internal management oversight policies and procedures.
Estimates of research institutions’ costs associated with responding to agency audits range from $300,000 to $1 million per campus plus a significant commitment of faculty researcher time.7 In some instances, inspectors general and the agency leadership are not in agreement on the audit outcomes and findings. In the case of the National Science Foundation (NSF) audit of the University of California, Santa Barbara as described in Box 6-1, for example, in spite
7University of California Officials, Personal communication to Committee Member Charles Louis, former Vice Chancellor for Research, University of California, Riverside, June 30, 2015.
of acceptance by the NSF agency leadership that most of the audit findings represented allowable costs, the NSF Office of Inspector General (OIG) stated in its semiannual report to Congress that “OIG disagrees with NSF’s decision to allow $6 million of costs questioned in the audit.”8
The question is not whether audits should occur, but rather under what conditions the audits should take place. When there are well-founded concerns about the misuse of funds, then audits are appropriate mechanisms for detecting waste, fraud, and abuse. On the other hand, if audits are conducted without pri- or evidence of waste, fraud, and abuse, in many cases, after years of an audit investigation and subsequent negotiations, the costs of the investigative process can be much greater than the amount the audited university must repay.
The relationship between inspectors general and universities can be most productive when it is based on a shared commitment to advancing the nation’s interests through a dynamic and productive research enterprise. Inspectors general are important monitors of the expenditure of government funds. However, a renewed spirit of collaboration among inspectors general, agencies, and universities can identify strategies to enhance mutual understanding of the rules and
8Semiannual Report to Congress, (Washington, DC: National Science Foundation, Office of Inspector General, 2014), 16, http://www.nsf.gov/pubs/2015/oig15001/oig15001.pdf.
regulations regarding the expenditures of grant funds and preclude the misuse of such funds.
Inspectors general are expected to guide institutions in the prevention of questionable practices and thus empower research institutions to operate in compliance with federal rules and regulations on the use of federal funds. When agencies, inspectors general, and research institutions have shared understandings and interpretations of the rules and regulations governing financial expenditures, there are fewer disagreements about the expenditure of federal funds. Without a shared understanding, an environment is created with competing assertions and findings.
There are questions regarding the basis on which agency inspectors general decide to conduct audits of research institutions. This process was characterized by one inspector general as being based on a risk analysis “that comprises a soup”9 from which auditors are able to identify the institutions that have the highest risk of misuse of federal funds.
The internal analytics tools used by the NSF and the Department of Health and Human Services (HHS) inspectors general offices to identify outlier data among institutions and to detail the precise nature and scope of questionable financial management patterns and practices are deemed by the inspectors general to be confidential and unavailable to research institutions.10 Were agencies, inspectors general, and research institutions to agree on the need to reexamine the risk-based methodologies used in identifying likely audit candidates, that knowledge could increase institutional awareness of potentially inappropriate expenditures and better reflect the original intent of the 1978 Inspectors General Act (i.e., provide leadership and coordination, recommend policies to promote economy, efficiency, and effectiveness in the administration of research institutions’ programs and operations). A more open and collaborative approach would support the principle that institutions and inspectors general are partners working to ensure compliance with federal financial regulations, monitor university actions and decisions regarding the uses of federal funds, promote cost efficiencies, and reduce waste, fraud, and abuse.
In an effort to promote transparency and to disseminate the results of the resolution process, NSF recently began posting comparisons of initial findings and the final outcomes of audit resolutions on its website.11 These final audit outcomes are published in the NSF OIG semiannual reports to Congress in the audit resolu-
9Allison Lerner, Inspector General of the National Science Foundation, Presentation to the Committee, April 17, 2015.
10Allison Lerner, Inspector General of the National Science Foundation, Presentation to the Committee, April 17, 2015; Julie Taitsman, Chief Medical Officer, U.S. Department of Health and Human Services’ Office of Inspector General, Presentation to the Committee, July 21, 2015.
tion section. The HHS OIG publishes the results of the final audit resolution,12 rather than reporting initial findings, which may differ from final audit findings.
6.1. The committee recommends that Congress require inspectors general to:
- Resolve issues regarding their interpretation of agency policies and priorities with the agency before conducting formal audits of research institutions; this should not apply in those situations in which the audit itself is directed toward inconsistent agency policy interpretations.
- Include in their semiannual reports, publish on their websites, and highlight in their presentations to Congress examples of effective, innovative, and cost-saving initiatives undertaken by research institutions and federal research agencies that both advance and protect the research enterprise.
- Provide to Congress and make publicly available information generated each year on the total costs (agency and institutional) of inspectors general audits of research institutions, the total amounts of initial findings, the total amounts paid by institutions after audit resolution, and any significant management, technology, personnel, and accountability steps taken by research institutions as the result of a completed audit.
- Reexamine the risk-based methodology in identifying institutions as candidates for Offices of inspectors general audits to take into account the existing compliance environment and oversight on campuses, recognizing that many research institutions have clean single audits, are well managed, and have had long-standing relationships with the federal government.
- Encourage all federal inspectors general to report only final audit resolution findings on their websites and in their semiannual reports to Congress.
REPORTING OF COMPENSATION FOR PERSONNEL EXPENSES
As a condition of receiving federal research grants, the Office of Management and Budget (OMB) requires awardee institutions to ensure that “charges to Federal awards for salaries and wages must be based on records that accu-
12Julie Taitsman, Chief Medical Officer, U.S. Department of Health and Human Services’ Office of Inspector General, Presentation to the Committee, July 21, 2015.
rately reflect the work performed.”13 The traditional system for accomplishing this has been “effort reporting,” whereby faculty who serve as principal investigators for federal grants are responsible for certifying the percentage effort that they and their employees expended on grant-supported activities (see Box 6-2). The Uniform Guidance eliminates this requirement and permits institutions to adopt their own system of personnel management and reporting as long as internal controls provide reasonable assurance that the charges are accurate, allowable, and properly allocated.14
Nature of Concern
As noted by the Federal Demonstration Partnership (FDP), “Effort reporting is based on effort that is difficult to measure, provides limited internal control value, is expensive, lacks timeliness, does not focus specifically on supporting direct charges, and is confusing to faculty when all forms of remuneration are considered.”15 For many institutions, effort reporting also requires the development or purchase, and the continuing maintenance, of expensive specialized software systems. 16
13See Compensation – Personal Services, 2 CFR § 200.430 (2014).
14“Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” Federal Register 78, no. 248 (December 26, 2013): 78590, (http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf.
15Federal Demonstration Partnership, Quoted in Tobin L. Smith, Josh Trapani, Anthony Decrappeo, and David Kennedy “Reforming Regulation of Research Universities,” Issues in Science and Technology XXVII, no. 4 (2011).
16Tobin L. Smith, Josh Trapani, Anthony Decrappeo, and David Kennedy “Reforming Regulation of Research Universities,” Issues in Science and Technology XXVII, no. 4 (2011).
In a 2011 American Association of Universities (AAU)/Association of Public and Land-grant Universities (APLU)/Council on Government Relations (COGR) request for information from universities, virtually every institution that responded identified effort reporting as an area that has significant cost and productivity implications. One public university in the Midwest stated that nine separate full-time employees spend approximately one quarter of their time each year monitoring certifications, at a total estimated cost per year of $117,000.17 Another public university, in the West, estimated that its total administrative cost of monitoring certifications for the effort reporting system exceeded $560,000, including $320,000 in the central administrative accounting office and an additional $241,000 for faculty and staff time across various academic departments.18 A “private university in the Midwest estimated that on its campus there are over 6,000 effort reports completed three times per year, resulting in more than 18,000 effort reports processed per year overall. Estimating that 60–90 minutes were spent on each effort report—including issuing instructions, completion by faculty and staff, administrative review, tracking, and storing—yields a conservative estimate of 20,000 hours per year spent on this process.” 19 A public university in the Midwest reported that the estimated cost to purchase necessary effort reporting software from an external vendor was in excess of $500,000, exclusive of implementation and training costs. A public university in the West estimated the cost of its system at $435,000 annually. Several universities reported that overall they spent between $500,000 and $1 million annually on effort reporting.20
In its 2014 report,21 the National Science Board (NSB) stated: Effort reporting
“is incongruent with the administrative structure of universities and the actual manner in which faculty perform research, which is difficult to track given their simultaneous work on multiple projects and the degree to which activities are interwoven (e.g., mentoring graduate students and post-docs, participating in professional meetings and conferences, working in the laboratory, and studying papers describing related research).”
17“Regulatory and Financial Reform of Federal Research Policy Recommendations to the NRC Committee on Research Universities,” Association of American Universities, Association of Public and Land-Grant Universities, Council on Governmental Relations, January 21, 2011, accessed September 9, 2015, https://www.aau.edu/WorkArea/DownloadAsset.aspx?id=11662.
Through FDP, a number of institutions have piloted Payroll Certification (see Box 6-3), a more streamlined and efficient compensation management and reporting system than effort reporting. 22 The Payroll Certification pilots were implemented in 2011 at four universities: University of California, Riverside; University of California, Irvine; George Mason University; and Michigan Technological University. 23 At the pilot sites, investigators were asked to confirm the accuracy of salary expenditures based on the work performed on their awards during their grant’s previous budget year. Initial key outcomes of the FDP Payroll Certification pilot were the following:
- The paperless process of payroll certification consolidated information in a more meaningful format.
There was a significant increase in the review of monthly expenditures by investigators, resulting in greater accountability that funds are spent as intended.
There was a higher level of compliance with accounting procedures by investigatorsthan with the existing effort reporting system. 24
The audit report from the NSF Office of Inspector General (OIG) of George Mason University’s Payroll Certification pilot was recently published and appeared to identify no major issues or concerns regarding the university’s methodology.25 The HHS OIG provided the results of its audit of the pilot payroll certification program at the University of California, Irvine in a report dated December 2014.26 Also, shortly after the release of Part 1 of the committee’s report, the NSF OIG provided the results of its audit of the pilot payroll certification program at Michigan Technological University.27 Neither of these audits
22“Payroll Certifications: A Proposed Alternative to Effort Reporting,” The Federal Demonstration Partnership, January 3, 2011, accessed August 24, 2015, http://sites.nationalacademies.org/cs/groups/pgasite/documents/webpage/pga_055994.pdf.
23Federal Demonstration Partnership Project Payroll Certification Pilot, (2011), http://sites.nationalacademies.org/cs/groups/pgasite/documents/webpage/pga_055994.pdf.
25Labor Effort Reporting under the Federal Demonstration Project’s Pilot Payroll Certification Program at George Mason University (OIG 15-1-017) (Arlington, VA: National Science Foundation, Washington, DC: Office of Inspector General, July 31, 2015), https://www.nsf.gov/oig/_pdf/15-1-017-GMU.pdf.
26The University of California at Irvine’s Pilot Payroll Certification System Could Not Be Assessed (Bethesda, MD: U.S. Department of Health and Human Services, Washington, DC: Office of Inspector General, December 2014), http://oig.hhs.gov/oas/reports/region4/41301027.pdf.
27Labor Effort Reporting under the Federal Demonstration Partnership Pilot Payroll Certification at Michigan Technological University (OIG 15-1-23) (Arlington, VA: National Science Foundation, Washington, DC: Office of Inspector General, September 30,
found deficiencies in the institutions’ payroll certification methodologies. Many universities that anticipate adopting a system such as payroll certification are awaiting the results of all four audits before doing so.28
The Uniform Guidance provides a government-wide framework for grants management. In the latest guidance, OMB moved away from a detailed prescription on how personnel expenses should be documented—meaning that the traditional effort reporting system is no longer required. Instead, OMB requires that “charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed and be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated.”29 Furthermore, it states that “cognizant agencies for indirect costs are encouraged to approve alternative proposals based on outcomes and milestones for program performance where these are clearly documented. Where approved by the Federal cognizant agency for indirect costs, these plans are acceptable as an alternative to the requirements of paragraph (i)(1) of this section.”30
28The text of this paragraph has been revised to incorporate information on the results of the audits of the University of California, Irvine and Michigan Technological University payroll certification pilot programs.
29See Compensation – Personal Services, 2 CFR § 200.430 (2014).
30“Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
As noted above, the NSB has concluded that “effort reporting is incongruent with the administrative structure of universities and the processes by which faculty actually perform their research.”31 The Uniform Guidance now permits greater flexibility in how personnel expenses on grants can be documented by institutions. One such method is Payroll Certification, which has been piloted by the FDP and has demonstrated a compelling case for efficiency, accuracy, and cost reduction.
One institution piloting an alternative approach—Payroll Certification—experienced a significant reduction in burden over a 3-year period, changing from processing more than 14,000 paper-based effort reports to 2,100 online payroll certifications.32
Research institutions can take advantage of the flexibility provided by Uniform Guidance by adopting more effective and efficient management and certification systems as long as they have robust internal institutional controls “supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated.”33
6.2. The committee recommends that Congress, in concert with the White House Office of Management and Budget, affirm that research institutions may take advantage of the flexibility provided by the Uniform Guidance with regard to the documentation of personnel expenses.
THE UNIFORM GUIDANCE
The Uniform Guidance significantly reforms federal grant-making procedures in an effort to focus resources on improving performance and outcomes and reducing administrative burdens on grant applicants while concurrently reducing the risk of waste, fraud, and abuse.34 Three significant items in the Uniform Guidance require further modification: Procurement Standards, Financial Reporting, and Cost Accounting.
Federal Awards,” Federal Register 78, no. 248 (December 26, 2013): 78590, http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf.
32Bobbi McCracken, “Payroll Certification Pilot: FDP Update” (presentation, FDP Meeting, Washington, DC, January 5-7, 2014), http://sites.nationalacademies.org/PGA/fdp/PGA_086497.
33See Compensation – Personal Services, 2 CFR § 200.430 (2014).
34“Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” Federal Register 78, no. 248 (December 26, 2013): 78590, http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf.
The new Uniform Guidance requires universities, beginning in 2017, to document multiple bids for purchasing transactions exceeding $3,000 in value.35
Nature of Concern
Most universities have purchasing thresholds ranging between $5,000 and $10,000, above which competition and price comparisons (“external bids”) are required to be documented. Adjusting to the Uniform Guidance standard of $3,000 for all purchases supported by federal grants will require extensive changes in institutions’ procurement systems, increases in procurement staff to handle the associated increased number of required bids, and increased time to process relatively low-risk and low-cost procurement transactions. This lower threshold may result in compliance costs far exceeding any corresponding reduction in waste, fraud, and abuse.
The Uniform Guidance requires documented multiple bids for university purchasing transactions exceeding $3,000. This lower threshold means that institutions will have to issue bids for a larger proportion of their expenditures and add additional administrative burden for faculty and purchasing offices. For example, Stanford’s current procurement guidelines require bids for transactions exceeding $25,000 in value. An adjustment to the lower threshold of $3,000 will require Stanford to document competitive bids for six times more transactions than it currently does (see Table 6-1). Additionally, changing the threshold may delay investigators from getting essential materials they need to advance their research.36
COGR states that the $3,000 threshold was selected without an objective analysis of what is appropriate for grants, without any input from the grant-recipient community, and without consideration of the impact on administrative burden. 37
35Office of Management and Budget. “Universal Identifier and System of Award Management; Corrections.” Federal Register 80, No. 175 (September 10, 2015): 54407, http://www.gpo.gov/fdsys/pkg/FR-2015-09-10/pdf/FR-2015-09-10.pdf.
36Randy Livingston, Vice President for Business Affairs and CFO, Stanford University, Presentation to the Committee, May 28, 2015.
37Council on Government Relations, Letter to David Mader (Controller, Office of Management and Budget) February 13, 2015, http://www.purdue.edu/business/sps/pdf/COGR_Response_OMB-2015-0001.pdf.
|Transaction Size||Transactions||Purchasing Value||Avg.||3% of Avg.||10% of Avg.|
SOURCE: Courtesy of Randy Livingston, Vice President for Business Affairs and Chief Financial Officer, Stanford University, May 2015.
The added administrative burden required by the new $3,000 threshold will be significant, as institutions will have to require competitive bids for purchases of this amount or greater. These delays may negatively impact the ability of investigators to obtain research materials in a timely manner and may delay the completion of research. In general, research institutions have thresholds typically ranging from $5,000 to $10,000 for procurement. Lowering the threshold to $3,000 will require institutions to account for a significantly greater number of transactions.
In the case of public universities, many institutions have linked their thresholds to be in compliance with state requirements that adhere to thresholds in excess of $3,000.
6.3. The committee recommends that the White House Office of Management and Budget amend the Uniform Guidance as follows:
- Amend Section 200.329 to read: Procurement by micro-purchases. Procurement by micro-purchase is the acquisition of supplies or services on a purchase order from a single vendor, the aggregate dollar amount of which does not exceed $10,000 (or $2,000 in the case of acquisitions for construction subject to the Davis-Bacon Act).38 OMB shall periodically revisit and adjust the $10,000 threshold to account for escalating costs of supplies and services.
38The Uniform Guidance currently reads, “Procurement by micro-purchases. Procurement by micro-purchase is the acquisition of supplies or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold (§ 200.67 Micro-purchase).”
- Amend the list of criteria for the permissible purchase of supplies and services through noncompetitive bids in Section 200.320 to include: The procurement is necessary for research, scientific, or other programmatic reasons, such as instances where the purchase is for a specialized service or of a necessary quality that is available only from a single vendor or if only one vendor can deliver in the required time frame.”39
The Uniform Guidance requires submission of financial reports 90 days following the end of an award period.40 The 90-day requirement is inconsistent with requirements at NIH and NSF.
Nature of Concern
It was anticipated that the Uniform Guidance would provide uniform financial reporting requirements. Without consistency among agency policies and practices, compliance with financial reporting requirements leads to additional administrative burden for universities (see Box 6-4).
While the Uniform Guidance has set 90 days followi ng the end of an award as the deadline for the submission of financial reports, two major federal research agencies, NIH and NSF, allow 120 days for reporting following the end of an award. This additional month recognizes the trend of increased multi-institutional collaborations on research proposals and the resulting increase in the complexity of financial reporting.
392 CFR 2 § 200.320(f) (2014) currently reads:
“Procurement by noncompetitive proposals. Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source and may be used only when one or more of the following circumstances apply:
(1) The item is available only from a single source;
(2) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation;
(3) The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity; or
(4) After solicitation of a number of sources, competition is determined inadequate.”
40See Closeout, 2 CFR § 200.343 (2014).
The standard use of a 120-day time period more appropriately reflects the amount of time necessary for project closeout and eliminates the burden of responding to different agency requirements.
A 120-day time period for the preparation and submission of all reports for grants from all federal funding sources for the closeout process (technical, financial, patents) would allow universities sufficient time to prepare these reports.
The NSF and NIH policy of 120 days for the submission of financial reports is more appropriate than the new Uniform Guidance requirement of 90 days. A consistent requirement of 120 days across all agencies would acknowledge the increasing trend toward inter-institutional collaboration on research grants and reduce the burden of compliance with multiple report deadlines.
6.4. The committee recommends that the White House Office of Management and Budget amend the Uniform Guidance to establish a mandatory 120-day timetable for the submission of all financial reports for all federal research funding agencies.
COST ACCOUNTING STANDARDS
OMB requires a university with more than $25 million of federal grants in a given fiscal year to disclose its cost accounting standards in a Cost Accounting Disclosure Statement (DS-2).41 This statement identifies the cost accounting practices that a university follows, and describes the methodology for distinguishing direct costs from indirect costs. The federal government expects universities to abide by cost accounting standards to ensure that double charging on federally sponsored agreements does not take place. The cost accounting disclosure statement must be submitted to each university’s cognizant42 federal agency for review and approval during indirect cost negotiations.
Nature of Concern
Research universities already publish their accounting policies and practices. As such, the cost accounting disclosure statement is not a useful compliance document. It is simply a restatement of accounting policies and practices that are already documented in the official published policies of an institution.43
Whenever there is a change in an institution’s accounting practices, institutions are required to revise their disclosure statement and resubmit the document to the appropriate cognizant federal agency for review and approval. This is a time-consuming process for both grantees and cognizant agencies. Furthermore, there is little evidence that the approved document is actually used by agencies or by inspectors general as an auditing tool. Auditors generally do not request cost accounting disclosure statements when conducting annual audits, and all information contained in such statements is generally available on university websites.
41See General Requirements, 48 CFR § 9903.202-1 (2010).
42“To simplify relations between federal grantees and awarding agencies, OMB established the cognizant agency concept, under which a single agency represents all others in dealing with grantees in common areas. In this case, the cognizant agency reviews and approves grantees’ indirect cost rates. Approved rates must be accepted by other agencies, unless specific program regulations restrict the recovery of indirect costs.” See“Grants Management, Grants Circular Attachments,” Office of Management and Budget, accessed August 24, 2015, https://www.whitehouse.gov/omb/grants_attach/.
43David Kennedy and the COGR Costing Policies Committee, COGR Letter to OMB on Uniform Administrative Requirements, Cost Principles, and Audit Requirements (Washington, DC: Council on Government Relations An Association of Research Universities, 2015), http://www.cogr.edu/viewDoc.cfm?DocID=152118.
The reinstatement of the cost accounting disclosure statement in the Uniform Guidance as a required disclosure document fails to recognize that the document is a restatement of publicly available information about a university’s accounting policies and practices. Moreover, the regularly updated DS2 is already submitted by a university every 1 to 5 years at the same time as its updated F&A proposal is submitted to the cognizant federal agency.
Only colleges and universities are subject to the cost accounting disclosure statement requirement. Other federal grant recipients, including state, local, tribal governments, and nonprofits are excluded from this requirement.
6.5. The committee recommends that the White House Office of Management and Budget amend the Uniform Guidance so that research universities are not required to submit a revised Cost Accounting Disclosure Statement (DS-2) each time they change their accounting practices, as long as those practices are in compliance with the Uniform Guidance and are posted promptly on the universities’ websites. Rather, the initial disclosure statement and revisions to it should be submitted to the research institution’s cognizant agency in coordination with the institution’s Facilities and Administrative proposal.