TIME AND EFFORT
Grantees Must Adequately Address Time and Effort Documentation
Grant recipients have had to repay the federal government millions of dollars because they failed to adequately document time and effort and overcharged the grant. Understanding how to accurately document the compensation of employee services is critical in preventing these circumstances. The absence of proper documentation of hours worked is the basis for auditors questioning costs and grant- or agencies disallowing costs claimed. Initially, grantees should be aware of time and effort requirements in the federal cost principles, and there are other secondary sources that grantees can turn to for assistance. This issue provides a useful overview of time and effort documentation. Grant recipients have had to repay the federal government millions of dollars because they failed to adequately document time and effort and overcharged the grant. Understanding how to accurately document the compensation of employee services is critical in preventing these circumstances.
The absence of proper documentation of hours worked is the basis for auditors questioning costs and grantor agencies disallowing costs claimed. Section -
.525(d)(1) of Office of Management and Budget Circular A-133 states "federal programs primarily involving staff payroll costs may have high risk for time and effort reporting."
With so much at stake, how should grantees best document time and effort?
Initially, they should be aware of time and effort requirements in the federal cost principles.
Requirements for educational institutions can be found in 2 C.F.R. Part 215 (0MB
CircularA-21) Section 1(10); requirements for state, local and Indian tribal governments are available in 2 C.F.R. Part 220 (0MB Circular A-87) Appendix
B(8); and nonprofit organizations can find requirements in 2 C.F.R. Part 225
(0MB Circular A-122) Appendix B(8). These circulars, while they vary somewhat, require grantees to document a claim for actual costs incurred.
There are other secondary sources that grantees can turn to for assistance, such as ASMB-C-I0, A Guide for State and Local Governments , and the 0MB Circular
A-133 Compliance Supplement (see l)[429 of the Federal Grants Management
Hand- book). Auditors referring to these documents should realize they are a compilation of requirements and not the actual primary source.
When determining if time and effort costs are allowable, a grantee should determine if the cost is reasonable; allocable or of benefit to the grant; consistently treated (deter- mined by the entity's own policy); incurred in accordance with generally accepted accounting principles; not charged elsewhere in the grant; and adequately documented.

Key standards that are present in all 0MB cost principle circulars on time and effort reporting are:
.Documents are retained and not submitted -if an awarding agency or auditor wants to evaluate the information found on the Financial Status Report (Standard
Form 269), the grantee should have it available.
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Time and effort is confirmed after the fact -bud- get estimates do not qualify as support for federal awards.
Time and effort is confirmed after the fact -bud- get estimates do not qualify as support for federal awards.
Full disclosure -grantees must know where employees are spending 100 percent of their time.
Credible endorsement or signature -grantees must arrange for a qualified person familiar with the effort expended to endorse the document prepared.
Reasonable estimate -effort estimates should closely reflect actual time worked, as documentation that matches too closely with the budgeted amount can be met with scrutiny.
Timely adjustments and completion -if grantees initially rely on interim charge estimates before switching to actual time recorded, recording actual time as soon as feasible will make their reports more credible.
However, there is no specific federal policy on increments of time recorded, as institutions can determine the rate by which to record time increments. There also are no specific policies for the format for the organization of documents (i.e., paper documentation vs. electronic documentation), and grantees also can establish their own chart of accounts.
Differences in Circulars
Each circular provides differing options for that particular sector. Among the methods in Circular A-21 for documenting time and effort are plan confirmations, whereby the employee's planned activity is identified at the beginning of the term and certified at the end; after-the-fact activity reports, in which level of effort is reported on a periodic basis; and multiple confirmation records.
Circular A-87 addresses documentation for employees charged to one indirect activity, one direct activity and multiple activities. It also discusses the role of budge testimates, in which interim charging purchases must be reconciled quarterly with the SF-269, and a substitute system that uses a reasonable estimate of charges (e.g., random moment sampling, case counts) as an alternative to actual timekeeping.
The requirements in Circular A-122 for nonprofit organizations are stricter. They call for after-the-fact determination, as budget estimates explicitly do not qualify.
In addition, nonprofits must account for total activity of the employee, have effort reports signed by the employee or knowledgeable supervisor and prepare these reports at least monthly to correspond to one or more pay periods.

Overtime also must be considered. For example, if an employee for a nonprofit actually works 50 hours although he is salaried to work 40 hours per week, the grantee must report all 50 hours. If 10 hours were worked on Project A, while 40 were worked on Project B, Project A would account for 20 percent of the effort and Project B would account for 80 percent. Grantees should account for total time worked by the employee to determine these percentages.
A grantee may alter a timesheet as a cost transfer if a charge must be corrected.
However, auditors likely will ask why the grantee made the change. If there is a justifiable reason, the change will be accepted, but if charges are adjusted simply to use federal funds on other projects, they could be considered questionable costs. Grantees should try to keep such changes to a minimum, but if they are necessary, grantees should document why they made the change. "