FINANCIAL MANAGEMENT
AND AUDIT
ANNE SHERMAN
PAT DEHOOP
KAL MARCHI
APRIL 13, 2010
1
COURSE TOPICS
1.
2.
3.
4.
5.
6.
Policies
Financial Management
Cost Transfers
Effort Reporting
Closeout Procedures and Reports
Audits
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1. POLICIES
• Federal
- OMB Circular A-21
- OMB Circular A-110
- OMB Circular A-133
•
•
•
•
Federal Demonstration Partnership (FDP)
State of Texas Laws and Regulations
Agency/Sponsor Policies
University Policies
3
RULES GOVERNING CONTRACT
AND GRANT FUNDS
Individual
Agreement
Terms
University Policies & Procedures
Sponsor Cost Policies
Federal Cost Policies
4
OMB CIRCULAR A-21
COST PRINCIPLES
• Direct and F&A Cost
• Reasonable, Allowable and Allocable
• Cost Accounting Standards (CAS)
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OMB CIRCULAR A-21
COST ACCOUNTING STANDARDS (CAS)
•
501 – Consistency in Estimating,
Accumulating, And Reporting Cost
•
502 – Consistency in Allocating Costs Incurred
for the Same Purpose
•
505 – Accounting for Unallowable Costs
•
506 – Cost Accounting Period
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OMB CIRCULAR A-110
UNIFORM REQUIREMENTS
OMB Circular A-110 contains
administrative management
standards for research grants.
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OMB CIRCULAR A-110
UNIFORM REQUIREMENTS
• Financial and Program Management
- Payment Methods, Cost Sharing, Program
Income
• Reports and Record Retention
- Financial Reporting, Retention
Requirements
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OMB CIRCULAR A-110
UNIFORM REQUIREMENTS
• Termination and Enforcement
• After-the-Award Requirements
- Closeout Procedures
(90 Day Requirement)
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OMB CIRCULAR A-133
AUDIT REQUIREMENTS
OMB Circular A-133 requires independent,
regularly scheduled audits of federally funded
research and student financial aid programs.
Annual audits include reviews of internal controls
and compliance tests of financial activity.
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OMB CIRCULAR A-133
AUDIT REQUIREMENTS
• Consistency and Uniformity
• Audit
• Auditees
• Auditors
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AGENCY POLICY
• Agency Requirements
• Expanded Authorities
• Federal Demonstration Partnership (FDP)
• Agency Specific FDP Guidelines
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STATE OF TEXAS &
UNIVERSITY POLICY
•
State of Texas
•
Board of Regents
•
UH Systems (SAMs)
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University of Houston (MAPP)
UH – Clear Lake
UH – Downtown
UH – Victoria
UH – System at Fort Bend
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2. FINANCIAL MANAGEMENT
• New Award Processing
• Award Cost Center Information
• F & A Cost Set-Up
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Award
Issued to
UH
AWARD PROCESSING AT UH
Negotiation/Acceptance
Issue Notice
of Award
to PI
Office of Contracts and Grants
Log in Award Document
Review
Award Set-Up
Prepare Notice of Award
Negotiation
Create Account
Acceptance
Project Management
PI:
- Performs research
- Initiates expenditures
- Technical reports
- Continuations
- Renewals
Dept:
- Post award management
- Process expenditures
- Approve expenditures
- Record-keeping
- Reconcile accounts
OCG:
- Post-Award admin.
- Approves expenditures
- Subcontracts
- Prior approvals
- Award adjustments
RFS:
- Invoices
- Financial Reports
- Close-Outs
- Audits
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AWARD COST CENTER INFORMATION
(Sample Data)
Business Unit
Department
Fund
Program
Project/Grant ID
00730
H0076
5022
B0001
G005461
PS Expense Budget Levels
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F&A COST SET-UP
• Identify F&A Cost Basis
• Determine Exempt Categories
• Specify PS Account Codes to be Excluded or
Included
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F&A COST RATE EXCEPTIONS
• F&A Reduction
• F&A Waiver
• Sponsor Mandated Rate Restrictions
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UH F&A COST ANALYSIS
• Are there exempt categories affecting F&A
costs?
• Have we prepared an F&A (IDC) analysis?
• Is agency prior approval required to reallocate
costs between direct to F&A?
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3. COST TRANSFERS
Cost transfers (reallocations) occur when
goods or services originally paid for
under one award (or department cost
center) are subsequently transferred to
another award (or department cost
center).
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COST TRANSFERS
Once an expense entry has been recorded in a
cost center in the general ledger, it is appropriate
to make expenditure adjustments only in the
following situations:
To correct an erroneous recording
To redistribute certain departmental costs that are applicable
and allowable to a sponsored project (e.g. long distance)
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COST TRANSFERS
Cost transfers involving federal and state funds
should be
A V O I D E D
altogether or kept to a minimum. Expenses should be
charged directly to the cost centers which they
benefit.
Processing cost transfers should not be an SOP for
managing your cost centers!
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COST TRANSFERS “DON’Ts”
Some invalid reasons for requesting cost transfers:
•
Lack of planning or projecting – convenience
(i.e., yearly review)
•
Lack of funds on a different grant
•
Unspent balances at or near expiration
•
Waiting for a new award, so “I will just use this other one until
then.”
•
F & A advantage
“My ARP/ATP doesn’t charge IDC so I will move my salary and wages to that
award from DOD and move my equipment from my ARP/ATP to my DOD
award.”
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COST TRANSFER GUIDELINES
Cost transfers must be fully explained, justified
and approved by the Principal Investigator, the
certifying signatory and the Office of Contracts
and Grants.
Supporting documentation as required by
sponsor and UH Policy should be on file with
transfer request forms.
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COST TRANSFER GUIDELINES
Cost transfers are a red flag to an auditor.
If you have a cost that should be direct charged to
more than one cost center, it is better to allocate it
to those cost centers then, rather than waiting
until after the charge has posted to reallocate it.
When you expect a new award, you should not
temporarily use an existing one. We recommend
interim funding to deal with that circumstance.
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COST TRANSFER GUIDELINES
If an employee transfers from one award to
another:
•
Process a PAR and position request (if needed)
immediately.
•
Do not allow payroll to continue to charge the original
cost center; do not reallocate later.
•
Make correction in the month following the error.
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COST TRANSFER GUIDELINES
Cost transfers made within the last 90 days of the award
period:
•
Highly subject to audit.
•
Auditors will examine both sides of the transfer to
determine if an overdraft and/or unexpended balance
were evident before the transfer.
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COST TRANSFERS
• Cost transfers are categorized as . . .
 Payroll Transfers
 Non-Payroll Transfers
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PAYROLL TRANSFERS
• Justification and documentation required
• Authorized Signatures
• Payroll Account Reallocation Form
• Still accomplished on paper, not through Work
Flow
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NON-PAYROLL TRANSFERS
Reasons for non-payroll transfer:
• Overdrafts
• Correcting a data entry error
• SCR from recharge center
• Account Code Change (i.e. equipment fabrication costs)
• Accomplished through WorkFlow
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4. EFFORT REPORTING
• After-the-fact Effort Reporting
• Quarterly
• Directly paid from Sponsored Project
• Cost Shared Effort
• Reporting through RD2K
• Paper Signature Certification
(biweekly personnel still use time sheet)
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5. CLOSING PROCEDURES AND
REPORTS
•
Closing Notices
•
Cost Share Reporting
•
Required Documentation
(non-cost share)
•
Closing Process
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CLOSING NOTICES
Advance Notice
90-60-30 day notice prior to grant end
date to Business Administrators and PI
providing guidance on how to handle
the closeout of the award
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CLOSING NOTICES
At expiration, a notice goes to Business
Administrator with copy to PI notifying
them that account is expired and is or
will be frozen.
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CLOSURE NOTICES
In the month that the final report/invoice is
due to the Sponsor, Research Financial
Services will request from Business
Administrator and PI:
•
•
cost-share documentation or
any other required documents for preparation of
the final report or invoice.
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FINAL INVOICE
Research Financial Services generates final
financial invoice or report and sends to Business
Administrator and PI for review before
submission to the sponsor.
Department Business Administrator and PI have 4 working
days to respond before submission.
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COST SHARE REPORTING
Cost Sharing – must be certified by DBA and
copies of expenditure documents must be
maintained in the department and supplied to
OCG upon request. Some projects require
backup documentation to be submitted with
invoices.
•
•
•
UH Participation
Matching
Third-party contributions
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CLOSING PROCESS
After project end date:
• Project-to-date account reconciliation – Department
• Unallowable review – Department
• F&A Reconciliation – Research Financial Services
• Cost Share Report – Department
• Financial Report and Invoice – Research Financial
Services
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CLOSING PROCESS
• Other closing documents:
 Property Report
 Invention/Patent Report
 Contractor Release
 Assignment of Rebates, Refunds, and Credits
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CLOSING PROCESS
• Sponsor Approval of Final Report/Invoice
• Final Payment Received
• Cash Reconciliation
• Residual Funds transfer (for fixed cost awards)
• RD2K Close and PeopleSoft Inactivation
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6. AUDIT
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AUDITS COULD BE PERFORMED BY THE
FOLLOWING:
• Sponsor
• An A-133 Auditor such as the State Auditors
Office or an external CPA firm like KPMG
• The UH Internal Auditing department
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AUDIT REQUEST ITEMS
A request from the sponsor or those conducting a
single federal audit could ask for any or all the
following information:
• Desk procedures
• List of accounts
• List of contracts and grants
• Copy of log maintained by the person monitoring
contract performance
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AUDIT REQUEST ITEMS
•
Copies of the “Disclosure or Potential Conflict of Interest
Form” and the “Related Party Disclosure Form”
•
Copy of the most recent account reconciliation
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Copies of the most recent time and effort reports
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Documentation of cost transfers
•
Other items
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UH INTERNAL AUDIT REQUESTS
A request from the UH Internal Audit department
will also cover the following areas:
• Department Policies and Procedures Baseline
Standards
• Reconciliation of Account Balances
• Cash Handling
• Petty Cash
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UH INTERNAL AUDIT REQUESTS
• Long Distance/Mobile Phone Charges
• Contract Administration
• Property Management
• Conflict of Interest/Related-Party Disclosure
• Accounts Receivable
• Negative Budget or Fund Balances
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AREAS OF POSSIBLE EXAMINATION
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Activities allowed or un-allowed
Allowable Cost / Cost Principles
Cash Management
Davis-Bacon Act (wages of workers on federal
construction project must be not less than local wages)
Eligibility (unique to each program)
Segregation of certain expenses (i.e. Participant
Support)
Equipment and Real Property Management
Matching, Level of Effort, and Earmarking
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AREAS OF POSSIBLE EXAMINATION
•
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Period of availability of federal funds
Procurement, Suspension, and Debarment
Program Income
Real Property Acquisition/Relocation assistance
Reporting – Technical or Financial
Sub-recipient Monitoring
Special Tests and Provisions (usually unique to each
program and involve laws, regulations, and the
provisions of contract or grants)
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AUDIT RED FLAGS
• Cost overruns
• Inadequate documentation of costs
• Cost transfers
• Costs incurred outside of funding period
• Recharge activities with financial surpluses
• Incomplete Effort Reports
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AUDIT RED FLAGS
• Recharge rates not approved or not applied
consistently to all users
• Account coding errors
• Unallowable costs charged to project
• Personnel Activity Request (PARs) not property
certified
• Technical reports not filed on time
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ADVERSE AUDIT FINDINGS
(Questioned Costs)
• Unallowable costs
• Undocumented costs
• Unapproved costs
• Unreasonable costs
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ADVERSE AUDIT FINDINGS
(Examples)
•
Program income not deposited to a designated
program income cost center for a particular project
•
Indirect costs charged as direct costs (i.e. personnel)
•
Improper transfers from grants accounts
•
Unauthorized equipment purchases
•
Improper asset disposal methods
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POTENTIAL IMPACT OF ADVERSE AUDIT
FINDINGS
• Cost disallowances
• Statistical extrapolation of errors in an audit test
sample
• Withdrawal of funding
• Increased scrutiny for future funding – Audit
finding may have to be disclosed with future
applications and proposals
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WHAT TO DO NOW
TO PREPARE?
• Do not wait for the Auditors. Prepare NOW.
• Read over the handouts
• Conduct an audit of your own operations
• Audit each other
• Have Research Financial Services conduct an
informal review
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AVOIDING AUDIT PROBLEMS
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•
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Review award documentation and setup
Monitor financial activity and compare to budget
Complete effort reports and reconcile to payroll
Keep PI informed of the financial status of their
contracts and grants
• Avoid cost transfers
• Submit timely reports to sponsoring agencies
• Ask for assistance
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COMMON AUDIT FINDINGS
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•
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Improper draw-downs
Program conditions or eligibility requirements not met
Untimely reporting to sponsoring agencies
Undocumented / late cost transfers
Fixed assets not managed properly including asset
disposal
Administrative processes and procedures not followed
Effort reports not completed or inconsistent with
payroll records
Source: UCSB Internal Audit Services
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SOURCES
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•
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Board of Regents Policy
National Council of University Research
Administrators (NCURA)
Society of Research Administrators (SRA)
University of California Santa Barbara Training
Program
Office of Management and Budget Circulars A-21, A110, and A-133
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