Electronic Cost Transfers Risk-Based Assessment NCURA April 25, 2007 University of California San Diego Presenters: Lyle Kafader & Rachel Mercado

Cost Transfer Environment Federal Regulations Governing Cost Transfers: –OMB Circular A-21 Section C –NIH Grants Policy Statement, part II, subpart A, Cost Consideration, Cost Transfers Growing volume of cost transfers due to increased numbers of contracts & grants Increased audit scrutiny No additional administrative support

What to do? Keep a centralized process to assure adequate controls? Decentralize the process to increase speed and efficiency? No – CHANGE THE PROCESS and USE TECHNOLOGY

Goals for the New Process Improve compliance Improve accuracy and timeliness Improve integrity of process Increase credibility with auditors Avoid risk of audit disallowances Eliminate duplication of key entry Manage volume Reduce paper documentation Improve cost effectiveness

Leveraging Technology Easy “Quicken/TurboTax” user interface Use existing system information – don’t make folks re- type things Prompt users to put the relevant information in the explanation Automated risk evaluation – only have staff review transactions that are high risk Sampling to assure quality on low risk transactions

The New Electronic Cost Transfer System Web-based Easy selection of transactions to transfer notification in lieu of signature Streamlined process

How do we do it?

Decision Tree – The Heart of Electronic Cost Transfers Simple version of an “Expert System” Binary Tree – Each Decision is a “Yes or No” – there are no maybes. Each “Decision Node” is a separate program. The database defines the order that the decisions are made and the result of the outcome.

Decision Tree Sample

Low Risks Cost Transfers No central office review prior to posting Post to the ledgers after department approval Subject to Post Transaction Audit Program (PTAP)

Examples of Low Risks Cost Transfers Moving cost from one cost center to another within the same fund Moving cost from one expense account to another within the same fund Moving applicable cost from an old fund to a competing renewal fund

High Risk Cost Transfers All are subject to Central Office Review for: Allowability; Reasonability; Allocability; Consistent treatment May need additional justification May need additional supporting documentation May require notification to PI May not be processed due to non-compliance

Examples of High Risk Cost Transfers Moving costs from an overdrafted fund to a federal fund Moving costs from a departmental fund to a federal fund that is ending with a good balance Moving costs that are over 90 days old to NIH funds Moving costs outside the project period of the fund receiving the costs

Post Transaction Audit Program – A.K.A. Transaction Sampling Verify that departments are following procedures on low risk Cost Transfers Random Sample of Low Risk Transactions every month Percentage determined by Extramural Accounting and Office of Internal Audit Review Process

What is involved with PTAP? Random sampling by system Samples (2% - 10% depending upon transaction amount) reviewed by Extramural Accounting for Allowability Reasonability Allocability Consistent treatment May require additional justification or documentation

Results From 2003 – 2006 there has been an average increase of 10% per year in the number of cost transfers processed with no increase in administrative staff to process them Decrease in the % of High Risk Transactions despite tightening of timeliness rules (in % were high risk now the average is 12%) Federal audits with no significant findings in the cost transfer area since 2002

URL’s for Decision Trees act.ucsd.edu/spear/EPET_decision_tree_V3.pdfhttp://www- act.ucsd.edu/spear/EPET_decision_tree_V3.pdf act.ucsd.edu/spear/ENPET_decision_tree_V7.pdfhttp://www- act.ucsd.edu/spear/ENPET_decision_tree_V7.pdf