1. Advanced Topics & Subcontract Monitoring August 21, 2007 Gail White 865-974-2493 gwhite@tennessee.edu http://controller.tennessee.edu

2. 2 Topics Program income Expanded authority Subcontract monitoring

3. Program Income

4. 4 Program income UT has a new fiscal policy for program income University of Minnesota audit issues Program income covered in OMB Circular A-110 –“Gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award” –Income earned during the life of the award

5. 5 Examples Income from fees for services performed such as laboratory tests Money generated from the use, sale, or rental of equipment purchased with project funds Proceeds from the sale of supplies or equipment purchased or fabricated with project funds Proceeds from the sale of software, tapes, or publications Income from the sale of research materials such as animal models Fees from participants at conferences or symposia Sales of products with an accompanying material transfer agreement Royalties from patents and copyrights

6. 6 Identification All program income must be identified and recorded in the accounting system using cost element 700900 –But, not all program income must be reported to the sponsor

7. 7 Nonreportable Examples of nonreportable program income: –Income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks, and inventions produced under an award unless addressed in the award terms –Income received on non-federal awards that are silent on program income

8. 8 Pre-award treatment The PI should include anticipated program income in the proposal budget The campus research office should identify potential program income while reviewing the proposal and ensure that it is properly identified and budgeted according to federal and sponsor regulations

9. 9 Accounting treatment The departmental bookkeeper should deposit program income receipts into the sponsored project restricted WBS Element using cost element 700900 The campus / unit business office should determine whether or not program income is reportable to the sponsor and report as required

10. 10 Who decides how program income may be used? The campus / unit research office reviews sponsor policies to determine their requirements It is important for principal investigators to know how program income will be used because additional award funds could result in scope of work changes Reportable program income can be handled in one of four ways, depending on the sponsor’s policies

11. 11 4 methods Matching Addition Deduction Add/Deduct

12. 12 Matching method –Income is used to finance the nonsponsor or nonfederal share of the project Example: –A sponsor awards $100,000 for a project –The project generates an income of $30,000 Treatment: –If the University was required to supply matching funds of $50,000, the University would now have to provide $20,000

13. 13 Addition method –Income is added to the amount allowable for project costs Example: –A sponsor awards $100,000 for a project –The project generates an income of $30,000 Treatment: –The total project cost could be $130,000

14. 14 Deduction method –Income is deducted from the amount reimbursed by the sponsor Example: –A sponsor awards $100,000 for a project –The project generates an income of $30,000 Treatment: –The sponsor will now only fund $70,000 of the project's costs

15. 15 Add / deduct method Add / Deduct method –The addition method is used up to an agency dollar limit –After that point, the deduction method is used Example: –A sponsor awards $100,000 for a project –The project generates an income of $30,000 Treatment: –If the sponsor limit is $25,000, then $25,000 will be added to the total project cost, but $5,000 will be deducted from the sponsor's payment to reduce it to $95,000 –The total amount available is $125,000

16. 16 Federal sponsors Individual agency policies determine how the income will be handled However, most federal agencies specify default treatment in their grant policies –Research awards The addition method will be used –Non-research awards The deduction method will be used

17. 17 Non-Federal sponsors Applicability: –Non-Federal means there is no Federal flow- thru funding involved –If there is Federal funding involved, use Federal rules In many cases, the sponsor does not have an established program income policy If the sponsor is silent on this issue, the income is not reportable and will be handled according to the addition method

18. 18 Special situations Sales tax on program income Honoraria Royalty income

19. 19 Sales tax on program income –If program income is generated from the sale of taxable goods or services, then sales tax should be charged This is extremely rare –Contact campus / unit business office regarding procedures for collecting and remitting sales tax

20. 20 Honoraria –Honoraria earned from speaking engagements related to the sponsored program are not considered as program income if they are paid directly to the investigator –If the honorarium is paid to the University, then the sponsor might consider it to be program income

21. 21 Royalty income Royalty Income –Royalties from copyrights and patents, while defined as program income, are not reportable unless the terms and conditions of the award indicate otherwise –If the University receives income from the sale of a non-patented, but potentially patentable invention, then the Campus Business Office, Campus Research Office and UT Research Foundation should be notified. It may be advisable to notify the sponsor of the income to determine if it should be reported as program income.

22. Expanded Authority

23. 23 Expanded authority Many Federal sponsors give expanded authority to designated universities –The Federal government is transferring some of their administrative responsibilities to us.

24. 24 Applicability Terms may differ slightly between Federal agencies To perform certain administrative tasks –Described in the individual Federal agencies’ grant policies Applicable to certain awards only –Noted on the Federal grant document –Normally excludes cooperative agreements

25. 25 How it works UT has a designated “expanded authority” person on each campus / unit –UT PI submits written request for desired administrative action to UT designated person –UT designated person can approve the requests and then notify the Federal agency in writing

26. 26 Benefits / Cautions Reduces technical work delays –Easier process for UT’s PI Reduces paperwork between UT and the sponsor –Saves time and money for everyone Caution: –Federal agencies could deny us this privilege if we abuse it or are noncompliant

27. 27 Possible admin actions One-time no-cost extension of award end date Minor rebudgeting between line items of direct expenditures –Less than 10% of total award amount Incur pre-award costs up to 90 calendar days prior to award start date Carryforward unobligated balances to subsequent funding periods Subawards

28. Subcontract Monitoring

29. 29 Subcontract definition OMB Circular A-133, Subpart A.105 –Subrecipient means a non-Federal entity that expends Federal awards received from a pass- through entity to carry out a Federal program Does NOT include an individual that is a beneficiary of such a program –A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency –Guidance on distinguishing between a subrecipient and a vendor is provided in section 210.

30. 30 Terminology These are sometimes used interchangeably –Subcontracts –Subawards –Subgrants –Subrecipients Pass –through entity –A non-Federal entity that provides a Federal award to a subrecipient to carry out a Federal program (OMB Circular A-133, Subpart A.105) For example, UT receives $100,000 from NSF and subcontracts a portion of the work to University of Georgia for $25,000. UT is a pass-through entity.

31. 31 Subrecipient vs Vendor Subrecipient - Characteristics indicative of a Federal award received by a subrecipient are when the organization: (1) Determines who is eligible to receive what Federal financial assistance; (2) Has its performance measured against whether the objectives of the Federal program are met; (3) Has responsibility for programmatic decision making; (4) Has responsibility for adherence to applicable Federal program compliance requirements; and (5) Uses the Federal funds to carry out a program of the organization as compared to providing goods or services for a program of the pass-through entity. Vendor - Characteristics indicative of a payment for goods and services received by a vendor are when the organization: (1) Provides the goods and services within normal business operations; (2) Provides similar goods or services to many different purchasers; (3) Operates in a competitive environment; (4) Provides goods or services that are ancillary to the operation of the Federal program; and (5) Is not subject to compliance requirements of the Federal program.

32. 32 Cost elements Subcontractor –Cost elements 481100 and 482100 –Has a contract for services –Integral part of project providing collaborative effort BE SURE THAT YOU CHOOSE THE CORRECT COST ELEMENT WHEN PAYING INVOICES!

33. 33 Other cost elements Contractual services –Cost element 446000 –Has a contract for services –Not a collaborative relationship –Provides services available in market Such as testing samples, etc. Legal & professional fees –Cost element 437500 –Has a contract for services –All costs incurred for legal and professional services rendered under contract to the University. Examples: Lawyer's for handling specific cases, auditing services of outside Certified Public Accountants, contracted medical services, royalties, honorariums, etc. BE SURE THAT YOU CHOOSE THE CORRECT COST ELEMENT WHEN PAYING INVOICES!

34. 34 Subcontracts modifier (These rules apply to each subcontractor for the life of the project) Cost element 481100 –Subcontracts up to $25,000 Does incur F&A costs Cost element 482100 –Subcontracts greater than $25,000 Does NOT incur F&A costs for MTDC base (not Chatt & Martin)

35. 35 Example UT receives $250,000 from NSF and issues the following subcontracts: –University of Georgia $25,000 –University of Memphis $15,000 All payments would be in cost element 481100 UT receives an award amendment from NSF for year 2 that increases the funding to $500,000 and UT awards Georgia and Memphis an additional $25,000 and $15,000, respectively –At the end of the award period, charges would be as follows: Cost element 481100 = $50,000 (Georgia $25k & Memphis $25k) Cost element 482100 = $30,000 (Georgia $25k & Memphis $5k) Any additional award amendments with payments to these 2 subcontractors would be charges to cost element 482100

36. 36 Regulatory guidance OMB Circular A-133, Subpart D.400(d) UT Fiscal Policy FI0230 Sponsor regulations –Usually on their website in policy / procedure document

37. 37 OMB Circular A-133 Subpart D.400(d) –(d) Pass-through entity responsibilities. A pass-through entity shall perform the following for the Federal awards it makes: –(1) Identify Federal awards made by informing each subrecipient of CFDA title and number, award name and number, award year, if the award is R&D, and name of Federal agency. When some of this information is not available, the pass-through entity shall provide the best information available to describe the Federal award. –(2) Advise subrecipients of requirements imposed on them by Federal laws, regulations, and the provisions of contracts or grant agreements as well as any supplemental requirements imposed by the pass-through entity. –(3) Monitor the activities of subrecipients as necessary to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved. –(4) Ensure that subrecipients expending $300,000 ($500,000 for fiscal years ending after December 31, 2003) or more in Federal awards during the subrecipient's fiscal year have met the audit requirements of this part for that fiscal year. –(5) Issue a management decision on audit findings within six months after receipt of the subrecipient's audit report and ensure that the subrecipient takes appropriate and timely corrective action. –(6) Consider whether subrecipient audits necessitate adjustment of the pass-through entity's own records. –(7) Require each subrecipient to permit the pass-through entity and auditors to have access to the records and financial statements as necessary for the pass-through entity to comply with this part.

38. 38 UT Fiscal Policy Responsibility for compliance tasks –PI Pre-award Post-award –Campus / unit research office –Departmental accounting staff –Other campus / unit departments –Controller’s Office

39. 39 PI pre-award tasks Review statement of work and budget Request subcontract be issued Prepare “Justification for non- competitive purchase and contract” form Utilize small & small disadvantaged business where possible Include proposed subcontract in UT’s proposal to sponsor

40. 40 PI post-award tasks Review subcontractor invoices –Compare invoice with technical work done –Monitor spending as compared to proposal budget –Disallow unallowable charges –Sign invoices as approval for payment –Withhold final payment until all obligations have been fulfilled, including all deliverables & technical reports

41. 41 Research office tasks Assist PI with pre-award tasks Ensure authority to subcontract If Federal funds, ensure subcontractor has not been debarred Ensure that subcontract includes all Federal regs that flow-down Obtain Federal ID number Obtain subcontractor’s OMB Circular A-133 audit report and Title VI survey Review subcontractor budget & statement of work for reasonableness Ensure that UT bidding rules are followed Include subcontract financial terms that are compatible with prime sponsor’s financial terms Decide & document if subcontractor is to be granted Expanded Authorities

42. 42 Dept acctg staff tasks Assist PI with tasks Ensure proper cost element coding on invoices Ensure that all Federal financial requirements in prime sponsor award (that flow down to subcontractors) are followed by subcontractors –See next slide

43. 43 Flow-down rules Departmental accounting staff should review subcontractor invoices for the following: –Invoice period falls within the subcontract dates –Cumulative invoice payments are less than or equal to the subcontract award amount –Invoice line items add up correctly to the total due –Verify F&A calculation and that F&A rate (and fringe benefit rate, if applicable) matches proposal –Disallow unallowable costs –Compare invoiced costs to proposal budget Most Federal sponsors allow line-item rebudgeting of up to 10% of the award amount –Review costs to determine if they are correctly classified as direct vs F&A costs –Request additional information and backup documents from subcontractor as needed

44. 44 Invoice approval Subcontractor invoices should not be approved if technical performance is unsatisfactory Subcontractor invoices should not be paid if there are outstanding questions about costs Subcontractor invoices may be “short-paid” after subtracting unallowable costs

45. 45 Other campus tasks Purchasing Dept maintains list of small & small disadvantaged businesses Purchasing Dept and campus / unit business office must review & approve “Justification for non-competitive purchases & contracts” form = $5,000 or more

46. 46 Controller’s Office tasks Obtain Title VI surveys and OMB Circular A-133 audit reports on an annual basis from subcontractors

47. 47 Training classes 1 Overview of Accounting for Sponsored Projects 2 OMB Circulars & Cost Accounting Standards 3 Understanding F&A Costs 4 Direct Costing 5 Cost Transfers & Closeout 6 Cost Sharing 7 Subcontract Monitoring 8 Advanced Topics 9 Invoicing, Reporting & Cash Receipts 10 Sponsored Projects Reports in IRIS Other – IRIS reporting for sponsored projects