marrying costing decisions with compliance over the lifecycle of an award leading excellence in...

Marrying Costing Decisions with Compliance over the Lifecycle of an Award

Leading Excellence in Research Costing Practices

Pre-Conference October 12, 2015

2

Presenters

Susan Wyatt Sedwick, PhD, CRA, Consulting Associate

Attain LLC Brian Bertlshofer, Director, Cost Studies

University of North Carolina-Chapel Hill Kevin McHugh, Managing Director,

Valuation & Financial Risk Management Navigant

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Objectives

Identify the direct and indirect considerations that arise as costing decision points during the lifecycle of an award

Consider how policy and procedures development in response to guidance and regulations including Uniform Guidance impact compliance in the long run

Understand the role of internal controls in assuring compliance

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Pre-award

Post-award

Beyond the award

Costing decisions span the life cycle of a sponsored award and beyond.

5

Policy

Internal Control

s

Procedures

6

Disclosure Statement As a Tool for Dialogue

Fringe Benef

its

LeaveInsurancePension

DS-2 Procedures

Service

Centers

MajorRecharge

7

Cost Accounting Standards (CAS) and Disclosure Statement

An Institute of Higher Education (IHE) receives aggregate Federal awards totaling $50 million or more in Federal awards in its most recently completed fiscal year must comply with the Cost Accounting Standards Board’s cost accounting standards

The minimum threshold to submit a Disclosure Statement (DS-2) was raised from $25 to $50 million in Federal awards with the UG (200.419)

8

Cost Accounting Standards (CAS) and Disclosure Statement

Amendments to DS-2 are required 6 months in advance of any changes of a disclosed practice

Can implement new change or changes if no response from the cognizant agency

Amendments to DS-2 may be submitted at any time.

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Solicitation/Opportunit

y

Proposal Develop

ment

Institutional Authorizati

on

Award Accepta

nce

Project Manage

ment

CloseoutTech

TransferAudits Life Cycle

of a Sponsored

Project

10


y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

11

Costing Considerations for Reviewing the Solicitation

Cost share requirements Salary caps Indirect costs rate allowed Budget requirements (modular, JIT) Is this research or services?

UBIT Considerations

12


y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

13

Budget Preparation at Proposal Development

Consult proposal announcement/guidelines

Review project with PI/Project Team to determine budget needs

Determine appropriate F&A rate Calculate cost share Develop a comprehensive budget

justification

14

Appropriate F&A Rate Selection Organized Research – All research and

development (R&D) activities of an institution that separately budgeted and accounted for (2 CFR Part 200, Appendix III, A.1.b) Sponsored Research – all R&D activities that

are sponsored by Federal and non-Federal agencies

University Research – all R&D activities that are separately budgeted and accounted for by the institution with institutional funds

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Appropriate F&A Rate Selection Instruction – Teaching and training

activities of the institution (2 CFR Part 200, Appendix III, A.1.a) Sponsored Instruction – specific instructional

or training activity established by grant, contract, or cooperative agreement (curriculum development)

Departmental Instruction – research, development and scholarly activities that are not separately budgeted and accounted for

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Appropriate F&A Rate Selection Other Sponsored Activities – Programs

and projects financed by Federal and non-Federal agencies which involve the performance of work other than instruction and organized research (2 CFR Part 200, Appendix III, A.1.c) Health service projects Community service programs Seminar, conference, symposium, workshop

or travel grants Program Evaluation

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Costing Considerations for Proposal Development

Budget Administrative Costs Personnel Indirect Costs Cost Share

Facilities Capitalized costs

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Budget Preparation at Proposal Development

Comply with appropriate guidance (UG, sponsor solicitation, state, institution, etc.)

Contain costs that are: Allowable Allocable Reasonable Consistently Applied

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Allowable according to applicable regulations Terms and conditions of the award Uniform Guidance Institutional Policy

Allocable Incurred specifically for the award Benefits the award and can be traced back to a

specific action Can be assigned to the award in reasonable

proportion to the benefits received

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Reasonable to a prudent person It is necessary for the performance of the award? Does it advance the scope of work? Would it withstand external review by a rational

individual?

Consistently treated in like circumstances Administrative and Clerical Office Supplies

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Budgeting at Proposal Development

Direct CostsIndirect Costs

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y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

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Costing Considerations for Institutional Authorizations

The myth of lead time

Routing

Submission

24


y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

25

Costing Considerations for Award Acceptance

• How are these approved?

Budget revisions

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Indirect (F&A) Costs – Subawards (200.414)Competitive proposals that include subaward(s)

If a Federal program has a published statutory F&A cap, that rate must be used by the institution and all proposed subrecipients

For all other programs, if the subrecipient has a negotiated F&A rate, it must be used

In absence of a Federally negotiated rate, a 10% “de minimis” rate must be used. Lower rates should not be negotiated with subrecipients

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y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

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Costing Considerations for Project Management

Prior approval of administrative costs Budget revisions Cost transfers

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y

Proposal Develop

ment


on

Award Accepta

nce

Project Manage

ment

CloseoutTech


of a Sponsored

Project

30

Costing Considerations forCloseout/Tech Transfer/Audit

Cost overruns Disallowances Tech transfers

Faculty startups Facility use

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Policy vs. Procedure

Regulation or Law

Policy Procedures

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Policy

•Broadly defined and applied

•High level approval for revisions or implementation

•Change infrequently

•“What” and “Why”

Intenal Co

ntro

l

•Process•Assess risk•Monitor compliance with policies and procedures•Reasonable but not absolute •Roles and responsibilities•Internal audit

Procedure

•Narrowly and actively defined and focused

•Subject to revision and continuous improvement

•“Who,” “When,” and “Where”

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UG Subrecipient Monitoring

Policy

Procedure

Internal Control

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Documented RiskAssessment Mandatory monitoring obligations include:

review of subrecipient technical and financial reports; following up and ensuring that the subrecipient takes timely and

appropriate action on deficiencies detected through audits/on-site reviews, and other means;

issuing a management decision for audit findings as required in §200.521;

verifying that a subrecipient received its mandatory Single Audit if the entity exceeded the $750,000 threshold (increased from $500,000) for federal funds expended in the previous fiscal year.

Additional monitoring/T&Cs up to desk and site audits determining whether enforcement action is needed against

noncompliant subrecipients (See § 200.338).

§200.331 Subaward Risk Assessment & Monitoring

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Subcommittee of the Expanded Clearinghouse initiative of the Federal Demonstration Partnership (FDP)

Initial goal was to develop a risk assessment document to streamline and support institutional risk assessment of subrecipients in compliance with Uniform Guidance

Risk Assessment Questionnaire (RAQ) released in 2015 along with RAQ Guidance document

Currently working on reassessment questionnaire Survey of FDP institutions regarding use of the tool

FDP Initiatives

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3636

UnscoredQuestions

Scored Questions

Subrecipient risk is multi-faceted and no single issue should cause a subaward to be deemed high risk.

FDP RAQ

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Moderate risk threshold will be set by the institutional and project

scores.

Moderate risk begins when

the score equals the

average plus the average deviation.

High risk threshold will be set

by the total score.

High risk begins when the score

equals the average plus

twice the average

deviation.

Content Courtesy of Robert Prentiss, UT Austin

The UT Austin Plan

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UT Austin Desk Review Process

High Risk and random samples of Moderate

Risk

Sub given five business days to

provide detail documentation

Confer with PI as needed

Sub given 5 business days to provide documentation

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How will your institution be conducting subrecipient

risk assessments?

What are your thoughts on

the FDP questionnaire

and UT-Austin’s implementation

of it?

What are your plans

for monitoring?

Other questions?

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Decisions at Proposal Stage that Impact F&A Rate Development All Committed Cost Share must be

added to the F&A rate denominator (research base) for F&A rate development

Same for Over-the-Salary Cap “Cost-Share”

Cost overruns on sponsored awards must be in F&A rate base (Cost of performing the research)

UG makes it easier for Administrative and Clerical, computing devices to be a direct cost

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Decisions at Proposal Stage that Impact F&A Rate Development What does this mean?

Increase in direct costs which means an increase in the F&A rate base

Decrease in costs previously identified as indirect costs (F&A rate numerator)

Higher direct costs with decreased indirect costs usually equates to a lower F&A rate

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An Overview of Building Componentization

How Would Such a Study Help My Institution?

Basis for reimbursement of depreciation on construction and renovations/improvements

Monitor facility’s condition for internal planning purposes

Project capital improvement needs (often used in a facilities’ 5/10 year plans)

Increase depreciation percentages, sometimes significantly, depending upon current capitalization, maintenance and lifing policies and procedures

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Sample Building on a Use Allowance Basis

Life = 50 years

Sample Building via Componentization Basis

Building Shell Life = 50 years

Electrical / Lighting Systems Life

= 20 years

Elevator System Life = 25 years

Fire Detection System Life = 25 years

Plumbing Systems Life = 20 years

HVAC System Life = 20 years

Interior Finishes Life = 20 years

Roof Covering Life = 20 years

Fixed Equipment Asset Classification Life

= 15 years


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Next Steps in Moving Forward: Determine the buildings to be included Identify the building components Perform a lifing analysis based upon “Institutional

Experience” Determine historical or estimated original cost

information Deduct federal contribution, as and if applicable Segregate the fixed equipment costs Review Use Allowance/Depreciation already taken (as

and if applicable) Calculate depreciation for each component Implement perpetuation policies/procedures to keep the

study current


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If you do not currently componentize your research buildings, how do you know if this is best for your institution? Consider a Diagnostic Review Study. Select a reasonable sample size of buildings used in

Organized Research Determine Federal Contribution (as and if applicable) Select three buildings which should be of different

vintages: Old (Renovated) Middle Aged (Renovated) New

Perform a comparison analysis of the results of the selected sample of buildings (calculation of depreciation)

If the analysis is towards implementation of componentized depreciation, then move forward with those remaining buildings used in Organized Research

Be consistent in your selection of buildings to be componentized (typically all buildings with __% and greater of organized research activity


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Why Maintain an Accurate Moveable Equipment Inventory? Federal and State Financial Reporting Requirements Possible misleading financial statements Qualified Auditor’s Report (A-133) Stewardship of fixed assets Risk Management – Property Insurance Basis for capital budgeting Avoid the possible purchase of unneeded assets Identification and disposal of surplus property Public scrutiny

An Overview of Moveable Equipment Inventories

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Possible Limitations of Equipment Inventory Records Inconsistency in following the institution’s

“Capitalization Policy” Improper classification of assets Unrecorded retirements, additions & transfers Unit/group records Incorrect or lack of descriptions, serial number, model,

etc. Age/accuracy of the current inventory


48

Problems Controlling Fixed Assets Budget cut-backs, thus staff reductions Assets are not fixed Staff turnover People do not think it is important People protective of “their” assets, purchased under

“their” grants Assets transferred from another institution

Asset Control Capitalized Controlled Expensed

*Distinction is Important


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Policy Considerations What to Capitalize

Useful life Cost (Threshold)

Considerations Number of assets to be recorded Volume of transactions Materiality – Effect on Financial Status

Periodic Review

Threshold Considerations Do we go from $500 to $5,000; or look at impact at

lower thresholds? Minimum dollar or historical cost amount to “qualify” as

a fixed asset vs. an expense/supply Reconsideration of “major” vs. “minor” equipment

designations

Threshold Considerations

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Internal Controls

Background In 1992 COSO changed the way that auditors will look at

internal controls based upon several significant audit failures that occurred in the 1980’s

Internal control is broadly defined as a process effected by an entity’s management and other personnel, designed to provide reasonable assurance regarding effectiveness and efficiency of operations, reliability of financial representation and compliance with laws and regulations

Internal controls not only applies to institutions with higher education, but state, federal and corporate sectors as well

It is predicted that substantial audits will be performed for internal controls all areas with your institution

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Internal Controls

Major Components1. The control environment which includes the integrity,

ethical values and competence of an institution people

2. Risk assessment

3. Control activities

4. Information and communications that encompasses the methods for the identification, capture and communication of pertinent information in a timeframe that enables people to carry out their responsibilities

5. Monitoring

All of the above combine to form an integrated system with controls, all five components must be present and functioning.

52

Internal Controls

How to Determine Strengths and Weaknesses1. Design a template of 25 to 30 questions to address the

basis with the 5 control components

2. Conduct interviews either as a “focus group” or “individuality” depending on the size of the departments

3. Summarize the results with the interviews and identify strengths and weaknesses in each of the five control components

4. Can you conclude that your institutions managers share the same perception regarding operations and controls in the areas of responsibility? If so, your risk is not as great! If not, the risk that controls may not be working properly rises significantly!

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Internal Controls

Next Steps After your Reviews1. If you feel that you have a reportable condition, raise

the flag to executive management

2. Validate your process in the event of probable audit review

3. Document your final assessment and point to your strengths and weaknesses and document your corrective action plan as and if necessary

4. Indicate periodic and consistent monitoring plans to monitor compliance

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Internal Controls Property and Equipment

Objectives Equipment is properly identified. Equipment is properly labeled with a tag. Proper object codes are used. Property Control is notified of equipment acquired

other than through the standard University procedures.

Property Control is notified of equipment lost, stolen, salvaged, or scrapped.

Inventory is conducted annually/biannually depending upon your institution’s policies.

Risks Non-compliance with federal or state regulations Not identified as equipment (not in system). No record for insurance claims or theft. Reduced value of the inventory system (affects

depreciation, which impacts the [F&A] cost rates). Value of equipment inventory overstated.

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You may want to consider an Audit Checklist Equipment purchases are made in accordance with

purchasing guidelines, properly authorized, and recorded.

Proper equipment object codes are used for equipment with a per unit cost of $5,000 or more and with a useful life of more than three or more years.

All University equipment have an asset tag that is easily visible.

Property Control are notified of: Donations, transfers, or fabrication of equipment. Equipment lost, stolen, salvaged or scrapped. Equipment moved to an off-campus location.

If you utilize an annual departmental inventory report is completed and returned to Property Control by the due date.

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Internal Controls

Property and Equipment Movable personal property must be inventoried and

tracked if: Estimated usable life of one, two or three or more

years. Acquisition cost of $3,000 or more.

Some Universities also inventory items costing under $3,000 but more than $500 which include: Office Machines. Electronic Audio/Visual Equipment. Photographic Apparatus.

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Some institutions control inventory for: Books if procured through the Library Accounts and

catalogued by the Libraries. Firearms. Art objects / Antiques. Vehicles licensed for road use.

Items received from other sources do require action initiated by the custodian: Notice of Change in Departmental Equipment. Notify the University Property Control Office. Equipment transferred into your institution or

transferred out with PI transfers. Departments need to be responsible for:

Notification of equipment transfers. Completion of an annual physical inventory. Ensuring initial and annual authorization of off-

campus equipment.

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Internal Controls

Your Institution Needs to Consider Surplus Property Regarding:

Acquistion, Reutilization, and Dispositionof excess, surplus, unassigned, and unneeded equipment.

Remove Items: Disposed, Cannibalized, Traded-in, or Judged obsoletefrom the departments accountable records.

Whenever the loss or theft of equipment is discovered, the custodian must: Immediately report the loss to Campus Police. Submit a Notice of Change and copy the police report

to Property Control.

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Property Accounting Policies & Procedures Guidance

1) Introduction

2) Transaction Types Additions Changes Retirements Adjustments

3) Policies and Procedures Responsibilities Policy Timing Leased Assets Capitalization Costing Donated Assets

4) Tagging Procedures

5) Forms/Disks

6) Coding Structures

Policies and Procedures

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Internal Controls forPolicies and Procedures Policies and Procedures

As part of your internal controls your institution should review and update of all Policies & Procedures in place at your institution including your capitalization policies and procedures regarding real, personal and intellectual/intangible assets.

As a suggestion, asset lifing standards should be reviewed as well to reflect your institutions experience and consistency. Periodic reviews are encouraged by both the FASB and GASB and these reviews are in compliance with GAAP financial reporting standards.

These Policies & Procedures need to be clear regarding Government Furnished Property (GFP) vs. Grant Acquired Property.

Policies & Procedures should address how your institution addresses Excess Property, Surplus Property as well as Leased Property and “Computing Devices” as directed in UG.

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Internal Controls forIntangible Assets

Intangible Assets These assets typically comprise:

Patents Trademarks/Tradenames Copyrights Lease Agreements Loans/Notes /Other Debt Instruments Non – compete agreements All associated costs and Royalties must be considered Usually housed in the Institutions Legal Department

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Internal Controls forReal Property

Real Property Assets Comprise: Land Land Improvements Infrastructure Buildings/Building Services Leasehold Improvements Leased Facilities vs. Owned Facilities Plant and Security Costs Donated Property

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UG Procurement - Micropurchase

Policy

Procedure

Internal Control

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Contact Information

Susan Wyatt Sedwick [email protected]

Brian Bertlshofer [email protected]

Kevin McHugh [email protected]

mailto:[email protected]



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