Cost SharingThe Double Edge Sword

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Dennis J. Paffrath – University of Maryland, BaltimoreExecutive Director, Sponsored Programs Administrationdpaffrat@umaryland.edu 410-706-6723

Pre Award Cost Sharing Issues

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A policy should be put in place so that all parties involved in research (science and administration) have a guide as to how cost sharing should be handled

The policy should outline:Definitions and termsPurposeBackgroundProcedures, andResponsibilities

UMAB’s Policyhttp://www.ord.umaryland.edu/policies_procedures/costshare.html

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Proposal Review

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The Sponsor guidelines need to be reviewed for any cost sharing requirements. If required, cost sharing is considered mandatory. If not, cost sharing is considered voluntary.

Mandatory is the portion of the University contribution to a sponsored project that is required by sponsor

Voluntary is that portion of the sponsored project that the University and/or non-Federal third parties contribute to a project at their own initiative.

Proposal Review

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If either cost sharing type is included in a proposal the following must be asked:Is an internal budget included in the proposal

outlining the costs?Are the cost sharing costs directly allocated

to the project?Are the cost sharing costs listed in the

budget allowable by the sponsor?Can F&A be included as cost sharing?Has the PI listed cost share in the abstract or

technical portion of the proposal?

Cost Share Documentation

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Does your university require a cost sharing form to be completed?

University of Maryland Baltimore requires:Listing of Over-Salary CapCost Share commitmentsIn-kind cost sharing contributionsChartstring Information (Peoplesoft account

#)Signatures of PI, Division Chief or Center

Director, Department Chair and Dean

UMAB’s cost share formhttp://www.ord.umaryland.edu/policies_procedures/costshare.html

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UMAB’s cost share form

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UMAB’s cost share form

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Award set up

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Who handles the Award set up at your university?

At UMAB, the pre-award staff sets up the award.

Review award, if award cut then cost share should also be reduced

Companion account is set up along with the main account.

Post Award Cost Sharing Issues

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Documenting cost sharingSpecial issues with Voluntary Committed

Cost Sharing (VCCS)Cost sharing and F&A ratesSpecial issues with voluntary uncommitted

cost sharing (VUCS)Cost sharing compliance issues and

strategies

Cost Sharing Overview

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Cost Sharing, OMB Circular A-110, Section __.23

Cost sharing reflects the grantee’s contribution to a sponsored project

May include cash, property, equipment, and servicesUnrecovered F&A may be included with

sponsor approval

Documentation Basics

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Costs offered in satisfaction of a cost sharing obligation:Must be verifiable, i.e., supported by adequate

documentationAllowable under the applicable Federal cost

principlesAllocableGenerally may not be paid for by the Federal

government under another awardNo “double counting”

Documenting Compensation Costs Tendered as Cost Share

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Understand the capabilities of your T&E systemSome systems can only allocate actual salary

Reports may have to be manually adjusted to reflect committed effort expended but not charged

Use of “companion” accountsProposal budget is a guide to level of commitment, but is

not necessarily definitive

Need to educate system users on how account for cost sharing

Three Types of Cost Sharing

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MandatoryRequired by the sponsor as a condition of award

Voluntary committedProposed by the institution but not required by

the sponsorE.g., proposal promises 30% effort but requests 20%

salary supportVoluntary uncommitted

Neither required by the sponsor nor proposed by the institution

Voluntary Committed Cost Sharing Issues

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Investigators may have an incentive to propose cost share – ButToo much cost sharing may depress the F&A

rateThere may be inadequate sources of cost

shareFailure to document cost share may create

significant liabilityRepayment obligationPotential False Claims Act liability

Financial Treatment of VCCS

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Voluntary committed cost sharing must be tracked and accounted forBudget proposes 30% effort, no salary support

requested – 30% must be tracked as cost sharing

30% effort commitment, 30% effort provided, grant charged 10% of IBS -- must track the 30% provided

Compare with voluntary uncommitted cost sharingBudget proposes 30% effort and salary support;

faculty member actually provides 50% effort – 20% of the effort need not be tracked

F&A and Cost Sharing

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General rule: cost sharing is part of organized research direct costs and must be included in F&A denominator

Effect of rule: cost sharing tends to depress the F&A rate

Exception: voluntary uncommitted cost sharing need not be included in the baseJanuary 2001 OMB memo

How Indirect Cost Rates Are Determined

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Organized research F&A rate =

(F&A costs of organized research)divided by

(Organized research direct costs)Example:

F&A costs of $6 millionOrganized research direct costs of $10

millionF&A rate = $6 million/$10 million = 60%

The Effect of Cost Sharing on Indirect Cost Recovery

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Govt requires that all voluntary committed cost sharing go into the organized research base:$6 million in research indirect cost pool and $10

million in organized research base results in a 60% indirect cost rate ($6 mill./$10 mill.)

If $2 million in voluntary cost sharing is added to the base, rate is 50% ($6 mill./$12 mill.)

50% times $10 million = $5 million; $1 million in indirects must be absorbed by grantee

Voluntary Uncommitted Cost Sharing

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OMB Memorandum M-01-06, January 5, 2001No requirement to document or take into

account voluntary effort over and above effort committed in grant proposal E.g., Faculty member commits to 20% effort, provides

30% effort but charges the project 20% of IBS10% of the effort need not be reported as organized

researchNo impact on F&A rateWhere and how do you report voluntary uncommitted

cost sharing?

Sources of Compliance Risk

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Inadequate or no proceduresT&E system limitationsDepartments and centers with multiple

cost sharing obligationsAre there enough unencumbered sources of

support to go around?Increases the potential for “double counting”

Willingness to reduce or waive F&A recoveryIncreases financial pressure on the specific

department/center and the entire institution

Cost Sharing Audits

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Georgia State UniversityAuditors reviewed $8.9 million in costs under a Cooperative

Agreement between 2003 and 2004 that required over $4 million in cost sharing.

Auditors identified significant weakness in GSU’s monitoring of subawardee costs and cost sharing that resulted in $404,211 of questioned costs.

Auditors also noted several compliance deficiencies and internal control weaknesses with respect to maintaining proper documentation of payroll and other direct expenses, as well as cost sharing.

New Mexico HighlandsNSF identified “material” internal control deficiencies including a

lack of procedures to properly track cost sharing University of Hawaii

Inadequate documentation for roughly $1.7M of labor cost sharing contributions

Compliance Guidance

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Create policies and procedures for documenting cost sharing that are just as rigorous as those used to support direct charges

Create a separate account for each project with a cost sharing commitment

Track and report cost sharing on an ongoing basis; don’t wait until the project is over

Develop systems that can identify Federal flow-through dollars

Ensure that the effort reporting system tracks cost shared salaries

Carefully review proposals with a cost sharing commitment to ensure the commitment can be met

Require PIs to specifically identify sources of cost share

Monitor the amount of foregone F&A

Contact Information

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For additional information please contact:

Dennis J. PafrathExecutive Director, Sponsored Programs Administration

University of Maryland Baltimoredpaffrat@umaryland.edu