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Hot Topics in Grant Compliance

2012 Research ConferenceMay 17, 2012

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Harmony Van Valkenberg, MPADirector, Office of Grants & Contracts

Spectrum Health Research Departmentharmony.vanvalkenberg@spectrumhealth.org

Mandy L. Norman, MSGrants Compliance Specialist, Office of Grants & Contracts

Spectrum Health Research Departmentmandy.norman@spectrumhealth.org

Objectives

Enhance the professional development of researchers and research administrators by highlighting key areas of compliance for sponsored research

Improve your understanding of risk of non-compliance in grants management

Increase awareness of federal and state circulars and regulations related to grants.

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Significant Risks of Non-compliance

Risk to your organization:■ Damage to reputation■ Loss of funding/temporary or permanent shutdown of

research operations■ Loss of NIH line of credit draw down privileges■ Fines and penalties■ Susceptibility to False Claims Act Allegations

Individual risk to a Principle Investigator (PI)■ Loss of PI status■ Debarment and suspension■ Criminal and civil charges

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Public Demand for Improved Control

University of Minnesota Misuse of Federal Grants – $32 million

Johns Hopkins University Effort Reporting - $9 million

University of Michigan Chief Urologist Charged with Conflict of Interest - $100,000 penalty, 1 year probation

Harvard University Questioned Costs, Self-reported - $2.4 million

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Current Federal OIG Workplan Topics

Allowable Costs

Cost Transfers

Effort Reporting

Administrative and Clerical Salaries

Subrecipient Monitoring

Conflict of Interest

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Allowable Costs - 45 CFR Part 74 App E

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To be allowable under an award, costs must :■ Be reasonable for the performance of the award and be

allocable thereto under these principles. ■ Be accorded consistent treatment.■ Be adequately documented.

Sample unallowable costs:■ Individual membership dues/fees■ Food (unless for patients or conferences and approved in grant award)

and Entertainment Costs■ Late Fees■ Charging Valet Parking when Daily Parking is available at a lower rate

Allowable Costs - 45 CFR Part 74 App E

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Reasonable costs: the nature of the goods or services acquired or applied reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.

Consider the following - ■ Is the purchase consistent with established institutional

policies?■ Would you buy this item and pay this price if you had to

pay for it?■ Did you get the best possible price?

Allowable Costs - 45 CFR Part 74 App E

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A cost is allocable to a particular cost objective of the award in accordance with the relative benefits received.

■ If a cost benefits two or more projects or activities in proportions that can be determined, the cost should be allocated to the projects based on the proportional benefit.

Example: Two PI’s share a refrigerator for their separate grant funded studies. A cost allocation justification would be needed to document that one PI uses 50% of the space in order to charge 50% of the refrigerator to their grant. Documentation would include what method was used to make this determination.

Allowable Costs - 45 CFR Part 74 App E

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A cost is consistent to a particular cost objective of the award if it is treated consistently in estimating, accumulating and reporting costs

■ All costs for the same purpose, in like circumstances, are either direct costs only or F&A costs.

■ The costs most at risk include: membership fees, postage, office supplies, local phone charges

■ In recent audits, OIG has discovered costs charged to grants for convenience and unreasonable allocations of supplies charged to awards.

Cost Transfers

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What is a cost transfer?

■ An after-the-fact reallocation of the cost associated with a transaction from one project to another

Why is this a hot topic?

■ Too many cost transfers indicate inefficient management practices and a lack of internal controls

Cost Transfers

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Cost Transfers must be:■ Timely – within 90 days of the month end in which the

transaction appeared on the fund■ Documented – fully explaining the circumstances under

with the error occurred and the justification for transferring the costs to the receiving fund

■ Authorized

Cost Transfers

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Current Audit Environment■ OIG has conducted pilot audits of cost transfers and it is a

focus in close-out audits■ Auditors will look for excessive cost transfers across the

institution, lack of documentation, lack of training

Cost Transfer Audit Findings Could Lead to:■ Cost Disallowances■ Extrapolation of Findings■ High Risk Designation

Effort Reporting

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What is Effort Reporting?A means to verify that:■ appropriate salary and wage expenses were charge to

sponsored programs■ cost sharing was performed as promised■ total effort commitments were met■ labor costs were appropriately classified as F&A costs

How is this accomplished?By certifying 100% of all activities that comprise an individuals institutional base salary

Effort Reporting

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Compliance Risks:■ Faculty understanding, effective training■ Basis for calculating effort■ Unclear and/or undocumented definition of full time■ Not charging any effort or recording voluntary committed

cost sharing for PI’s■ How effort is estimated tracked, reconciled■ Unsigned effort reports■ Cost Transfers after effort has been certified■ Viewed as payroll verification

Effort Reporting

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Effort Reporting Audit Findings:■ Large Scale – Large settlements and newspaper headlines■ Small Scale – A-133 and internal audit findings, sponsor

disallowances, F&A reductions■ Extrapolation of audit findings■ “Snowball Effect” in which minor findings result in

extended federal scrutiny/decrease in future funding

Administrative and Clerical Salaries

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The regulations provide that such salaries are generally indirect costs, and therefore should not generally be charged to individual grants and contracts. [NIH GUIDE, Volume 23, Number 34, September 23, 1994 ]

Indirect costs are those that have been incurred for common or joint objectives, and thus are not readily subject to treatment as direct costs of research agreements or other ultimate or revenue producing cost centers [45 CFR Part 74 App E]

Administrative and Clerical Salaries

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It is vital that principal investigator fully justify in grant applications those situations where administrative and clerical support is necessary to the project, whether because of the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support, or the tasks to be performed under a particular project relate specifically to the technical substance of the project.

Administrative and Clerical Salaries

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Think back to cost allocation – costs must be assigned to a project in proportion to the benefit received

What costs are we talking about? Secretaries, administrative assistants, departmental administrators who do not serve a role in the “major project” “Major project”: projects whose principle focus is the preparation of materials/reports, project is geographically inaccessible to normal departmental administrative services, individual required for specific database management

Subrecipient Monitoring

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What is it subrecipient monitoring?■ Monitoring financial and technical progress on subcontracts

and subgrants awarded under prime federal awards■ Determining financial capability and compliance of

subrecipients

Core Elements of Compliance:■ Routine receipt of Technical Performance Reports■ Review of expenses to Budget■ Review of A-133 reports ■ On-site and desktop visits depending on risk■ Enforce corrective action cited by audit findings and subrecipient

monitoring visits

Subrecipient Monitoring

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Standard Research Administrator Responsibilities■ Advise subrecipients of requirements imposed by federal

regulations, laws, and provisions of the contract.■ Subrecipient monitoring visits and review of A-133 audits

Standard PI Responsibilities■ Monitor activities of subrecipients to ensure funds are being

used for authorized purposes and that performance goals are achieved

■ Review and approval of all technical and financial reports including invoices

Subrecipient Monitoring

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Common Issues in Subrecipient Monitoring:■ No PI approval of invoices■ No verification of F&A and fringe benefit rates■ Lack of proactive monitoring■ Failure to obtain/review/maintain technical reports■ Failure to involve Research Administrators ■ No verifiable means to support receipt of invoices

Conflict of Interest

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FinancialStock or other investments, ownership of companies, royalties

ObligationsBoard membership, trusteeship, consulting or contracting arrangements, employment, professional associations

RelationshipFamily, friends, mentors, collaborators, advisors

NIH new conflict of interest rules take effect Aug 24, 2012 http://grants.nih.gov/grants/policy/coi/

Conflict of Interest: OIG Audit Outcomes

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OIG Investigations could result in:■ Criminal prosecution■ Payment of restitution■ Debarment■ Divestiture of questioned assets■ Modification or declination of proposals■ Modification of research plans

Summary of Applicable RegulationsGrantee Type Admin

RequirementsCost

PrinciplesAudit

RequirementsState & Local Governments

A-102 (45 CFR Part 92)

A-87 A-133

______________45 CFR Part 74.26

Colleges & Universities

A-110 (45 CFR Part 74)

A-21

Non-Profits A-122

Hospitals 45 CFR Part 74 App E

For-Profits FAR 31.2(48 CFR)

Foreign 45 CFR Part 74 or Part 92

As stated above for your grantee type

NIH GPS use 45 CFR Part 74.26

Questions?

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