Association of College and University Auditors Compliance Track Research and Compliance Issues

1. Association of College and University AuditorsCompliance TrackResearch and Compliance Issues Jane A. Youngers, The University of Texas Health Science Center at San Antonio Amy Barrett, CPA, The University of Texas System Paige Buechley, CISA, The University of Texas System April, 2006

2. A Primer on Research IssuesPart I Jane A. Youngers Assistant Vice President for Research The University of Texas Health Science Center at San Antonio

3. What We Will Do Today • identify key research compliance areas • discuss fundamental regulations and resultant requirements • review “hot button” topics

4. Florida International UnivEffort Certification & Direct Costs$11.5 million Johns Hopkins UnivEffort Certification$2.7 million University of MinnesotaMisuse federal funds$32 million Univ California/San Francisco Animal Care Allegations$92,500 fine New York University Medical CenterInflated research grant costs$15.5 million Univ of Southern CaliforniaQuestioned Costs HHS/OIG Audit$400,000 Results of Non-Compliance: Significant Audits/Settlements Mayo FoundationMischarging federal grants$6.5 million East Carolina UnivQuestioned Costs HHS/OIG Audit$2.4 million Cornell MedicalClinical Research Issues$4.4 million Univ Alabama/BirminghamEffort Certification & Clinical Research Billing$3.4 million Harvard/BIDMC Costing Issues Self-Reported$3.25 million Northwestern University Committed Time/Effort $5 million

5. Conflict of Interest Misconduct Cost Sharing Effort Reporting Purchasing Intellectual Property Data Management Subcontracting Export controls Human Participants Animal Welfare Property Management Technical Reporting Socio-Economic Biosafety Chemical Safety Radiation Safety Privacy A Sampler ofCompliance Areas

6. What Are the “Hot” Spots? • HHS Audit Plan FY 2006 provides insight • Other Examples: • HHS/OIG NIH Compliance Guide • Agency Audits/Reviews • Export Control Reviews • OBA Reviews of Biosafety Compliance

7. HHS OIG NIH Compliance Guide(as proposed in Federal Register, 11/28/05) • Identified elements essential to compliance program and provided exacting detail • Identified Risk Areas: • effort certification • cost allocation • reporting other support

8. HHS OIG FY06 Audit Plan • conflict of interest • direct charging of clerical and administrative salaries • cost transfers • subrecipient monitoring • level of commitment

9. Other Audits/Reviews • NSF “Labor Effort Reporting” • NIH Conflict of Interest Site Visits • OBA Review of Biosafety Compliance

10. What are the basic rules and regulations? OMB Circulars • A-21, Costing Principles (2 CFR 220) • A-110, Administrative Requirements (2 CFR 215) • A-133, Audit http://www.whitehouse.gov/omb/grants/grants_circulars.html Federal Acquisition Regulations (FAR)

11. OMB Circular A-21(2 CFR 220)Cost Principles for Educational Institutions • defines often-used terms • defines methods of F&A cost calculation • defines allowable and unallowable costs (the “j” section) • includes Cost Accounting Standards

12. Cost Accounting Standards • 501: consistency in estimating, accumulating and reporting costs • 502: consistency in allocating costs incurred for the same purpose • 505: accounting for unallowable costs • 506: consistency in using the same accounting period • CASB Disclosure Statement (DS-2)

13. OMB Circular A-110 (2 CFR 215)Uniform Administrative Requirements • sets maximum requirements for the government • sets minimum standards for institutions • individual agencies then implement • emphasizes • systems • written procedures

14. OMB Circular A-133Audit Requirements • standards for annual audit of federal funds • annual compliance supplement is particularly instructive re audit areas and “best practices”

15. What do federal rules involving sponsored programs have in common? • shades of gray Primarily Usually Normally Generally

16. Award Administration • Grants (federal) • rules fairly consistent • lots of budget flexibility • concept of expanded authorities • one-time no cost extension • carryforward of balances • incur pre-award costs • Grants (non-federal) • varies by sponsor • typically not as much budget flexibility

17. Award Administration:Rules of Costing • for a cost to be allowable, it must be: • reasonable and necessary • prudent person rule for reasonableness • is cost necessary for performance of project? • are costs incurred consistent with institutional policies?

18. Award Administration:Rules of Costing (cont) • allocable • assignable to a cost objective in accordance with benefits received • incurred to advance work under the project • consistent • costs incurred for the same purpose, in like circumstances, must be treated consistently as a direct or indirect (F&A) cost

19. Award Administration:Rules of Costing (cont) • unallowable costs • not reimbursable under award • examples: • alcohol • entertainment • meals • student aid, except on training awards • airline fares in excess of coach or on foreign flag carriers (with exceptions)

20. Award Administration:Rules of Costing (cont) • unallowable costs • individual awards may designate additional costs as unallowable • what happens to unallowable costs if they are charged to an award?

21. Award Administration:Rules of Costing • “sensitive costs” • administrative & clerical salaries • general purpose equipment • office supplies • memberships (unallowable on federal awards) • subscription costs & books • telephone charges other than long distance

22. Award Administration:Cost Transfers • cost transfer moves expenses from an account of one project to another project • cost transfers are necessary to correct errors • transfers should be exception NOT rule • must have documentation on why transfer necessary • 90 day rule • always a red flag (particularly salary transfers)

23. Award Administration:Compensation Employee compensation controlled by A-21, J.10 and by specific agency requirements • rate of pay • certification requirements • NIH Salary Cap (FY06: $183,500 Executive Level I) • Institutional base salary (NIH definition)

24. Award Administration:Compensation (cont) • Institutional Base Salary (per NIH) • annual compensation paid by an organization for an employee’s appointment whether that individual’s time is spent on research, teaching, patient care, or other activities • issue of clinical practice compensation • guaranteed by institution • shown on appointment and paid through institution • included in effort certification

25. Award Administration:Equipment Purchases • common definition: $5,000 or greater and service life of one year or more • general purpose equipment not usually allowable • if charged to project, principal use must be on project • purchase during last months of a project is problematic

26. Award Administration:Travel and Business Expenses • institution’s travel expense rules apply • meals other than travelers are unallowable “business” meals • entertainment expenses also unallowable

27. Award Administration:Consultants • institution personnel can’t receive extra pay to consult on institution-administered projects • to hire a consultant, use institutional policies • work for hire doctrine • consultants must be independent contractors as defined by the IRS

28. Award Administration:Project Periods • must incur cost within award period (and pre-award period, if applicable) • may generally extend performance period through no-cost extension • unused funds not sufficient reason for no-cost extension

29. Frequent Costing Questions • Allowability of: • home access to internet, • pagers, BlackBerry’s, PDA’s, • memberships, • subscriptions • extra-compensation for employees • accelerated Visa costs

30. Costing Issues: Effort Certification • OMB A-21, J.10 sets forth requirements • January 2001 OMB clarification memo • CAS Requirements • committed vs actual effort • accounting for effort

31. Costing Issues: Effort Certification • Effort Certification • faculty and professional staff • clerical staff • “suitable means of verification” • includes cost-shared effort • some institutions use plan confirmation systems

32. Common Issues and Risks in Effort Certification • Individual’s understanding of the certification • Clinical faculty/VA appointees • Who signs • What about K awards or salary cap • Accounting for “donated” effort

33. Costing Issues: Cost Sharing • Cost Sharing • controlled by OMB A-110, __.23 • mandatory vs voluntary • committed vs uncommitted • definitions and specific requirements for what constitutes cost sharing • must be identifiable in recipient’s records

34. Costing Issues: Cost Sharing (cont) A-110 Requirements: • verifiable in institution’s records • necessary and reasonable • allowable under cost principles • not other federal money • in approved budget • conform to other provisions of A-110

35. Costing Issues: Program Income • gross income earned that is directly generated by a sponsored activity • can include: • fees for service • use or rental of real or personal property • sale of commodities or items made under award

36. Costing Issues: Program Income(cont) • may be used as: • additive • cost sharing • deductive • for research, always additive • for other programs, unless specified, is deductive