Direct Charges and Effort ReportingFor Federally Sponsored Projects

presented by Steve Todd, Associate DirectorJames Mizell, Sr Accounting ManagerVUMC FinanceAcademic and Research Enterprise

Clinical Research Center

Government Shows Growing Concern over Effort ReportingErrors and inaccuracies in effort reporting are costly and can put our research programs, as well as those of the entire institution, in jeopardy. Recent settlements between medical institutions and the US Department of Justice over alleged misuse of federal grant money:

Direct ChargeUnderstanding Direct Charges Guidelines

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Regulatory Guidelines for Direct Charges to Federally Sponsored Projects

Sections C, D and J of OMB Circular A-21 deal with direct costs, allowability, and unallowable costs.

Cost Accounting Standards (CAS) regulate consistency in reporting costs, allocating costs incurred for the same purpose in like circumstances, and accounting for unallowable costs.

In accepting a federally-sponsored grant or contract, Vanderbilt agrees to abide by certain federal rules and regulations regarding the use of the funds.

Direct Costs Defined

Costs that can be identified specifically with a particular sponsored project, or

That can be directly assigned to such activity relatively easily with a high degree of accuracy

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Is the cost…

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Reasonable

“A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, 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.”

(OMB Circular A-21, Section C.3)

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Allocable

Costs incurred for the benefit of only one project or costs that can easily be assigned to multiple projects which benefit.A cost is considered allocable if the goods or services involved are assignable to the sponsored project in accordance with the relative benefits received by the project.

Lab Supplies Order in eProcurement

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Consistent

A cost charged to a federally-sponsored project should be given treatment consistent with the treatment such a charge would receive if it was charged to a non-federal funded project.It does not matter what it is, what matters is how it is used.

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Allowable

A cost is considered allowable if the cost meets the three tests – reasonable, allocable, and consistent - and is considered allowable according to the award agreement, Generally Accepted Accounting Principles (GAAP) and other applicable regulations.

(See pages 12-14 of VU Guidelines for Budgeting and Charging Direct Costs for additional information.)

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Accounting for Unallowable CostsMany costs which are specifically identified as unallowable for federally-sponsored grants or contracts may be allowable if paid for from institutional or non-federal funds. Federal regulations specifically prohibit many costs from being charged to federally-sponsored grants or contracts.

Specifically Prohibited Costs Advertising for general

promotion of University Alcoholic beverages Fundraising Antiques Bad debt write-offs Charitable contributions Commencement expenses Decorative Objects Entertainment Fine/original Art Fines and penalties

First class / business class travel differentials

Flowers Gifts and Awards Goods / services for personal

use Lobbying Membership in airline travel

clubs Selling or marketing products

or services of the University Social events Membership in civic, social or

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Effort Reporting

OMB Circular A-21“Cost Principles for Educational Institutions”The principles that govern how colleges and universities must document time and effort on federal grants and contracts appear primarily in OMB Circular A-21. Section J.10.b(2) of Circular A-21 (revised 5/10/04) sets forth six standards for payroll distribution that provide a reasonably clear outline of a compliant time and effort reporting system. Key points are: The system of allocation of salaries based on effort must be “incorporated into the

official records of the institution.” The system must “reasonably reflect the activity for which the employee is

compensated by the institution.” The system must provide some form of “after-the-fact confirmation or

determination” of the reasonableness of the salary allocations to federal grants. Employee salary allocations must be confirmed by the employees themselves or by

“responsible persons with suitable means of verification that the work was performed.”

The payroll distribution system “may reflect categories of activities expressed as a percentage distribution of total activities.”

“Significant changes in the corresponding work activity must be identified and entered into the payroll distribution system.”

Why This Is Important To YouIn accepting a federally-sponsored grant or contract, Vanderbilt agrees to abide by certain federal rules and regulations regarding the use of the funds.OMB Circular A-21 deals with direct costs, allowability, and unallowable costs and requires that charges to federal grants and contracts be:

Reasonable Allocable Consistent Allowable

Reference Vanderbilt University’s Allowable Cost Guidelines for more information.

Why This Is Important To You Through the federal mandate for effort reporting systems, institutions must obtain certifications from all individuals working on a federally sponsored project.Accurate time and Vanderbilt professional effort reporting is a federal and institutional requirement.These records are subject to audit by our: Internal auditors, External auditors, and/or Federal sponsors.

What Goes Into VU Professional Effort

Effort percentages must be based on average of the actual amount of time spent on your VU professional work.

The number of hours each week may substantially exceed 40 hours.

VU professional time, includes, but is not limited to research, clinical, teaching, and administrative activities. It may include time spent at other locations or from home (e.g. reading journals relevant to research being performed).

Exclusions from Effort Reporting Any outside activity for which compensation is

paid (or would ordinarily be expected to be paid) directly to you as an individual from sources outside the University (e.g. consulting, NIH, VA, or volunteer work, such as President of AHA).

For activities deemed excluded from your VU effort, it is critical the Vanderbilt-funded staff (including administrative staff) not perform duties related to the work.

What You Must Know

If you are charged to federally sponsored projects, you must certify your effort each time your federal sources of salary change or if no changes, you must certify at least yearly.

Vanderbilt requires the Effort Report to be certified by the individual performing the work (rare exceptions).

The system used at Vanderbilt for salaried employees to certify effort is ePAC–electronic Personnel Action Change.

Hourly employees certify monthly for the previous month’s paid effort.

You are responsible for the accuracy of your effort report and should be comfortable with explaining it to an auditor.

Common Effort Reporting Compliance Problems Failure to include all institutional effort in the effort

percentage calculation (teaching, administrative, clinical, grant writing)

Inaccurate statements of effort on federal projects Faculty charged 100% to sponsored research Failure to account for unfunded effort Failure to adjust for significant changes in effort

levels between effort reports Use of a “normal” 40-hour work week as the basis for

the effort percentage calculation

Example

Assume that Dr. Jones works an average of 50 hours each week performing the following activities: 20 hours federal research (including evenings and weekends) 10 hours seeing patients (including evenings and weekends) 10 hours teaching medical students 5 hours attending departmental, institutional, committee and

other general meetings. 5 hours teaching fellows new laboratory techniques on T-32

grant

Dr. Jones' Effort

Example

Based on above, what is the allocation of effort? Dr. Jones’ Vanderbilt denominator is ? hours

50 hours=

100%

Assume that Dr. Jones works an average of 50 hours each week performing the following activities:• 20 hours federal research (including evenings and weekends)• 10 hours seeing patients (including evenings and weekends)• 10 hours teaching medical students• 5 hours attending departmental, institutional, committee, other general

meetings.• 5 hours teaching fellows new laboratory techniques on T-32 grant

Example

Based on above, what is the allocation of effort? Dr. Jones’ Vanderbilt denominator is 50 hours Research: 20 hours = Patient care: 10 hours = Instruction (non-grant related): 10 hours = Administrative (non-grant related): 5 hours = Sponsored research training: 5 hours =

Allocation of Dr. Jones' Effort

10%10%

20%

20%40%

Assume that Dr. Jones works an average of 50 hours each week performing the following activities:• 20 hours federal research (including evenings and weekends)• 10 hours seeing patients (including evenings and weekends)• 10 hours teaching medical students• 5 hours attending departmental, institutional, committee, other general

meetings.• 5 hours teaching fellows new laboratory techniques on T-32 grant

Example

Based on above, what is the allocation of effort? Dr. Jones’ Vanderbilt denominator is 50 hours Research: 20 hours = 40% Patient care: 10 hours = 20% Instruction (non-grant related): 10 hours = 20% Administrative (non-grant related): 5 hours = 10% Sponsored research training: 5 hours = 10%

Allocation of Dr. Jones' Effort

10%10%

20%

20%40%

Assume that Dr. Jones works an average of 50 hours each week performing the following activities:• 20 hours federal research (including evenings and weekends)• 10 hours seeing patients (including evenings and weekends)• 10 hours teaching medical students• 5 hours attending departmental, institutional, committee, other general

meetings.• 5 hours teaching fellows new laboratory techniques on T-32 grant

Example for Discussion

Assume that Dr. Jones works an average of 55 hours each week performing the following activities: 45 hours federal research (3 ROIs) 5 hours on outside activities for other

compensation to review grants for outside agencies and working as the editor of JCI (external publication)

The remainder on teaching and administrative activities for Vanderbilt

Example

Based on above, what is the allocation of effort? Excluded Time is ? Hours

Assume that Dr. Jones works an average of 55 hours each week performing the following activities:• 45 hours federal research (3 ROIs)• 5 hours on outside activities for other compensation to review

grants for outside agencies and working as the editor of JCI (external publication)

• The remainder on teaching and administrative activities for Vanderbilt

Example

Dr. Jones' Effort

Based on above, what is the allocation of effort? Excluded Time is Hours Dr. Jones’ Vanderbilt denominator is ? Hours

50 hours=

100%

Assume that Dr. Jones works an average of 55 hours each week performing the following activities:• 45 hours federal research (3 ROIs)• 5 hours on outside activities for other compensation to review

grants for outside agencies and working as the editor of JCI (external publication)

• The remainder on teaching and administrative activities for Vanderbilt

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Dr. Jones' Effort

Example

Based on above, what is the allocation of effort? Excluded Time is Hours Dr. Jones’ Vanderbilt denominator is Hours

50 hours=

100%

Assume that Dr. Jones works an average of 55 hours each week performing the following activities:• 45 hours federal research (3 ROIs)• 5 hours on outside activities for other compensation to review

grants for outside agencies and working as the editor of JCI (external publication)

• The remainder on teaching and administrative activities for Vanderbilt

550

Allocation of Dr. Jones' Effort

Example

Based on above, what is the allocation of effort? Excluded Time is Hours Dr. Jones’ Vanderbilt denominator is Hours Research: 45 hours = Teaching/Administrative: 5 hours =

10%

90%

Assume that Dr. Jones works an average of 55 hours each week performing the following activities:• 45 hours federal research (3 ROIs)• 5 hours on outside activities for other compensation to review

grants for outside agencies and working as the editor of JCI (external publication)

• The remainder on teaching and administrative activities for Vanderbilt

550

Allocation of Dr. Jones' Effort

Example

Based on above, what is the allocation of effort? Excluded Time is Hours Dr. Jones’ Vanderbilt denominator is Hours Research: 45 hours = 90% Teaching/Administrative: 5 hours = 10%

10%

90%

Assume that Dr. Jones works an average of 55 hours each week performing the following activities:• 45 hours federal research (3 ROIs)• 5 hours on outside activities for other compensation to review

grants for outside agencies and working as the editor of JCI (external publication)

• The remainder on teaching and administrative activities for Vanderbilt

550

Effort Certification – Non-exempt Non-exempt staff must certify their effort

once a month for the earnings periods paid in the previous month when working on a federally sponsored project. The effort certification resides in ePAC. Users will be prompted via email when certification is ready.

The effort certification statement reads as follows:“I certify that I have first hand knowledge of (or have used suitable means of verifying) work performed by this individual and that the salary distribution for the period covered is reasonable in relation to the work performed.”

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In this example, the employee is moving 4 hours of time recorded from center 4041234567 to center 3043456789. Click OK to complete the transfer of hours.

You will need to complete this action as many times as necessary so that the hours allocated match actual hours worked on each grant/project for each week.

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Click SAVE in order to see your total time allocated, including the hours you moved, in the TOTALS & SCHEDULE tab.

Also, notice the addition of the MOVED AMOUNTS tab.

Effort Certification - Exempt For exempt employees, certifications are

made using ePAC (the electronic Personnel Action Change application). Simply click the appropriate button to approve the certification.

The effort certification statement reads as follows:“I certify that I have first hand knowledge of (or have used suitable means of verifying) work performed by this individual and that the salary distribution for the period covered is reasonable in relation to the work performed.”

electronic Personnel Action ChangeePAC

Vanderbilt’s web-based system with electronic workflow for plan confirmation and effort certification (electronic Personnel Action Change)

Faculty/staff notification of effort certification requirement based on occurrence of designated events: Earnings Distribution Changes (EDC) Retroactive Distribution Changes (RDC) Annual Certification (ACR) Final Certification (FCR)

Electronic workflow approvals On-line tracking of distribution of personnel action change

status Interfaces to update Human Resource Management system

for position, job, and distribution changes and to financial systems for retroactive distribution changes

What is ePAC?

ePAC Effort Certification Email example

Earnings Distribution Change (EDC) or Retroactive Distribution Change (RDC) will be listed in the Distributions Worklist

Final Certification Record (FCR) or Annual Certification Rerecord (ACR) will be listed under the Certifications tab

Certifying a PAC

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Research Compliance Experts (RCEs)Clinical Departments

Anesthesiology – Stephen BruehlEmergency Medicine – Alan StorrowHearing and Speech – Jim BodfishMedicine – Blackwell, Su, Biaggioni, Andl, May, Fowke, Wilson, George, Brandt, Hulgan, Elasy, Pozzi, AuneNeurology – Subramaniam SriramOb-Gyn – Kaylon Bruner TranOphthalmology – John KuchteyOrtho – Ginger HoltOtolaryngology – David ZealearPMI (Pathology) – Larry SwiftPsychiatry – Ron CowanPediatrics – William Russell, John Phillips, Candice Fike, Michael Aschner, Lynn WalkerRadiology – Bruce DamonRadiation Oncology – Michael FreemanSection of Surgical Sciences – James Goldenring

As of December 2012

Research Compliance Experts (RCEs)Basic DepartmentsBiochemistry – Frederick GuengerichBiostatistics – Chun LiCell Biology – Steve HannCancer Biology – Fiona YullInformatics – Paul HarrisPMI (Microbiology) – Chris Aiken Molecular Physiology – David PistonPharmacology – Brian Wadzinski

As of December 2012

Useful LinksOMB Circular A-21http://www.whitehouse.gov/omb/circulars/a021/a21_2004.htmlOMB Circular A-110http://www.whitehouse.gov/omb/circulars/a110/a110.htmlOMB Circular A-133http://www.whitehouse.gov/sites/default/files/omb/assets/a133/

a133_revised_2007.pdfAdministrator’s Resource (Online Reference Guide)https://medschool.mc.vanderbilt.edu/dept_managers/VU Policies for Post-Award Management & Compliancehttps://dof.mc.vanderbilt.edu/are/pages/ggc/pub/policy.aspx VU Faculty Research Effort Reporting and Certification Online Traininghttps://medschool.vanderbilt.edu/foto/ VU Staff Effort Reporting and Certification Online Traininghttp://vanderbilt.mzinga.com/app/servlet/goTo?

Page=CourseInfo&DirectLinkID=223619 Medical Center Compliance Officehttp://www.mc.vanderbilt.edu/complianceNIH Grants Policy Statementhttp://grants.nih.gov/grants/policy/nihgps_2012/index.htm

Includes “Who to Contact” section for Finance: Academic & Research Enterprise

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