Sharif Fakhr (sharif.fakhr@ankura.com) is a Senior Director at Ankura, based in New York.
The National Institutes of Health (NIH) awarded more than $19.1 billion in fiscal year (FY) 2017 and $20.7 billion in FY 2018 to fund research project grants.[1] For most organizations, salaries and wages are the largest direct cost under federal grants, typically comprising two-thirds of the award. Additionally, with advancements in technology and more suitable products, grant recipients are investing large amounts of money into automated and robust software solutions to manage federally sponsored grant awards, specifically time-and-effort activity. Yet, failure to track time and effort remains one of the leading causes of fines, penalties, and repayment of federal funds. The following are recent examples of penalties paid by federal award recipients:
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Northrop Grumman Corporation, $27.45 million, November 2018[2]
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Texas A&M Research Foundation, $750,000, September 2018[3]
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University of North Texas Health Science Center, $13 million, February 2018[4]
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Telehealth Holdings LLC, $500,000, February 2016[5]
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University of Florida, $19.875 million, November 2015[6]
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University of Connecticut, $2.5 million, January, 2006[7]
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Cornell University’s Weill Medical College, $4.38 million, June 2005[8]
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Harvard University, $3.3 million, July 2004[9]
These large fines make it increasingly important for institutions to verify that salaries are charged appropriately, expenses are monitored, and proper documentation of time-and-effort reporting is maintained.
In December 2014, the Office of Management and Budget (OMB) updated its requirements for time-and-effort reporting in its Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Subpart E §200.430.[10] The main takeaways from the update are:
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Strong controls must be in place for the reporting of salaries and wages to ensure that the payroll charged to various grants matches the actual time spent; the change being the emphasis on controls rather than guidance on the specific documentation requirements.
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The Uniform Guidance requires that time distribution records must be maintained for all employees whose salary is paid with federal funds or whose salary is used to meet a match or cost-share requirement for a grant.
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All time and effort expended for the employee’s organization should be documented to calculate what portion relates to federal awards.
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Salary and wages must follow established accounting policies and practices of the non-federal entity.
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Effort reports will be signed by the employee, principal investigator (PI), or responsible officials(s) using suitable means of verification that the work was performed.
Even with technology solutions, solid internal controls, and an understanding of the 2014 requirements, institutions struggle with complex and inefficient processes that lead to noncompliance of time-and-effort certification. Many top institutions across the country need help solving the time-and-effort problem. Common difficulties include:
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Lack of training in the effort reporting process and systems – Generally employees and PIs are not educated on the importance of the federal requirement of effort certification or how to use effort tracking systems. This lack of understanding leads to employees not respecting the process and, therefore, not being held accountable to certify their effort. Moreover, employees must understand the penalties that could result from noncompliance.
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Allocating salaries based on budget and not effort – Oftentimes institutions will charge salaries and wages based on budgeted amounts, or even worse, they spend down awards before the end of a funding period to avoid returning unused funding. Federal requirements state that employees must allocate salaries based on actual effort and have a mechanism to verify these expenditures.
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The effort certified does not reconcile with what is recorded in the payroll accounting system – Software solutions are meant to simplify the accounting and reconciliation of the time-and-effort process. However, managers should make sure that payroll is charged and recorded correctly by continuously monitoring and verifying financial activity charged to the accounting general ledger. Documentation that is used to certify effort should match what is ultimately charged to the financial accounting system.
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PIs and other key personnel are overcommitted – An employee’s total time must equal 100% for all duties at their institution. Many times, PIs and key personnel will overcommit their time and effort, which ultimately leads to inaccurate reporting and/or overcharging of awards. It is easy to control this when an employee works exclusively on one sponsored project supported by one funding source; however, when there is a heavily funded PI or research program with multiple awards and multiple personnel spread across the grants, institutions are susceptible to this issue, which leads to noncompliance.
Mitigating the risks
To comply with federal time-and-effort requirements, there are five methods that every institution should apply to mitigate the risks associated with time-and-effort reporting.
1. Oversight and documentation
Confirm oversight of time-and-effort records for all employees where the institution receives federal awards or subcontracts through up-to-date policies and standard operating procedures (SOPs). This is one of the basic federal requirements of effort certification and goes without saying. However, when there is no single cause for incorrect effort certification, it’s difficult to pinpoint a single solution. Institutions need to set the foundation of oversight by ensuring that policies and SOPs exist and are updated according to current regulations. With strong documentation of the entire process, institutions should implement actions to identify and address where the process is not working. Moreover, oversight is equally important when an institution enters into a subcontract. The prime institution must request reports from its subrecipient to confirm that time-and-effort charges are allowable, accurate, and appropriately documented.
2. Coordinated software systems
Implement HR systems and grant management software that sync data and report to one another. Having a seamless exchange of payroll data, salary charges, and financial reporting increases efficiency and makes the time-and-effort certification process much more manageable. Despite robust policies and procedures for time-and-effort reporting, if the data is compromised, institutions will be at risk of noncompliance. Institutions should use software systems to make the time-and-effort process more effective and accurate. There are many options to choose from (e.g., PeopleSoft, OnCore, Cayuse); however, it is critical that institutions select the right software solution that best fits their needs and requirements.
3. Employee education
Train and educate all employees on the importance of accurate time-and-effort reporting. Many researchers are interested in performing research and are not fully aware of the administrative tasks and requirements of executing government-sponsored research. It is the responsibility of the institution to educate its staff on policies and procedures related to time-and-effort reporting and government regulations. This includes explaining the penalties and consequences of noncompliance. Some institutions have used annual time-and-effort trainings as part of performance evaluations for their employees.
4. Random audits
Hold time-and-effort managers accountable for reviewing and approving effort certifications through random audits. Managers should confirm that the certifications are timely and accurate. Federal auditors commonly interview administrators to determine how much they really know about the effort to which they are certifying. Supervisors should consider executing random audits to test the accuracy of the effort certification processes. The accountability will strengthen the institution’s internal controls and foster a culture of compliance.
5. Communication
Collaborate with institutional central offices, other department administrators, and experts. Often discussing or communicating obstacles within an institution can lead to efficient solutions, enhancements, and changes to processes. Time-and-effort certification can be a difficult task, even more so in silos where effort managers, PIs, and administrators are not tackling the problem together. Validating the workflow and identifying the gaps to measure the strength of time-and-effort compliance can only occur if everyone is working together and communicating. Don’t be afraid to ask for help.
Conclusion
Discovering better ways to manage time-and-effort certification is essential to compliance for federally sponsored grants. When PIs, key personnel, and administrators are precise with this task, less resources are devoted to reconciliations, audits, and penalties, and more is devoted to priorities in higher levels of patient care and health initiatives. There is a saying that “time-and-effort does not require much time and effort.” Simply stated, compliance with federal grant requirements for proper reimbursement requires that staff allocate their time to the grant based on their effort and that an approved designee verify it. More importantly, with stronger compliance, federal sponsors and agencies will recognize the transparency, which can lead to higher scores on grant submissions and increased grant awards and funding.
Takeaways
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The Office of Management and Budget updated its requirements for time-and-effort reporting in 2014.
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Five years later, institutions still struggle with common obstacles to report time and effort accurately.
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Common struggles include lack of training, incorrect method of effort allocation, variances against payroll accounting, and overcommitted personnel.
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Failure to accurately track time and effort is one of the leading causes of penalties and repayment of federal funds.
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This article provides five methods to help enhance your institution’s time-and-effort compliance.
