Federal agencies regularly conduct audits at colleges and universities that receive federal funding. In preparation for these audits, the federal agency typically requests downloads of two to three years of data from the institution's general ledger, and then uses specialized software to analyze the entire data population, discover trends and patterns, and determine which transactions to review. In recent audits, federal auditors have focused on the burn rate of award funds and the timing of expenditures as they relate to the performance period of the award. For example, if an award is 20% into its period and 60% of the funding has been spent, an auditor would likely investigate further. Similarly, a sharp increase in spending at the end of an award period will likely result in further investigation.
Managing award spend begins when the award is first received and continues throughout the life of the award. Good communication and timely review of financial information by both the PI and research administrator will help avoid spending spikes, address potential audit questions, and facilitate close-out of the award.
Although the Principal Investigator (PI) is ultimately responsible for the award, day-to-day financial management by a research administrator can make a big difference in ensuring that funds are properly spent in accordance with the approved budget and research work plan. Research administrators should work with their PIs to develop a spending plan for a controlled spend of the award dollars to avoid a spike of spending toward the end of the award period due to inadequate financial planning. Spending spikes not only pose an audit risk, but often result in unallowable costs that require transfer off of the award. Avoiding spending spikes can, at times, prove to be challenging. Following are some tips for avoiding spikes:
- Develop a spending strategy with your PI at the beginning of an award.
- Track spending on a periodic basis against budget and make adjustments as appropriate.
- Regularly hold meetings with PIs that are structured and include reviewing financial reports.
- Regularly review salary and effort, alert your PI of any issues, and make any necessary adjustments timely.
- Plan, prepare and analyze regular communications with sponsors, such as progress reports, financial reports or no cost extensions, in accordance with the milestones and time frames indicated in the award document.
Salary is typically the largest expense on most awards so special attention should be paid to the PI and other employee time charged to the award to ensure it is consistent with the individual’s appointment and distribution information. Research administrators should meet regularly with their PIs to review time charged to the award and determine if individuals’ effort is still consistent with their appointment. If an individual’s effort has changed, timely action should be taken to change appointment and distribution information to avoid cost transfers. Action should be taken immediately to process cost transfers that are required to correct any pay periods identified by the PI as being impacted by the change in effort.
It may be helpful to remind your PIs that the MyReports MyPortfolio Report includes a burn rate graphic that they can use to quickly view their spending in relation to the award period. If you have general questions about audits or spending patterns, contact the CGA Compliance Team at [email protected] or 415.476.4693. If you have questions about a specific award, contact your CGA Service Team.