1. Slide 1 FastFacts Feature Presentation 06/10/2014 To dial in, use this phone number and participant code… Phone number: 888-651-5908 Participant code: 182500 To participate via VoIP… You must have a sound card You must have headphones or computer speakers © 2012 The Johns Hopkins University. All rights reserved.

2. Slide 2 Today’s Topic We’ll be taking a look at… Revised Subrecipient Monitoring Policies and Procedures

3. Slide 3 Today’s Presenter Professor Jonathan Links School of Public Health, Medicine, and Education Contact: jlinks1@jhu.edujlinks1@jhu.edu 410-516-6880

4. Slide 4 Session Segments Presentation Jonathan Links discusses the revised subrecipient monitoring policies and procedures, which includes the new subrecipient vs. Contractor classification, and the steps used to classify, assess risk, and closely monitor subrecipient claims/spending. During the presentation, your phone will be muted. Q&A After the presentation, we’ll hold a Q&A session. We’ll open up the phone lines, and you’ll be able to ask questions. Jonathan will answer as many of your questions as time allows.

5. Slide 5 Contact Us If you would like to submit a question during the presentation or if you’re having technical difficulties, you can email us at: fastfacts@jhu.edu fastfacts@jhu.edu

6. Slide 6 Survey At the end of this FastFacts session, we’ll ask you to complete a short survey. Your honest comments will help us to enhance and improve future FastFacts sessions.

7. Slide 7 How To View Full Screen Click Here

8. Slide 8 Revised Subrecipient Monitoring Policies and Procedures

9. Slide 9 Agenda After today’s presentation, you will be able to: Describe, with regard to subrecipients, what makes JHU different from our peers and why it requires changes to our procedures Recognize the risks associated with subrecipients and what can go wrong Distinguish between a subrecipient and a Contractor Describe the rationale for implementing enhanced administrative monitoring of high-risk subrecipients Provide support for administrative staff performing enhanced administrative monitoring procedures within their departments Effectively manage subrecipient risk

10. Slide 10 JHU has unique risk profile compared to peers In addition to universities, JHU faculty members have significant activity with for- profit/non-profit domestic entities and international organizations Historically, JHU monitoring procedures have been based on a traditional university- to-university subaward model For FY 13, JHU had 800 subrecipients and $300 million in subrecipient payment Only 25% of JHU’s subs are domestic universities $117 million (or 37% of subrecipient activity) is to foreign organizations 10 Classification JHU FY13 Expenditure Amount (federal and non-federal) Percentage Domestic University$78,115,409.1925% Domestic Non-University$117,390,412.5738% Foreign$116,955,814.9837% Total$312,461,636.74 Subrecipient Monitoring: The Landscape

11. Slide 11 11 FY 13 subrecipient expenditures have increased 30% from FY 12 FY 10 - 13 Subrecipient Expenditure Growth

12. Slide 12 FY 13 Subrecipient Expenditures by Sponsor ($ Millions) 12 84% of subrecipient activity is federally supported

13. Slide 13 JHU’s Responsibility under Federal Regulation Per OMB Circular A-133, a pass-through entity shall: Advise subrecipients of requirements imposed by Federal laws, regulations, and the provisions of contracts or grant agreements Monitor to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and grant terms Ensure that subrecipients meet A-133 audit requirements 13

14. Slide 14 Subrecipient Monitoring: JHU Policy and Procedures JHU remains ultimately responsible and accountable to the prime sponsor for funds management and compliance by subrecipients The Principal Investigator is responsible for the due diligence involved in selecting a subrecipient The proper classification of an organization as a subrecipient or as a Contractor during the proposal process is critical to ensure proper accounting for costs and compliance requirements Prime recipients are required to advise subrecipients of requirements imposed on them by Federal regulations The Principal Investigator is ultimately responsible for ensuring compliance by reviewing all invoices and the technical progress of work completed by the subrecipient, before payments are authorized 14

15. Slide 15 Subrecipient Monitoring: Recent Observations and Trends We have funding and technical challenges in performing proper oversight Under prior JHU procedures, subrecipients were treated similarly, regardless of risk Standard terms in subaward agreement Invoice for payment Increased International Capacity Building Efforts (e.g., USAID Forward Initiative) drive choice of subrecipients to those with less ability to be A-133 compliant Recent JHU cases have proven the financial impact could be significant OMB Circular A-81 spells out our monitoring responsibilities KPMG is looking for better evidence of financial monitoring during its annual A-133 audit Peer organizations have now begun requesting support from JHU for their audits 15

16. Slide 16 Risks Involved with Subrecipients Technical Subrecipient does not have capability to perform Subrecipient is not making appropriate progress on research Scientific misconduct Financial Subrecipient bills JHU in excess of its costs or bills for inappropriate costs In advance of costs being incurred Costs not in compliance with federal regulation Invoices are not based on actual costs Invoiced costs are misaligned with subrecipient technical progress Fraud 16

17. Slide 17 Case Study on Subrecipient Risk: Background Subrecipient X was a local community-based health organization JHU entered into four federally-supported cost-reimbursable subawards totaling $3.8 million Principal Investigator approved all invoices from subrecipient X During A-133 reviews, JHU Finance identified financial irregularities: Invoices did not tie to subrecipient general ledger detail Indirect costs were charged directly to the award Unallowable costs were noted on the report from subrecipient financial system Internal Audit was asked to review 17

18. Slide 18 Case Study on Subrecipient Risk: Audit Findings Internal Audit review revealed significant deficiencies: Lack of understanding about federal law Unsophisticated accounting systems and personnel No effort reporting or activity reports Unsupported indirect cost and fringe benefit rates Indirect costs charged directly Insufficient supporting documentation Invoices not based on actual costs incurred Review concluded that over $1 million in costs should be disallowed (this does not include related audit and legal fees) JHU refunded the federal government without reimbursement from subrecipient X 18

19. Slide 19 Case Study on Subrecipient Risk: Impact on Faculty Members Financial research compliance issues with subrecipient X brought into question the scientific validity of the research Independent scientific review was undertaken Scientific validity was ultimately upheld Faculty members’ reputations were harmed: Faculty had been (inappropriately) approving invoices Faculty were present on site with subrecipient on a regular basis Faculty members’ projects cost the relevant school over $1 million Issues related to subrecipient X eventually led to the resignation of one faculty member 19

20. Slide 20 Treat subrecipients as business partners Risk management begins prior to award Ensure technical and financial capability Evaluation of technical capabilities and work history Check references Do they have a financial system that complies with federal regulations Review financial status of the subrecipient Don’t classify contractors as subrecipients (or vice versa) Use risk assessment to drive post-award monitoring More scrutiny around higher-risk subrecipients 20 Subrecipient Monitoring: How to Protect Yourself

21. Slide 21 Subrecipient Monitoring: How to Protect Yourself (Continued) Understand the nature of the subaward agreement Cost reimbursable means actual cost Understand right to inspect records Proper and thorough invoice review Accuracy of invoice Obtain support to validate accuracy of charges Ensure billings are aligned with technical progress Remember, trust is the foundation of a relationship, but can also be used to take advantage – trust, but verify 21

22. Slide 22 JHU Subrecipient Taskforce Initiative Established subrecipient taskforce to determine how best to protect the university, including faculty Goal was to develop new procedures to better manage the risks associated with subrecipients Subrecipient taskforce members included: Chief Risk Officer Internal Audit Office of Finance Divisional Representation (Business Office and Research Administration) Established a working group within the subrecipient taskforce to: Identify what makes an organization a subrecipient Define a risk management matrix Define additional monitoring procedures for higher risk subrecipients 22

23. Slide 23 Subrecipient Taskforce Update Working group developed proposed changes and circulated amongst the university (including faculty advisory groups) for feedback Changes are meant to protect both JHU and faculty interests Changes are meant to enhance overall risk management, both regulatory and financial Proposed changes agreed upon: Classification of subrecipient vs. contractor Revised risk assessment procedures and risk ratings for all subrecipients Monitoring procedures for high-risk subrecipients New risk assessment complete and posted on Financial Research Compliance website New procedures are effective as of July 1, 2014 23

24. Slide 24 Classifying organizations as subrecipients presents additional compliance burdens Enhanced guidance on classification developed Sub vs. Contractor Quick Guide: 24 New Procedure 1: Subrecipient vs. Contractor Classification

25. Slide 25 New Procedure 1: Subrecipient vs. Contractor Classification 25 Subrecipient if the entity: •Is engaged in substantive programmatic work •Participates in designing or conducting the work •Is granted some level of programmatic control •May seek to publish or co-author results •Provides cost sharing •Has key personnel Contractor if the entity: •Is providing services in support of the research program •Has not participated significantly in the design of the work •Is not directly responsible for project results •Provides goods and services in the normal operations and markets these to a variety of customers •Has little or no independent decision making in the design or conduct of the work being completed •Performs work that involves routine or repeated activities •Would not seek to publish or co-author results Subrecipient vs. Contractor Detailed Guidance

26. Slide 26 New Procedure 1: Subrecipient vs.. Contractor Classification OMB A-81will require classification decisions to be documented During proposal phase or as prospective subrecipients are identified, departments will complete the Subrecipient Determination Form Form must be signed by Principal Investigator Form will be submitted to the Office of Research Administration (ORA) with the proposal ORA must explicitly approve classification 26

27. Slide 27 Subrecipients will now be classified as high or low risk High-risk entities are defined as: Foreign Domestic subrecipients without formal compliance audit (A-133) Entities with no prior JHU work history Entities who received less than $1M in Federal funding in either of the last two years Each school’s Office of Research Administration will be responsible for risk rating, and the ratings will be consistent across the university A subrecipient committee has been established to consider changes to a given subrecipient’s risk rating 27 New Procedure 2: Subrecipient Risk Rating

28. Slide 28 New Procedure 2: Subrecipient Risk Rating (Continued) ORA will notify the department and Principal Investigator of the risk rating Using the risk rating, the relevant ORA will negotiate specific terms and conditions into the agreement consistent with the revised post-award monitoring procedures Enhanced and standardized financial monitoring will be required for high- risk subrecipients This will be performed by departmental administrative staff As enhanced monitoring procedures are meant to protect faculty members, they should validate that the procedures take place appropriately 28

29. Slide 29 A risk rating database of all JHU subrecipients has been established here: http://finance.jhu.edu/depts/frc/data_files_frc/subrecipientriskrating.xls http://finance.jhu.edu/depts/frc/data_files_frc/subrecipientriskrating.xls Risk ratings are consistent across JHU Excerpt from the database: 29 Subrecipient NumberSubrecipient Name Country Name Risk Classification Primary Division Secondary DivisionTotal ExpenseNon FederalTotal Federal 1009428SAVE THE CHILDRENUSALow235160 16,965,234.39 - 1016996JOHN SNOW INCUSAHigh235None 7,942,550.72 - 1012576MALARIA CONSORTIUM United KingdomHigh160None 6,510,395.75 - 1017654CITY YEAR INCUSAHigh125115 3,441,219.00 268,369.00 3,172,850.00 1011133UNIVERSITY OF NORTH CAROLINAUSALow160170 3,115,319.47 262,398.30 2,852,921.17 1022268BLANTYRE HEALTH RESEARCHMalawiHigh160170 3,031,639.63 - 1013802 UGANDA HEALTH MARKETING GROUPUgandaHigh160None 2,650,166.77 - 1011658WESTAT CORPUSAHigh160170 2,325,331.23 - 2046718MAKERERE UNIVERSITYUgandaHigh170160 2,115,126.50 356,114.31 1,759,012.19 1005269ICDDR BBangladeshHigh160170 2,068,572.00 1,744,479.00 324,093.00 New Procedure 2: Subrecipient Risk Rating

30. Slide 30 New Procedure 3: Additional Monitoring for High-Risk Subrecipients High-risk subrecipients will be required to submit financial reports along with all invoices: Reports should be directly from the subrecipient’s financial system Reports should include detail on financial transactions Departmental administrative personnel will be responsible for completing a summary comparison of the invoice to the financial reports Every six months, departmental administrative personnel will complete a more detailed review of a subrecipient financial report supporting one entire invoice, including obtaining supporting documentation (e.g., receipts) from the subrecipient for a selection of charges 30

31. Slide 31 New Procedure 3: Additional Monitoring for High-Risk Subrecipients (Continued) The Certification for Payment and Performance form has been revised to provide an opportunity to document that these reviews have taken place Problems identified with billings must be resolved and the resolution documented Faculty member support will be integral in obtaining supporting documentation from the subrecipients 31

32. Slide 32 32 Certification for Payment and Performance forms must be completed for all invoices Revised forms document additional reviews performed for high-risk subrecipients Form must be signed by the Principal Investigator Form is located on JHU Finance website. Here is the link: https://apps.finance.jhu.edu/pol icy_procedures/policy/sub/cert_ pymt_perf.docx https://apps.finance.jhu.edu/pol icy_procedures/policy/sub/cert_ pymt_perf.docx New Procedure 3: Enhanced Invoice Review Guidance

33. Slide 33 JHU has a different sub-recipient risk-profile than our peers JHU is required to advise subrecipients of their responsibilities under federal regulations, and to monitor to ensure they are being met Subrecipient issues could have a significant financial impact on JHU and the reputations of its faculty Treat subrecipients as business partners and remember that risk management begins prior to issuing a subaward Additional monitoring procedures for higher-risk subrecipients are necessary and will be effective on July 1, 2014 Prevention and early detection are key 33 Conclusion

34. Slide 34 We’re going to open the phone lines now! There will be a slight pause, and then a recorded voice will provide instructions on how to ask questions over this conference call line. We’ll be answering questions in the order that we receive them. We’ll also be answering the questions that were emailed to us during the presentation. If there’s a question that we can’t answer, we’ll do some research after this session, and then email the answer to all participants. Q&A

35. Slide 35 Thank You! Thank you for participating! We would love to hear from you. Are there certain topics that you would like us to cover in future FastFacts sessions? Would you like to be a FastFacts presenter? Please email us at: fastfacts@jhu.edu

36. Slide 36 Survey Before we close, please take the time to complete a short survey. Your feedback will help us as we plan future FastFacts sessions. Click this link to access the survey… http://connect.johnshopkins.edu/fastfactssurvey/ http://connect.johnshopkins.edu/fastfactssurvey/ Thanks again!

37. Slide 37 Resources This page contains links to the various resources mentioned throughout this presentation. You can click on the links or copy and paste the links into your web browser. JHU Subrecipient Policies and Procedures http://finance.jhu.edu/policyapp/displayGuideContents.do?guideId=SUB JHU Subrecipients Risk Rating Database: http://finance.jhu.edu/depts/frc/data_files_frc/subrecipientriskrating.xls