1. Cost Sharing The Double Edge Sword 1 Dennis J. Paffrath – University of Maryland, Baltimore Executive Director, Sponsored Programs Administration dpaffrat@umaryland.edudpaffrat@umaryland.edu 410-706-6723

2. Pre Award Cost Sharing Issues 2 A policy should be put in place so that all parties involved in research (science and administration) have a guide as to how cost sharing should be handled The policy should outline: Definitions and terms Purpose Background Procedures, and Responsibilities

3. UMAB’s Policy http://www.ord.umaryland.edu/policies_procedures/costshare.html http://www.ord.umaryland.edu/policies_procedures/costshare.html 3

4. Proposal Review 4 The Sponsor guidelines need to be reviewed for any cost sharing requirements. If required, cost sharing is considered mandatory. If not, cost sharing is considered voluntary. Mandatory is the portion of the University contribution to a sponsored project that is required by sponsor Voluntary is that portion of the sponsored project that the University and/or non-Federal third parties contribute to a project at their own initiative.

5. Proposal Review 5 If either cost sharing type is included in a proposal the following must be asked: Is an internal budget included in the proposal outlining the costs? Are the cost sharing costs directly allocated to the project? Are the cost sharing costs listed in the budget allowable by the sponsor? Can F&A be included as cost sharing? Has the PI listed cost share in the abstract or technical portion of the proposal?

6. Cost Share Documentation 6 Does your university require a cost sharing form to be completed? University of Maryland Baltimore requires: Listing of Over-Salary Cap Cost Share commitments In-kind cost sharing contributions Chartstring Information (Peoplesoft account #) Signatures of PI, Division Chief or Center Director, Department Chair and Dean

7. UMAB’s cost share form http://www.ord.umaryland.edu/policies_procedures/costshare.html http://www.ord.umaryland.edu/policies_procedures/costshare.html 7

8. UMAB’s cost share form 8

9. 9

10. Award set up 10 Who handles the Award set up at your university? At UMAB, the pre-award staff sets up the award. Review award, if award cut then cost share should also be reduced Companion account is set up along with the main account.

11. Post Award Cost Sharing Issues 11 Documenting cost sharing Special issues with Voluntary Committed Cost Sharing (VCCS) Cost sharing and F&A rates Special issues with voluntary uncommitted cost sharing (VUCS) Cost sharing compliance issues and strategies

12. Cost SharingOverview 12 Cost Sharing, OMB Circular A-110, Section __.23 Cost sharing reflects the grantee’s contribution to a sponsored project May include cash, property, equipment, and services Unrecovered F&A may be included with sponsor approval

13. Documentation Basics 13 Costs offered in satisfaction of a cost sharing obligation: Must be verifiable, i.e., supported by adequate documentation Allowable under the applicable Federal cost principles Allocable Generally may not be paid for by the Federal government under another award No “double counting”

14. Documenting Compensation Costs Tendered as Cost Share 14 Understand the capabilities of your T&E system Some systems can only allocate actual salary Reports may have to be manually adjusted to reflect committed effort expended but not charged Use of “companion” accounts Proposal budget is a guide to level of commitment, but is not necessarily definitive Need to educate system users on how account for cost sharing

15. Three Types of Cost Sharing 15 Mandatory Required by the sponsor as a condition of award Voluntary committed Proposed by the institution but not required by the sponsor E.g., proposal promises 30% effort but requests 20% salary support Voluntary uncommitted Neither required by the sponsor nor proposed by the institution

16. Voluntary Committed Cost Sharing Issues 16 Investigators may have an incentive to propose cost share – But Too much cost sharing may depress the F&A rate There may be inadequate sources of cost share Failure to document cost share may create significant liability Repayment obligation Potential False Claims Act liability

17. Financial Treatment of VCCS 17 Voluntary committed cost sharing must be tracked and accounted for Budget proposes 30% effort, no salary support requested – 30% must be tracked as cost sharing 30% effort commitment, 30% effort provided, grant charged 10% of IBS -- must track the 30% provided Compare with voluntary uncommitted cost sharing Budget proposes 30% effort and salary support; faculty member actually provides 50% effort – 20% of the effort need not be tracked

18. F&A and Cost Sharing 18 General rule: cost sharing is part of organized research direct costs and must be included in F&A denominator Effect of rule: cost sharing tends to depress the F&A rate Exception: voluntary uncommitted cost sharing need not be included in the base January 2001 OMB memo

19. How Indirect Cost Rates Are Determined 19 Organized research F&A rate = (F&A costs of organized research) divided by (Organized research direct costs) Example: F&A costs of $6 million Organized research direct costs of $10 million F&A rate = $6 million/$10 million = 60%

20. The Effect of Cost Sharing on Indirect Cost Recovery 20 Govt requires that all voluntary committed cost sharing go into the organized research base: $6 million in research indirect cost pool and $10 million in organized research base results in a 60% indirect cost rate ($6 mill./$10 mill.) If $2 million in voluntary cost sharing is added to the base, rate is 50% ($6 mill./$12 mill.) 50% times $10 million = $5 million; $1 million in indirects must be absorbed by grantee

21. Voluntary Uncommitted Cost Sharing 21 OMB Memorandum M-01-06, January 5, 2001 No requirement to document or take into account voluntary effort over and above effort committed in grant proposal E.g., Faculty member commits to 20% effort, provides 30% effort but charges the project 20% of IBS 10% of the effort need not be reported as organized research No impact on F&A rate Where and how do you report voluntary uncommitted cost sharing?

22. Sources of Compliance Risk 22 Inadequate or no procedures T&E system limitations Departments and centers with multiple cost sharing obligations Are there enough unencumbered sources of support to go around? Increases the potential for “double counting” Willingness to reduce or waive F&A recovery Increases financial pressure on the specific department/center and the entire institution

23. Cost Sharing Audits 23 Georgia State University Auditors reviewed $8.9 million in costs under a Cooperative Agreement between 2003 and 2004 that required over $4 million in cost sharing. Auditors identified significant weakness in GSU’s monitoring of subawardee costs and cost sharing that resulted in $404,211 of questioned costs. Auditors also noted several compliance deficiencies and internal control weaknesses with respect to maintaining proper documentation of payroll and other direct expenses, as well as cost sharing. New Mexico Highlands NSF identified “material” internal control deficiencies including a lack of procedures to properly track cost sharing University of Hawaii Inadequate documentation for roughly $1.7M of labor cost sharing contributions

24. Compliance Guidance 24 Create policies and procedures for documenting cost sharing that are just as rigorous as those used to support direct charges Create a separate account for each project with a cost sharing commitment Track and report cost sharing on an ongoing basis; don’t wait until the project is over Develop systems that can identify Federal flow-through dollars Ensure that the effort reporting system tracks cost shared salaries Carefully review proposals with a cost sharing commitment to ensure the commitment can be met Require PIs to specifically identify sources of cost share Monitor the amount of foregone F&A

25. Contact Information 25 For additional information please contact: Dennis J. Pafrath Executive Director, Sponsored Programs Administration University of Maryland Baltimore dpaffrat@umaryland.edu