Phase II Financial Review Guidance Ben Schrag, Ph.D. Program Director, SBIR/STTR National Science Foundation September 20, 2016

…how Phase I grantees can start to prepare for this Purpose To explain: …what happens after your Phase II technical and commercial review (but before the award) …how Phase I grantees can start to prepare for this

Phase II review: overview Technical and commercial review (Program Director and panel) Admin/financial review (CAAR – Cost Analysis and Audit Resolution) Final review (DGA – Division of Grants and Agreements) AWARD! DEC DEC DEC

Phase II review: overview March April May June July August Proposals screened and sorted to panels, panelists recruited Panelists read, review proposals in advance of panel Review panels conducted Post-panel PD diligence Request for financial/admin info (sent to CAAR) Cost analysis and audit resolution (CAAR) review Final review by NSF grants office (DGA)

What is CAAR? Cost Analysis & Audit Resolution (CAAR) – the branch of NSF that does pre-award and post-award reviews of NSF grants administrative and financial and grantee institutions For NSF SBIR/STTR, CAAR requires a full pre-award review of ALL Phase II proposals

What is DGA? Division of Grants and Agreements (DGA) – the branch of NSF that is responsible for reviewing and awarding grants and agreements recommended by NSF program offices Any official notification or change (including your Phase II award) relating to an NSF proposal or award will likely come from a DGA staff member

What reviews does CAAR do? Financial Capability Review – Does the company have adequate financial resources to perform the award? Accounting System Review – Does the company meet the basic accounting requirements for a Federal award? Budget Review – Are the budgeted amounts fair and reasonable, based on certified cost and pricing data, and justified properly?

Possible outcomes of the CAAR review? Recommend award at full amount Recommend award with reductions Recommend declination on financial or administrative grounds

CAAR Process Commences approximately 3-4 months after Phase II submission 10-day lead time to submit initial package of info Follow-up requests possible for up to 6 weeks, with potentially short turnarounds! Most communication may be with a CPA firm contracted by NSF

Financial Capability Review Does the company have adequate financial resources to perform the award? All proposing small businesses must provide accounting data from the two most recent years: Financial statements Most recent audit, if available Tax returns

Financial Capability – common issues Most declines for financial capability are due to: Unsustainable accounting ratios (e.g. due to company debt or other liabilities) Lack of company liquidity (e.g. due to low or no cash-on-hand) If your company anticipates that either of these will be a concern (as of the anticipated CAAR review date), discuss with your PD!

Accounting System Review Does the company meet the basic accounting systems requirements for a Federal award? All proposing small businesses must provide: Responses to “Financial Management Systems Questionnaire” (Appendix 4 of “Prospective New Awardee Guide”) Sample Timesheet Prior Federal Audits and/or Accounting System Reviews, if available

Accounting System – common issues Most declines for accounting systems are due to: Lack of proper accounting systems for tracking grant funds Lack of proper system for tracking of time and effort (e.g. timesheets, payroll records, etc.) Advice: make sure an accounting professional vets your accounting system well in advance of Phase II submission!

Budget Review Are the budgeted amounts fair and reasonable, based on certified cost and pricing data, and justified properly? All budgeted costs must be: Necessary to accomplish the project Allowable, allocable, and reasonable per the Federal Acquisition Regulations (FAR) Based on current cost and pricing information (invoices, purchase orders, catalog, quotations)

Budget Review – common issues 90% of budget reductions are due to: Salary rates (above what is justified, based on BLS data for equivalent job titles and locations) Indirect costs (that are unallowable or unsupported)

Budget Review – advice To avoid salary reductions: Check all salaries against BLS data (note that CXO job titles are generally not permitted as comparables): http://www.bls.gov/oes/home.htm As applicable, be able to provide past company payroll records that verify the requested salary Avoid any significant (> cost of living) salary increases across budget years

Budget Review – advice To avoid indirect cost reductions: Take the 50% safe rate (note: this means budgeted fringe + indirect is 50% or less of total salaries and wages)! Ensure that items in the indirect cost pool are actually allowed (note that the following are NOT allowed: IR&D, patent costs, sales/marketing, business development, manufacturing and production, facilities capital cost of money, indirect cost salaries and wages exceeding 35% of total direct S&W less paid time off, and other costs per FAR Part 31 cost principles) Seriously, take the 50% safe rate!

General Advice Ask your PD and/or CAAR early and often! Find a good accountant CAAR Frequently Asked Questions: http://www.nsf.gov/pubs/2016/nsf16134/nsf16134.jsp?org=NSF Get a head start on the CAAR info: http://www.nsf.gov/bfa/dias/caar/sbirrev.jsp

CAAR Q&A Webinar October 19th, 2 PM EDT CAAR experts will be on-hand to answer questions More info / sign-up info will be sent out in the coming weeks

More Info CAAR contact: Laurence Dash – ldash@nsf.gov www.nsf.gov/bfa/dias/caar CAAR info request site and FAQ: http://www.nsf.gov/bfa/dias/caar/sbirrev.jsp http://www.nsf.gov/pubs/2016/nsf16134/nsf16134.jsp?org=NSF Phase II proposal prep: http://www.nsf.gov/eng/iip/sbir/how-to-apply_phaseii.jsp