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

2. …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

3. 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

4. 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)

5. 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

6. 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

7. 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?

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

9. 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

10. 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

11. 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!

12. 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

13. 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!

14. 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)

15. 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)

16. Budget Review – advice To avoid salary reductions:
Check all salaries against BLS data (note that CXO job titles are generally not permitted as comparables):
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

17. 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!

18. General Advice Ask your PD and/or CAAR early and often!
Find a good accountant
CAAR Frequently Asked Questions:
Get a head start on the CAAR info:

19. 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

20. More Info
CAAR contact: Laurence Dash – CAAR info request site and FAQ: Phase II proposal prep: