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Section 6: Accounting for Grants and Contracts

Grants and Contracts Accounting Practices

Effective Date:

11/20/09

Approved By:

Lenora Chapman, Associate Vice President for Financial Affairs (210)458-4210

Last Revised On:

08/30/11

For Assistance Contact:

Associate Vice President, Financial Affairs
(210)458-4210
University Controller (210)458-6774
Director, Grants & Contracts Financial Services (210)458-4229

PURPOSE/SCOPE

This guideline outlines the accounting practices applied to restricted funds received as grants and contracts.

AUTHORITY

In addition to Generally Accepted Accounting Principles (GAAP), the following federal guidelines govern accounting practices for grants and contracts.

  • Office of Management and Budget (OMB) Circular A-21, “Cost Principles for Educational Institutions”.

  • OMB Circular A-110, “Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non Profit Organizations”.

  • OMB Circular A-133, “Audits of States, Local Governments and Non Profit Organizations”.


UNIVERSITY GUIDELINES

Table of Contents

A. Background

Grants and Contracts Financial Services (GCFS) has responsibility for the financial management of sponsored programs by promoting cost accounting practices and consistency in the recording and reporting of financial data. Specific accountability includes:

  • Insuring consistency and adherence to the University of San Antonio's (UTSA) financial policies in account activation, account close out and fiscal year-end accounting activities.

  • Maintenance of the cash position for each grant and contract is per the applicable terms and conditions governing each project through cash management and accounts receivable services.

  • Effective communication with sponsors through the judicious submission of accurate financial reports and invoices.

  • Compliance with OMB Circular A-21 and A-110 requirements as applicable in execution of these responsibilities.

B. Account Activation

Upon receipt of an award notice from the Office of Sponsored Programs (OSP), GCFS initiates an account set-up in the UTSA’s official accounting records (DEFINE).

Externally funded sponsored programs are classified as current restricted funds in accordance with GAAP. Grant and contract awards are established in individual accounts (26-xxxx-xx) to insure that the restricted resources are allocated to specific projects.

Account Structure
26
-
0201
-
42
-
XX
A
B
C
D

A. Identifies the account as a grant or contract.
B. Sponsor identification code.

C. Unique Number for each specific project.
D. A series of budgeted subaccounts to which expenditures     are charged.

The monitoring of expenditures is the responsibility of OSP. Edits exist within the automated accounting system to aid in ensuring that expenditures are allowable and incurred within the specified performance period, and that sufficient funds are available.

C. Account Closeout

The UTSA must close out accounts within sponsor deadlines and promote efficient collection of all account receivables. To insure the effectiveness of this process, all outstanding financial issues must be resolved in a timely manner. Most sponsoring agencies require that closeout documents be submitted within 90 days of the last day of the performance period.

1. Closure

The close out of Sponsored Program accounts (26) is not governed solely by available balances, level of activity or termination dates. In fact, the close-out criteria may vary amongst the accounts depending upon the requirements of each sponsoring agency. Primary factors include:

  • Acceptance of deliverables/final report by the sponsor.

  • Resolution of compliance issues such as cost sharing, time and effort reporting and program income.

  • Assurance that all project charges have been posted to the account.

  • Assurance that all matters pertaining to sub-recipients have been addressed.

  • Disposition of remaining cash balances.

  • Completion of all financial reports, as well as invention reports, inventory, equipment and property reports.

OSP initiates the grant close-out process by sending a Close-Out Certification form to GCFS. With this form, OSP certifies that the factors listed above have been satisfied, in particular that:

  • All financial activity has been posted;

  • All required reports have been submitted, and

  • Any cost sharing commitments have been documented.

For fixed price contracts, there is a close-out period of not less than 90 days during which unexpended funds may not be transferred to another UTSA account.

2. Close-out of fixed price contracts

For these contracts, payments are not based on cost reimbursement but rather on an agreed (fixed) sum in support of the project. After the completion of the project, if there is a balance of funds, the revenue is retained by the UTSA.

  • Close out procedures are initiated by notification from OSP to GCFS.

  • The UTSA will be reimbursed for unrecovered Facilities and Administrative costs (F&A) on the remaining unexpended balance.

  • After F&A is taken, unexpended balances > 25% of the total contract amount will revert to the College, Institute or Center that administered the project.

  • Unexpended balances< 25% (after F&A is taken) will revert to the principal investigator.

3. Deletion

Accounts are deleted from DEFINE at the close of each fiscal year. Prior to deletion, GCFS reviews all identified accounts to insure that the account is eligible for deletion.

  • Even after 26 accounts are financially closed, accounts remain on the books for an additional fiscal year beyond the termination date. This is to insure that all compliance issues have been resolved and that any cost disallowances by the sponsor have been corrected.

  • In addition, some 26 accounts may belong to a series of accounts servicing one grant project. For consistency and clarity, these accounts may remain on the books (in closed status) until the termination of the entire project.

D. Accounts Receivable Services

Grants and contract receivables represent the amount owed to the UTSA for expenses associated with sponsored projects.

1. Control of Receivables

GCFS is primarily responsible for the collection of grants and contract receivables. The prompt collection of receivables is important and a defined sequence of collection efforts is necessary.

  • An automated system is used to prepare and record monthly invoices for grants and contracts. Final invoices are submitted within the time frame dictated by the terms of the grant, contract or other agreement.

  • Manual invoices are prepared only for awards that reference tasks, milestones or similar circumstances as a basis for calculating the amount owed.

  • Grant and contract receivables are reconciled on a monthly basis. An aging list is maintained and a monthly review of past due accounts is conducted.

  • GCFS staff exercise due diligence in collection efforts for all outstanding accounts.

2. Collection Procedures

GCFS begins pro-active collection efforts when a receivable from a non-federal sponsor is past due (defined as 60 days from the invoice date).

When an account becomes 60 days past due:

  1. A computer generated dunning letter is sent to the sponsor with copies to the Principal Investigator (PI) and the Grant Specialist in the Office of Sponsored Programs (OSP).

  2. During the next thirty days, GCFS personnel will perform a follow-up with the sponsor via e-mail and phone contacts.

When an account becomes 90 days past due:

  1. A second letter is sent to the sponsor (return receipt) with copies to the PI and the Grants Specialist, OSP.

  2. Due diligence on the part of GCFS shall include two documented instances where letter/e-mail and/or phone contact with the sponsor has been made within the first 90 days.

If no response is received from the sponsor for collections that are greater than 90 days past due:

  1. GCFS contacts OSP and the PI, if necessary, for consultation and possible assistance.

  2. The account may be frozen and no further expenses allowed, if there is no acceptable response from the delinquent agency.

    NOTE: An acceptable response would include payment and/or a mutually agreed upon payment schedule.

If no response is received within 120 days:

  1. GCFS consults with the University Controller to determine a course of action. This may include a request to the UTSA’s legal counsel to review the contractual documents and/or the submission of the account to a collection agency or another course of action suitable to the specific circumstances.

  2. If problems are encountered collecting funds from a federal sponsor, GCFS will inform the PI and the Director, OSP. All efforts will be made to resolve disputes and insure that the UTSA is reimbursed.

  3. If problems are encountered collecting funds from a private foundation with whom the UTSA may have other projects, GCFS will contact the Office of Development for advice and/or assistance in addition to notifying OSP.

3. Automatic Payments

Grants and contracts with automatic payment schedules require special attention. Whenever the Internal Notice of Award, transmitted by OSP, indicates that the payment is “automatic”, GCFS reviews the accompanying documentation and takes the following actions.

  1. Call the funding entity to determine if an invoice is required to initiate payment. If so, an invoice will be sent immediately. Thereafter, standard collection procedures will be followed.

  2. If the entity does not require an invoice, a payment date will be determined. If payment is not received as specified, a dunning letter will be sent.

4. Allowance for Doubtful Accounts

An allowance for doubtful accounts is an estimate of invoiced amounts that may not be collected.

Receivables are presented in the financial statements net of an allowance for uncollectible amounts. GCFS calculates an allowance for the estimated uncollectible balance on non-Federal grants and contract receivables. The allowance is a contra-revenue account and is recorded by a reduction of revenues and a credit to the allowance. Subsequently, any write-offs deemed necessary are recorded by a debit to the allowance account and a credit to the receivable.

Based upon historical experience, Federal grants and contract receivables are considered 100% collectible; therefore, no allowance is estimated and no adjustment is made to the Allowance for Doubtful Accounts.

5. Calculation

The allowance account is adjusted at year-end based on the calculated estimate of uncollectible receivables. The estimate is based on past history and an analysis of current grants and contract receivables at August 31st. The method of calculation used is a percentage of accounts receivable. The calculation is based on the percentage of uncollectible accounts over a three year average of grants and contract receivables at August 31st.

6. Write Off of Grants and Contract Receivables

After the collection process is followed and it is determined that an invoice is not collectible, the balance is no longer considered an asset. The write off is the removal of the receivable and a reduction of the allowance account.

At year end, after reviewing the estimate for uncollectible accounts, GCFS will record an adjustment to the allowance account as necessary.

E. Cash Management Services

It is imperative that the UTSA receive all funds to which it is entitled and that the university’s cash position be maximized while also adhering to federal cash management regulations. GCFS monitors the cash position of all sponsored program account. The cash position is analyzed on a monthly basis.

1. Timing of Payment Requests

OMB Circular A-110 states the following:

“…The timing and amount of cash advances shall be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program or project costs and the proportionate share of any allowable indirect costs.” (OMB A-110, Subpart C, Section 22 (b))

Funding methods and reimbursement requirements vary according to the terms and conditions of the grant or contract.

  • For cost reimbursable projects, monthly invoices are either computer generated or, if agency-specific forms are required, invoices are prepared manually

  • Generally, federal funds are requested either by Letter of Credit or Cash Request forms

  • For fixed price projects, a payment schedule is negotiated with the sponsor.

To minimize the time between the transfer of funds from the federal government to the UTSA and the expenditure of those funds, the following practices apply:

  • As a general rule, the UTSA requests payment after funds have been expended, i.e., on a reimbursable basis rather than in advance of expenditures.

  • The billing system and the letter of credit determinations are based on expenditures posted to the grant accounts. Both systems eliminate accruals from the accounts to be requested.

  • Although Disbursements and Travel Services schedules payments to vendors based on the terms of the invoices (e.g. net 30), payments to be charged to sponsored program accounts (26 accounts) are not scheduled but are paid as soon as the required paperwork is processed.

2. Interest Payments

Despite efforts to insure that funds are not drawn in advance, it may happen that the UTSA receives federal funds for a particular program prior to the expenditures being incurred. An example of this is the U.S. Department of Defense contracts for which a payment schedule is provided and adhered to by the sponsor, regardless of the timing of expenditures. Another example would be the receipt of Direct Loan funds from the U.S. Department of Education versus the release of those funds to the students.

If federal funds are on hand prior to expenditures, an interest liability may accrue. The potential for the accrual of an interest liability on federal grants and contracts is identified by GCFS. The information is forwarded to the Office of Accounting which monitors cash deposits and posts accrued interest on a monthly basis.

In coordination with the Office of Student Financial Aid, the Office of Financial Services tracks the potential accrual of interest on the Direct Loan Program.

If required, interest over the amount of $250 per year is remitted to the appropriate federal agency at the close of the federal fiscal year.

F. Cost Accounting Standards

The Cost Accounting Standards Board (CASB) has issued four cost accounting standards for colleges and universities.

These standards are:

  • Consistency in Estimating, Accumulating, and Reporting Costs.

  • Consistency in Allocating Costs Incurred for the Same Purpose.

  • Accounting for Unallowable Costs

  • Cost Accounting Period.

For additional details, see FMOG – Accounting for Cost Sharing.

G. CASB Disclosure Statement (DS-2)

The Federal government requires a Disclosure Statement of cost accounting practices from any institution of higher education that receives $25 million or more in sponsored agreements. Universities must demonstrate adherence to cost accounting standards as stated in OMB Circular A-21.

The DS-2 outlines the cost accounting practices that the university follows or proposes to follow. UTSA submitted a Disclosure Statement to the Department of Health and Human in September 2008.

H. Cost Sharing

Cost sharing is that portion of a sponsored project’s costs not borne by the sponsoring agency. Either the UTSA or a third party may contribute cost sharing to a sponsored agreement.

OSP will:

  • Inform GCFS if an award includes cost sharing and provide the cost sharing source account.

  • Provide the written authorization from the account holder allowing GCFS to initiate the budget transfer.

  • Monitor and document that the cost sharing has been met.

GCFS will:

  • Create the cost sharing account and inform all concerned parties.

  • Report cost sharing to the sponsoring agencies upon receipt of documentation from OSP.

  • Terminate cost sharing accounts at the same end date as the associated sponsored program account.

For additional information, see FMOG – Accounting for Cost Sharing.

I. Facilities and Administrative Costs (F&A)

GCFS coordinates the preparation and submission of the UTSA’s F&A Cost Proposal to the U.S. Department of Health and Human Services. Rates are expressed as a percentage of modified total direct costs (MTDC). By definition, MTDC excludes equipment, capital expenditures, patient care costs, tuition remission, rental costs of off-site facilities, scholarships and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000.

The current F&A Agreement covers the period September 1, 2011 through August 31, 2015. Current rates are:

  • Research - on campus – 47% MTDC

  • Other Sponsored Activities - on campus – 35% MTDC

  • All Programs - off campus- 26% MTDC

F&A revenue is recorded into a designated fund on a monthly basis as earned. The calculation and posting is automated through the DEFINE system.

On an annual basis, F&A is allocated as specified in a Memorandum of Understanding for the Distribution of Facilities and Administrative Indirect Cost Recovery, (MOU) signed by the Vice President for Research, the Provost and Vice President for Academic Affairs and the Vice President for Business Affairs. GCFS also assists in the preparation of the Annual F&A Report to recap the uses and amounts of funds distributed pursuant to the MOU.

J. Financial Reporting

GCFS is responsible for submission of financial reports to outside agencies for all grants and contracts that are set up as sponsored programs. Financial reporting requirements and due dates for projects vary based on the specific terms and conditions of the sponsor, e.g. monthly, quarterly, based on the achievement of milestones or annually based on the project’s budget period. Internal statistics and reports are generally based on the university’s fiscal year.

The basis for all financial reporting is the DEFINE accounting system. The submission of accurate financial reports and invoices is necessary to minimize negative outcomes such as:

  • Loss or delay of renewal funding due to the failure to meet sponsor reporting requirements.

  • Increase of uncollectible receivable amounts due to the late submission of financial reports.

Even for accounts with unresolved allocability issues, financial reports will be sent no later than the final due date. When appropriate, GCFS will address any unresolved issues through a revised report.

Reporting includes:

  • Formal financial reports to sponsoring agencies per the terms and conditions of the award.

  • Quarterly reconciliation reports to the Department of Health and Human Services and the National Science Foundation.

  • Expenditure reports to the Department of Education via the G5 Payment System.

  • Reports to the Texas Higher Education Coordinating Board

    • Annual Survey of Research Expenditures

    • Research Development Fund Certification

  • National Science Foundation Academic R+D Survey

  • Data requests from the UTSA community

  • Performance Indicators for the Legislative Budget Board

  • Annual Financial Report

K. Fiscal Year End Accounting

The following summarizes specific year-end accounting activities conducted by GCFS:

  • Deletion of closed accounts.

  • Balance Forward process for continuing accounts.

  • Preparation of schedules for the Annual Financial Report.

  • Confirmation of pass-through funds with other agencies and institutions.

  • Accounting Adjustments, e.g. Deferred Revenue, Unbilled Accounts Receivable.

L. Program Income

The UTSA is accountable for program income generated from sponsored program activities. OMB Circular A-110 defines program income as “…gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award.”

Examples of program income are:

  • Income from fees for services performed.

  • Usage or rental fees charged for use of facilities or equipment.

  • Funds generated by the sale of commodities developed by the project, e.g. tissue cultures, cell lines, etc.

OMB Circular A-110 also outlines the uses and restrictions associated with program income. Program income earned during the project period is retained by the UTSA and must be either:

  • Added to the funds committed to the project to further eligible project or program objectives.

  • Used to finance the non-Federal share of the project or program.

  • Deducted from the total project or program allowable cost to determine the net allowable costs on which the Federal share of costs is based.

If the awarding agency does not specify how program income is to be used, the third bullet above applies automatically to all projects or programs except research. For awards that support research, the first bullet above applies automatically unless the awarding agency indicates otherwise.

The UTSA must account for program income using the same rules that apply to Federal grant funds. GCFS must be informed whenever it is determined that program income will be generated. GCFS will determine the appropriate method of accounting for the income and establish accounts to record the income.

GCFS will include program income in financial reports as required by the awarding agencies.


DEFINITIONS

Term Definition

Grants

Financial assistance agreements from sources outside the university to carry out an approved project or activity in support of the research, instruction or public service missions of the university.

Contracts

Written, legal agreements between the university and an awarding agency normally involving the generation of a product, service or other consideration by the university in return for the sponsored support from the agency.

Modified Total Direct Costs (MTDC)

Total direct costs allocable to a grant or contract excluding equipment, capital expenditures, tuition, rental costs, scholarships and fellowships as well as the portion of each subcontract in excess of $25,000. MTDC represents the costs to which the F&A rate may be applied to determine allowable indirect charges to a grant or contract.

REFERENCES/LINKS

RELATED FORMS/WORKSHEETS

None at this time.


REVISION HISTORY

Date Description

08/30/11

Revised the Facilities and Administrative (F&A) rates, effective September 1, 2011 through August 31, 2015.

01/21/11

Revised Section E. Cash Management and added subsections 1 and 2. Removed "Cognizant Agency" entry from Definitions section. Conducted consistency edits throughout document.

09/20/10

Added business process and procedure details to the Accounts Receivable Services section.

11/20/09

Published guideline.


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