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Agreement for Royalties document sample
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Advanced Topics &
Subcontract Monitoring
August 21, 2007
Gail White
865-974-2493
gwhite@tennessee.edu
http://controller.tennessee.edu
Topics
• Program income
• Expanded authority
• Subcontract monitoring
2
Program Income
Program income
• UT has a new fiscal policy for program
income
• University of Minnesota audit issues
• Program income covered in OMB Circular
A-110
– “Gross income earned by the recipient that is
directly generated by a supported activity or
earned as a result of the award”
– Income earned during the life of the award
4
Examples
• Income from fees for services performed such as
laboratory tests
• Money generated from the use, sale, or rental of
equipment purchased with project funds
• Proceeds from the sale of supplies or equipment
purchased or fabricated with project funds
• Proceeds from the sale of software, tapes, or
publications
• Income from the sale of research materials such
as animal models
• Fees from participants at conferences or symposia
• Sales of products with an accompanying material
transfer agreement
• Royalties from patents and copyrights
5
Identification
• All program income must be identified
and recorded in the accounting
system using cost element 700900
– But, not all program income must be
reported to the sponsor
6
Nonreportable
• Examples of nonreportable program
income:
– Income earned from license fees and
royalties for copyrighted material,
patents, patent applications, trademarks,
and inventions produced under an award
unless addressed in the award terms
– Income received on non-federal awards
that are silent on program income
7
Pre-award treatment
• The PI should include anticipated
program income in the proposal
budget
• The campus research office should
identify potential program income
while reviewing the proposal and
ensure that it is properly identified
and budgeted according to federal
and sponsor regulations
8
Accounting treatment
• The departmental bookkeeper should
deposit program income receipts into
the sponsored project restricted
WBS Element using cost element
700900
• The campus / unit business office
should determine whether or not
program income is reportable to the
sponsor and report as required
9
Who decides how program
income may be used?
• The campus / unit research office reviews
sponsor policies to determine their
requirements
• It is important for principal investigators
to know how program income will be used
because additional award funds could
result in scope of work changes
• Reportable program income can be handled
in one of four ways, depending on the
sponsor’s policies
10
4 methods
• Matching
• Addition
• Deduction
• Add/Deduct
11
Matching method
• Matching method
– Income is used to finance the
nonsponsor or nonfederal share of the
project
• Example:
– A sponsor awards $100,000 for a project
– The project generates an income of $30,000
• Treatment:
– If the University was required to supply matching
funds of $50,000, the University would now have
to provide $20,000
12
Addition method
• Addition method
– Income is added to the amount allowable
for project costs
• Example:
– A sponsor awards $100,000 for a project
– The project generates an income of $30,000
• Treatment:
– The total project cost could be $130,000
13
Deduction method
• Deduction method
– Income is deducted from the amount
reimbursed by the sponsor
• Example:
– A sponsor awards $100,000 for a project
– The project generates an income of $30,000
• Treatment:
– The sponsor will now only fund $70,000 of the
project's costs
14
Add / deduct method
• Add / Deduct method
– The addition method is used up to an agency
dollar limit
– After that point, the deduction method is used
• Example:
– A sponsor awards $100,000 for a project
– The project generates an income of $30,000
• Treatment:
– If the sponsor limit is $25,000, then $25,000 will be
added to the total project cost, but $5,000 will be
deducted from the sponsor's payment to reduce it to
$95,000
– The total amount available is $125,000
15
Federal sponsors
• Individual agency policies determine
how the income will be handled
• However, most federal agencies
specify default treatment in their
grant policies
– Research awards
• The addition method will be used
– Non-research awards
• The deduction method will be used
16
Non-Federal sponsors
• Applicability:
– Non-Federal means there is no Federal flow-
thru funding involved
– If there is Federal funding involved, use
Federal rules
• In many cases, the sponsor does not have
an established program income policy
• If the sponsor is silent on this issue, the
income is not reportable and will be
handled according to the addition method
17
Special situations
• Sales tax on program income
• Honoraria
• Royalty income
18
Sales tax on
program income
• Sales tax on program income
– If program income is generated from
the sale of taxable goods or services,
then sales tax should be charged
• This is extremely rare
– Contact campus / unit business office
regarding procedures for collecting and
remitting sales tax
19
Honoraria
• Honoraria
– Honoraria earned from speaking
engagements related to the sponsored
program are not considered as program
income if they are paid directly to the
investigator
– If the honorarium is paid to the
University, then the sponsor might
consider it to be program income
20
Royalty income
• Royalty Income
– Royalties from copyrights and patents, while
defined as program income, are not reportable
unless the terms and conditions of the award
indicate otherwise
– If the University receives income from the sale
of a non-patented, but potentially patentable
invention, then the Campus Business Office,
Campus Research Office and UT Research
Foundation should be notified. It may be
advisable to notify the sponsor of the income to
determine if it should be reported as program
income.
21
Expanded Authority
Expanded authority
• Many Federal sponsors give expanded
authority to designated universities
– The Federal government is transferring
some of their administrative
responsibilities to us.
23
Applicability
• Terms may differ slightly between Federal
agencies
• To perform certain administrative tasks
– Described in the individual Federal agencies’
grant policies
• Applicable to certain awards only
– Noted on the Federal grant document
– Normally excludes cooperative agreements
24
How it works
• UT has a designated “expanded
authority” person on each campus /
unit
– UT PI submits written request for
desired administrative action to UT
designated person
– UT designated person can approve the
requests and then notify the Federal
agency in writing
25
Benefits / Cautions
• Reduces technical work delays
– Easier process for UT’s PI
• Reduces paperwork between UT and
the sponsor
– Saves time and money for everyone
• Caution:
– Federal agencies could deny us this
privilege if we abuse it or are
noncompliant 26
Possible admin actions
• One-time no-cost extension of award end
date
• Minor rebudgeting between line items of
direct expenditures
– Less than 10% of total award amount
• Incur pre-award costs up to 90 calendar
days prior to award start date
• Carryforward unobligated balances to
subsequent funding periods
• Subawards
27
Subcontract Monitoring
Subcontract definition
• OMB Circular A-133, Subpart A.105
– Subrecipient means a non-Federal entity that
expends Federal awards received from a pass-
through entity to carry out a Federal program
• Does NOT include an individual that is a beneficiary
of such a program
– A subrecipient may also be a recipient of other
Federal awards directly from a Federal
awarding agency
– Guidance on distinguishing between a
subrecipient and a vendor is provided in section
210.
29
Terminology
• These are sometimes used interchangeably
– Subcontracts
– Subawards
– Subgrants
– Subrecipients
• Pass –through entity
– A non-Federal entity that provides a Federal award to a
subrecipient to carry out a Federal program (OMB
Circular A-133, Subpart A.105)
• For example, UT receives $100,000 from NSF and
subcontracts a portion of the work to University of Georgia
for $25,000. UT is a pass-through entity.
30
Subrecipient vs Vendor
• Subrecipient - Characteristics • Vendor - Characteristics
indicative of a Federal award indicative of a payment for
received by a subrecipient are goods and services received by a
when the organization: vendor are when the
• (1) Determines who is eligible to organization:
receive what Federal financial • (1) Provides the goods and
assistance; services within normal business
• (2) Has its performance operations;
measured against whether the • (2) Provides similar goods or
objectives of the Federal services to many different
program are met; purchasers;
• (3) Has responsibility for • (3) Operates in a competitive
programmatic decision making; environment;
• (4) Has responsibility for • (4) Provides goods or services
adherence to applicable Federal that are ancillary to the
program compliance operation of the Federal
requirements; and program; and
• (5) Uses the Federal funds to • (5) Is not subject to compliance
carry out a program of the requirements of the Federal
organization as compared to program.
providing goods or services for a
program of the pass-through 31
entity.
Cost elements
• Subcontractor
– Cost elements 481100 and 482100
– Has a contract for services
– Integral part of project providing
collaborative effort
• BE SURE THAT YOU CHOOSE THE CORRECT COST
ELEMENT WHEN PAYING INVOICES!
32
Other cost elements
• Contractual services • Legal & professional
– Cost element 446000 fees
– Has a contract for – Cost element 437500
services – Has a contract for services
– Not a collaborative – All costs incurred for legal
relationship and professional services
rendered under contract to
– Provides services the University. Examples:
available in market Lawyer's for handling
• Such as testing samples, specific cases, auditing
etc. services of outside Certified
Public Accountants,
contracted medical services,
royalties, honorariums, etc.
• BE SURE THAT YOU CHOOSE THE CORRECT COST
ELEMENT WHEN PAYING INVOICES! 33
Subcontracts modifier
(These rules apply to each subcontractor
for the life of the project)
• Cost element • Cost element
481100 482100
– Subcontracts up to – Subcontracts
$25,000 greater than
• Does incur F&A $25,000
costs • Does NOT incur F&A
costs for MTDC
base (not Chatt &
Martin)
34
Example
• UT receives $250,000 from NSF and issues the
following subcontracts:
– University of Georgia $25,000
– University of Memphis $15,000
• All payments would be in cost element 481100
• UT receives an award amendment from NSF for year
2 that increases the funding to $500,000 and UT
awards Georgia and Memphis an additional $25,000
and $15,000, respectively
– At the end of the award period, charges would be as follows:
• Cost element 481100 = $50,000 (Georgia $25k & Memphis $25k)
• Cost element 482100 = $30,000 (Georgia $25k & Memphis $5k)
• Any additional award amendments with payments to
these 2 subcontractors would be charges to cost
element 482100
35
Regulatory guidance
• OMB Circular A-133, Subpart
D.400(d)
• UT Fiscal Policy FI0230
• Sponsor regulations
– Usually on their website in policy /
procedure document
36
OMB Circular A-133
• Subpart D.400(d)
– (d) Pass-through entity responsibilities. A pass-through entity shall perform the
following for the Federal awards it makes:
– (1) Identify Federal awards made by informing each subrecipient of CFDA title and
number, award name and number, award year, if the award is R&D, and name of Federal
agency. When some of this information is not available, the pass-through entity shall
provide the best information available to describe the Federal award.
– (2) Advise subrecipients of requirements imposed on them by Federal laws, regulations,
and the provisions of contracts or grant agreements as well as any supplemental
requirements imposed by the pass-through entity.
– (3) Monitor the activities of subrecipients as necessary to ensure that Federal
awards are used for authorized purposes in compliance with laws, regulations, and
the provisions of contracts or grant agreements and that performance goals are
achieved.
– (4) Ensure that subrecipients expending $300,000 ($500,000 for fiscal years ending
after December 31, 2003) or more in Federal awards during the subrecipient's fiscal
year have met the audit requirements of this part for that fiscal year.
– (5) Issue a management decision on audit findings within six months after receipt of
the subrecipient's audit report and ensure that the subrecipient takes appropriate and
timely corrective action.
– (6) Consider whether subrecipient audits necessitate adjustment of the pass-through
entity's own records.
– (7) Require each subrecipient to permit the pass-through entity and auditors to have
access to the records and financial statements as necessary for the pass-through
entity to comply with this part.
37
UT Fiscal Policy
• Responsibility for compliance tasks
– PI
• Pre-award
• Post-award
– Campus / unit research office
– Departmental accounting staff
– Other campus / unit departments
– Controller’s Office
38
PI pre-award tasks
• Review statement of work and budget
• Request subcontract be issued
• Prepare “Justification for non-
competitive purchase and contract”
form
• Utilize small & small disadvantaged
business where possible
• Include proposed subcontract in UT’s
proposal to sponsor 39
PI post-award tasks
• Review subcontractor invoices
– Compare invoice with technical work
done
– Monitor spending as compared to
proposal budget
– Disallow unallowable charges
– Sign invoices as approval for payment
– Withhold final payment until all
obligations have been fulfilled, including
all deliverables & technical reports 40
Research office tasks
• Assist PI with pre-award tasks
• Ensure authority to subcontract
• If Federal funds, ensure subcontractor has not been
debarred
• Ensure that subcontract includes all Federal regs
that flow-down
• Obtain Federal ID number
• Obtain subcontractor’s OMB Circular A-133 audit
report and Title VI survey
• Review subcontractor budget & statement of work
for reasonableness
• Ensure that UT bidding rules are followed
• Include subcontract financial terms that are
compatible with prime sponsor’s financial terms
• Decide & document if subcontractor is to be granted
Expanded Authorities 41
Dept acctg staff tasks
• Assist PI with tasks
• Ensure proper cost element coding on
invoices
• Ensure that all Federal financial
requirements in prime sponsor award
(that flow down to subcontractors)
are followed by subcontractors
– See next slide
42
Flow-down rules
• Departmental accounting staff should review
subcontractor invoices for the following:
– Invoice period falls within the subcontract dates
– Cumulative invoice payments are less than or equal to the
subcontract award amount
– Invoice line items add up correctly to the total due
– Verify F&A calculation and that F&A rate (and fringe benefit
rate, if applicable) matches proposal
– Disallow unallowable costs
– Compare invoiced costs to proposal budget
• Most Federal sponsors allow line-item rebudgeting of up to 10%
of the award amount
– Review costs to determine if they are correctly classified as
direct vs F&A costs
– Request additional information and backup documents from
subcontractor as needed 43
Invoice approval
• Subcontractor invoices should not be
approved if technical performance is
unsatisfactory
• Subcontractor invoices should not be
paid if there are outstanding
questions about costs
• Subcontractor invoices may be
“short-paid” after subtracting
unallowable costs
44
Other campus tasks
• Purchasing Dept maintains list of small &
small disadvantaged businesses
• Purchasing Dept and campus / unit business
office must review & approve
“Justification for non-competitive
purchases & contracts” form = $5,000 or
more
45
Controller’s Office tasks
• Obtain Title VI surveys and OMB
Circular A-133 audit reports on an
annual basis from subcontractors
46
Training classes
• 1 Overview of Accounting for Sponsored Projects
• 2 OMB Circulars & Cost Accounting Standards
• 3 Understanding F&A Costs
• 4 Direct Costing
• 5 Cost Transfers & Closeout
• 6 Cost Sharing
• 7 Subcontract Monitoring
• 8 Advanced Topics
• 9 Invoicing, Reporting & Cash Receipts
• 10 Sponsored Projects Reports in IRIS
• Other – IRIS reporting for sponsored projects
47
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