A Practical Approach to Managing Cost Reimbursable Grants

Congratulations your proposal was selected for funding!!! Now what? The actions taken at the beginning of the grant can have a significant impact on the amount of time devoted to managing the grant. This article provides a practical approach to managing the grant efficiently, with a minimum amount of time on your part while successfully meeting the grant requirements. "The effectiveness of a project's fiscal operations can make or break a project regardless of how good its program may be in practice. Effective financial management means more much than bookkeeping or accounting. It involves using financial data as a tool in decision making regarding the allocation and use of resources" Lefferts (1983).It is essential to know the terms of the grant. There are project directors that make it a point to have everyone in the staff, including support personnel, read the grant in its entirety.

In many organizations the grant is assigned to an accountant. It is the accountant's responsibility to establish the account, set the initial budget, perform the billing, prepare any required special schedules for the granting agency, and serve as the contact person for the Principal Investigator (PI) and the grantor on financial matters. A revenue and a expense budget is established that coincides with the budget approved in the grant. The major budget classifications are personnel, other direct expenses, and indirect cost.

Note that establishing the budget merely indicates that the PI is authorized to disburse the funds to support the project. The receiving agency normally does not receive funds from the grantor until expenses are incurred and billed. Hence the name "cost reimbursable grant". Likewise, if the project is completed without spending all authorized funds, the grantor will not be billed for the remaining unspent funds, unless the terms of the grant allow it. Expenditures

The PI should systematically review all expenditures incurred for appropriateness. Expenses disallowed by the grantor can be costly both to the PI and the receiving agency. When in doubt, it is better to contact the grantor for clarification. If services or materials are needed for the project that are not specified on the grant, the PI should contact the grantor and request authorization in writing to make those purchases. Normally the PI will use the accounting system of the host agency, with fiscal requirements and policies of the receiving agency applying to the grant. Often the grant calls for a service that is essential the completion of the project, but service will not be delivered until after the grant terminates. In this case the PI can request the Purchasing Department to encumber those funds prior to placing the order with the vendor. Failure to encumber the funds can result in those expenses being disallowed by the grantor.

More and more grants require a certain amount of cost sharing (matching) from the receiving agency. This serves two purposes: to show the commitment by the receiving agency and to increase the amount of resources available. Normally, cost sharing is accomplished with matching payroll expenses or unrecovered indirect costs. This is the easiest way to provide matching, besides cash contributions. Matching can also be met with travel, or other expenses, or non-cash-in-kind matching. However, these types of expenses requires extensive documentation.

Payroll matching is accomplished through certification of time spent by individuals working on the project. This certification is often referred to as the "Time and Effort" (T&E) certification. Normally, the T&E certification is prepared quarterly, but may be done monthly or annually, depending on the grant requirements. Rules that apply to the T&E certification include, but are not limited to, the following:

the source of funds can only be state or local funds; federal funds or payroll expenses for individuals paid from the grant itself may not be used for matching purposes; a PI may not match more than 100% of his/her time for the various grants that the PI may be participating in concurrently; the person submitting a T&E is certifying that a specific amount of time is spent working on the project.

Documentation of the days worked and a brief description of the nature of the task accomplished should be recorded and retained by the individual for auditing purposes. Normally, time spent by the individual, is reported in number of days or hours as appropriate.

The grant may contain an indirect cost provision stated as a percentage of modified total direct cost (MTDC) or total direct cost (TDC). The MTDC does not include equipment or construction. TDC includes all the costs. The indirect cost represents the receiving agency overhead that includes payroll, accounting, administrative, and equipment expenses that cannot be exactly identified to a specific task or project. Miner & Griffith (1993). The indirect cost rate is generally established by the receiving agency and approved by the federal agency such as the Department of Health and Human Services (DHHS). If your receiving agency does not have an indirect cost rate, contact the grantor to see if indirect cost is allowed and what rate is acceptable.

As the project gets underway, it is possible that a specific budget category may run out of money. An alert PI can contact the grantor in advance and request a budget revision, before a crisis occurs. Depending on the grantor's internal procedures, it may be possible for the PI to receive authorization to move money between categories without changing the amount of the grant and without creating new budget categories. Otherwise, the PI should project the various types of expenses for the remaining life of the grant and request a budget revision from the grantor, including a justification for the request. In any event, it is essential that the budget revision be authorized in writing by the grantor. Another option available to the PI is a grant extension. This occurs when the grant expires before the project is completed. The best time to request an extension is between two-to-three months before the grant expires. Grantors frown on receiving those requests just before the grant expires or after the grant has ended. Of course, the grant may contain an extension(s) clause.

It is essential that the PI submits progress reports to the grantor on time with a copy to his/hers Fiscal Office. Grantors may hold reimbursement of payment if the quarterly or final report has not been received. It is also a bad reflection on the receiving agency, if the reports are consistently late. In some states such as Texas, federal grants require that a HUB (Historically Underutilized Businesses) report be filed quarterly/or annually.

There are two major categories of HUB's: woman business enterprise (WEB), and minority business enterprise (MEB), which includes Blacks, Hispanics, Asian, American Indians, etc.). In Texas the threshold for purchases requiring HUB's bids is $1,000. One bid must be from a female-owned business and the other from a minority-owned business. Generally, the receiving agency agrees to purchase a certain percentage of the grant's funds from HUB's, such as 8% of the total amount of the grant. This requirement is generally included in the terms of the grant.

Usually, the grantor provides 45 days (30 for a contract) after the grant ends for the billing of any expenses incurred prior to the expiration of the grant. It is essential that the PI maintain a record of the expenses incurred for the grant so that his records may be compared to the official financial statements. In this manner, any expenses incurred but not paid can be included in the final billing to the grantor. It is suggested that a LOTUS spreadsheet or an accounting microcomputer software package such as Quicken be utilized to maintain accounting records at the departmental level. This allows the PI to know at any point in time the amount of funds available to spend by budget category. And to ensure that all the invoices are included in the final billing

Cost reimbursable grants can be effectively managed by taking the following steps: contact the grant accountant in your organization and review the grant's requirements. Know exactly what the grant expects from you and what is expected from the accountant. Establish and maintain accounting records at the departmental level to supplement official records. Set-up procedures for submitting T&E certification on a quarterly basis. Give early attention to budget revisions or extension before they turn into crises. Submit the quarterly and final reports on time. Ensure that the final billing is done within the terms of the grant.

Remember, you have the ultimate responsibility for ensuring that the grantor's requirements are met and that the grant is completed successfully and on time. Setting-up the grant properly from the beginning not only minimizes the amount of time you spend managing the grant, but may result in additional future grants for you and your agency.

Lefferts, Robert. (1993). The Basic Handbook of Grants Management. New York: Basic Books, Inc., Publishers, (p. 197).

Miner, Lynn E. & Griffith. (1993). Proposal Planning & Writing. Arizona: Orix Press, (p.110).