Authored by:
Jason J. Claes
Assistant Director Business Affairs - Accounting
University of Cincinnati
Email:claesjj@ucmail.uc.edu
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In managing the fiscal operations of any sponsored project, a financial manager must first understand the instrument of what a sponsored project is in order to apply a method to it. A good fiscal administrator’s basic knowledge of the different funding instruments can also allow for better communication between the accounting office and the PI regarding the financial health of a project. This communication allows also for better cash flow manage especially when payment or expenses are to hit the ledger.
Typically the acceptance and accounting process of a sponsored project varies with the type of proposal submission and instrument used by the sponsor to award the funds. Awards for sponsored projects are typically issued in the form of a grant or contract; however funds can also be provided under various types of agreements that do not fit neatly into either category. That is why attention should be paid to the substance of the award document rather than the category; however this document follows general definitions of common award instruments.
There are several funding instruments such as Grant Awards and Contracts in which the sponsor is hoping to receive something (data, publication, results, etc…) in exchange for monetary support to the investigator and their team. The sponsor can be a federal entity but other times can be private or corporate as well as international entities. In fact due to budget cuts, resulting funding limitations there has been an increase of non-US based sponsors.
The first and most common instrument in sponsored projects is Grant Awards. The reason why PI’s apply for sponsored projects is to request assistance either by financial support or by procurement methods to assist in developing or furthering their studies in a particular area. This is done by applying in hopes of entering into an agreement by a funding sponsor, which the most basic form of application is by applying for a grant whether it is solicited or not. A Grant Award tends to be a legal binding document in the form of a letter, email, or other written correspondence that serves to notify a recipient that a grant award has been made based on the approval of a grant application. The notice contains or references all terms of the award and documents the obligations of funds including amount and period of performance; and sometimes allows flexible fiscal management such as allowing re-budgeting up to a certain percentage without prior authorization and equipment title is provided as a right to the recipient by the sponsor.
The next most common instrument used is Contracts. A contract is a legally binding document in which the contractor promises to deliver a product or service in exchange for consideration (usually monetary). Contracts are used by sponsors to acquire property or services for the sponsor’s direct benefit including performance of specific activities for scientific inquiries in particular areas of research/development needed by the sponsor. Contract performance is usually monitored closely by the sponsor and payment is adherent on milestones met in order to be paid. Changes to the contract such as rebudgeting or rights to the title of equipment need sponsor approval.
Another common instrument of funding is Subaward/Subontractor Agreements. This is when a sponsor funnels funds from a prime sponsor to another entity to accomplish certain aims or aspects of the project that the sponsor cannot accomplish. Payment is usually made once the subcontractee has met deliverables agreed in the contract and invoices are submitted for payment. Flow-down clauses called FARS are usually followed by the subcontractee as well and rebudgeting or entitlement of equipment is followed as well as the subcontractor.
Sometimes Cooperative Agreements are used in which they are similar to a grant in that their purpose is to provide funding in support of a particular aim. What distinguishes this type of agreement from a grant is anticipated substantive involvement between the sponsor and the recipient during the performance of the contemplated activity. Thus progress reports are made and after each aim has been met, payment is provided.
In each instrument there are several differences in which a grantee receives their funds, whether a written report based on progress must be submitted or an actual financial report must be filed to assure funds are being used appropriately. That is why it is important to look closely at each award to determine the best way to handle financial obligations in order to manage the cash flow of not only the PI’s project, but for the department and institution as a whole.
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