Project Delays | Part 3: We Have How Much Money Left?! Minimizing the Impact of Large, Unobligated Grant Balances
The Spotlight concludes its summer series on project delays in funded research with a discussion of how large, unobligated balances near the end of a grant period can be alleviated so funds can be retained with as little penalty as possible. Previous installments in this series covered timely management of no-cost extensions and how the effective use of ClinicalTrials.gov can complement a research project and contribute to its steady progression toward completion.
As the end of a funded project approaches, a large, unobligated balance can pose challenges for research administrators and principal investigators (PIs). This month, the Spotlight examines several scenarios that may give rise to this situation and offers strategies to make the best use of awarded monies before time runs out.
An unobligated balance is the amount of money left at the end of a fiscal period that has not been spent. It comprises the unliquidated commitments plus the incurred expenses subtracted from the cumulative amount of the funds awarded (2023, Code of Federal Regulations). These balances may also be referred to as lapsed, carryforward, or carryover funds.
What amount constitutes a large, carryforward balance? This is usually considered 25% or more of the grant funding received to date over the project’s life cycle. According to the National Institutes of Health (NIH) Grants Policy Statement, “Funds are automatically carried over to the subsequent budget period. However, the recipient will be required to indicate, as part of the grant’s progress report, whether any estimated unobligated balance (including prior-year carryover) is expected to be greater than 25 percent of the current year’s total approved budget” (2022, NIH). The amounts may vary depending on the funding agency or program, but the details should be available in the notice of award (NOA) or contract. Contact the program officer if you cannot find the information in the contract.
A large, lapsed balance is not likely to cause a delay; however, large balances indicate an underlying problem with a grant and any of these problems can cause a delay or disruption. Here are some reasons why these circumstances may occur, along with some solutions to work through them.
If significant funds are left at the end of a financial period, the project may not be budgeted correctly. I once worked with a project that had miscalculated health insurance for a significant number of employees. The investigator planned to use 15 data collectors to interview undergraduate students. When the project was budgeted, the standard employee fringe rates that included health insurance was used for that team. As the project got into swing, the investigator realized that undergraduate student assistants were the best data collectors for this project and insurance was not a benefit for this employee classification. This simple change generated $270,000 in unobligated funds in one year.
Excessive projected balances could indicate that the project has not identified the correct resources. We had a project where a subcontractor was not invoicing on a timely basis. This subrecipient had an annual budget of $280,000 but had only invoiced $54,000 as the award entered the second year. It turned out that the subcontract institution had overcommitted across several projects; it could not fully meet the agreement.
A hefty unspent balance could also suggest that the timing is skewed. We work with the state school systems for a lot of our projects. For several grants, our institution’s fiscal year starts October 1. This date presents significant challenges when the school year starts in August and the project timeline is always shifted by at least one semester. We know from the start that the bulk of our year one funding will be carried into year two.
A mismatch between the scope of work and the budget can leave significant funding on the table. We had an agency remove all research components from the scope of a contract; the sponsor simply wanted us to initiate a program in their community. The original budget included personnel to conduct the research and these costs were not removed when the scope of work changed. Boom! A large, unobligated balance resulted.
These are real-world examples, not hypotheticals, so we can see that large, unobligated balances happen regularly. But you may ask, why does a large carryforward balance matter? What is the problem if you have funds to use in subsequent years? The United States Government Accountability Office (GAO) notes, “Understanding an agency’s processes for estimating and managing balances provides information to assess how effectively agencies anticipate program needs and ensure the most efficient use of resources” (2013, GAO). So, there can be several potential consequences.
There will most certainly be additional documentation to complete, or, at the very least, the PI must provide an explanation to the funding agency. For example, the US Department of Education (USDOE) may require a grantee to complete the SF425 in addition to the ED 524B if there is a significant carryforward amount. The National Institute of Arthritis and Musculoskeletal and Skin Diseases (NIAMS) requires that any carryover request answer these questions:
- Why were the funds not spent in the past year?
- What additional work will be done during the current grant year that is not possible with the budget currently allotted to this year? Thought must be given to how the work will be accelerated; for example, will more staff be hired, effort increased, or more assays run?
- Is the request essential? Are costs reasonable, allowable, necessary, and in line with the existing budget? Are there new costs that were previously unforeseen? How will the work be impacted if the funds are not carried over? (2019, NIAMS)
Another consequence may be that future year funding is reduced. The Office of Special Education Programs (OSEP) has a section in the cover letter of its 2022 Grant Performance Report for Continuing Funding that addresses large available balances. This sponsor notes that they “will apply scrutiny to those grantees with large available balances in their accounts, request additional budget information, and will take that into account in making continuation award decisions.” OSEP specifically warns, “Carryover funds greater than 30 percent may result in a reduction of continuation funds in the subsequent budget period.” I have recently seen the Office of Special Education and Rehabilitative Services, the National Cancer Institute, and the National Institute on Drug Abuse deduct a carryforward balance from the next year of funding.
While not common, it is possible for a funding agency to pull funding due to extensive unspent balances. One unfortunate example involves a PI who lost all subsequent funding from the Veterans Administration because no funds were drawn down during a financial period.
The good news is that these situations often can be remedied. Most funding agencies will work with the PI to resolve concerns and keep the project moving forward. How can you rectify an issue? In the example where the project was not budgeted correctly, the PI worked with the agency to recast the budget, adding additional participant incentives, further advertising for recruitment, and additional time for statistical analysis. The PI was able to do more with the same budget, a win-win for everyone.
When a budget has a large, lapse balance due to resource issues, identifying new resources is usually the best fix. In the example of the overcommitted subcontract, the PI worked with the subrecipient to develop a new scope of work that could be fulfilled and adjusted the budget accordingly. This allowed for continued collaboration and maintained healthy relationships between the researchers, which is vital in niche areas of expertise. With the approval of the funding agency, the PI was able to subcontract with another site so that the overall project readily reached its goals.
For the situation where the project started off later than the planned timeline, we know that we will provide a detailed justification and spending plan when the annual report is submitted. Of course, the program officer is aware from the start that there is a skewed timeline.
If the scope of work is out of line with the budget, research administrators and PIs will need to work closely with the funding agency to clear the issue. A funding agency issues an NOA or contract with the valid expectation that the goals of the project will be completed. A funder rarely allocates additional money to a project for the PI to fulfill the original scope of work. It may compromise future funding opportunities for the PI if work cannot be completed with the allocated funding. In the case where the funding agency changed the scope of work, the sponsor pulled the balance of funding at the end of the fiscal period. The PI was not permitted to keep the unobligated money.
Hopefully, you have noted that communication is a common denominator in resolving large unobligated balances. Funding agencies want to help PIs maintain research momentum. Contract agencies need the deliverables investigators are completing. Keeping an open line of communication with program officers builds their confidence in the research program. They want to see PIs succeed and are a resource for helping minimize delays and disruptions to the work – the best outcome for all.
Authored by Kimberly Read, Director, Business Research & Administration#Catalyst#Featured#Spotlight#September2023
University of South Florida
SRAI Distinguished Faculty