Effort Reporting for UNTHSC Faculty

Effort is defined as the amount of time spent on a particular activity. It includes the time spent working on a sponsored project in which salary is directly charged to a ProjID or contributed (cost-shared effort) from a DeptID.

Individual effort is expressed as a percentage of the total amount of time spent on work-related activities (instruction, research, patient care, administration, etc.) for which the University compensates an individual.

Effort reporting is the mandated method of certifying to the granting agencies that the % of payroll charged or cost shared to each award reasonably reflects the actual work completed on the project by each individual.

Cost sharing represents that portion of the total project costs of a sponsored agreement that are not borne by the sponsor of the project. These costs are borne by the University or other non-federal third parties, rather than by the sponsor. Since faculty salaries at HSC are in most part, paid for by an individual’s academic department, cost sharing of effort (salary) represents a redirection of departmental resources from teaching or other departmental activities to support sponsored agreements.

Certain federal agencies require that institutions cost share salaries that are above a “salary cap.” A salary cap is defined as the amount of salary paid to an individual above whom an agency will not reimburse an institution. The National Institutes of Health, the Agency for Healthcare Research and Quality, Mental Health Services Administration, the Department of Justice, and the Cancer Prevention Research Institute of Texas Substance Abuse are currently some of the agencies that impose a salary cap on awards to the University. This is considered mandatory cost share.

Other cost sharing can be required by the sponsor or volunteered by a principal investigator (PI); regardless, any commitment of effort referenced in the project proposal or the award document must be honored, reported, and captured in an effort reporting system.

The Office of Management and Budget’s (OMB) Circular A-21 “Cost Principles for Educational Institutions” and the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” 2 CFR Part 200, Section 200.430, Compensation – Personal Services (UG) is the federal government’s cost principles for colleges and universities. It defines what costs are allowable and allocable to federal grants and other “assistance” agreements.

OMB (A21, Section J.10 or UG, Section 200.430) sets forth criteria for acceptable methods of charging salaries and wages to federally sponsored projects and requires a payroll distribution system that directly charges salaries to appropriate projects.

In addition, OMB requires that institutions develop a mechanism to determine or confirm how individuals actually expend effort during a specified time period. These effort reports must be performed on a regular schedule and must be certified by individuals who have first-hand knowledge of 100 percent of the employee’s compensated activities. The Principal Investigator is required to certify the effort report for all project employees.

In fiscal year 2014, federal awards represented approximately 77 percent of total grant and contract award activity at HSC. Salary expense represents the largest direct cost component on these projects.

In recent years, the federal government and its auditors have become much more active in their review of effort reporting requirements, and a number of universities have received large audit disallowances as a result. Recent cases of audit disallowances are:

Northwestern University paid $5.5 million to settle issues related to problems with effort reporting, on a contracts and grants base of $325 million;
South Florida returned $4.1 million to the federal government to settle a number of charging issues, including effort reporting;
University of California paid a total of $2.1 million to settle an NIH salary cap limitation disallowance for the period July 1, 1995 through June 30, 2002.

An effort reporting system must provide records on how individuals participating in federally funded sponsored agreements actually spend their time. Because the federal government mandates effort reporting, it is incumbent upon institutions that receive federal funding to maintain accurate and auditable systems and records.

Documentation on how individuals spend time on federally sponsored projects is subject to federal audit and can be cause for institutional or individual disallowances.

Institutional disallowances can result if:

The effort report was certified by an individual who would not have reasonable knowledge of time a project employee spends on the project;
The effort report does not encompass all of the activities performed by the employee under the terms of their employment;
The levels of effort reported do not appear reasonable, given the responsibilities of the individual or the actual time spent working on the project.

Individual disallowances can result if:

The effort report certified by the individual is found to be falsified;
The levels of effort reported do not appear reasonable.

As evidenced above, federal audit disallowances can result in serious financial penalties for institutions. In addition, criminal charges may be brought against an individual certifying to falsified effort.

Current audit plans for federal auditors include effort reporting as a specific audit focus.

During the life of an NSF or NIH award, the PI must notify the Office of Sponsored Programs (OSP) when the PI is going to be temporarily absent from the project (three months or less.) For PI absences longer than three months, the University must obtain prior sponsor approval and notify the sponsor at least 30 days before the PI’s departure. In both cases OSP is required to notify the grantee agency of arrangements that have been made for the conduct of the project during the PI’s absence, so the PI must provide this information to OSP. Prior sponsor approval is also required for significant reductions (generally 25 percent or more) of the PI’s effort on the project (including periods under a no cost extension.) These requirements also apply to co-PIs and, on NIH awards, to senior or key personnel designated by NIH in the Notice of Award.

It is the PI’s responsibility to be aware of each key person’s effort commitments to communicate any inability to meet those commitments to OSP to ensure that any necessary sponsor approvals of their reduced efforts are obtained.