Background and Regulatory Basics

Background Overview

The Federal government has stepped up their compliance
enforcement and is requiring greater accountability from institutions regarding
their effort management and reporting practices. Expectations include clear
policies and processes regarding effort reporting systems as well as adequate
training for all employees involved in the process.

While the Federal government has required effort reporting under OMB Circular
A-21 Cost Principles for Higher Education Institutions for decades, the
last few years has seen increased Federal scrutiny and audits resulting in
significant fines for a number of research institutions.

Examples include:

  • Northwestern University – $5.5 million, plus costs, attorneys’ fees
    and disallowances.
  • Thomas Jefferson University – $2.6 million
  • University of Chicago – paid a combined $650K to settle charges;
    University is reported to have paid $250K, while the PI accused of the
    impropriety reportedly paid $400K.
  • University of South Florida returned $4.4 million to settle a number
    of charging issues including effort reporting.


Regulatory Basis

The regulation that governs what is required from institutions concerning
certification of effort is outlined in OMB Circular A-21 Cost Principles for
Higher Education Institutions
Sections J 10. The criteria for acceptable
methods are:

(a) The payroll distribution system will be

  • incorporated into the official records of the institution;
  • reasonably reflect the activity for which the employee is compensated
    by the institution
  • encompass both sponsored and all other activities on an integrated

(b) The method must recognize the principle of after the fact confirmation
or determination so that costs distributed represent actual cost. Direct cost
activities and F&A cost activities may be confirmed by responsible persons
with suitable means of verification that the work was performed.

(c) The payroll distribution system will allow confirmation of activity
allocable to each sponsored agreement and each of the categories of activity
needed to identify F&A costs and the functions to which they are allocable.

(d) Practices vary among institutions and within institutions as to the
activity constituting a full workload. Therefore, the payroll distribution
system may reflect categories of activities expressed as a percentage
distribution of total activities.

(e) Direct and F&A charges may be made initially to sponsored agreements on
the basis of estimates made before services are performed. When such estimates
are used, significant changes in the corresponding work activity must be
identified and entered into the payroll distribution system.

(f) The system will provide for independent internal evaluations to ensure the
system’s effectiveness and compliance with the above standards.

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