Accounting System Reviews
Federal award administration regulations require that federal award recipients maintain project cost accounting systems capable of managing and accounting for federal funds in accordance with the applicable regulations and terms and conditions of the award. This is of particular importance for cost reimbursement type awards, which are the principal funding mechanisms for most NSF discretionary grant programs. Organizations considered for an NSF award are required to demonstrate that they maintain a project cost accounting system that meets these standards. Because a project cost accounting system is fundamental to effectively managing federal funding under a cost reimbursement type award, NSF includes a review of awardee accounting systems as one component of many of its core monitoring activities (i.e., pre-award reviews, Small Business and Innovative Research award reviews, and post-award monitoring desk reviews and site visits).
The awardee organization is responsible for providing accurate and complete information regarding its accounting system and how it will be able to account for costs on a project by project basis. The awardee should be prepared to demonstrate and document that key systems are in place if an accounting system review is initiated by NSF. The awardee organization is responsible for time & effort reporting that meets the federal requirements applicable to the type of awardee (Colleges and Universities, Non-profits, For-profit, State and Local, etc.). The awardee is also responsible for documenting and maintaining adequate segregation of duties, internal controls, and written policies and procedures. The CAAR analyst generally takes the lead in most accounting system reviews by examining and evaluating the awardee’s management systems, policies, procedures, and controls related to recording financial transactions charged to NSF-funded awards. However, such information may also be analyzed by the Division of Grants and Agreements, Cooperative Support Branch, and/or the Large Facilities Office. If minor deficiencies are found during the review, the CAAR analyst may communicate with the awardee regarding the appropriate corrective action they need to implement after receiving the award. If significant deficiencies are noted, the CAAR analyst may recommend to the appropriate awarding officer that the award action not be funded to that organization.
For most reviews, CAAR verifies that the organization’s accounting system provides for:
- Detailed budget preparation with proposed costs, based on actual supportable cost data (Historical Cost, Cost Estimating Relationship, Basis of Estimate, vendor quotes, etc.)
- Classification of expenditures as direct, indirect, or unallowable costs, typically through a cost policy statement, as well as processes and procedures for classifying costs as direct, indirect, or unallowable as they are incurred.
- A system for accounting of costs (budgeted costs, actual costs incurred, and funds remaining) by project/grant/funding source and by NSF budget line item expense category
- Complete and accurate financial reports (including balance sheets and income statements, project cost ledger or account summary reports)
- Maintenance of adequate source documentation supporting all expenditures claimed on awards (time and effort reports, purchase orders, invoices, canceled checks, etc.)
- Maintenance of adequate documentation to support cost sharing (acceptable forms of cost sharing contributions are those that meet the criteria established in Section 23 of OMB Circular A-110) when cost sharing is required under an NSF award.
- Internal controls and segregation of duties to ensure that no one employee has complete control of accounting transactions (e.g., the employee who approves the expense should not be the same person who records the expense in the awardee’s accounting system).
For pre-award accounting system reviews, organizations are usually required to complete a "Financial Management Systems Questionnaire (FMSQ)", which can be found in Appendix 4.0 of the Prospective New Awardee Guide, and an Indirect Cost Rate Proposal, which will be reviewed by CAAR.
If an organization has a negotiated indirect cost rate agreement (NICRA) issued by another federal agency, or has been audited by the Defense Contract Audit Agency (DCAA) or other federal agency, CAAR may request a copy of the NICRA, business system approvals, and/or audit report(s), and Grant Officer/Contract Officer determinations resulting from the audit or review.
Resources and References
- Accounting System Reviews Fact Sheet - under development
- Accounting System Reviews FAQs - under development
- Federal Requirements