1. Accounting Systems Information - Organizations receiving awards are required to have an adequate accounting system. Adequate accounting systems provide assurances to the Federal Government that organizations can account for expenditure of federal funds in accordance with applicable regulations, and terms and conditions of the award.

   At a minimum, adequate accounting systems provide for:

   • identification of costs (budgeted costs and actual expenses) by project/grant;
   • identification of costs as direct, indirect, and unallowable;
   • complete and accurate financial reports (including balance sheets and income statements); and
   • maintenance of adequate source documentation (purchase orders, invoices, canceled checks, etc.).

   Organizations being considered for an NSF award are required to support the existence of an adequate accounting system. If an organization has been audited by Defense Contract Audit Agency (DCAA), or has been audited by another Federal Agency, the organization should provide a copy of the review and/or audit report resulting from the audit or review.

   All organizations should complete and provide the " Information Concerning Financial Management Systems" form, (Appendix 5.) This form will be reviewed by the Cost Analysis and Audit Resolution Branch. Possible accounting system deficiencies in your submission, and suggestions for correcting deficiencies, will be discussed with the submitting organization.

2. Time and Effort Reporting - Time and effort records must be maintained for an organization's employees so that salary charges to an award can be verified. An adequate time and effort record contains the following information: (1) the name and signature of the employee; (2) the hours an employee worked each day during a given pay period; (3) the activities of the employee during the pay period (i.e., project, general and administrative, vacation, sick, leave without pay, etc.); and, (4) the name and signature of the employee's supervisor.

   Corrections to a time and effort record should be in ink and initialed by the employee.

   Organizations should provide a copy of their time and effort record as an attachment to the " Information Concerning Financial Management System" form. The following sample timesheet is provided to assist you in creating a time and effort record form should your organization not currently maintain these records.

   Bi-Monthly Time Record
   Employee Name							Employee Signature
   Supervisor Name							Supervisor Signature
   Month:	16	17	18	19	20	21	22	23	24	25	26	27	28	29	30	31	Total
   Project:
   Holiday
   Vacation
   Sick leave
   Other:
   Total
   Note: Corrections should be made in ink and initialed by employee.

3. Indirect Cost Rate Information and Financial Statements - An indirect cost is any cost not readily identified with a particular individual project, but identified with two or more projects (e.g. rent, utilities, accounting fees, etc.) Indirect costs cannot be charged directly to one specific project, but must be allocated in an equitable distribution of indirect costs to direct projects by application of an indirect cost rate to direct costs.

   Organizations are required to support their indirect cost rate(s) shown on their grant proposal budget by submission of a current indirect cost rate agreement negotiated with a Federal agency (with financial statements for the two most current ended accounting periods), or by submission of an indirect cost proposal (view sample indirect cost proposal) and the related financial statements.

   A sample indirect cost proposal is as follows:

   SAMPLE INDIRECT COST PROPOSAL
   (Name of Organization) Indirect Cost Rate Proposal Actual (or Budgeted) Cost Data for the FY____
   	(1) Total Actual or Budgeted Costs	(2) Eliminations	(3) Total Indirect Costs	(4) Total Direct Costs	******* Project A (NSF)	******* Project B (DOE)	******* Project C	******* Project D	******* Research & Development
   Salaries & Wages
   Bill Able, President	38,000		6,000	32,000		4,000	8,000	10,000	10,000
   John Brown, Scientist	25,000			25,000	15,000		5,000		5,000
   Paul Dent, Engineer	20,000			20,000	9,000		9,000	2,000
   Carl Kipe, Scientist	20,000			20,000		10,000	10,000
   Nancy Wong, Scientist	20,000			20,000	5,000	5,000	5,000		5,000
   Sally Smith	12,000		2,000	10,000	3,000	2,000	3,000		2,000
   Mary Jones, Accting	15,000		15,000
   	150,000	0	23,000	127,000 (B)	32,000	21,000	40,000	12,000	22,000
   FICA	8,500		2,100	6,400	1,650	1,100	1,900	600	1,150
   Health & Life Insurance	5,000		800	4,200	1,100	700	1,250	400	750
   Consultant Fees	3,000			3,000	500	1,000	500		1,000
   Depreciation	5,000		5,000
   Entertainment	500	500
   Equipment	5,000	5,000
   Legal & Accounting	2,000		2,000
   Materials & Supplies	9,000			9,000	3,000	2,000	3,000		1,000
   Office Supplies	2,000		2,000
   Outside Computer Svcs	2,500		500	2,000	500	500	500		500
   Postage & Telephone	1,500		1,500
   Printing & Publications	4,000			4,000	500	500	1,000		2,000
   Rent	15,000		15,000
   Subawards	50,000	50,000
   Travel	9,000		1,500	7,500	2,500	2,000	1,000		2,000
   	272,000	55,500	53,400 (A)	163,100 (C)	41,750	28,800	49,150	13,000	30,400

   
   Indirect Cost Rate:
   (A)/(B) - 42.00% of Direct Salaries and Wages or
   (A)/(C) - 32.70% of Total Direct Costs less Capital Expenditures and Subaward Costs

   NOTE: Two indirect cost proposals should be provided. One should be based on actual cost data for the most current ended accounting period and should be submitted with the financial statements for that period. The total actual expenses as reported in the related financial statements should agree with the total cost column (1) in the indirect cost rate proposal. The second indirect cost proposal should be based on projected costs for the accounting period in which the proposed work will be performed. If this indirect cost rate varies significantly from the rate determined on actual expenses, footnote the indirect cost proposal to highlight cost areas which caused the variance and explain.

   Based on various information available, e.g., historical cost information, and the amount of funding being requested, the Cost Analysis and Audit Resolution Branch will make a recommendation on the funding of indirect costs - either as an amount, or as a rate. Since indirect cost recoveries can be limited on NSF awards, and could require post-award repayments to NSF, organizations receiving awards should ensure that they understand the award conditions relating to indirect cost recoveries. These will be specified in the award letter. Conditions which could be included are as follows:

   Maximum provisional rate: A maximum provisional rate is a temporary rate established for an award to permit funding and reimbursement of indirect costs pending establishment of a final rate (that rate determined at the end of an accounting period using "actual" direct and indirect cost data). This type of rate limits indirect cost recoveries to the LOWER of the maximum provisional rate established at the time of award, or the final rate, established at the end of an accounting period.

   As an example, if a maximum provisional indirect cost rate of 50% was established at the time of award, but an indirect cost rate of 65% was determined based on actual financial data for an accounting period, indirect cost recoveries would be limited to 50%. However, if a final indirect cost rate of 40% was determined, indirect costs recovered in excess of the 40% rate would need to be removed as charges to the project.

   Organizations having awards which contain maximum provisional rates are required to submit indirect cost proposals reconciled to financial statements for those periods during which the award is active. The Cost Analysis and Audit Resolution Branch of NSF will review indirect cost proposals and determine the appropriate final indirect cost rate.

   Predetermined fixed rate: A predetermined fixed indirect cost rate is a permanent indirect rate established for a discrete period of time, usually an organization's fiscal year. Organizations should charge NSF awards at the predetermined fixed rate(s) stipulated in the award document(s). However, if negotiations between the organization and NSF (or the cognizant federal agency, if not NSF) result in changes to the organization's indirect cost rate which are not reflected in an award, the organization may charge the award at the newly negotiated rate in effect when direct cost expenditures are made, subject to the restrictions in GPM 635.1.

   Fixed dollar amount: A fixed dollar amount limits organizations to that "amount" of indirect costs specified in the approved budget. It is not subject to adjustment.

4. Costs Unallowable on Federal Awards - Certain kinds of costs organizations incur cannot be charged to Federal awards, either as direct or indirect costs. A few examples of these costs are: advertising (except for help wanted), bad debt, contributions and donations, fines, penalties, and independent research and development (IR&D) costs. The applicable cost principles which give more details on allowable costs and unallowables are listed in Section A above.

5. Information on Audits conducted on Federal awards - Information on audit requirements are contained in the GPM 350. In addition to those audits discussed in GPM 350, the NSF Office of the Inspector General (OIG) conducts audits of awards made to for-profit and non-profit organizations receiving Federal funding. Since these audits can result in cost disallowances and require organizations to make repayments to NSF, organizations should understand the importance of having adequate accounting documentation to support that costs charged to NSF awards are actually incurred, reasonable and/or allowable under the applicable cost principles and/or terms and conditions of the award.

   Audit findings resulting in questioned costs (and, which can require repayment to NSF) have been due to the following:

   1. Lack of time records to support salary costs charged to awards.

   2. Lack of documentation (invoices, canceled checks, etc.) to support and to determine other direct costs (materials, consultants, equipment) charged to awards.

   3. Indirect cost recoveries were in excess of those allowed by the type of awarded indirect cost rate.

   4. Certain costs, i.e., participant support cost requiring NSF approval, were not approved in NSF budget, or in post-award period.

   5. Interest earned on NSF advances made to organizations was not remitted as required (see Section D below.)

   6. Cost sharing was a condition of the award, but cannot be supported by accounting documentation.

   Resolution of questioned cost audit findings is timely and costly for both the organization and NSF. Therefore, you should contact the NSF Cost Analysis and Audit Resolution Branch (CAARB) at (703-306-1244) if you have any questions concerning audits, and/or supporting documentation to be maintained.

Return to Contents