Slide 1 FastFacts Feature Presentation 06/10/2014 To dial in, use this phone number and participant code… Phone number: 888-651-5908 Participant code:

Slide 1

FastFactsFeature Presentation

06/10/2014

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Phone number: 888-651-5908 Participant code: 182500

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© 2012 The Johns Hopkins University. All rights reserved.

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Today’s Topic

We’ll be taking a look at…

Revised Subrecipient Monitoring Policies and

Procedures

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Today’s Presenter

Professor Jonathan LinksSchool of Public Health, Medicine, and EducationContact: [email protected]

410-516-6880

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Session Segments

Presentation

Jonathan Links discusses the revised subrecipient monitoring policies and procedures, which includes the new subrecipient vs. Contractor classification, and the steps used to classify, assess risk, and closely monitor subrecipient claims/spending.

During the presentation, your phone will be muted.

Q&A

After the presentation, we’ll hold a Q&A session.

We’ll open up the phone lines, and you’ll be able to ask questions.

Jonathan will answer as many of your questions as time allows.

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Contact Us

If you would like to submit a question during the presentation or if you’re having technical difficulties, you can email us at: [email protected]

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Survey

SurveyAt the end of this FastFacts session, we’ll ask you to complete a short survey. Your honest comments will help us to enhance and improve future FastFacts sessions.

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Revised Subrecipient MonitoringPolicies and Procedures

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Agenda

After today’s presentation, you will be able to:Describe, with regard to subrecipients, what makes JHU different from our peers and why it requires changes to our proceduresRecognize the risks associated with subrecipients and what can go wrongDistinguish between a subrecipient and a ContractorDescribe the rationale for implementing enhanced administrative monitoring of high-risk subrecipients Provide support for administrative staff performing enhanced administrative monitoring procedures within their departmentsEffectively manage subrecipient risk

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JHU has unique risk profile compared to peers

In addition to universities, JHU faculty members have significant activity with for-profit/non-profit domestic entities and international organizations

Historically, JHU monitoring procedures have been based on a traditional university-to-university subaward model

For FY 13, JHU had 800 subrecipients and $300 million in subrecipient payment

Only 25% of JHU’s subs are domestic universities

$117 million (or 37% of subrecipient activity) is to foreign organizations

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ClassificationJHU FY13 Expenditure Amount

(federal and non-federal)Percentage

Domestic University $78,115,409.19 25%Domestic Non-University $117,390,412.57 38%Foreign $116,955,814.98 37%Total $312,461,636.74  

Subrecipient Monitoring: The Landscape

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FY 13 subrecipient expenditures have increased 30% from FY 12

FY 10 - 13 Subrecipient Expenditure Growth

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FY 13 Subrecipient Expenditures by Sponsor ($ Millions)

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84% of subrecipient activity is federally supported

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JHU’s Responsibility under Federal Regulation

Per OMB Circular A-133, a pass-through entity shall:

Advise subrecipients of requirements imposed by Federal laws, regulations, and the provisions of contracts or grant agreements

Monitor to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and grant terms

Ensure that subrecipients meet A-133 audit requirements

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Subrecipient Monitoring: JHU Policy and Procedures

JHU remains ultimately responsible and accountable to the prime sponsor for funds management and compliance by subrecipients

The Principal Investigator is responsible for the due diligence involved in selecting a subrecipient

The proper classification of an organization as a subrecipient or as a Contractor during the proposal process is critical to ensure proper accounting for costs and compliance requirements

Prime recipients are required to advise subrecipients of requirements imposed on them by Federal regulations

The Principal Investigator is ultimately responsible for ensuring compliance by reviewing all invoices and the technical progress of work completed by the subrecipient, before payments are authorized

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Subrecipient Monitoring: Recent Observations and Trends

We have funding and technical challenges in performing proper oversight

Under prior JHU procedures, subrecipients were treated similarly, regardless of risk

Standard terms in subaward agreementInvoice for payment

Increased International Capacity Building Efforts (e.g., USAID Forward Initiative) drive choice of subrecipients to those with less ability to be A-133 compliant

Recent JHU cases have proven the financial impact could be significant

OMB Circular A-81 spells out our monitoring responsibilities

KPMG is looking for better evidence of financial monitoring during its annual A-133 audit

Peer organizations have now begun requesting support from JHU for their audits

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Risks Involved with Subrecipients

TechnicalSubrecipient does not have capability to performSubrecipient is not making appropriate progress on researchScientific misconduct

FinancialSubrecipient bills JHU in excess of its costs or bills for inappropriate costs

In advance of costs being incurredCosts not in compliance with federal regulation

Invoices are not based on actual costsInvoiced costs are misaligned with subrecipient technical progressFraud

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Case Study on Subrecipient Risk: Background

Subrecipient X was a local community-based health organization

JHU entered into four federally-supported cost-reimbursable subawards totaling $3.8 million

Principal Investigator approved all invoices from subrecipient X

During A-133 reviews, JHU Finance identified financial irregularities:

Invoices did not tie to subrecipient general ledger detailIndirect costs were charged directly to the awardUnallowable costs were noted on the report from subrecipient financial system

Internal Audit was asked to review

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Case Study on Subrecipient Risk: Audit Findings

Internal Audit review revealed significant deficiencies:Lack of understanding about federal lawUnsophisticated accounting systems and personnelNo effort reporting or activity reportsUnsupported indirect cost and fringe benefit ratesIndirect costs charged directlyInsufficient supporting documentationInvoices not based on actual costs incurred

Review concluded that over $1 million in costs should be disallowed (this does not include related audit and legal fees)

JHU refunded the federal government without reimbursement from subrecipient X

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Case Study on Subrecipient Risk: Impact on Faculty Members

Financial research compliance issues with subrecipient X brought into question the scientific validity of the research

Independent scientific review was undertakenScientific validity was ultimately upheld

Faculty members’ reputations were harmed:Faculty had been (inappropriately) approving invoicesFaculty were present on site with subrecipient on a regular basisFaculty members’ projects cost the relevant school over $1 million

Issues related to subrecipient X eventually led to the resignation of one faculty member

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Treat subrecipients as business partners

Risk management begins prior to awardEnsure technical and financial capability

Evaluation of technical capabilities and work historyCheck referencesDo they have a financial system that complies with federal regulations

Review financial status of the subrecipient

Don’t classify contractors as subrecipients (or vice versa)

Use risk assessment to drive post-award monitoringMore scrutiny around higher-risk subrecipients

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Subrecipient Monitoring: How to Protect Yourself

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Subrecipient Monitoring: How to Protect Yourself (Continued)

Understand the nature of the subaward agreementCost reimbursable means actual costUnderstand right to inspect records

Proper and thorough invoice reviewAccuracy of invoiceObtain support to validate accuracy of chargesEnsure billings are aligned with technical progress

Remember, trust is the foundation of a relationship, but can also be used to take advantage – trust, but verify

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JHU Subrecipient Taskforce Initiative

Established subrecipient taskforce to determine how best to protect the university, including faculty

Goal was to develop new procedures to better manage the risks associated with subrecipients

Subrecipient taskforce members included:Chief Risk OfficerInternal AuditOffice of FinanceDivisional Representation (Business Office and Research Administration)

Established a working group within the subrecipient taskforce to:Identify what makes an organization a subrecipientDefine a risk management matrix Define additional monitoring procedures for higher risk subrecipients

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Subrecipient Taskforce Update

Working group developed proposed changes and circulated amongst the university (including faculty advisory groups) for feedback

Changes are meant to protect both JHU and faculty interests

Changes are meant to enhance overall risk management, both regulatory and financial

Proposed changes agreed upon:Classification of subrecipient vs. contractorRevised risk assessment procedures and risk ratings for all subrecipientsMonitoring procedures for high-risk subrecipients

New risk assessment complete and posted on Financial Research Compliance website

New procedures are effective as of July 1, 201423

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Classifying organizations as subrecipients presents additional compliance burdens

Enhanced guidance on classification developed

Sub vs. Contractor Quick Guide:

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New Procedure 1: Subrecipient vs. Contractor Classification

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New Procedure 1: Subrecipient vs. Contractor Classification

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Subrecipient if the entity:

•Is engaged in substantive programmatic work•Participates in designing or conducting the work•Is granted some level of programmatic control•May seek to publish or co-author results•Provides cost sharing•Has key personnel

Contractor if the entity:

•Is providing services in support of the research program•Has not participated significantly in the design of the work•Is not directly responsible for project results•Provides goods and services in the normal operations and markets these to a variety of customers•Has little or no independent decision making in the design or conduct of the work being completed•Performs work that involves routine or repeated activities•Would not seek to publish or co-author results

Subrecipient vs. Contractor Detailed Guidance

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New Procedure 1: Subrecipient vs.. Contractor Classification

OMB A-81will require classification decisions to be documented

During proposal phase or as prospective subrecipients are identified, departments will complete the Subrecipient Determination Form

Form must be signed by Principal Investigator

Form will be submitted to the Office of Research Administration (ORA) with the proposal

ORA must explicitly approve classification

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Subrecipients will now be classified as high or low risk

High-risk entities are defined as:

Foreign

Domestic subrecipients without formal compliance audit (A-133)

Entities with no prior JHU work history

Entities who received less than $1M in Federal funding in either of the last two years

Each school’s Office of Research Administration will be responsible for risk rating, and the ratings will be consistent across the university

A subrecipient committee has been established to consider changes to a given subrecipient’s risk rating 27

New Procedure 2: Subrecipient Risk Rating

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New Procedure 2: Subrecipient Risk Rating (Continued)

ORA will notify the department and Principal Investigator of the risk rating

Using the risk rating, the relevant ORA will negotiate specific terms and conditions into the agreement consistent with the revised post-award monitoring procedures

Enhanced and standardized financial monitoring will be required for high-risk subrecipients

This will be performed by departmental administrative staffAs enhanced monitoring procedures are meant to protect faculty members, they should validate that the procedures take place appropriately

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A risk rating database of all JHU subrecipients has been established here: http://finance.jhu.edu/depts/frc/data_files_frc/subrecipientriskrating.xls

Risk ratings are consistent across JHU

Excerpt from the database:

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Subrecipient Number Subrecipient Name

Country Name

Risk Classification

Primary Division

Secondary Division

Total Expense

Non Federal

Total Federal

1009428 SAVE THE CHILDREN USA Low 235 160

16,965,234.39

-

16,965,234.39

1016996 JOHN SNOW INC USA High 235 None 7,942,550.72

-

7,942,550.72

1012576 MALARIA CONSORTIUMUnited Kingdom High 160 None

6,510,395.75

-

6,510,395.75

1017654 CITY YEAR INC USA High 125 115 3,441,219.00

268,369.00

3,172,850.00

1011133 UNIVERSITY OF NORTH CAROLINAUSA Low 160 170 3,115,319.47

262,398.30

2,852,921.17

1022268 BLANTYRE HEALTH RESEARCH Malawi High 160 170 3,031,639.63

-

3,031,639.63

1013802UGANDA HEALTH MARKETING GROUP Uganda High 160 None

2,650,166.77

-

2,650,166.77

1011658 WESTAT CORP USA High 160 170 2,325,331.23

-

2,325,331.23

2046718 MAKERERE UNIVERSITY Uganda High 170 160 2,115,126.50

356,114.31

1,759,012.19

1005269 ICDDR B Bangladesh High 160 170 2,068,572.00

1,744,479.00

324,093.00

New Procedure 2: Subrecipient Risk Rating

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New Procedure 3: Additional Monitoring for High-Risk Subrecipients

High-risk subrecipients will be required to submit financial reports along with all invoices:

Reports should be directly from the subrecipient’s financial systemReports should include detail on financial transactions

Departmental administrative personnel will be responsible for completing a summary comparison of the invoice to the financial reports

Every six months, departmental administrative personnel will complete a more detailed review of a subrecipient financial report supporting one entire invoice, including obtaining supporting documentation (e.g., receipts) from the subrecipient for a selection of charges

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New Procedure 3: Additional Monitoring for High-Risk Subrecipients (Continued)

The Certification for Payment and Performance form has been revised to provide an opportunity to document that these reviews have taken place

Problems identified with billings must be resolved and the resolution documented

Faculty member support will be integral in obtaining supporting documentation from the subrecipients

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Certification for Payment and Performance forms must be completed for all invoices

Revised forms document additional reviews performed for high-risk subrecipients

Form must be signed by the Principal Investigator

Form is located on JHU Finance website. Here is the link: https://apps.finance.jhu.edu/policy_procedures/policy/sub/cert_pymt_perf.docx

New Procedure 3: Enhanced Invoice Review Guidance

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JHU has a different sub-recipient risk-profile than our peers

JHU is required to advise subrecipients of their responsibilities under federal regulations, and to monitor to ensure they are being met

Subrecipient issues could have a significant financial impact on JHU and the reputations of its faculty

Treat subrecipients as business partners and remember that risk management begins prior to issuing a subaward

Additional monitoring procedures for higher-risk subrecipients are necessary and will be effective on July 1, 2014

Prevention and early detection are key 33

Conclusion

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We’re going to open the phone lines now!

There will be a slight pause, and then a recorded voice will provide instructions on how to ask questions over this conference call line.

We’ll be answering questions in the order that we receive them.

We’ll also be answering the questions that were emailed to us during the presentation.

If there’s a question that we can’t answer, we’ll do some research after this session, and then email the answer to all participants.

Q&A

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Thank You!

Thank you for participating!We would love to hear from you.

Are there certain topics that you would like us to cover in future FastFacts sessions?Would you like to be a FastFacts presenter?Please email us at: [email protected]

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Survey

Before we close, please take the time to complete a short survey.Your feedback will help us as we plan future FastFacts sessions.Click this link to access the survey… http://connect.johnshopkins.edu/fastfactssurvey/

Thanks again!

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Resources

This page contains links to the various resources mentioned throughout this presentation. You can click on the links or copy and paste the links into your web browser.

JHU Subrecipient Policies and Procedureshttp://finance.jhu.edu/policyapp/displayGuideContents.do?guideId=SUB

JHU Subrecipients Risk Rating Database:http://finance.jhu.edu/depts/frc/data_files_frc/subrecipientriskrating.xls