I’ve tracked the unfortunate situation at a Pennsylvania non-profit having their grant funding frozen after $20 million in spending was out of compliance.
It is a very sad story.
Lots of audit findings, lots of areas of non-compliance.
Not to mention lots of heads rolling in the organization after the grant management…or lack of it was revealed.
Don’t Just Wing Personnel Costs
Grant management that is in compliance with 2 CFR Part 200 aka the Uniform Guidance says charges for salaries and wages (now part of “200.430 Compensation – Personal Services”) must:
- Be reasonable for the services rendered
- Conform to the established written policy of the non-Federal entity that is consistently applied to both Federal and non-Federal activities
- Be supported as provided in paragraph (i) of section 200.430 “Standards for Documentation of Personnel Expenses” when applicable.
In short, putting what’s in the budget for someone’s time does not meet the requirements for time and effort reporting according to the regulations for federal grants.
Are You Making These Time and Effort Mistakes?
Unfortunately, the recent audit of this organization revealed:
- Charges to the grant for wages were based on budget amounts, not actual costs
- Contractor payments were charged to the grants as part of the salaries reporting category
- Employees were unaware that they were working on a grant project and didn’t understand the time-tracking requirements
- The total time that each employee was compensated for was not tracked
- Timesheets were not signed by the employee, nor approved by a supervisor
- Time amounts allocated to the federal grant could not be substantiated
- Expenditures were not supported by payroll records
Turn This Documentation Lemon into Lemonade
Let’s learn from their mistakes and see what their corrective action plan can show us about building a time and attendance process.
Here are 5 shortcuts to having a time and effort process that meets the requirements for charging the federal grant for wages and salaries.
Shortcut #1 Have Timekeeping Processes to Support Actual Time Worked
The organization should have a policy in place to ensure that all time spent on grant-related activities is accurately tracked and approved after-the-fact.
In 2 CFR Part 430 (i) Standards for Documentation of Personnel Expenses, it states that: [Emphasis added]
“Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed.
These records must:
(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;
(ii) Be incorporated into the official records of the non-Federal entity;
(iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS);
(iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy;
(v) Comply with the established accounting policies and practices of the non-Federal entity (See paragraph (h)(1)(ii) above for treatment of incidental work for IHEs.); and…
(vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.
As you read this you will notice the emphasis is on charging the federal award for the time actually worked, not the time budgeted for the work. Missing that detail can cost you big!
Shortcut #2: Have a Process for Timecard Submission and Approval
Part of having a system of internal controls includes ensuring that that adequate monitoring is taking place. This means review by someone in a position to know if the employee is charging their time correctly (including recording when they are NOT working on the grant.)
• When each employee must submit their timecards
• What hours must be reported-(Hint: All hours must be reported even if not worked on the grant.)
• Who must approve the timesheet and by when
• Reasonable assurance by both the employee and their direct supervisor that the hours were spent in support of the grant that was charged for the work
In our audit findings above you’ll notice no one was ensuring that the timesheets were accurate. One more detail that can cost you in big-time cost disallowance!
Shortcut #3 Have a Training Process-Including Refresher Training
We like to think that employees somehow magically know how to comply with the federal regulations for grants.
Unfortunately, that is not a gateway to successful grant management!
Make sure that employees receive adequate training on what the requirements are for charging time to the grant and maintaining adequate timekeeping records in compliance with 2 CFR Part 200 aka the Uniform Guidance.
- Refresher training should be held at periodic intervals for all employees and to correct instances of non-compliance.
Shortcut #4 Have a Communication Process
You may have thought that communication is one of those “nice-to-do” soft skills.
- In fact, communication is a component of strong internal controls!
Make sure that regular communication and information from the Finance Department or other grant management professionals are flowing back to the employees working on the grant and supervisors reviewing and approving timecards.
This communication should include:
- The amount of time the employee is expected to devote to the grant activities for each time period.
- A comparison of actual spending to date against the grant budget so the supervisor can ensure that actual spending is in accordance with the approved grant spending plan.
Shortcut #5 Limit Expenditures to Approved Personnel
The goal of strong internal controls is to prevent, detects and deter the chance of waste, fraud, and abuse of grant funds.
One way to help prevent mischarging of grant time on an employee’s timesheet is to limit the ability to charge time to a program to employees listed on the approved grant budget.
Likewise charging contractor time to a grant’s wages and salaries budget category should throw up a big red flag!
Here are some additional suggestions to tighten up your timekeeping process:
• The supervisor should verify that the employee is authorized to charge time to the specific grant prior to approving the timesheet.
• The Finance Department or other responsible grant professionals should compare the timesheets and grant budget so that only employees who are authorized to charge time to the federal award are doing so and that spending is in-line with the approved grant budget.
What About Your Organization?
What about your time-keeping process?
Would it stand this level of scrutiny?
Now is a great time to review and update your time and effort policies and procedures for your organization!
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Lucy Morgan CPA, MBA
CEO, Compliance Warrior