Accounting System Basics +++
Department of Health & Human ServicesNational Institutes of Health
Division of Financial Advisory Services, OALM, ODRay Woodruff, Chief, Indirect Cost Branch
Dan Milstead, Deputy Director, DFAS
Eleventh Annual SBIR/STTR ConferenceOmaha, Nebraska
June 30 – July 1, 2009
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Today’s Agenda
Financial solvency
Accounting System Essentials
Know the rules
Audit requirements
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Financial Solvency
NIH needs to know that you have sufficient capital to fund the company’s infrastructure
NIH does not want to put research dollars at risk by funding an insolvent company
There is much more of a focus given the current economic situation
So, why is NIH so concerned that my company is financially solvent?
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Financial Solvency
Did the auditors cite a ‘going concern’ issue?
Has the company considered filing for bankruptcy?
Balance sheet: are current ratios acceptable?
Any judgments, suits or liens?
Does the company have a line of credit?
Questions that NIH will ask in assessing your company’s financial solvency:
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Financial Solvency
Current ratios are one of the most reliable measures of liquidity for an organization.
Current ratios are calculated by dividing current assets by current liabilities.
A ratio or $2 of current assets to every $1 of current liabilities is highly desirable (a 2:1 ratio); however a ratio of 1:1 or higher is generally satisfactory.
More about current ratios:
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Financial Solvency
sample calculation
Calculating a current ratio:
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Accounting System Essentials
Project cost accounting system
Segregate by type of cost
Adequate timekeeping system
Issues that you must address before receiving an award (the Big 3):
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Accounting System Essentials
Your accounting system must be able to accumulate and segregate costs by project
(i.e. must identify receipts and expenditures for each grant or contract)
Project (job) cost accounting system
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Accounting System Essentials
NIH G#1 NIH G#2 NAVY K#1 NASA G#1 NASA G#2P-NI505 P-NI510 P-NA220 P-NS170 P-NS175 Total
Ordinary Income/ ExpenseIncome 4000 - Revenue - Government 4010 - Revenue - NIH 272,941 159,275 - - - 432,216 4015 - Revenue - NAVY - - 327,025 - - 327,025 4030 - Revenue - NASA - - - 347,420 4,191 351,611
Total 4000 - Revenue - Government 272,941 159,275 327,025 347,420 4,191 1,110,852
4100 - Revenue - Commercial 4110 - Commercial Shipping - - - - - - 4100 - Revenue - Commercial - Other - - - - - -
Total 4100 - Revenue - Commercial - - - - - -
Total Income 272,941 159,275 327,025 347,420 4,191 1,110,852
Cost of Goods Sold 5000 - Direct Costs 5100 - Direct Labor 100,420 47,607 101,150 128,302 1,912 379,391 5200 - Direct Materials 17,740 15,170 49,621 28,485 - 111,016 5300 - Direct Subcontractors - - 3,350 - - 3,350 5400 - Direct Consultants 5,264 1,100 6,940 3,546 - 16,850 5500 - Direct Equipment 8,108 8,549 1,138 1,796 - 19,590 5600 - Direct Travel 288 1,133 - - - 1,421 5700 - Other Direct Costs - 8,257 - - - 8,257
Total 5000 - Direct Cost 131,819 81,816 162,199 162,128 1,912 539,875
Total COGS 131,819 81,816 162,199 162,128 1,912 539,875
Gross Profit 141,122 77,459 164,826 185,292 2,279 570,977
Net Ordinary Income 141,122 77,459 164,826 185,292 2,279 570,977
Net Income 141,122 77,459 164,826 185,292 2,279 570,977
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Accounting System Essentials
A review of your Chart of Accounts must demonstrate that direct, indirect and unallowable costs can be separately
identified.
Segregate by type of cost
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Accounting System Essentials
Account Category Account Code Account TitleCurrent Assets
1000 Cash1020 Accounts Receivables1040 Inventory - Work in Progress1060 Prepayments
Property, Plant & Equip.1100 Equipment - Lab1101 Accumulated Depreciation - Lab Equipment1110 Equipment - Office1111 Accum. Depre. - Office Equipment1200 Leasehold Improvements1201 Accum. Depre. - Leasehold Improvements
Other Assets1800 Deposits
Current Liabilities2000 Current Notes Payable2010 Accounts Payable2030 Accrued Wages and Payroll Taxes Withheld
Long Term Liabilities2100 Notes Payable
Equity3000 Common Stock3001 Retained Earnings
Revenue4000 Commercial Sales4010 Grant Revenue4020 Interest Income
Direct Program Costs5000 Direct Labor5100 Consultants5200 Equipment5300 Materials and Supplies5400 Travel5500 Other / Miscellaneous5600 Consortium / Contractual
Sample Chart of Accounts
Account Category Account Code Account TitleFringe Benefit Costs
6010 Vacations6015 Holidays6020 Sick Leave6025 Payroll Taxes6030 401(k) Plan6035 Group Insurance
Indirect Costs7000 Indirect Labor7110 Amortization - Leasehold Improvements7120 Depreciation - Lab Equipment7130 Depreciation - Office Equipment7140 Rent7150 Utilities7160 Telephone7170 Equipment Rental7180 Expendable Equipment7190 Repair & Maintenance7200 General lab Supplies7210 Office Supplies7220 Travel7230 Consultants7240 Waste Disposal7250 Training7260 Legal & Accounting7270 Liability Insurance7280 Licenses7290 Dues & Subscriptions7300 Postage7310 Recruitment/Relocation
Unallowable Costs9000 Interest Expense9010 Contributions9015 Exhibits
Sample Chart of Accounts
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Accounting System Essentials
ALL employees must complete timesheets
Adequate timekeeping system
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Accounting System Essentials
Account for total time worked, not just the time worked on Federal awards
Report hours or increment of hours – not % of effort
Separately track direct, indirect and PTO
Be signed and dated by the employee and approved by a supervisor
Timesheet changes must be made by the employee and initialed by the employee
To be acceptable, timesheets must:
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Accounting System Essentials
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the GOOD
Timesheets:
Accounting System Essentials
the BAD
the UGLY
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Accounting System Essentials
Q1: How many hours should be recorded on the timesheet? ANSWER
Timekeeping – exceeding standard hours:A salaried employee that works a standard 40 hour week earns $10 per hour, or $400 per week (40 hrs. x $10/hr). Suppose that employee works 50 hrs. in any given week as follows:
NIH Grant = 40 hours Other – non-Federal (IR&D) = 10 hours
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Accounting System Essentials
Timekeeping – exceeding standard hours:A salaried employee that works a standard 40 hour week earns $10 per hour, or $400 per week (40 hrs. x $10/hr). Suppose that employee works 50 hrs. in any given week as follows:
NIH Grant = 40 hours Other – non-Federal (IR&D) = 10 hours
Q2: How much salary should be charged to the NIH Grant? ANSWER
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Accounting System Essentials
More information on timekeeping requirements and responsibilities, and a sample timesheet, can be found on the DFAS website:
http://oamp.od.nih.gov/dfas/forprofittime effort.asp
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Know the Rules!
Administrative Requirements
are found in: 45 CFR Part 74 accounting system standards property management purchasing rules reporting & record keeping
http://www.hhs.gov/opa/grants/toolsdocs/45cfr74.html
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Know the Rules!
Cost Principles
are found in: FAR Part 31.2
This document specifies whether specific items of cost are allowable or unallowable.
http://www.arnet.gov/far/
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Know the Rules!
NIH Grant Policy Statement
“...is intended to make available to NIH grantees, in a single document, the policy requirements that serve as the terms and conditions of NIH grant awards.”
http://grants1.nih.gov/grants/policy/nihgps_2003/index.htm
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Audit Requirements
The Department of Health & Human Services did!
HHS specifies requirements for audits of for-profit organizations in Title 45 CFR Part 74.26(d)*
* http://www.gpoaccess.gov/cfr/retrieve.html
Audit? Who said anything about having an audit?
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Audit Requirements
it expended $500,000 or more under HHS awards in the fiscal year
AND
at least one of the awards is an HHS grant
A for-profit organization is required to have an audit if:
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Audit Requirements
Audit period – The audit period is the awardee’s fiscal year (i.e., not the grant budget period, the grant project period or the Government’s fiscal year.)
Audit due date – The earlier of: 30 days after you receive the auditor’s report
OR 9 months after the end of your fiscal year
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Audit Requirements
Audit reports should be submitted to:
Department of Health and Human Services
OIG / Office of Audit Services
National External Audit Review Center
1100 Walnut St, Suite 850
Kansas City, MO 64106-2197
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Additional Information
Visit our website at: http://oamp.od.nih.gov/dfas/dfas.asp
or
Contact: Dan Milstead
301-496-4401
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Questions / Comments
