Cost Sharing and Effort Reporting: the Nemesis of Dealing with a Bureaucracy

This is the third in a series of CAS-related articles focused on the recommendations from issue-specific working groups. Because implementing these recommendations will affect faculty directly, the working group and steering committee seek your comments.

by Thomas B. Higerd, Ph.D., Professor and Associate Dean, College of Medicine

The American politician, William Borah, once quipped, “The marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments.”

But patience is not a classical virtue of faculty, and the mention of cost sharing and effort reporting evoke explosive faculty response. Perhaps nothing stabs so deep as the thought that one can reduce the value of a faculty member to numbers on a time-card. The undefined notions of scholarship, creativity, and thirst for knowledge are characteristics that set faculty apart. However, these traits are difficult to quantify, and so we consent to the simpler but also ambiguous measurement of effort.

Through effort reporting, faculty effort is translated into dollars tallied against an institution’s commitment. This commitment is, in part, from grants, contracts and other federal agreements which require cost sharing.

What is mandatory cost sharing?

Some sponsored projects require that the university contribute financially and/or materially to the project. That portion of the total project cost that is not borne by the sponsor is called the cost share or match. Cost share represents institutional funds or materials that supplement the sponsors’ funding; together, the two components contribute to the total project cost.

Cost sharing has been required by federal sponsors since 1966. It can be mandated by legislation, regulated by programs, or required by the administration of various federal agencies. It is a common requirement of state and private sponsors. Typically, the sources for cost sharing are university funds, waived indirect costs, or third-party contributions, such as donations from pharmaceutical companies. In general, unallowable costs, such as alcoholic beverages, or the indirect costs of another sponsored project do not qualify as fund sources for cost sharing.

The policy of MUSC is to make a cost-sharing commitment in the proposal only when (1) it is required by the sponsor for a particular program, or (2) the competitive nature of the award warrants it. Cost-sharing commitment is mandatory when required by the sponsor. When cost sharing is offered by MUSC to gain some competitive advantage, it is included in the proposal and becomes a cost-sharing obligation. Once the proposal is accepted, the cost sharing becomes mandatory and the commitment must be included in the “blue sheet” and proposed budget.

What is voluntary cost sharing?

Cost sharing not quantified in the original proposal budget but subsequently contributed by the university is considered voluntary. This type of cost sharing occurs when the sponsors’ funds are not sufficient to perform the agreed-upon work, or when an academic institution agrees to cover the deficit on a project account.

The cost-accounting standard, 501, requires stringent consistency between what is estimated and what is reported. The university’s commitment must be well-defined and agreed-upon at the beginning of the project.

One perceptive statement on voluntary cost sharing comes from my colleague, Maurice Snook: “You would think that the federal government would reward the university for making a contribution to federally-funded research projects. After all, we saved the federal government from bearing the full cost. This rationalization, however, is much too simple for bureaucracies. When we contribute direct costs to cost sharing, we also give up the indirect costs (overhead) on the amount volunteered. In addition, our generosity is ‘rewarded’ at the next round of negotiations by lowering the Institution’s overall indirect cost rate. Thus, voluntary cost sharing does not benefit the university.”

What is involved in accounting for cost sharing?

The principles of determining the costs applicable to grants, contracts and other agreements between the federal government and academic institutions were established in Circular A-21. It requires that all cost sharing be recorded, accounted for and documented in the same manner and to the same extent as all other costs to the project. The provisions contained in Circular A-21 are far-reaching and have applicability beyond federally-funded projects.

For accountants and departmental business managers, tracking the cost-sharing portion of a project is burdensome at best. The working group that wrestled with these issues was chaired by Jeannine Mathews from Grants and Contracts Accounting. They have proposed that a cost-sharing companion account be established for each sponsored project that involves mandatory cost sharing. For cost sharing not cited in the award notice, and thus “volunteered” by the university, departments may establish a single account to include all their voluntary cost sharing. These accounts will be budgeted and administered as any other operating account.

What is being proposed for effort reporting?

As a condition of receiving federal funding, educational institutions must maintain an accurate system for reporting the percentage of effort that employees devote to federally sponsored projects. To comply with this federal requirement, the working group proposes three types of effort reports that (1) estimate the amount of effort at the start of the reporting period, (2) monitor the actual amount of effort expended during the reporting period, and (3) certify the effort for the past reporting period. This requirement has been expanded to include non-federal agencies. In fact, effort reports are quickly becoming tools to measure accountability and assess fidelity of funding. As an MUSC management tool, effort reports have been less than optimal. Even more problematic are the severe penalties and funding disallowances which could result from inaccurate, incomplete or untimely effort reporting.

The working group included individuals from three sectors of the university: faculty members, department business managers; and staff in Grants and Contracts Accounting. Needless to say, discussions on effort reporting were lively and tended to divide the group into the lumpers and the splitters. The lumpers tended to be faculty and business managers who felt it would be difficult to capture accurately the complex and diverse activities of faculty in academic medicine. The splitters tended to be the accountants who recognize that if effort is not properly certified, salary charges cannot be made against a sponsored project account.

The battle between the lumpers and the splitters is far from over. What is obvious is that all of us must learn to live with a certain amount of ambiguity!

This working group has met on numerous occasions with partners from Coopers and Lybrand to construct their written report. The report includes recommendations for adoption by the steering committee at its first meeting on May 27. You are invited to communicate your thoughts on this or any other CAS-related topic.

How can you respond?

The full report is available in paper copy or through MUSC’s web page cited below. Included in these web sites are links to a CAS-specific on-line web discussion group where you may view responses from others and/or provide your own response. I will collect and collate your responses for presentation to the chair of this working group and to the steering committee.

Cost Sharing and Effort Reporting Committee

Chair: Jeannine Mathews (GCA)

Members: Michael Bull (GCA); Kim Duncan (HRM); Edward Hay (Surgery); Dillard Marshall (ORSP); Linda Sears (HCC); Gail Stuart, Ph.D. (CHSR); Sam Turner, M.D. (Psychiatry); Judy Dubno, Ph.D. (Otolaryngology); Velma Graham (GCA); Susan Mappus (Pharmacology); Sue Rittman (Anatomy); Lynn Shull (Nursing); Marie Townsend (ORSP); David Welch (GCA)

Any questions, opinions or ideas? Call 792-4333 or e-mail <higerdtb@musc.edu>

To obtain: Paper copy of full report call David Welch, 792-2850

Web site of full report <http://www.musc.edu/research/cas/toc.htm>

Web site for The Catalyst <http://www.musc.edu/catalyst/>

Web site for responding <http://www.musc.edu/research/cas/response/>