Electronic Cost Transfers Risk-Based Assessment

1. Electronic Cost TransfersRisk-Based Assessment NCURA April 25, 2007 University of California San Diego Presenters: Lyle Kafader & Rachel Mercado

2. Cost Transfer Environment • Federal Regulations Governing Cost Transfers: • OMB Circular A-21 Section C • NIH Grants Policy Statement, part II, subpart A, Cost Consideration, Cost Transfers • Growing volume of cost transfers due to increased numbers of contracts & grants • Increased audit scrutiny • No additional administrative support

3. What to do? • Keep a centralized process to assure adequate controls? • Decentralize the process to increase speed and efficiency? • No – CHANGE THE PROCESS and USE TECHNOLOGY

4. Goals for the New Process • Improve compliance • Improve accuracy and timeliness • Improve integrity of process • Increase credibility with auditors • Avoid risk of audit disallowances • Eliminate duplication of key entry • Manage volume • Reduce paper documentation • Improve cost effectiveness

5. Leveraging Technology • Easy “Quicken/TurboTax” user interface • Use existing system information – don’t make folks re-type things • Prompt users to put the relevant information in the explanation • Automated risk evaluation – only have staff review transactions that are high risk • Sampling to assure quality on low risk transactions

6. The New Electronic Cost Transfer System • Web-based • Easy selection of transactions to transfer • Email notification in lieu of signature • Streamlined process

7. How do we do it?

12. Decision Tree – The Heart of Electronic Cost Transfers • Simple version of an “Expert System” • Binary Tree – Each Decision is a “Yes or No” – there are no maybes. • Each “Decision Node” is a separate program. • The database defines the order that the decisions are made and the result of the outcome.

13. Decision Tree Sample

14. Low Risks Cost Transfers • No central office review prior to posting • Post to the ledgers after department approval • Subject to Post Transaction Audit Program (PTAP)

15. Examples of Low Risks Cost Transfers • Moving cost from one cost center to another within the same fund • Moving cost from one expense account to another within the same fund • Moving applicable cost from an old fund to a competing renewal fund

16. High Risk Cost Transfers • All are subject to Central Office Review for: Allowability; Reasonability; Allocability; Consistent treatment • May need additional justification • May need additional supporting documentation • May require email notification to PI • May not be processed due to non-compliance

17. Examples of High Risk Cost Transfers • Moving costs from an overdrafted fund to a federal fund • Moving costs from a departmental fund to a federal fund that is ending with a good balance • Moving costs that are over 90 days old to NIH funds • Moving costs outside the project period of the fund receiving the costs

18. Post Transaction Audit Program – A.K.A. Transaction Sampling • Verify that departments are following procedures on low risk Cost Transfers • Random Sample of Low Risk Transactions every month • Percentage determined by Extramural Accounting and Office of Internal Audit • Review Process

19. What is involved with PTAP? • Random sampling by system • Samples (2% - 10% depending upon transaction amount) reviewed by Extramural Accounting for Allowability Reasonability Allocability Consistent treatment • May require additional justification or documentation

20. Results • From 2003 – 2006 there has been an average increase of 10% per year in the number of cost transfers processed with no increase in administrative staff to process them • Decrease in the % of High Risk Transactions despite tightening of timeliness rules (in 2002 25% were high risk now the average is 12%) • Federal audits with no significant findings in the cost transfer area since 2002

21. URL’s for Decision Trees • http://www-act.ucsd.edu/spear/EPET_decision_tree_V3.pdf • http://www-act.ucsd.edu/spear/ENPET_decision_tree_V7.pdf