UTMB HANDBOOK OF OPERATING PROCEDURES

Section 4 Fiscal Policies Subject 4.5 Cost Accounting Policy 4.5.8 Effort Reporting Policy

01/25/06 -Originated -Reviewed w/ changes -Reviewed w/o changes Cost Accounting -Author

Effort Reporting Policy

Audience	Any UTMB employee with responsibility in allocating labor expenses to sponsored awards or involved in the management, administration or oversight of sponsored awards.
Background	UTMB receives funding from the Federal government with specified terms and conditions, including a requirement that UTMB comply with applicable principles on charging costs to Federal projects. The primary source of these cost principles is Office of Management & Budget ("OMB") Circular A-21, entitled “Cost Principles for Educational Institutions”. Section J.10 of OMB Circular A-21, “Compensation for Personal Services”, requires UTMB to establish and maintain a payroll distribution system that reasonably distributes salary charges among direct activities, such as sponsored research, teaching and clinical activity. The basic requirement of the Federal cost principles is that salary charges on sponsored projects must be proportionate to the effort expended on those projects, as documented in periodic effort certifications. At our institution, we fulfill that requirement through reasonable monitoring of salary allocations to Federal projects and through the preparation, review and certification of Level of Effort reports.
DEFINITIONS	A&P: Administrative and Professional. Individual: A person who certifies his/her own Effort (including committed cost sharing) on federally funded projects. Responsible Person: A responsible person (usually the Principal Investigator per the note below) with suitable means of verification of the Effort provided by another person on federally funded projects, including committed cost sharing. NOTE: Generally, the Responsible Person is the Principal Investigator. The Principal Investigator is responsible for the accurate assignment of costs on a sponsored award. As such, UTMB strongly encourages PIs to certify for level of effort for all staff on the award, except for other faculty Co-Investigators, who should certify their own effort. In certain cases the PI can empower another (Co-I or supervisor) as a Responsible Person to perform effort certification for all staff on the reward, provided that person fulfills the requirement to have a suitable means of verification of the effort of another.

Definitions, (Cont’d)

Institutional Base Salary (IBS): The annual compensation that UTMB pays for an employee's appointment, whether that employee’s time is spent on research, teaching, administration, or other activities. However, at UTMB, IBS specifically excludes supplemental compensation. Likewise, IBS excludes compensation for an employee’s outside consulting activities and other compensation received from an entity other than UTMB. Effort: Time spent on any activity and expressed as a percentage of total time for which the employee is compensated by UTMB. Total Effort for an employee must equal 100% . The appointment serves as the basis for an individual's Total Effort. In other words, for a 50% appointment, 100% Effort is the 50% appointment. Likewise, for a 75% appointment, 100% Effort is the 75% appointment. Effort is not based upon a 40-hour work week. For example, if an employee works 50 hours in a week and spends 40 of those hours on a federal Sponsored Project, the percentage of his or her salary allocable to that project is 80% (40 divided by 50). Total Effort: The Effort that the employee devotes in the aggregate to the professional activities for which he or she receives IBS compensation from UTMB. Specifically excluded from Total Effort is time spent on (a) activities for which you receive supplemental compensation, bonuses, incentive pay, etc. and (b) outside consulting activities or other activities for which compensation is received from an entity other than UTMB. Actual Effort: The time that an employee actually devotes to a particular Sponsored Project (including time pledged to a sponsor as Mandatory or Voluntary Committed Cost Sharing) or other UTMB activity, expressed as a percentage of Total Effort. Effort Report: A certified form used by UTMB to document the proportion of Total Effort devoted by an employee to each activity with which he or she is involved, including Sponsored Projects, administration and teaching. This document becomes UTMB’s official verification that the IBS charged to a sponsored project is consistent with the Actual Effort expended on the project. The sum of all reported Actual Effort percentages on the Effort Report represents the employee’s Total Effort. By definition, Total Effort must always equal 100% -- never more or less.

Definitions, (cont’d)

Committed Effort: The amount of Effort proposed in a grant or other project application and accepted by a sponsor, regardless of whether salary support is requested for the Effort. For example, if an NIH grant application proposes that an employee will devote 30% of his or her Effort to the grant, with salary support for 10% of Effort, the Committed Effort for that employee is 30%. Cost Sharing: The portion of the total project costs of a Sponsored Project that is borne by UTMB rather than the sponsor. (Cost Sharing is sometimes referred to as “Cost Matching”.) Mandatory Cost Sharing: The form of committed Cost Sharing required by a sponsor as a condition of obtaining an award. Mandatory Cost Sharing is a binding commitment on UTMB, and any employee Effort that is expended in satisfaction of the commitment must be accounted for in accordance with this policy. Voluntary Committed Cost Sharing (VCCS): The form of committed Cost Sharing voluntarily proposed by UTMB and accepted as part of the award.. For the purposes of Effort determination, VCCS is the IBS that is associated with Committed Effort in excess of effort for which salary reimbursement is requested. VCCS can occur in one of two ways: (a) through a proposal in which Committed Effort is greater than the Effort for which salary support is requested (for example, where a UTMB proposal promises Committed Effort of 30% for an employee, but requests only 10% salary support); or (b) by actually charging the sponsor for less than all of the Committed Effort actually expended (for example, where the proposal contains Committed Effort of 30% and requests full salary support of 30%, and the Actual Effort is 30%, but the grant is only charged for 10% of IBS). VCCS does not include voluntary Effort that is in excess of Committed Effort, and for which no salary support is requested or claimed. For example, if a UTMB proposal contains Committed Effort of 30% and requests full salary support of 30%, but 40% Effort is actually provided and the sponsor is not charged for the additional 10% Effort, the 10% does not represent VCCS, rather is classified as uncommitted cost sharing. Uncommitted Cost Sharing: Cost sharing that is faculty-donated as additional time above that agreed to as part of the award. NIH Salary Cap: Federally mandated limitation on the amount of salary that may be charged to NIH sponsored grants, cooperative agreements, and applicable contracts. The NIH Salary Cap establishes a maximum annual rate at which an employee can be compensated under an NIH Sponsored Project. For example, if an employee spending 50% of his or her Effort on an NIH grant has an actual IBS of $200,000, and the NIH Salary Cap is $180,100*, the

Definitions (cont’d)

appropriate IBS charge to NIH for the employee’s Effort would be 50% of $180,100, or $90,050. The $9,950 difference between this amount and the $100,000 that would have been chargeable at the full IBS rate may not be charged to any Federal project or used to satisfy Cost Sharing commitments. Sponsored Project: An externally funded activity that is governed by specific terms and conditions. Sponsored Projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored Projects may include grants, contracts, and cooperative agreements for research, training, and other public service activities

Policy

As a recipient of Federal research funding, UTMB is subject to financial accounting and reporting obligations designed to ensure that the charges to its Federal sponsored projects are allowable and properly allocable to those projects. Among these obligations is the requirement to maintain a salary allocation system that complies with the provisions of OMB Circular A-21, “Cost Principles for Educational Institutions”. The purpose of this "Effort Reporting Policy" is to set forth the policy and procedures that University employees must follow in order to comply with the salary allocation requirements of OMB Circular A-21 and other applicable sponsor requirements. It is the policy of UTMB that: • All employees who are involved in allocating salaries to sponsored projects or completing Level of Effort reports are responsible for understanding the principles of accurate Level of Effort reporting and salary allocation. • All departments must have an effective system for ensuring that initial allocations of salaries to sponsored projects are reasonable in relation to the expected effort of the employees whose salaries are being allocated, and that such allocations are monitored and adjusted where necessary to reflect significant changes in employee effort. • All departments must complete and submit Level of Effort reports on a timely basis and in the correct format for all employees who are subject to level of effort reporting requirements. • All Level of Effort reports must meet the standards of accuracy set forth in applicable Federal cost principles. • All adjustments to prior salary allocations that are necessary as a result of a completed Level of Effort report must be made in a timely and accurate manner.

Policy (cont’d)

Compliance with this policy is mandatory, because a legal obligation imposed on UTMB by Federal regulations and by the terms and conditions of our sponsored projects. Disciplinary action for instances of breach of policy including, but not limited to, failure to file an Effort Report or knowingly filing an erroneous Effort Report, will be administered according to UTMB Institutional Handbook of Operating Procedures Policy and UTMB’s Standard of Conduct Policy. Disciplinary action for instances of breach of policy including, but not limited to, failure to file or knowingly filing an erroneous Effort Report Form, will be administered according to the UTMB Institutional Handbook of Operating Procedures IHOP Policy in accordance with the Regent’s Rules and Regulations.. In case of a violation of civil or criminal law, violators may be subject to civil or criminal penalties. In case of a violation of civil or criminal law, violators may be subject to civil or criminal penalties. If UTMB becomes aware of alleged criminal violation(s), UTMB may report such conduct to the appropriate oversight agencies.

Effort Reporting Requirements

Individuals or Responsible Persons must complete a Level of Effort report for any UTMB Employee who meets either of the following criteria: • The employee’s salary is charged in whole or in part directly to a sponsored project. • The employee expends Committed Effort on a sponsored project, even though no part of the employee’s salary is charged to the project. Federal regulations applicable to Sponsored Projects at colleges and universities (OMB Circular A-21, Section J.10, entitled "Compensation for Personal Services") require that each institution maintain an acceptable effort reporting system. The purpose of an effort reporting system is to provide a reasonable basis for distributing salary charges among direct activities (e.g., sponsored research, instruction, and clinical activity) and between direct and indirect activities. UTMB utilizes an after-the-fact certification of Effort of all employees where a portion of their salaries are charged or Cost-Shared to a federally Sponsored Project. Since Effor t Reports are the source documents to support salary charges to Sponsored Projects, it is essential that this data be based on reasonable estimates of Actual Effort expended in the various Effort categories. Providing inaccurate Effort estimates on the Effort Reports, whether knowingly or through carelessness or mismanagement, may result in mischarges of costs to the federal government and sponsors. Each Individual or Responsible Person with responsibility for Effort reporting must

Effort Reporting Requirements (cont’d)	understand the proper method of completing Effort Reports and assure the Total Effort reported on the Effort Reports reasonably reflect the Actual Effort expended during the report period. Once completed, the information on the Effort Reports is subject to independent audit and review by the federal government, sponsors and UTMB. For additional information the responsibilities of staff in different roles, please refer to: http://research.utmb.edu/rc/Roles%20Responsibilties.doc
Designation of Effort Among Related Activities	The Effort Reports provide for five (5) effort categories -- Sponsored Projects, Instruction, Departmental Research, Patient Activity and Administration. These categories should be followed to the extent possible in completing the Effort Reports. In some circumstances, however, the appropriate category for a given activity is not obvious. The federal regulations on effort reporting recognize that in an academic setting, teaching, research, service, and administration are often inextricably intermingled. Effort expended on Sponsored Projects may benefit more than one Sponsored Project; thus, it could properly be assigned among all benefited projects. Any such designations should equitably assign effort based on a reasonable assessment of the direct benefit derived from the Effort and in a consistent manner.
Accounting for Total Effort	Further guidance on the concepts involved in effort reporting is provided in the FAQ at the following link (http://research.utmb.edu/rc/effort_faq.shtm) The Effort Reports must account the Total Effort. Allocations of effort among different activities must be made on a reasonable, equitable, and consistent basis. As noted above, effort is not based upon a 40-hour work week. The effort reporting system reports the percentage of an individual’s salary as distributed by account for each reporting period. A misperception among some employees completing Effort Reports is that the percentage of Effort reported must equal the percentage of his or her salary. To the contrary, the purpose of the effort reporting process is to determine whether the percentages of the employee’s salary are correct and capture any necessary changes to the percentages to provide a reasonable assessment of Actual Effort. In no circumstances may the Effort percentages reported on the Effort Reports be based on any consideration other than the Actual Effort expended by the employee during the report period. If Effort for a Sponsored Project changes by 25% of the committed effort (for example a change from 40% to 30% effort or less), please contact the Sponsored Programs office for notice to the sponsor. Check the PI manual for further assistance: http://research.utmb.edu/osp/PIManual.doc.
Accounting for Total Effort (cont’d)	Further guidance on the concepts involved in effort reporting is provided in the FAQ at the following link (http://research.utmb.edu/rc/effort_faq.shtm)
Reporting Unfunded Activity (Cost Sharing)	In those instances where some or all of the Effort an employee expends on Sponsored Project is not funded by the project sponsor, the Cost Sharing Effort shall be reported on the Effort Reports. This applies only to Mandatory or Voluntary Committed Cost Sharing Effort expended on Sponsored Projects, rather than donated Uncommitted Cost Sharing, which should be included in Departmental Research. Separate tracking of Uncommitted Cost Sharing is not required.
Adjustments to Salary Allocations Based on Quarterly Review	PI’s and departmental administrative staff are to review Level of Effort reports on at least on a quarterly basis and make appropriate payroll reallocation and transfers. The Effort Report includes the percentage of salary paid from specific accounts for the reporting period. In some cases, these percentages may not reflect the employee’s Actual Effort to the project attributable to that account. The percentages are generated from the payroll data within UTMB’s payroll and accounting systems. The appointment percentages are normally based on before-the-fact projections of the level of Effort the employee was expected to expend. If this percentage paid does not correspond to the Actual Effort of the faculty on those projects during the report period, the Effort Reports must be completed to reflect Actual Effort. When the percentage of Actual Effort is less than the percentage of salary paid by a project over the effort reporting period, a payroll reallocation and/or payroll transfer must be done to change the actual payroll distribution to match the Actual Effort reported on the Effort Reports. When the percentage of Actual Effort is greater than the percentage of salary paid by a project over the effort reporting period, a payroll reallocation and/or payroll transfer must be done to change the actual payroll distribution to match the Actual Effort reported on the Effort Reports – unless: (a) the difference is attributable to Mandatory or Voluntary Committed Cost Sharing, or (b) the difference is attributable to the operation of the NIH salary cap. Strict adherence to payroll reallocations or payroll transfers is critical to meet federal compliance for proper cost accounting. Within 90 days of submitting a completed Effort Report, payroll reallocations or payroll transfers must be submitted in accordance with UTMB’s Cost Transfer Policy. If the necessary

Adjustments to Salary Allocations Based on Quarterly Review (cont’d)	adjustments to payroll have not been completed within 120 days of the Effort Reports being submitted, Research Services will take steps to make the necessary payroll reallocations or payroll transfers to remove all federal dollars from payroll that the Effort Reports do not support. For guidance in reconciling salary expense to actual effort see http://research.utmb.edu/rc/CurrentEffortToSalaryReconciliation.pdf
Responsibility for Accurate Effort Reporting	To assure the effort reporting system reasonably reflects Actual Effort expended in the various categories during the report period, the Effort Reports must be completed and confirmed by the Individual whose Effort is being reported or by a Responsible Person with suitable means of verification of how an employee’s Effort has been expended. The employee performing or supervising the work is in the best position to provide this information. If this Individual is no longer employed by UTMB, the Individual’s PI, co-PI or supervisor, must certify the Effort Reports on the individual’s behalf. The Effort Reports requires the electronic signature of the person who has completed the form, confirming that “I HAVE SUITABLE MEANS OF VERIFICATION OF THE WORK PERFORMED BY THE ABOVE EMPLOYEE AND AFFIRM THAT THE ABOVE DISTRIBUTION OF ACTIVITY REPRESENTS A REASONABLE ESTIMATE OF ACTUAL WORK PERFORMED DURING THE STATED PERIOD.” It is incumbent on the Individual or Responsible Person to assure that the representations of Effort contained in the Effort Reports Form are accurate. Careful review is especially important when a Responsible Person completes the form of another person. In such cases, it is advisable for the Responsible Person to review the completed form with the employee whose Effort is reported on the form before submitting it. For classified employees working on multiple projects, the nature of their responsibilities may not provide sufficient information to distinguish one Sponsored Project from another. In order to assure proper reporting, PI’s, (or a Responsible Person with a suitable means of verification) are responsible for certifying the classified employee’s Effort. Certification of Effort Reports by other departmental staff is not permitted.
UTMB Effort Reporting Process	UTMB has a web-based effort reporting system that will notify employees and track Effort Reports electronically. To complete Effort Reports, employees will receive an electronic notice when the current Effort Report is available on-line. For faculty and A& P employees paid on a monthly basis, the payroll data is combined in order to produce an Effort Report based on his/her

UTMB Effort Reporting Process (cont’d)

IBS compensation for the prior quarter. For employees paid on a bi-weekly basis, the payroll data is combined in order to produce an Effort Report based on his/her IBS compensation for the prior four weeks (i.e., 2 prior pay periods). Individuals and Responsible Persons must log-on to the effort reporting system to review, sign and submit the Effort Reports within 30 days after distribution. After the initial 30 days, Department Administrators will have access to Effort Reports Forms to assure employees within the department have completed the Effort Reports. Research Services will be notified about employees who have not submitted Effort Reports within 90 days after distribution of the reports. Upon the first 90-day notice Research Services will initiate steps to remove the salary expense from the federal award and assign the expense to the departmental E&G account. This assures UTMB that the grant accounting is compliant with the A-21 costing rules. In addition, Research Services reserves the right to suspend expenditure authority for the associated Sponsored Projects until all incomplete Effort Reports are completed. Strict adherences to these deadlines are critical to meet federal compliance for timely reporting. During close-out of an Effort Reporting period, all incomplete Effort Reports will be expired. Upon expiration of Effort Reports, Research Services will take steps to remove all federal dollars from payroll for that Effort Reporting period.

References

OMB Circular A-21, Cost Principles for Education Institutions OMB Circular A-21, J.10 Compensation for Personnel Services