Understanding the NIH Financial Questionnaire
Do you want to understand how NIH uses their Financial Questionnaire to evaluate your grant management capabilities? The information you present in the questionnaire could be the difference between receiving funding or not.
You spent countless hours preparing your proposal in hopes of securing an NIH grant. You are now asked to complete a financial questionnaire so that NIH can evaluate your financial management system before they issue the award. As you read the questionnaire you begin to see terminology like, NIH Grants Policy Statement, Code of Federal Regulation, internal controls, and budgetary controls. You start asking yourself questions. What does all this mean? How does it impact my chances of receiving funding? Where can I find help. This blog will provide you with the answers to those questions and will break down the questionnaire in such a manner to provide you with a better understanding of NIH’s intent behind the questionnaire.
Pre-award risk assessment
NIH has responsibility to ensure they are not wasting taxpayer dollars by giving grants to just anybody. As a part of their pre award due diligence, they request information to perform a high-level risk assessment of your company. The intent of which is to determine if they should move forward with granting you the funds, adding special terms and conditions into the award or decline the award altogether. Be thankful you are not dealing with NSF or DoD at this point. Those agencies would be doing an audit of your financial management system before issuing the award. Which is not necessarily a bad thing, you just need to be prepared for it. NIH is much more understanding at this point in the game. However, they remain skeptical unless you can reassure them you have a solid understanding of the requirements and can demonstrate your system can comply with the terms and conditions of the award.
Let us look at the questionnaire
It is broken down into 4 parts. Part A “Accounting System, Part B “Financial Capability”, Part C “Budgetary Controls” and Part D “Internal Controls”. The questionnaire includes additional explanatory narratives on these categories. Therefore, I will not get into that here, but rather will share with you, how NIH intends to use the information you provide.
How NIH utilizes the information to evaluate your company
Part A - Accounting System
First off, let’s start by saying that simply having a bank account and an excel workbook is not enough. If that is what you are currently doing, and you tell NIH, you will not be funded. You need a much more robust system.
You need a system that records transactions based on Generally Accepted Accounting Principles (GAAP). The system must allow for the categorization of costs into specific cost categories on the general ledger level and project ledger level.
Project cost, aka direct costs, must be tracked on a budgetary line item basis within a project ledger that reconciles to the general ledger.
Administration / overhead costs, aka indirect cost, must be accumulated and allocated to each cost center on an equitable basis, ie your indirect cost rate.
Finally, you need to know which costs you can charge to the grant and those that you cannot. Allowable costs can be a bit tricky because there are different regulations for Universities than there is for small businesses and even yet another for non-profit organizations. You may need to follow any one or combination of the following: 2 CFR Part 200, 45 CFR Part 75, FAR Part 31, DCAA and NIH Grants Policy Statement.
The key here is to demonstrate to NIH that not only you understand these requirements, but also that your system is in compliance with them.
NIH is very interested in how you keep track of employee time and how the related labor charges are either directly or indirectly charged to their grant. You need to explain here how you maintain time and effort reporting and how you distribute labor charges. There are many available resources for maintaining compliant timesheets that I don’t dare discuss it here. In fact, I could spend 8 hours giving a presentation on the topic. One thing I do want to make clear is you need to understand there are different rules for Universities, for profit entities and non profit organizations. I suggest you familiarize yourself with the regulations for your entity type and make sure your process is aligned with the correct regulations before you respond to this section of the questionnaire. The other important thing here is to show how you will address any NIH specific requirements, for example salary caps.
The key here again is to demonstrate to NIH that not only you understand these requirements, but also that your system is in compliance with them.
Part B - Financial Capability
You will need to provide NIH with a balance sheet and income statement. NIH uses the information in your balance sheet to run a liquidity ratio called the current ratio. The current ratio provides NIH with a metric they can use as a benchmark to compare to similar companies. It gives them a sense of your ability to pay any obligations that are due in next twelve months. If your company has a bunch of debt on the balance sheet and has a low current ratio, NIH will be wondering how you plan to pay off those debt obligations. They certainly do not want you to be using grant funds to do that.
Part C - Budgetary Controls
NIH wants to be assured you can track budgeted versus actual costs by budgetary line item. They are also interested in knowing how you review and monitor your progress to ensure financial progress is in line with programmatic progress. At a minimum you should be preparing and reviewing this on a monthly basis. You want to evaluate your overall burn rate, paying special attention to budget categories which you may be over/under spending. NIH expects you to control costs however they understand that things change throughout the course of the project. The key is being able to use financial data to make decisions and generate discussions about possible budgetary and programmatic modifications. Most entities satisfy this requirement by maintaining a job cost report for each of their projects.
What should be included in the job cost report?
Project title and name
Grant number /FAIN
Budgeted costs, including direct and indirect costs, fee and cost sharing
Actual costs month to date, year to date and project to date
General ledger account numbers
A reconciliation of the job cost report to the general ledger
Part D - Internal Controls
Here NIH needs to feel comfortable that your policies and procedures address five main areas.
1. The Company maintains internal control over the Federal awards to provide reasonable assurance that the Company is managing the Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. The Company must structure its internal controls to be in compliance with guidance in “Standards for Internal Control in the Federal Government,” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
2. The Company complies with Federal statutes, regulations, and the terms and conditions of the Federal awards.
3. The Company evaluates and monitors compliance with statutes, regulations and the terms and conditions of Federal awards.
4. The Company takes prompt action when instances of noncompliance are identified including noncompliance identified in audit findings.
5. The Company takes reasonable measures to safeguard protected personally identifiable information and other information the HHS awarding agency or pass-through entity designates as sensitive or the non-Federal entity considers sensitive consistent with applicable Federal, state, local, and tribal laws regarding privacy and obligations of confidentiality.
The g2 Model
If you are looking for help establishing a compliant financial management system for your NIH grant, check out the g2 Model here. For additional information on accounting and compliance matters over NIH grants, visit www.g2consultant.com
#SBIR #NIH #financialquestionnaire #internalcontrol #finanicalcapability #STTR #45CFRPart75 #NIHGrantsPolicyStatement #budgetarycontrol