In most ERCs the AD is responsible for financial management. However, in some centers this function is assigned to a financial specialist who may or may not report to the AD. As financial manager, the AD is the authorized representative of the ERC Director and usually has full signature authority. S/he is required to handle budgets, distribution of funds (under the direction of the Director and his/her Executive Committee), expenditure approvals, projections, and reports. It is the AD's responsibility to insure adherence to university and sponsors' policies and procedures.

Tip : Obtain copies of NSF Documents GC-1 (Grant General Conditions); CA-1 (Cooperative Agreement General Conditions) and GPM (Grant Policy Manual); be conversant with their terms and conditions. Request the documents from NSF by mail or from the following website: http://www.nsf.gov/funding/ (under “How to Manage Your Award” at lower left).

6.4.1 The Financial System

A financial management system that complies with federal, state, and institutional regulations has been established at most universities. However, many institutions of higher education are currently overhauling their financial management and related computer systems. Your university may be engaged in extensive development projects. As a cross-disciplinary center, your special needs place you in the thick of this activity. Again, determine your operating environment! You need to understand the financial reporting capabilities available on your campus. Specifically, how much help can you expect from the university's financial reporting system? If your university is integrating new financial software, a shadow system should be kept in place until you have full confidence in the new system.

Questions to ask regarding your university system include:

• Does the university provide financial management information in a timely manner? Will reports reflect activity and encumbrances immediately, giving an accurate report of funds remaining?
• Do the codes embedded in your university's central system include all of the expense and revenue categories required for ERC reporting? (See "Financial" in Attachment 2.)
• Does the general ledger system allow you to post "soft" money or "pre-encumbrances"?
• Is the system interactive or query only? Can you set the parameters for the queries?
• Can you link your internal ERC system with the university system? ERCs use both the centralized system and their own detailed internal system. How will you reconcile your internal records with the central ledger?

Tip: Find out how to "download" (transfer) data from central administration records to your local computer network. Caution: Test your data and understand central refresh schedules! For example, has un-encumbering been reflected correctly?

6.4.2 The University Chart of Accounts

The traditional, hierarchical nature of the university is clearly evident within most charts of accounts structures. The assumption is that all organizational units within the institution are discrete, and fit neatly into this design. Because the ERC is interdisciplinary (and sometimes inter-institutional), a unique code may not be assigned to all relevant financial activity. This is inconvenient and inconsistent because:

• University reports are generated, organized, and routed based on this unit code (and, quite often, center activity is embedded within various department records).
• Approval and access authorizations granted to the ERC within one university may not be consistent among all participating members of a partnership or consortium.

Because centers have not been a part of the traditional structure, you have to persevere to gain access to university/college communication and representation networks. Your center should, for example, be included on the "DDD" (deans, department heads, and directors) list. Center representatives should sit on relevant university committees, as well as attend key finance and personnel meetings. If routing of important communications is not automatic to the center, you must take the initiative to remedy this situation.

6.4.3 The ERC Fiscal Year

Your ERC fiscal year will be based upon the funding cycle that is set by your NSF Cooperative Agreement. Other sources of funding may have different fiscal periods. Fiscal year-end differences will have an impact on the management of budgets, revenues, and expenses. Questions you will need to address include:

• Which funds can be "rolled forward"? (Must you "use it or lose it"?)
• How is "carry forward" calculated and managed? Is carry forward managed consistently for sponsored and non-sponsored funds? (At some institutions it is not, and this can cause special reporting problems).
• Will you need to budget split fiscal years for revenues and expenditures? (How will you reconcile different fiscal years in summary reports for all funds?)
• How will you "close" your books at the end of each fiscal year? What steps are needed to ensure that internal rebudgeting decisions are posted within the central system?
• How will you manage grant close-outs and final reporting?

Tip : As AD, you need to clarify your responsibilities (and level of authority) in relation to your sponsored research office and any finance offices to which you report. Rules vary across institutions (and sometimes between sponsored and non-sponsored funds). In some circumstances, you will need to instruct another center employee who has the authority to actually conclude the transaction in question.

6.4.4 Financial Reporting Requirements

Financial integrity is critical to the successful management and continuation of the center. Defining your center's financial reporting requirements is a top priority and will shape internal policies and procedures. You will need to report to all of the organizations that provide support to the center. You will also need to provide internal reports to center management.

Tip : It is wise to establish your financial reporting system as early as possible; this reduces serious risk, and it gives the AD time to proactively manage other concerns. KEEP IT SIMPLE! The AD might not remain the same throughout the life of the Center and the new incumbent will need to be able to easily decipher all prior funding actions made by his/her predecessor.

6.4.4.1 External to the Center

The National Science Foundation is the primary sponsoring agency for all ERCs. As such, the NSF will require that you submit:

• the Annual Report (see Section 6.7.1.6) and Proposal based upon your NSF award year;
• an "Indicators Report" on ERC achievements and activities (mostly quantitative), included in the Annual Report and entered into an online database and
• special reports based upon specific one-time requests for information.

You may also need to generate special reports on state, university, other federal agency, foundation, and industrial support received.

Tip : Oversight of the ERC will exceed the norm within traditional departments; the review process becomes very time-intensive. When staffing the center, be sure you take these special demands into consideration. Failure to provide an adequate support structure for reporting requirements, major meetings, and site visits can actually bog things down and discourage cross-disciplinary activity.

6.4.4.2 Internal to the Center

The ERC organization chart will help define your internal reporting requirements. The management team will determine what specific information is needed--by level (i.e., centerwide, thrust, project); by category (e.g., personnel, travel, equipment); and by function (e.g., research, education, administration, industry).

Specifically, you may need to report to:

• the Director (center-wide summaries and function-specific analyses);
• Associate Directors for research, education, industrial liaison/technology transfer, and operations management;
• Thrust Area leaders by research group and project leaders under research thrusts;
• individual principal investigators participating in ERC research; and
• university administrators (e.g., dean, provost, president).

Tip : Evaluate your system from each of these "customer" perspectives to see if you are capturing the required detail. Prepare monthly summaries, and archive supporting detail consistently. (Even if you don't need it now, you will later!) Develop a timeline for preparation of reports. Project management software available commercially (e.g., Microsoft Project) may be helpful.

6.4.5 Developing the ERC's Financial Management System

6.4.5.1 The ERC Chart of Accounts

New ERCs will need to establish an internal "chart of accounts" system. It is very important to give careful thought to your coding system; this is the heart of the center's internal reporting structure. For example, some centers establish a "parent-child" account relationship in order to maintain stronger control of subsequent resource distribution. The "parent" account(s) may be sub-divided into various "child" accounts for the purpose of distributing funds to the proper research thrust and sub-thrust areas.

6.4.5.2 Budgeting

Budgeting takes place at all levels of the center. You need to know who is responsible for budgeting at each level and within each management area. You will need to determine a consultation and approval process, and a timetable, for establishing "functional budgets" (e.g., research funds by group; technology transfer; etc.). Be sure you know your Director's preferences.

6.4.5.2.1 Budget Preparation

Formal budgets are needed for:

• each funding entity (NSF, State, university, sponsors); and
• sub-contractors (this may include industry and/or other institutions).

The return of Facilities and Administration (F & A) funds is a significant factor in the budget of some centers. If your center has this good fortune, you will need to know how F & A recovery (ICR) return is determined, and how is it distributed. Get your ICR agreement in writing!

6.4.5.2.2 Management of Program Budgets

Identify who will be responsible for proposing and managing detailed internal budgets for each center function. Detailed budgets will be required for: research, at the center level and by thrust, project, and principal investigator; education, sometimes split by level/type (e.g., graduate, undergraduate, other); technology transfer or industrial collaboration; administration and/or management; infrastructure, including facilities, equipment, and computer networks; and other (e.g., for-fee-services provided; testbeds; etc.).

Tip: After you have established your center's account structure and program budgets, see if you could produce the data required for the financial tables in the annual report after a few months of operation.

6.4.5.2.3 Cost-sharing

Until late 2005, NSF required that all ERC proposals include cost sharing. All ERCs awarded on or before 2006 have a cost sharing requirement detailed in the center's cooperative agreement.. You should explore how your institution and NSF use terms like "cost-sharing" and "matching"; considerable differences in definition and implementation exist across institutions. The AD must check all agency and university policies regarding cost sharing. Some institutions require that a center not volunteer cost sharing. Therefore, only mandated cost sharing by the funding agency should be considered. Documentation for all cost-shared and/or matching funds must be kept in an office file. Some institutions have special requirements for cost sharing of salaries.

In most cases, your partner institutions in a multi-university ERC will also be expected to contribute cost sharing to the ERC. Be sure the subcontract agreement with each partner spells out the specific annual cost sharing required as well as the requirement to report it annually.

Tip : Be sure you understand how your university expects you to budget and account for cost sharing. How will cost sharing levels be documented for the annual report? Remember, the university will need to certify the center's cost sharing annually for the annual report. Be sure your partner universities (subcontractors) are also aware of this requirement.

6.4.5.2.4 Leveraging Funds

The concept of "leveraged funding" is extremely important to the functioning of the center and the achievement of ERC goals. By design, projects are highly interwoven and dependent upon one another.

The budget for an ERC does not come solely from NSF. The center's budget may be complex, reflecting multiple funding sources with different award periods and different expectations. The AD needs to utilize funds to maximize the return on investment by each sponsor.

A mixture of long-term and short-term awards means that the center budget may exceed the limited time frame set for most university budget development processes. Allocations will cross department, college, and institution boundaries. Dealing with a system that is not geared to serve non-traditional units can be very frustrating. Yet ERC directors and administrators have been able to make sufficient adjustments, maintain a network of contacts, and negotiate solutions as the need arises. Under less-than-ideal conditions, they have been able to establish successful, efficient, and service-oriented administrative organizations. With the increase in interdisciplinary activity in academe generally, it is hoped that universities will create and/or modify systems and procedures to facilitate the administration of centers.

6.4.5.2.5 Rebudgeting

The ERC Cooperative Agreement (and "expanded authority") allows considerable flexibility for rebudgeting and cash flow management to encourage cost leveraging. Close communication with your NSF Program Director is essential. Remember that each ERC sponsor will be eager to leverage their investment in the center and will be receptive to effective financial management strategies that make best use of total resources.

Tip : You may find it useful to develop initial budgets for each major funding source, documenting the intended use or purpose of separate funds (e.g., corporate dollars to research and university dollars for management overhead), and any cost-sharing requirements. You will also need to manage cash flow aggressively to leverage your resources (e.g., through investments and/or savings of F & A costs).

6.4.5.3 Pre-Award Management

Each university has a proposal and budget review system that provides consistency in preparation of proposal budgets to satisfy both internal procedures and external regulations. This system is usually managed through the university's sponsored research office. It may be their responsibility to make sure that budgets are in compliance with regulations. This office checks for proper rates (e.g., employee fringe benefits and overhead), allowable costs, and that the budget is in compliance with the federal and state regulations.

Once the award has been received and reviewed by the university research office, a notice of award is sent to the ERC. The notice should contain the award/proposal number, budget period, any cost-sharing requirements, a continuation statement, terms and conditions, the principal investigator and key personnel, sponsor's code for type of funding, period of the award, report dates, and a copy of the cooperative agreement. You will need to obtain this information if it is not provided. The ERC financial manager (perhaps the AD) will develop operating budgets (based on the pre-award budget and the actual, final distribution from the agency) for the distribution of funds. You will need to coordinate with your central research and budget offices to establish new accounts and budgets.

In most cases, the pre-award staff will establish an account number for this award. This will enable ERC and university post-award managers to monitor all costs posted to the general ledger system. Account numbers are generally not created centrally until an award is received. When an award appears imminent and verification with the sponsor can be obtained, make a special request for a new account, to allow for the incurring of pre-award costs. Once accounts are established, continuation funds may be easily distributed. However, some circumstances require the establishment of new accounts each year upon renewal.

6.4.5.4 Post-Award Accounting

The university has policies and procedures for purchasing goods and services. Knowledge of these regulations and the funding agency's regulations is imperative. All staff must be aware of cost principles governing expenditures of federal funds (e.g., OMB Circular A-21) and procurement procedures prescribed by federal regulations (i.e., OMB Circular A-110 and Federal Acquisition Regulations, and the Cost Accounting Standards Board, or CASB).

Grant management functions may be performed by both the post-award staff of your central university office and the ERC. These staff have varying levels of authority to approve transactions and commitments. Be sure to confirm role expectations!

Specific post-award activities include:

• account creation and maintenance
• on-line entry of budgets
• receiving, recording, and depositing revenue (including special gifts)
• keeping sponsorship and membership records
• invoicing membership and service fees at the appropriate time
• collection of past due amounts/accounts receivable
• expenditure review
• financial reporting
• communication with sponsors, auditors, faculty, and university administration
• close-out of activities when grant funds end
• documentation of cost sharing
• processing grant extension dates.

6.4.5.4.1 Payroll

Suggestions regarding the appointment of ERC personnel are provided later in this chapter. It is important to note, however, that two-thirds of the funding available to the center is typically expended on people.

The financial manager must manage and/or clearly delegate responsibility for these activities:

• development of position descriptions
• keeping track of staff appointments, changes, and terminations
• payroll documents
• effort reporting
• compliance with union requirements
• negotiation/processing of classified vs. professional positions
• resolution of related issues (e.g., paperwork for visa/citizenship applications).

Tip: Research universities are required to maintain an acceptable effort-reporting system that allows faculty, staff, and student employees to certify reasonably the portion of their total effort expended in support of each sponsored project. Be sure you understand your university's system for effort reporting.

6.4.5.4.2 Accounting for In-Kind Support and Gifts

If the center is the beneficiary of in-kind support (personnel, facilities, equipment, software, "deep discounts") you will need procedures to determine and record the value of those contributions or gifts. Become familiar with university policy and procedures for recognizing such gifts as revenue, and as items within the property accounting system. You will need to document the value of the gift. The value placed on people must include salaries and benefits. If the center is the beneficiary of in-kind facilities and equipment, you will need to determine the value of facilities built at your site or made available for center use (on or off site) and record the value and ownership of equipment either donated or made available for center use (on or off site). Retention of all documentation proving the value is important.

6.4.5.4.3 Purchasing Systems

A system will be needed to support the acquisition of materials, supplies, and equipment in a timely and efficient manner. Determine who will process and track purchase documents, and who will be authorized to approve acquisitions. Purchasing may be centralized within the center to provide monitoring control. However, this is more labor-intensive than distributed project management (purchasing done by participating PI departments). Any decision on appropriate purchasing strategies must involve the ERC Director, the AD and/or financial manager, and research leaders. Decentralized support systems also require good networking between the ERC and departmental payroll and accounting personnel.

6.4.5.4.4 Plant Funds and Capital Equipment

If funds are available for physical plant/infrastructure needs, you need to know who will manage these funds. In some cases the expenditures for physical plant will also meet cost-sharing commitments and a full accounting will be required. Who is responsible for inventory records and property accounting? Depreciation is handled differently at each university; you need to know how your institution will deal with equipment purchased for the ERC.

6.4.5.5 Other Financial Activities

Managing the ERC also requires attention to several other activities which have a financial impact on the operations of the center.

6.4.5.5.1 Record Keeping

The retention of certain information is imperative. Does your university have a central record retention area (sometimes now referred to as a "data warehouse")? If so, how much historical data is kept? Can you query for any fiscal period? How quickly can you develop a report using central records? The following information must be easily accessible to the ERC:

• proposals and any revisions processed
• notice of award, with terms and conditions
• budget and expenditure detail
• subcontracts with all associated documentation
• copies of pertinent correspondence and internal/external approvals
• copies of all equipment requisitions and any professional service agreements
• copies of financial reports, including narrative/technical reports
• copies of all service-related documents (e.g., internally generated invoices, etc.)
• project/grant close-out documents
• signed copies of all agreements (memberships, collaborations, et al.)
• copies of checks received as payments (memberships fees, et al.)
• copies of documentation proving value for in-kind donations
• copies of all correspondence proving industrial relationships if a membership agreement is not in place.

Be sure to check on retention policies; the ERC's grant period may exceed normal storage practices!

Tip : Many ERCs have found storage space to be a key concern. If you have the chance to build or remodel space, be sure to plan for this.

.6.4.5.5.2 Audits

The center is subject to both internal and external audits. Audits may be financial and/or operational. The general purpose of the university's audit is to show to the university that the ERC is well managed, in compliance with the university's own internal policies and federal regulations. An auditor may review all records, processes, purchases, and personnel records. It is usually the AD who manages the center's response to any audit.

Tip : There isn't adequate time to organize your records during an audit; be prepared! Retain as much detailed information as possible.

6.4.5.5.3 Closing Out Accounts and Grants

Final reports often are required internally by the university, in addition to the requirements of the sponsoring agency. Detailed information may be required including: expenditures; unexpended balance; personnel (including person-months per category); technology licensed; patents; publications; and a research progress report.

Tip : Check at the start of the award for the deadline date for the close-out. Confirm university policy on close-out requirements. Maintain an active database throughout the award period.

6.4.5.6 Staffing the Payroll and Accounting Functions

To maintain an excellent accounting system, it is important to appoint staff to handle high-volume, routine tasks (e.g., payroll documents, purchase orders, invoice processing, data base upkeep, etc.).

A crucial decision facing the AD and the Center Director concerns the level of training your accounting staff will need. Universities are rapidly adopting new, sophisticated financial management systems that require computer and accounting skills that may not yet be common at your institution. Essential qualifications are changing rapidly and most university job descriptions have not kept up. ERC accounting requirements will depend in part on how well your university's central financial system works; if it will be difficult to pull specialized reports from the mainframe, your staff will have to develop internal systems to meet this need.

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