As the year winds to a close for many grantees, the Department of Justice and Department of Health and Human Services have produced yet another example of the importance of properly allocating costs charged in whole or in part to federal programs, and the importance of documenting those costs.  As you may well already be aware, the University of Florida has agreed to repay the Department of Health and Human Services $19.875 million relating to the 2005 to 2010 activities of a number of its grant-funded research programs.

According to a Department of Justice “False Claims Act Allegations” settlement press release on November 20, 2015, the United States alleged that the University of Florida:

• “overcharged hundreds of grants for the salary costs of its employees, where it did not have documentation to support the level of effort claimed on the grants for those employees.”
• “charged some of these grants for administrative costs for equipment and supplies when those items should not have been directly charged to the grants under federal regulations,” and
• “inflated costs charged to HHS grants awarded at its Jacksonville campus for services performed by an affiliated entity, Jacksonville Healthcare, Inc.”

According to the University of Florida’s corresponding press release, it had first identified weaknesses in certain of its internal controls in 2006 and had already begun addressing them when they became “an area of focus during a routine federal audit of the university’s fiscal 2008 federal grants.”  According to the University, it cooperated with federal auditors and the accounting discrepancies were in part the result of, “[r]apid expansion of the university’s sponsored research and an unexpectedly difficult rollout of a complex new university-wide accounting system . . .”

As we head toward the New Year, this story should remind all grantees that documentation of costs and the proper allocation of those costs in the first instance must be a high compliance priority.  Neither good intentions nor later cooperation with auditors will transform an unallowable cost into an allowable one.

Whether ensuring existing systems are sufficient to document time and effort or considering how to allocate costs such as the cost of specialized equipment, ensuring you are properly charging costs to your various federal and nonfederal funding sources is critical.  Organizational events, such as new funding and general growth, can also impact the appropriateness of your existing allocation methodologies.

For more information on cost allocation and proper time and effort reporting, visit our Trainings Page for a full list of FTLF trainings and webinars.  If you have questions or need a consultation about the new rules, please contact the Federal Grants group at Feldesman Tucker Leifer Fidell LLP, www.ftlf.com or 202-466-8960.