Financial Questionnaire: Evaluation of Financial Management Systems
Financial management system requirements for grantee organizations of the National Institutes of Health (NIH) are addressed in the NIH Grants Policy Statement (NIHGPS) and Title 45 Code of Federal Regulations (CFR) Part 74.21. Grantee organizations are expected to have certain systems, policies, and procedures in place for managing their own funds, equipment, and personnel. A system of clear roles and responsibilities should be delineated in each grantee organization, and should include the financial management systems. These systems include, but are not limited to, accounting, internal controls, and budgetary controls.
Demonstration of a grantee’s management capabilities is one of the evaluative criteria used in the administrative review process prior to issuance of an award. To encourage uniformity in the review of a grantee’s financial management system, the NIH has developed a questionnaire entitled "Evaluation of Financial Management Systems." The questionnaire is a tool designed to assist both grantee and NIH staff in assessing the grantee’s management capabilities. Concerns related to a grantee organization’s management capabilities may result in the determination to withhold an award, or issuance of an award with special terms and conditions in accordance with 45 CFR 74.14.
The questionnaire and related information follow.
|EVALUATION OF FINANCIAL MANAGEMENT SYSTEMS
|A. ACCOUNTING SYSTEM:|
|1. Is there a chart of accounts?|
|2. Does the accounting system include a project cost ledger providing for the recording of expenditures for each program by required budget cost categories?|
|3. How do employees account for their time and effort? Please explain.|
|B. FINANCIAL CAPABILITY:|
|1. Does the organization prepare financial statements at least annually? (Provide a copy of latest Balance Sheet and Income Statement.)|
|2. Has the organization established line(s) of credit? If so, identify source and amount.|
|C. BUDGETARY CONTROLS:|
|1. Are there budgetary controls in effect (e.g. comparison of budget with actual expenditures on a monthly basis) to preclude drawing down federal funds in excess of:|
|a. Total funds authorized on the Notice of Grant Award;|
|b. Total funds available for any cost category if restricted on the Notice of Grant Award|
|D. INTERNAL CONTROLS|
|1. What safeguards has the grantee instituted to ensure adequate internal controls in the company? Please describe. Some examples might be:|
|a. Accounting entries are supported by appropriate documentation; e.g. purchase orders and vouchers.|
|b. Separation of responsibility in the receipt, payment, and recording of cash.|
* For use primarily with new for-profit grantees (including SBIR/STTR organizations) to determine major weaknesses in financial management systems. Responses may require that an in-depth review be performed.
GRANTS MANAGEMENT INFORMATION: If the specialist reviewing the information provided in response to these questions requires any further assistance, the Division of Financial Advisory Services (DFAS) may be contacted on 496-4494. The address for DFAS is 6100/6B05, MSC 7540.
EVALUATION OF FINANCIAL MANAGEMENT SYSTEMS
DESCRIPTION OF MAJOR HEADINGS
Section A. Accounting System:
The grantee organization needs to incorporate an accounting system that will track costs between direct and indirect costs (general ledger) as well as direct costs by project (project ledger). The grantee will also need to establish a time and effort reporting system to track personnel costs by project. It is industry practice to require daily reporting of effort expended on individual projects or activities. This should be reported on an hourly basis, or in increments of an hour.
Section B. Financial Capability:
The grantee should prepare financial statements at least annually. At a minimum, current internal balance sheet and income statements are required. The balance sheet items are used to compute the current ratio.
Section C. Budgetary Controls:
The grantee should establish a system to track expenditures against budget and/or funded amounts.
Section D. Internal Controls:
The grantee should describe a plan to safeguard cash receipts and disbursements. One person should not have control over all aspects of the accounting system; for example, signing checks and making deposits as well.
EVALUATION OF FINANCIAL MANAGEMENT SYSTEMS
- Chart of Accounts – This is a list of a grantee organization’s accounts identified by a specific number.
- Balance Sheet – This is a statement of financial position of a grantee disclosing the assets, liabilities, and ownership at a given point in time.
- Income Statement – This is a summary of the revenue and expenses of a grantee for a specified period of time, usually for an accounting year.
- General Ledger – This summarizes all transactions affecting assets, liabilities, equity and operating revenue and expenses of a grantee.
- Project Ledger – This is a subsidiary ledger containing data by cost element (for example, labor, materials, equipment, travel) for each project.
- Current Ratio – This is a ratio computed by dividing current assets by current liabilities as reported on the balance sheet.
Chart of Accounts
|1040||Inventory - Work in Progress|
|Property, Plant, & Equipment|
|1100||Equipment - Lab|
|1101||Accumulated Depreciation-Lab Equip|
|1110||Equipment - Office|
|1111||Accumulated Depreciation-Office Equip|
|1201||Accumulated Amortization-Leasehold Improvement|
|2000||Current Note Payable|
|2030||Accrued Wages and Payroll Taxes Withheld|
|Long Term Liabilities|
|Direct Program Costs|
|5300||Materials and Supplies|
|7190||Repairs & Maintenance|
|7200||General Lab Supplies|
|8070||Repairs & Maintenance|
|8110||Legal & Accounting|
|8140||Dues & Subscriptions|