Information for First-Time Awardees

Financial viability

Is your organization financially viable?

NSF is obligated to ensure that every organization that receives federal assistance funding will be a good steward of federal funds. To ensure this, NSF will determine if your organization is financially viable, including an ability to sustain normal operations without NSF funding.

NSF will assess your organization's financial viability by requiring you to submit applicable financial documents, such as:

  • Audited financial statements from the previous two years.
  • Income statements. 
  • Statements of cash flows.
  • Income statements.
  • Federal tax returns.

With these documents, NSF should be able to identify if your organization is experiencing financial difficulties. Indicators of financial difficulty could include but are not limited to: 

  • Solvency issues.
  • Unfunded loan maturities.
  • Limited revenue streams.

Typically, NSF is concerned with the ratios comparing assets and liabilities. 

Accounting system and internal controls

All organizations receiving awards from NSF must have an accounting system and internal controls that ensure financial integrity.

What is an accounting system?

An accounting system — also referred to as a financial management system — is software and associated processes that are used to manage income and expenditures within an organization. The primary purpose of the system is to monitor profits and losses to ensure the long-term sustainability and success of the organization.

An accounting system will typically incorporate various accounting tools, such as:

  • Invoicing and bill collection.
  • Ability to record, segregate and track costs by project.
  • Cash flow statements that can be generated on a daily, monthly and yearly basis.
  • Maintenance of auditable accounting records.
  • Automated financial processes.

What are internal controls?

Internal controls are mechanisms, rules and procedures that are implemented by an organization to ensure that records are accurate and accountable to the organization and outside stakeholders.

How is your accounting system evaluated?

NSF evaluates your organization's systems in various ways, starting with a review of the NSF Financial Management System Questionnaire. This questionnaire should be completed by an employee in your organization who is thoroughly familiar with the intricacies of the entire accounting system, such as an accountant or comptroller.

Allowable costs

All expenditures incurred under NSF cost-reimbursable grants are governed by federal regulations and must conform to NSF policies, grant special provisions and grantee internal policies.

How do I determine if costs are allowable?

Costs claimed under an NSF grant must meet the following criteria, outlined in 2 CFR 200, Subpart E:

  • Allowable: The costs must be eligible according to 2 CFR 200.403.
  • Allocable: The costs should be directly related to the performance of the award.
  • Reasonable: The costs incurred must be sensible and justifiable. 
  • Necessary: The costs should be essential for carrying out the project.

Additionally, grant special provisions and internal policies of the grant recipient also play a role in determining allowable costs.

Common allowable cost issues 

  • Questioned costs may include:
    • Costs incurred greater than 90 days prior to an award.
    • Purchases of equipment within 90 days of an award end date.
    • Large purchases of supplies within 30 days of the award end date (giving the appearance of restocking).
    • Transactions outside the award period of performance.
    • Unreasonable costs.
    • Participant support costs outside the 2 CFR 200.1 definition. 
  • Unapproved subawards. Subawarding of any work under a federal award requires explicit approval, by subrecipient name, either through the award agreement or subsequent amendment.
  • Inadequate or nonexistent guidance for unallowable costs. Organizations should develop and document policies and procedures for determining the allowability of costs and their accounting treatment of unallowable costs.

Compensation – personal expenses

Organizations receiving NSF funds must have a timekeeping system that can track, verify and certify the time and effort of employees performing federally funded work.

Do all employees need to fill out a timecard?

No, it may be considered good business practice for all employees to fill out timecards and have those timecards certified and approved by a supervisor; however, only the employees who are performing work on federally funded projects are required to fill out time-and-effort reports.

What does it mean for a timecard to be certified?

Timecards must accurately and reasonably represent how an employee's time is spent on federally assisted awards. These timecards must then be signed off on as true by another employee, usually a supervisor, who is knowledgeable about the employee's work.

How often should a timecard be certified?

While 2 CFR 200 does not specify how often a timecard needs to be verified and certified, it does mention that these costs must be reasonably allocable to federal awards.

Organizations can choose to verify time and effort reports quarterly, but this places the responsibility on the organization to track and recall all employee work over a long period of time. Alternatively, if organizations request daily certification, this could overburden supervisors and staff. There is not a universal prescription — what is best for your organization and employees may vary. Ultimately, the frequency used must be reasonable and consistent.

Participant support costs

Organizations receiving NSF funds must be able to separately track participant support costs, which are not subject to indirect costs, in their accounting systems.

Who qualifies as a participant?

These are individuals who attend conferences, workshops, training sessions or similar events and are not employed by the organization.

As outlined in NSF's Proposal and Award Policies and Procedures Guide, speakers and trainers generally are not considered participants and should not be included in the "participant support costs" section of the budget. However, if the primary purpose of an individual's attendance at a conference is learning and receiving training as a participant, then the costs may be included under participant support costs. If the primary purpose is to speak or assist with the management of the conference, then such costs should be budgeted in the appropriate categories that are not participant support costs.

What are participant support costs?

Participant support costs are direct costs related to individuals who take part in a specific activity, event or program. The participant support costs can be contributed to the individuals through stipends, subsistence allowances and travel and registration fees during the qualifying event.

Why are participant support costs treated differently?

The rebudgeting of participant support costs to other budget categories requires preapproval from the NSF program officer, as these costs are earmarked to go toward the participants at the inception of the award. Indirect costs are not allowed to be calculated on participant support costs. Participant support costs must be accounted for and tracked separately using separate accounts, subaccounts, subtasks or subledgers.

Subawards and subrecipient monitoring

Organizations have significant responsibilities, throughout the NSF award lifecycle, to manage and monitor their subawards. Subaward monitoring requirements do not apply to contractors.

What is the difference between recipients of subawards and contractors?

The general characteristics of subrecipients and contractors are provided in 2 CFR 200.331. Broadly:

  • Recipients of subawards (subrecipients) have programmatic decision-making responsibilities for performance in carrying out a portion of the research or project (such as conducting, testing and evaluating the funded research) per 2 CFR 200.331 and 2 CFR 200.332.
  • Contractors provide goods or services in a competitive environment as their normal course of business.

What is a subaward?

A subaward is an award provided by the prime recipient of a federal award to a subrecipient for the subrecipient to carry out a part of the award objective.

When a subaward is issued to a subrecipient there becomes an agreement that the prime recipient will monitor and track the actions and expenditures of the subrecipient. When this relationship is established, the prime recipient agrees to assume responsibility for the work performed by the subrecipient.

What is the prime recipient responsible for?

The prime recipient is required to establish a system to monitor the performance and activities of the subrecipients. This is expected to be documented through the prime recipient organization's policies and procedures. Prime recipients (also known as pass-through entities) are also responsible for ensuring that the costs of all subawards under NSF awards are subject to the cost principles and procedures appropriate to the subaward type and organization involved.

Subaward relationships require an assessment of risk before entering into an agreement and require monitoring during the award per 2 CFR 200.331–332.

The prime recipient should have written guidance that covers the full subaward lifecycle, including:

  • Subrecipient selection.
  • Subrecipient/subaward approval.
  • Subrecipient eligibility testing (i.e., debarment and suspension checks).
  • Subrecipient risk assessment.
  • Subaward agreement preparation, review and approval, as well as similar guidance for amendments.
  • Subaward monitoring based on assessed risk.
  • Subaward closeout.

The prime recipient may consider imposing its own specific subaward conditions if appropriate (see 2 CFR 200.208). Specific NSF award requirements placed on the prime awardee must also be required of the subrecipient and incorporated into the subaward agreement.

In addition to establishing subrecipient monitoring policies, prime awardees are also responsible for drafting and implementing subaward agreements or contracts between the organizations to govern the performance of the subaward.

How to select a subaward recipient?

The prime award recipient is responsible for determining that the subrecipient has the programmatic and administrative capacity to manage the subaward in compliance with NSF programmatic expectations and federal regulations. The prime recipient should maintain documentation outlining the selection process of the subrecipient.

Some general ideas for how a selection is made may include:

  • Prior experience with federal assistance awards.
  • Prior experience with similar programmatic activities.
  • Prior experience in working with the subrecipient.

Before issuing a subaward, the prime recipient is responsible for ensuring that each of the following areas has been completed and documented:

  1. Prior subaward approval from NSF has been granted.
  2. A risk assessment that should include many or all the following elements:
     
    • Relevant information from the subrecipient selection process.
    • Prior audit results (e.g., single audits).
    • Ability to perform, both technically and administratively.
    • Has an adequate accounting system (a project cost accounting system).
    • Has the financial capability to implement and administer the subaward.
    • Has the appropriate indirect cost rate and application base.
    • Has not been debarred or suspended from receiving federal grants or contracts (this can be assessed using SAM.gov).

What must a subrecipient agreement contain?

Agreements between the prime recipient and the subrecipient must contain the following:

  • Identification of the agreement as a subaward.
  • Statement of work.
  • Agreed-upon funding based on a budget.
  • Federal award identification data elements (see 2 CFR 200.332(a)(1)).
  • Prime award requirements/terms/conditions flowed down to the subrecipient either by link to the prime award terms and conditions or by attachment of the prime award to the agreement.
  • An agreed-upon indirect cost rate.
  • Subaward closeout terms and conditions.
  • Subaward period of performance (beginning and end dates).

Common issues with subaward expenditures

Recipients typically run into issues relative to subawards and subrecipients. These problem areas include:

  • Inadequate or no assessment of risk associated with subrecipients before entering into subawards.
  • Inadequate pre-award documentation.
  • Failure to obtain prior NSF approval before entering into subawards.
  • Subaward agreement does not incorporate prime award terms and conditions either by reference or attachment. 

Due to the judgmental nature of adequate monitoring, this list is just a small sample of items that could arise. 

Additional resources

Constructing effective policies and procedures

The following are common elements of policies and procedures documents. Not all elements will apply in every instance:

  • Purpose: The purpose explains the goal of a policy. For example, an allowable cost policy has the goal of ensuring that the awardee complies with sponsor regulations regarding award expenses.
  • Scope: The scope explains who the policy pertains to and who it does not. Some policies may apply to all employees, contractors and volunteers; other policies may only apply to a subset of employees.
  • Policy statement: The standard, rule or intended outcome the policy needs to communicate. 
  • Procedures and responsibilities: In sequential order, clearly describe the action steps. Be sure to include who performs the step, when the step is performed, and what systems or tools will be used. If a procedure is intended to result in an outcome (e.g., a journal entry), be sure to describe it. Consider including consequences for not complying with the procedures.
  • Definitions: Include terms that may not be well known to all users or that may need clarification to ensure compliance.
  • Points of contact: Provide contact information for whom an employee can approach if they have questions about the policy or procedure.
  • References: Include links or references to legislation/regulations that support interpretation of the guidance. Also consider references to related policies, procedures or other guidance.
  • Effective date: State the date the guidance went into effect, as well as the date of any subsequent revisions.
  • Approvals: Identify who approved the guidance and when.
  • Examples or other helpful guidance: Consider including additional examples or guidance that may help clarify how to apply the procedures.

Organizations should be thoughtful in determining how to organize their policies and procedures. Two major approaches are:

  • Grouping policies separately from procedures. This approach makes it easy for users to rapidly review all of the organization's policies but comes at the cost of separating the "what are we doing" (policy) from the "how are we doing it" (procedure).
  • Grouping policies with the procedures that support them. This approach provides a clear link between the policy and supporting procedures and works well for policies that have a one-to-one relationship with their procedures but can prove more challenging for policies that have multiple procedures supporting them.

 

Glossary

This section of the page defines key terms used in the Financial Management System Questionnaire and other NSF documents.

Accrual basis: An accounting method where income and expenses are recorded and recognized when they occur, providing a more accurate representation of an organization's financial position. Accrual basis is the only form of record keeping that is acceptable for generally accepted accounting principles purposes. 

Cash basis: An accounting method where income and expenses are recorded and recognized when funds are transferred in or out of an organization.

Cash disbursement journal: A record that is kept for an organization that itemizes all financial expenditures before they are rolled into the general ledger.

Cash receipts journal: A specialized journal used to record and track cash received in an organization from all sources of funds during a specified period.

Chart of accounts: A financial documentation tool listing all an organization's accounts in one place and encompassing all financial areas within the organization. It helps to understand the day-to-day activities of the organization. Account types that can be seen in a chart of accounts are:

  • Revenue: Income-generating activities.
  • Expenses: Expenses spent by an organization.
  • Assets: Resources owned and held by an organization.
  • Liabilities: Debts to be paid or otherwise owed by an organization.

Federal regulation: A set of laws, regulations and requirements issued by the federal government. These regulations provide detailed guidance for how the law should be upheld in practice. For NSF and its awards, these regulations are codified within the Code of Federal Regulations (CFR).

General ledger: Sometimes referred to as a GL, a general ledger is a tool or system for organizations to record and track all financial transactions.

Indirect cost or overhead rate: Indirect costs are those costs that are not readily identifiable with a particular cost objective (e.g., direct organizational activity or project) but are necessary for the general operation of an organization. For more details on indirect costs, visit NSF's Indirect Cost Rate Policies webpage.

Payroll journal: A tracking tool to track how much is spent on employees during a given pay period.

Policies: A policy is a statement of a goal, outcome or standard that is being set by an organization. When written clearly and in easy-to-understand language, policies explicitly outline the organization's expectations of employees. Policies are typically short and rarely change; an example might be, "We charge only allowable costs to federal awards." When policies change, it is often the result of legal/regulatory mandates or shifts in organizational priorities.

Procedures: A procedure describes the actions that will help an organization meet its policy standard(s). Good procedures provide step-by-step, user-level instructions for who does what, when, in what order, using what systems or tools, to provide what output. Procedures may be short or long depending on the number and complexity of steps. They should be regularly reviewed to incorporate changes in processes, systems or roles/responsibilities.