Reporting to Sponsors

The University’s reporting responsibilities with respect to external organizations and individuals who provide funds for specific purposes has increased significantly in recent years and may be categorized as follows:

• financial reporting or invoicing
• financial record retention
• financial or other audit activities
• research program or project reporting
• research record retention and retrieval

Program or project progress reporting, and research record retention and retrieval is the responsibility of the program director, or the principal investigator in the case of research awards. Sponsor requirements are recorded in the Funded Research Digest (FReD).

The responsibility for financial reporting or invoicing, and addressing audit requirements is primarily shared by:

• the Department (i.e. the program director or principal investigator) and those to whom they have delegated responsibilities, e.g. business officers
• Research Oversight and Compliance Office (ROCO)
• Research Services Office (RSO) or Innovations and Partnership Office (IPO)
• Trust Accounting, Financial Services Department (FSD)

Nature of the Financial Report

The financial reporting addressed in this section includes reports on cash receipts, budgets, outstanding commitments and expenses as well as University of Toronto invoices to sponsors for recoverable research expenses.

The University either accepts the type, frequency, timing, format and content of financial reports that is specified in sponsor program guidelines or if not specified within their guidelines, agrees to the negotiated terms in the sponsor funding agreement. Details regarding the sponsor financial reporting type, frequency, timing, format and content, are outlined on the Funded Research Digest (FReD) in the Method of Payment, Central Financial Report, Divisional Financial Report, External Audit, and Other Terms sections. The FReD is distributed by the VPRI staff and is available on-line on the Research Information System, or My Research Online. These terms should be noted by the Department (i.e. the program director or principal investigator) and those to whom they have delegated responsibilities, e.g. the business officer so that costs associated with research activities undertaken are recorded on a timely, accurate basis. This will ensure that complete financial information has been recorded on the Financial Information System by the end of each reporting period.

The format of the project budget may indicate the type of budget or expenditure categories required for reporting to the sponsor. Budgets (which are created by the VPRI staff) are recorded against the Total Expense budget category, and normally indicate that sponsor financial reports will be based on object of expense e.g. general ledger accounts or general ledger account groupings. Budgets recorded in separate budget categories normally indicate that sponsor financial reports will be based on these budget categories. In cases where the project budget cannot be recorded in a way that completely segregates expenditures into categories that will satisfy the sponsor’s financial reporting requirements, the Research Funding Administrator and Research Accountant may work with the Department to set up procedures for preparing the sponsor financial reports according to the format required. This can include procedures whereby the Department will provide the Research Accountant with the appropriate classification of the expenditures to be reported to the Sponsor.

Financial reporting independent of funding arrangement:

Some sponsors, e.g. NSERC, SSHRC and CIHR, flow funds to the University on a periodic basis throughout the award period. The annual grant year-end sponsor report for each award is a statement of the award receipts (all funding will have been received by the end of the award period) and expenses. These sponsor reports frequently require the signature of the principal investigator but the sponsor does not withhold subsequent award payments pending receipt of these reports, thus funding is not reliant on a financial report being submitted.

Some dependency between reporting and funding

A sponsor may flow funds to the University on a periodic basis throughout the award period but may withhold the last payment or the payment of subsequent award installments pending receipt of the financial report or research report signed by the principal investigator. In these cases any delay in submission of the report(s) adds to the University’s financing costs.

In cases where a sponsor permits limited or no carry forward of unspent budget into the next period, the sponsor will rely on the financial report to determine the amount of the next payment or the amount of funds to be returned to the sponsor. Sponsor carry forward limitations and any procedures for reconsideration of these limitations are recorded on the FReD. In most cases, under-spending at the end of the award must be returned to the sponsor.

Externally-audited financial reports

Some sponsors require and pay for periodic or end-of-project externally audited financial reports. These requirements will be recorded on the FReD. Research Accounting will engage the University’s external auditors to conduct the audit activities, co-ordinate all requests for information to the Department and other central and divisional departments, on behalf of the auditors, facilitate the audit fieldwork and submit the external audit report to the sponsor.

Financial reporting limited to U of T invoice

There may be no financial reporting requirement apart from invoicing the sponsor in the amount of the research expenses in order to initiate payment of funding by the Sponsor. The Funded Research Digest (FReD) in these cases will indicate that there is no financial reporting required and the invoicing requirements will be described under Method of Payment section. In some cases there is also an additional requirement to prepare a summary report of total expenses in the award period.

These funding arrangements frequently include holdbacks which require the University to reduce periodic invoice costs by a specified amount – usually expressed as a percentage – to be invoiced after the principal investigator submits the final research report.

Again, divisional delays in providing information and documentation essential to submission of financial reports or invoices may result in failure to meet the terms of funding agreements with sponsors. Should a sponsor claim a breach of contract and refuse to pay an instalment or invoice, the unmet costs become the responsibility of the Principal Investigator and the academic division.

Within the department, responsibilities are as follows:

• to implement a departmental internal control system to ensure compliance with University and Sponsor research and financial administration policies and procedures
• to ensure that all eligible expenses for the period are recorded in the accounts prior to the end of each reporting period or the generation of a financial report to the sponsor [P.I.]
• to remove expenses that don’t belong to the research project or are ineligible according to the sponsor policies and procedures
• to remove expenses that resulted in overspending on an account prior to the reporting date. If this is not done, completion of the report will be delayed until Research Accounting is advised which expenses are to be excluded from the report [Business Officer]
• to ensure that expenses are accurately coded and described [Business Officer]
• to maintain adequate financial records that are readily available for audit or sponsor request to review [Business Officer]
• to ensure that reports requiring signature are adequately reviewed [P.I.]
• to make available copies of expense documentation where award payments are dependent on this, or where the sponsor requires this for the purposes of external audit [Business Officer]
• to ensure research reports are submitted on a timely basis where award payments are dependent on the submission of a research report [P.I.]

Procedures for Completeness

To the extent possible, process expenses in the month in which they occur, i.e. in the month in which the goods and services are received:

• invoices against purchase orders are submitted by suppliers promptly to the department. Where receiving reports are required, ensure these are forwarded to the departmental business officer for processing as soon as the goods or services are received (see Purchase Order Invoices).
• process certified invoices – those without purchase orders (see Certified Invoices) promptly upon receipt.
• process expense claims and accountable advance settlements promptly upon completion of related activities, e.g. travel.
• if there are any departmental expense recoveries to be processed against the award, ensure the journal entries are processed prior to month-end (see Internal Revenues / Expense Recoveries)
• where services or goods have been purchased from other University departments, process the related journal entry charges in the month in which the services or goods are delivered.

Sponsor Reports and Accrual Accounting

The normal processing of supplier’s invoices, departmental recoveries, and bi-weekly payroll prior to month-end closing may not always result in all expenses for the period being recorded. The most common reason is that the supplier’s invoice hasn’t been received by the processing deadline even though the related goods or services have been delivered.

The University’s annual financial statements are prepared on an accrual basis. Therefore, in those circumstances in which a supplier’s invoice is not processed by the deadline an estimated expense is recorded for all significant items. These estimates are called accrued expenses and are processed so that the financial reports fairly reflect the cost of goods and services for the reporting period.

With respect to sponsor reports, a somewhat different approach is followed:

If the principal investigator (P.I.) or his delegate determines that an expense or correction has not been processed prior to the end of the reporting month, grant year or project end date, consideration should be given to requesting an adjustment to the sponsor report.

The P.I.’s determination is based on a detailed review of the Monthly Principal Investigator Report, the Funding: Fund Center or Fund Report and/or, in those cases in which the sponsor report must be signed by the principal investigator, a review of the sponsor report.

The necessity for a report adjustment should be based on the following considerations:

1. Carry forward restrictions or the final reporting at the end of the award– If underspending represents lost funding – because of the sponsor’s carryforward policy or because the funding period has expired – it is important that all expenses be reflected in the report. In these cases, actual charges rather than estimates must be reported.
2. Expenditures that do not belong to the research project or are ineligible according to the sponsor’s policies and procedures, have been incorrectly recorded against the research project. The reporting of these expenditures to the sponsor may trigger corrective action such as audit, disruption to the research project pending sponsor review or early project termination.
3. Where there is no risk of lost funds, report adjustments should be limited to significant items in the absence of which expenses are significantly over- or understated.

The Research Accounting Contact must be advised of all adjustments, e.g. uncleared overspending or unrecorded expenses, as soon as possible. This should be done without delay (rule-of-thumb: no later than three weeks after the reporting date). It is important to avoid having to notify the sponsor that the final report was incorrect.

Transaction Coding

All sponsor reports are generated directly from the accounting system and, therefore, are only as accurate as the information contained therein. This means that correct coding of transactions is critical to accurate financial reporting to sponsors.

The originating department controls this accuracy by:

• entering the correct commitment item (budget category) on transactions,
• entering the correct general ledger account on transactions to most accurately describe the expenditure,
• entering a narrative description on transactions which will provide the information required by the sponsor. For example, NSERC wants equipment details to include the name of the approved equipment item,
• reviewing the accounts to ensure they accurately reflect all the transactions submitted for processing and that there are no transactions in the research fund which do not belong there.

In the course of preparation of financial reports, Research Accounting may ask for additional information about transactions that are recorded against a research project in cases where:

• • the general ledger account or text description are inconsistent with the budget category,
  • the general ledger account is inconsistent with the text description or there is no text description to describe the expenditure
  • the project budget categories could be recorded in a way that completely segregates expenditures into categories that will satisfy the sponsor’s financial reporting requirements. In this case, the Department will be asked to classify the transactions according to the Sponsor’s financial reporting categories,
  • the description of the transaction indicates an expenditure that is not eligible according to the Sponsor’s policies and procedures

Retention and Sponsor Access to Financial Records

It is important that financial records for an award are maintained in an orderly fashion, and that statutory retention periods are followed. In cases where the sponsor requires a retention period beyond the statutory retention period (generally the current year plus six additional years), the Funded Research Digest will indicate the retention period. Refer to Records Management, Archiving and Destruction of Records.

Sponsor Periodic Audits

Even if a sponsor does not require an externally audited financial report, generally, any award can be subject to audit by the sponsor. SSHRC, NSERC, CIHR and CFI staff will conduct periodic monitoring visits. While these sponsors are precluded from using the term “audit”, their monitoring processes are based on audit processes. Some sponsors will engage their own external auditors to audit.

While the primary focus of these review activities is financial compliance on the basis of expenditure supporting documentation, the University’s and Department’s compliance with sponsor administrative policies may be reviewed. For instance, SSHRC, NSERC and CIHR review ethical policies, procedures and protocols; central administrative and departmental financial and administrative internal controls; and the level of service provided to principal investigators. CFI will visit the funded research facilities, view and possibly measure funded infrastructure, review usage and external recovery by interviewing research personnel and viewing financial records.

In the event of an audit, your VPRI Research Accounting contact will:

• coordinate with the auditors to help them to understand University and departmental financial controls that ensure compliance with sponsor financial policies and procedures,
• facilitate the selection of the transactions to be reviewed,
• determine the type of supporting documentation that the external auditors will require,
• schedule the audit fieldwork at a mutually agreeable time, including preparing the principal investigator and the Department for the audit, informing the department of the audit schedule and the supporting documentation that needs to be retrieved,
• resolve any audit issues,
• respond to audit report findings, and
• work with central administrative departments and divisions to address audit report findings.

 

 

Last revision November 2015