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ARCHIVED - NIH Grants Policy Statement (10/98)

Part II: Terms and Conditions of NIH Grant Awards-Part 6 of 7

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Grantee institutions are expected to have systems, policies, and procedures in place by which they manage funds and activities. Grantees may use their existing systems as long as they are consistently applied regardless of the source of funds and meet the standards and requirements set forth in 45 CFR Part 74 or 92 and in this policy statement. NIH may review the adequacy of those systems in order to protect the Government's interests and may take appropriate action, including the use of special terms and conditions, as necessary. NIH will also oversee the performance of the grantee's systems as part of its routine postaward monitoring. The grantee's systems are also subject to audit (see "Administrative Requirements     Monitoring     Audit").

NIH seeks to foster within grantee organizations an organizational culture that is committed to compliance, leading to both exemplary research and exemplary supporting systems and resources to underpin that research. Actions to achieve this result should include a clear delineation of the roles and responsibilities of the organization's staff, both programmatic and administrative, written policies and procedures, training, management controls and other internal controls, performance assessment, administrative simplifications, and information sharing.

Grantees are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. The standards and requirements for a financial management system are essential to the grant relationship. NIH cannot support the research unless it has assurance that its funds will be used in an appropriate manner, adequate documentation of transactions will be maintained, and assets will be safeguarded.

Grantees must have in place accounting and internal control systems that provide for appropriate monitoring of grant accounts to assure that obligations and expenditures are reasonable, allocable, and allowable, and that are able to identify large unobligated balances, accelerated expenditures, inappropriate cost transfers, and other inappropriate expenditure and obligation of funds. Grantees must notify NIH when problems are identified.

A grantee's failure to establish adequate control systems constitutes a material violation of the terms of the award, and NIH may include special conditions on awards or take any of the range of actions specified in "Administrative Requirements     Enforcement Actions," as necessary and appropriate.

Program income is gross income earned by a grantee, a consortium participant, or a contractor under a grant that was directly generated by the grant-supported activity or earned as a result of the award. Program income includes, but is not limited to, income from fees for services performed, the use or rental of real or personal property acquired under the grant, the sale of commodities or items fabricated under an award, and license fees and royalties on patents and copyrights. The requirements for accountability for these various types of income under NIH grants are specified below. Accountability refers to whether NIH will specify how the income is to be used and whether the income needs to be reported to NIH and for what length of time. Unless otherwise specified in the terms and conditions of the award, NIH grantees are not accountable for program income accrued after the period of grant support.

Consortium agreements and contracts under grants are subject to the terms of the agreement or contract with regard to the income generated by the activities, but the terms specified by the grantee must be consistent with the requirements of the grant award. Program income must be reported by the grantee as discussed below.

Program income, other than income earned as a result of copyrights, patents, or inventions or as a result of the sale of real property, equipment, or supplies, earned during the period of grant support, shall be retained by the grantee and may be used in one or a combination of the following alternatives as specified by NIH. This includes income earned from charges to third parties for use of equipment or supplies acquired with NIH grant funds as well as charges for unique research resources.

  • Additive Alternative: Added to funds committed to the project or program, and used to further eligible project or program objectives.
  • Deductive Alternative: Deducted from total project or program allowable costs in determining the net allowable costs on which the Federal share of costs will be based.
  • Matching Alternative: Used to satisfy all or part of the non-Federal share of a project or program.
  • Combination Alternative: Under the combination alternative, grantees use all program income up to (and including) $25,000 as specified for the additive alternative and any amount of program income exceeding $25,000 under the deductive alternative.

The additive alternative will apply to program income earned under NIH awards subject to expanded authorities and to Phase I awards under the SBIR/STTR programs unless the terms and conditions of the award specify the use of another alternative(s). For all other awards, except awards to non-SBIR/STTR for-profit organizations, the combination alternative will apply unless the terms and conditions of the award indicate otherwise. The circumstances under which NIH may require use of a different alternative include when a grantee has deficient systems or where the PI has a history of frequent, large annual unobligated balances on previous grants or has requested multiple extensions of the budget/project period.

The deductive alternative will always apply to awards to non-SBIR/STTR for-profit organizations.

The requirements that apply to the sale of real property are addressed in "Construction Grants" in Part III.

For equipment and supplies purchased under NIH grants for basic or applied research by non-profit institutions of higher education or non-profit organizations whose principal purpose is the conduct of scientific research, the grantee is exempt from any requirement to account to NIH for proceeds from the sale of the equipment or supplies; however, NIH has certain rights with respect to such property as specified in "Administrative Requirements     Management Systems and Procedures     Property Management System Standards".

All other types of grants/grantees are subject to the requirements in 45 CFR 74.34 or 92.32, if title to the equipment vests in the grantee rather than in NIH. If the grant-supported project or program for which equipment was acquired is still receiving NIH funding at the time of sale, the grantee shall credit the NIH share of the proceeds to the grant and use that amount under the deductive alternative for program income. If the grantee is no longer receiving NIH grant support, the amount due should be paid in accordance with instructions from NIH. These grants/grantees are also subject to the requirements in 45 CFR 74.35 or 92.33 with respect to the use or sale of unused supplies. If the grantee retains the supplies for use on other than federally sponsored activities, an amount is due NIH as if they were sold.

If a grantee is accountable for the use of program income during the period of grant support (other than income resulting from royalties or licensing fees, as provided below), the amount earned and the amount expended must be reported on the FSR (SF-269). The costs associated with the generation of the "gross" amount of program income, if they are not costs charged to the grant, should be deducted from the "gross" program income earned, and the "net" program income should be the amount reported. Program income subject to the additive alternative shall be reported on lines 10r and 10s, as appropriate, of the FSR (Long Form); program income subject to the deductive alternative shall be reported on lines 10c and 10q of the FSR (Long Form); and program income subject to the matching alternative shall be reported on lines 10g and 10q of the FSR (Long Form). (See "Administrative Requirements     Monitoring     Reporting".) For awards under SNAP, the amount of program income earned shall be reported in the noncompeting continuation request and the amount expended reported on line 11g of the FCTR (SF-272). The FSR for the competitive segment must include the aggregate amounts earned and spent.

Income earned from the sale of equipment shall be reported on the FSR for the period in which the proceeds are received and in accordance with the reporting requirements for the program income alternative specified. Amounts due NIH for unused supplies shall be reflected as a credit to the grant on line 10c of the FSR (Long Form).

Where the terms of the NGA, including this policy statement, do not specify any accountability requirement for income earned, no reporting of income is required. Reporting requirements for accountable income accrued after grant support ends will be specified in the NGA.

Unless specific terms and conditions of the award provide otherwise, NIH grantees are not required to account for income earned from copyrighted material. However, grantees must account for royalties and licensing fees that result from NIH-funded inventions and patents. Income of this nature must be reported on the annual utilization report, which is required if the grantee decides to elect title to the invention or when licensing fees are generated for inventions that are not patented (i.e., some biological materials and unique research resources) (see "Administrative Requirements     Availability of Research Results: Publications and Intellectual Property Rights, Including Unique Research Resources" and "Administrative Requirements     Monitoring     Reporting"). If commercialization of an invention is an anticipated outcome of a research project, the NGA may include additional terms and conditions regarding the disposition of program income.

Generally, grantees may use their own property management policies and procedures for property purchased, constructed, or fabricated as a direct cost using NIH grant funds, provided they observe the requirements in 45 CFR 74.31 through 74.37 or 92.31 through 92.348, as applicable, and the following.

The dollar threshold for determining the applicability of several of the requirements in those regulations is based on the unit acquisition cost of an item of equipment. As defined in 45 CFR 74.2, the cost of an item of equipment to the recipient includes necessary modifications, attachments, etc., that make it usable for the purpose for which it was acquired or fabricated. When such accessories or attachments are acquired separately and serve to replace, enhance, supplement, or otherwise modify the equipment's capacity, and they individually meet the definition of equipment (see "Glossary"), any required NIH prior approval for equipment must be observed for each item. However, the aggregate acquisition cost of an operating piece of equipment will be used to determine the applicable provisions of 45 CFR 74.34 or 92.32. If property is fabricated from individual component parts, each component must itself be classified as equipment if it meets the definition of equipment. In this case, the aggregate acquisition cost of the resulting piece of equipment will determine the appropriate requirements for accountability in 45 CFR 74.34 or 92.32.

Grantees are required to be prudent in the acquisition of property under a grant-supported project. It is the grantee's responsibility to conduct a prior review of each proposed property acquisition to ensure that the property is needed and that the need cannot be met with property already in the possession of the organization. If prior approval is required for the acquisition, the grantee must ensure that appropriate approval is obtained in advance of the acquisition. The grantee must also follow appropriate procurement procedures in acquiring property as specified in "Administrative Requirements     Management Systems and Procedures     Procurement System Standards and Requirements".

Recipients of NIH grants other than Federal institutions cannot be authorized to use Federal supply sources.

See "Construction Grants" in Part III for requirements that apply to the acquisition, use, and disposition of real property. Fixed equipment that is part of a construction grant is also subject to those requirements.

In general, title to equipment and supplies acquired by a grantee with NIH funds vests in the grantee upon acquisition, subject to the property management requirements of 45 CFR 74.31, 74.34, 74.35, and 74.37, or 92.32 and 92.33. Limited exceptions to these general rules are States, which shall use, manage, and dispose of equipment acquired under a grant in accordance with State laws and procedures, and certain research grant recipients with exempt property (see below). These requirements do not apply to equipment for which only depreciation or use allowances are charged, donated equipment, or equipment acquired primarily for sale or rental rather than for use.

Under the Federal Grant and Cooperative Agreement Act, 31 U.S.C. 6306, NIH may permit non-profit institutions of higher education and non-profit organizations whose primary purpose is the conduct of scientific research to obtain title to equipment and supplies acquired under grants for support of basic or applied scientific research without further obligation to the Federal Government, except that NIH has the right to require transfer of title to the equipment with an acquisition cost of $5,000 or more to the Federal Government or to an eligible third party named by the NIH awarding office under the conditions specified in 45 CFR 74.34(h). NIH may exercise this right within 120 days of the completion or termination of an award or within 120 days of receipt of an inventory, as provided in 45 CFR 74.34(h)(2),whichever is later.

All other equipment and supplies acquired under all other NIH grant-supported projects by any other type of grantee is subject to the full range of acquisition, use, management, and disposition requirements of 45 CFR 74.34 and 74.35, or 92.32 and 92.33. Property acquired or used under an NIH grant-supported project, including any federally owned property, is also subject to the requirements for internal control specified in 45 CFR 74.21 or 92.20, and, pursuant to 45 CFR 74.37, equipment (and intangible property and debt instruments) acquired with, or improved with, NIH funds shall not be encumbered without NIH approval

The grantee's property management system for equipment must meet the requirements of 45 CFR 74.34(f) or 92.32, which include:

  • The grantee keeps records that adequately identify items of equipment owned, according to the criteria specified in the regulations, or held by the grantee and state the current location of each item.
  • At least once every 2 years, the grantee physically inventories the equipment to verify that the items covered by the records exist and are either usable and needed or listed as surplus.
  • Control procedures and safeguards to prevent loss, damage, and theft and adequate maintenance procedures to keep the equipment in good condition.
  • Proper sales procedures when the grantee is authorized to sell the equipment.

For items of equipment having a unit acquisition cost of $5,000 or more, NIH has the right to require transfer title to the equipment to the Federal Government or to an eligible third party named by the NIH awarding office under the conditions specified in 45 CFR 74.34(h) and 92.32, respectively. This right applies to all types of grantees, including Federal institutions, under all types of grants under the stipulated conditions.

If there is a residual inventory of unused supplies exceeding $5,000 in aggregate fair market value upon termination or completion of the grant, and if the supplies are not needed for other federally sponsored programs or projects, the grantee may either retain them for use on other than federally sponsored activities or sell them, but, in either case, the grantee shall compensate the NIH awarding office for its share as a credit to the grant.

State, local, or Indian tribal governments must not use equipment acquired with grant funds to provide services for a fee to compete unfairly with private companies that provide equivalent services unless the terms and conditions of the award provide otherwise.

As permitted under Federal property management statutes and regulations and NIH property management policies, federally owned tangible personal property may be made available to grantees under a revocable license agreement. This allows for the transfer of such property to the grantee when it is no longer needed under the contract.

The revocable license agreement between NIH and the grantee would provide for the transfer of the equipment for the period of the grant support under the following conditions:

  • Title to the property remains with the Federal Government.
  • NIH reserves the right to require the property to be returned to the Federal Government should it be determined to be in the best interests of the Federal Government to do so.
  • The use to which the grantee puts the property does not permanently damage it for Federal Government use.
  • The property is controlled and maintained in accordance with the requirements of 48 CFR 45.5 (the Federal Acquisition Regulation).

Grantees may acquire a variety of goods or services in connection with a grant-supported project, ranging from those that are routinely purchased goods or services to those that involve substantive programmatic work. States shall follow the same policies and procedures they use for procurements from non-Federal funds. All other grantees must follow the requirements in 45 CFR 74.40 through 74.48 or 92.36, as applicable, for the purchase of goods or services through contracts under grants. The requirements for third-party activities involving programmatic work are addressed under "Consortium Agreements" in Part III.

A contract under a grant must be a written agreement between the grantee and the third party. The contract must, as applicable, state the activities to be performed, the time schedule, the policies and requirements that apply to the contractor, including those required by 45 CFR 74.48 or 92.36(i) and other terms and conditions of the grant (these may be incorporated by reference where feasible), the maximum amount of money for which the grantee may become liable to the third party under the agreement, and the cost principles to be used in determining allowable costs in the case of cost-type contracts. The contract must not affect the grantee's overall responsibility for the direction of the project and accountability to the Government. The agreement shall, therefore, reserve sufficient rights and control to the grantee to enable it to fulfill its responsibilities.

In situations where a grantee enters into a service-type contract the term of which is not concurrent with the budget period of the award, the costs of the contract may be charged to the budget period in which the contract is executed even though some of the services will be performed in a succeeding period if:

  • The NIH awarding office has been made aware of this situation either at the time of application or through postaward notification,
  • The project has been recommended for a project period extending beyond the current year of support, and
  • There is a legal commitment on the part of the grantee to continue the contract for its full term.

However, costs will be allowable only to the extent that they are for services that are provided during the period of NIH support. In order to limit liability in the event that continued NIH funding is not forthcoming, it is recommended that grantees insert a clause in such contracts of $100,000 or less stipulating that payment beyond the expiration of the current budget period is contingent on continued Federal funding. The contract provisions prescribed by 45 CFR 74.48 and 92.36(i)(2) specify termination provisions for contracts in excess of $100,000.

The regulatory procurement standards in 45 CFR 74.44 and 92.36(g) allow NIH to require approval of specific procurement transactions under the following circumstances (and provide a mechanism for governmental grantees to be exempt from this type of review):

  • A grantee's procurement procedures or operations do not comply with the procurement standards required by those regulations.
  • The procurement is expected to exceed the "small purchase threshold" established by the Federal Property and Administrative Services Act, as amended, (currently $100,000) and is to be awarded without competition or only one bid or proposal is received in response to a solicitation.
  • A procurement that will exceed the small purchase threshold specifies a "brand name" product.
  • A proposed award over the small purchase threshold is to be awarded to other than the apparent low bidder under a sealed bid procurement.
  • A proposed contract modification changes the scope of a contract or increases the contract amount by more than the amount considered to be a small purchase.

When NIH prior approval is required, the grantee must make available sufficient information to enable review and approval or disapproval. This may include, at NIH discretion, pre-solicitation technical specifications or documents such as requests for proposals or invitations for bids, or independent cost estimates. Approval may be deferred pending submission of additional information by the applicant or grantee or may be conditioned on the receipt of additional information. Any resulting NIH approval does not constitute a legal endorsement of the business arrangement by the Federal Government, nor does such approval establish NIH as a party to the contract or any of its provisions.

Grantees must make positive efforts to use small businesses, minority-owned firms, and women's business enterprises as sources of goods and services whenever possible. Grantees are required to take the following steps to implement this policy:

  • Placing qualified small, minority, and women-owned business enterprises on solicitation lists.
  • Ensuring that small, minority, and women-owned business enterprises are solicited whenever they are potential sources.
  • Considering contracting with consortia of small businesses, minority-owned businesses, or women's business enterprises when an intended contract is too large for any one such firm to handle on its own, if economically feasible, dividing larger requirements into smaller transactions for which such organizations might compete.
  • Making information on contracting opportunities available and establishing delivery schedules that encourage participation by small, minority, and women-owned business enterprises.
  • Using the services and assistance of the Small Business Administration and the Minority Business Development Agency of the Department of Commerce, as appropriate.
  • Requiring the prime contractor, if subcontracts are to be let, to take the affirmative steps listed above.

Grantees are responsible for managing the day-to-day operations of grant-supported activities using their established controls and policies, as long as they are consistent with NIH requirements. However, in order to fulfill their role in regard to the stewardship of Federal funds, NIH awarding offices monitor their grants to identify potential problems and areas where technical assistance might be necessary. This active monitoring is accomplished through review of reports and correspondence from the grantee, audit reports, site visits, and other information available to NIH. The names and telephone numbers of the individuals responsible for monitoring the programmatic and business management aspects of a project or activity will be provided to the grantee at the time of award.

Monitoring of a project or activity will continue for as long as NIH retains a financial interest in the project or activity resulting from property accountability, audit, and other requirements that continue for a period of time after the grant is administratively closed out and NIH is no longer providing active grant support (see "Administrative Requirements     Closeout").

NIH requires that grantees periodically submit financial and progress reports. Other required reports may include annual invention utilization reports, lobbying disclosures, audit reports, reporting to the appropriate payment points (in accordance with instructions received from the payment office), and specialized programmatic reports. Grantees are also expected to publish and provide information to the public on the objectives, methodology, and findings of their NIH-supported research activities as specified in "Administrative Requirements     Availability of Research Results: Publications and Intellectual Property Rights, Including Unique Research Resources".

The GMO is the receipt point for most required reports, including noncompeting continuation requests, final progress reports, final invention statements and certifications, and lobbying disclosure statements. Reports must be submitted in an original and two copies unless the instructions for submission specify otherwise. Submission of these reports to individuals other than the GMO may result in delays in processing or the submission being considered delinquent.

Grantees are allowed a specified period of time in which to submit required financial and progress reports (see 45 CFR 74.51 and 74.52, 92.40 and 92.41, and the discussion below). Failure to submit complete, accurate, and timely reports may indicate the need for closer monitoring by NIH or may result in possible award delays or enforcement actions, including withholding, removal of expanded authorities, or conversion to a reimbursement payment method (see also "Administrative Requirements     Enforcement Actions").

Progress reports are usually required annually as part of the noncompeting continuation request or competing continuation application. However, NIH may require these reports more frequently. The information to be included in the progress report as part of a noncompeting continuation request is specified in the PHS-2590 application instructions, which also include the alternate instructions for awards under SNAP (see "Administrative Requirements     Noncompeting Continuation Awards"). The requirements for progress reporting under construction grants or grants supporting both construction activities, including acquisition or modernization, and nonconstruction activities will be specified by the NIH awarding office.

Reports of expenditures are required as documentation of the financial status of grants according to the official accounting records of the grantee organization. Financial or expenditure reporting is accomplished using the FSR (SF 269 or SF-269 A; the latter format is the "long form" and is required when a grantee is accountable for the use of program income). Except for those awards under SNAP and awards requiring more frequent reporting, the FSR is required on an annual basis. When required on an annual basis, the report must be submitted for each budget period no later than 90 days after the close of the budget period. The report must also cover any authorized extension in time of the budget period. If more frequent reporting is required, the NGA will specify both the frequency and due date.

For awards under SNAP, in lieu of the annual FSR, NIH will use the quarterly FCTR (SF 272), submitted to PMS, to monitor the financial aspects of grants. The GMO may review the report for patterns of cash expenditures, including accelerated or delayed drawdowns, and to assess whether there are possible performance or financial management problems. For these awards, an FSR is required only at the end of a competitive segment. It must be submitted within 90 days after the end of the competitive segment and must report on the cumulative support awarded for the entire segment. An FSR must be submitted at this time whether or not a competing continuation award is made. If no further award is made, this report will serve as the final FSR (see "Administrative Requirements     Closeout").

FSRs may be transmitted electronically9 to OFM, NIH, which, for this purpose, is equivalent to submission to the GMO. Prior to submitting FSRs to NIH, grantees must ensure that the information submitted is accurate, complete, and consistent with the grantee's accounting system. The signature of the authorized institutional official on the FSR certifies that the information in the FSR is correct and complete and that all outlays and obligations are for the purposes set forth in grant documents, and represents a claim to the Federal Government. Filing a false claim may result in the imposition of civil or criminal penalties.

UNOBLIGATED BALANCES AND ACTUAL EXPENDITURES

Disposition of unobligated balances is determined in accordance with the terms and conditions of award. (See "Administrative Requirements     Changes in Project and Budget" for NIH approval authorities for unobligated balances.)

Upon receipt of the annual FSR for awards other than those under expanded authorities, the GMO will compare the total of any unobligated balance shown and the funds awarded for the current budget with the NIH share of the approved budget for the current budget period. If the funds available exceed the NIH share of the approved budget for the current budget period, the GMO may select one of the following options:

  • In response to a written request from the grantee, revise the current NGA to authorize the grantee to spend the excess funds for additional approved purposes;
  • Offset the current award or a subsequent award by an amount representing some or all of the excess; or
  • Restrict from use some or all of the excess funds in the current budget period and take that amount into account when making a subsequent award.

There may be instances where the grantee is required to revise or amend a previously submitted FSR. When the revision results in a balance due to NIH, the grantee must submit a revised FSR whenever the overcharge is discovered, no matter how long the lapse of time since the original due date of the report. Revised expenditure reports representing additional expenditures by the grantee that were not reported to NIH within the 90-day time frame may be submitted to the GMO with an explanation. This includes expenditures resulting from underfunding a noncompeting continuation award due to a smaller unobligated balance than anticipated. This should be done as promptly as possible but no later than 1 year from the due date of the original report; i.e., 15 months following the end of the budget period. If an adjustment is to be made, the NIH awarding office will advise the grantee of actions it will take to reflect the adjustment. NIH will not accept any revised report received after that date and will return it to the grantee.

All inventions made in the course of, or under, any NIH research grant, including SBIR/STTR awards, must be promptly and fully disclosed to NIH within 2 months after the inventor provides written disclosure to the grantee's authorized official. The disclosure must be in writing, identify the applicable grant and the name of the inventor(s), and provide a complete technical description and other information as required by 37 CFR 401.14(c)(1) (see "Administrative Requirements     Availability of Research Results: Publications and Intellectual Property Rights, Including Unique Research Resources" for the full text of the clause).

In addition to immediate invention disclosure, each application for competing or noncompeting continuation support of an NIH grant-supported research project must include either a listing of all inventions conceived or reduced to practice during the preceding budget period or a certification that no inventions were made during the applicable period.

The grantee must also submit an annual utilization report when the grantee has elected title to an invention or when royalties or licensing fees are generated for inventions that are not patented. NIH has developed an optional on-line Extramural Invention Information Management System, known as "Edison," to facilitate grantee compliance with the disclosure and reporting requirements of 37 CFR 401.14(h). The Internet address for this system is http://www.iedison.gov. Information from these reports is not made publicly available.

The regulations governing misconduct in science require the grantee to submit an annual report (Form 6349) to the Office of Research Integrity (ORI) detailing aggregate information on allegations, inquiries, and investigations handled by the grantee in the previous year. ORI automatically sends this form to NIH grantees at the end of the calendar year (see "Public Policy Requirements and Objectives     Ethical and Safe Conduct in Science and Organizational Operations     Misconduct in Science").

Grantees subject to the anti-lobbying requirements described in "Public Policy Requirements and Objectives     Ethical and Safe Conduct in Science and Organizational Operations     Lobbying" must submit the "Disclosure of Lobbying Activities" (Standard Form-LLL) for each payment or agreement to make payment from nonappropriated funds to any lobbying entity for influencing or attempting to influence an officer or employee of any agency, a member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with a "covered" Federal transaction.

Grantees must generally retain financial and programmatic records, supporting documents, statistical records, and all other records of a grantee that are required by the terms of a grant, or may reasonably be considered pertinent to a grant, for a period of 3 years from the date the annual FSR is submitted. For awards under SNAP, the 3-year retention period will be calculated from the date the FSR for the entire competitive segment is submitted. Therefore, those grantees must retain the records pertinent to the entire competitive segment for 3 years from the date the FSR is submitted to NIH. See 45 CFR 74.53 and 92.42 for exceptions and qualifications to the 3-year requirement. Those sections also specify the retention period for other types of grant-related records, including F&A cost proposals and property records. See 45 CFR 74.48 and 92.36 for record retention and access requirements for contracts under grants.

An audit is a systematic review or appraisal made to determine whether internal accounting and other control systems provide reasonable assurance that:

  • Financial operations are properly conducted.
  • Financial reports are presented fairly and accurately.
  • Applicable laws, regulations, and other grant terms have been complied with.
  • Resources are managed and used in an economical and efficient manner.
  • Desired results and objectives are being achieved in an effective manner.

NIH grantees (other than Federal institutions) are subject to the audit requirements of OMB Circular A-133, as implemented by 45 CFR 74.26 and 92.26, or the audit requirements stated in 45 CFR 74.26(d) (for types of organizations to which OMB Circular A-133 does not directly apply). In general, OMB Circular A-133 requires that a State government, local government or non-profit organization (including institutions of higher education) that spends $300,000 or more per year in Federal grants, cooperative agreements, and/or procurement contracts have an annual audit by an independent Certified Public Accountant or accounting firm or State auditor. The audit requirements for foreign grantees and for-profit grantees are addressed in Part III of this policy statement.

When a grantee procures audit services, the procurement must comply with the procurement standards of 45 CFR Part 74 or 92, as applicable, including obtaining competition, making positive efforts to use small businesses, minority-owned firms, and women's business enterprises. Grantees should ensure that comprehensive solicitations, made available to interested firms, include all audit requirements and specify the criteria to be used for selection of the firm, and that they enter into written agreements with auditors that specify the rights and responsibilities of each party.

The OMB Circular explains in detail the scope, frequency, and other aspects of the audit. Some highlights of the Circular are as follows:

  • Covered organizations spending $300,000 or more per year in Federal awards are required to have an audit made in accordance with the Circular. However, if the awards are under one program, the organization can have either a single organization-wide audit or a program-specific audit of the single program subject to the provisions of section 235 of the Circular. NIH's research awards may not be considered a single program for this purpose. Covered organizations spending less than $300,000 in any year are exempt from these audit requirements in that year but must have their records available for review as required by "Administrative Requirements     Monitoring     Record Retention and Access".
  • The reporting package is comprised of the following: financial statements and supplementary schedule of expenditures of Federal awards; independent auditor's report(s), including an opinion on the financial statements and the schedule of expenditures of Federal awards, a report on compliance and internal control over financial reporting, and a report on compliance with requirements applicable to each major program and on internal control over such compliance requirements; a schedule of findings and questioned costs; and, if applicable, a summary of prior audit findings and a corrective action plan.
  • An audit made in accordance with OMB Circular A-133 is in lieu of a financial audit under individual Federal awards. However, Federal agencies may request additional audits necessary to carry out their responsibilities under Federal law or regulation. Any additional audits will build upon work performed by the independent auditor.
  • The data collection form and copies of the reporting package must be submitted to the designated Federal clearinghouse at the following address:

    Federal Audit Clearinghouse
    Bureau of the Census
    E. 10th Street
    Jeffersonville, IN 47132

If HHS awards are included in the schedule of expenditures of Federal awards and the report contains adverse findings, the Federal clearinghouse will provide copies of the audit report to the HHS Office of the Inspector General clearinghouse, which will, in turn, distribute them within HHS for further action, as necessary. Audit reports should not be sent directly to the GMO.

Recipients must follow a systematic method for ensuring timely and appropriate resolution of audit findings and recommendations, whether discovered as a result of Government-initiated or recipient-initiated audits. Grantees are usually allowed 30 days from the date of request to respond to the responsible audit resolution official (Action Official) concerning audit findings. Failure to submit timely responses may result in cost disallowance or other actions by NIH or HHS. At the completion of the audit resolution process, the grantee will be notified of the Action Official's final decision. The grantee may appeal this decision (see "Administrative Requirements     Grant Appeals Procedures"). Refunds owed to the Government as a result of audit disallowances must be made in accordance with instructions issued by the Action Official or OFM, NIH.

See "Allowability of Costs/Activities     Selected Items of Cost" for the allowability of grantee audit costs.


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