The National Science Foundation normally awards grants to various types of organizations. The cost principles applicable to the awardee vary depending upon the type of organization. For instance, commercial firms are normally held to the Federal Acquisition Regulations (FAR) for cost principles (FAR Part 31) and financial management systems that comply with OMB Circular A-110, Subpart C.21 (2 CFR §215.21).
The NSF SBIR/STTR program is usually governed by a special set of NSF regulations (Phase I and Phase II) found on the NSF website. The NSF also allows the applicant for Phase I awards to budget up to $10,000 to set-up a compliant accounting system and get through the CAP review. As an awardee, it is imperative that your set-up and maintain a compliant accounting system for your NSF Ph I award. With the submission of cost reports, and the final report, the government wants you to declare, under penalty of perjury, that the money spent was in accordance with the proposed budget. The only way to prove this is to have a job cost accounting system, and a properly maintained labor distribution & timekeeping system. You also need to ensure this system was properly maintained throughout the duration of the grant.
ReliAscent® recommends that all Ph I winners hire a local bookkeeping or CPA firm to handle their books during the Ph I. As long as the company implements a manual or automated DCAA compliant timekeeping system (tracking all time spent on the grant and all other activities), and tracks ALL DIRECT EXPENSES, our experts can help small businesses pass the CAP review and move to Ph II.
Before a small business receives its Phase II award, Cost Analysis & Pre-Award (CAP) Branch Auditors will need to verify that the Phase I spending was made in accordance with FAR Part 31. Meaning, you must produce a Ph I spending report (as if the award were a cost-type contract, instead of fixed price). If you fail to produce this report correctly (as well as a number of other documents), you will not receive the phase II funding!
The NSF Financial Capability Review (also known as CAP Review) is a very serious matter for companies that have been technically selected for award of a Phase II grant. The NSF tries to prepare a company for the CAP review by getting its Program Officers (Technical Contact for Phase I grantees) involved to determine the existence of, and sometimes help a company achieve, a minimum level of competence in the accounting and administrative business disciplines. Sometimes, companies mistake this effort by the Program Offices as the CAP review itself.
However, the Program Officer (PO) is trying to see if the company is ready for the CAP review. Their process is less precise and more forgiving when it comes to errors and lack of knowledge than the formal CAP review, and it involves some amount of back-and-forth communication between the PO and the company if the company is able to be coached. The PO’s process is also more personal because there is a person to talk to. The PO has a limited amount of time and patience to get a sense if a company has the necessary financial and accounting knowledge to potentially pass a CAP review. If they don’t get the correct responses in the time they have available, they will not recommend to the NSF CAP group that the company be asked for a formal CAP submittal.
In the formal CAP review, companies will receive an email asking for submission of a great amount of detail of the many aspects of the review. It is a one-time submission that has three possible outcomes. The first is that the review convinces the NSF personnel from the submitted package that the company has the accounting and administrative competence to perform in these areas during the NSF Phase II period. The company is then approved for award. The second outcome is that the NSF sees some questionable areas and engages a CPA firm to get more detail from the company. This additional detail is in the accounting area and its myriad rules from FAR, GAAP and NSF policy. The third outcome is that the submittal is so far off that the NSF CAP review personnel reject the company and inform it that it was not selected for award.
After a company submits their Ph II proposal, the next step is to download a copy of the NSF's CAP Review Checklist (found here), and begin collecting the files listed (or at least familiarizing yourself with the requirements in the review). Once all of the necessary files from the checklist are gathered, ReliAscent® then helps small businesses pass the CAP review by reviewing all documents required in the CAP review, and providing detailed accounting systems, accounting policies, and financial capability actions to take and prepare reports that show evidence of the necessary knowledge. The key areas are:
Our experts have a 100% success rate helping clients pass their CAAR/CAP reviews, and most CAP reviews cost a flat fee of $5,000. However, depending on the state of the books and how prepared the business is, a CAP review can cost as much as $7,000 or more (for instance, if the job cost ledger must be cleaned up and revised, or the business cannot locate or create the necessary financial reports).
