National Science Foundation (NSF)
NSF SBIR Ph I Accounting
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 job cost accounting system and get through the CAP review. As an awardee, it is imperative that your set-up and maintain an accounting system with job costing capabilities for your NSF Ph I award (meaning you are able to track all direct costs/expenditures for each contract, grant, or "job" separately, so you can prove the money spent was in accordance with your budget). 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.
ReliAscent® recommends that all Ph I winners hire a local or outsourced bookkeeping or CPA firm to handle their books during the Ph I. As long as companies track ALL TIME SPENT on the grant (we strongly recommend companies implement a DCAA compliant timekeeping system, and we offer a manual, Excel-based system on our website at no charge), track ALL DIRECT EXPENSES, and can provide complete financial records and statements, our experts can help small businesses pass the CAP review and move to Ph II.
The NSF CAP Review
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.
NSF CAP Review Support - Starting at $5,000
After a company submits their Ph II proposal, the next step is to collect all of the documentation and information required by the NSF on their latest version of the CAP Review Checklist (found here--note it is no longer a pdf checklist, but a web page with extensive guidance), 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:
- A description of the company’s accounting system showing correct understanding of the NSF’s requirements (provided by ReliAscent®)
- A chart of accounts that meets the requirements (provided by ReliAscent®)
- A calculation system for allocating indirect cost (provided by ReliAscent®)
- Satisfactory financial statements for the prior year.
- A satisfactory job cost report for the Phase I grant
- A review of the financial statements to ensure the company’s financial condition is acceptable to the NSF for performing on a Phase II grant (i.e. the company is financially stable enough to complete the Ph II without going out of business). Company must also detail how to fix any financial issues if there are problems.
- A Review of the company’s historical timecards, procedures and policies and how to fix deficiencies.
- Continuing support of the company’s accounting including performing the accounting during Ph II if the company desires.
- Review of the company’s compliance to NSF’s many policies concerning administrative and accounting performance over the Phase II grant. This is critical to avoid a potential financial catastrophe if the NSF becomes concerned with a company’s processes that are evidenced in reports submitted to the NSF. If NSF becomes concerned they refer the company to the NSF Inspector General for investigation. This always leads to a major problem for the company with severe financial consequences. Following the critical procedures throughout the Phase II is very important.
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 (if the job cost ledger must be cleaned up and revised, or the business cannot locate or create the necessary financial reports, etc.).