National Science Foundation (NSF)
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. 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.
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, 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.
ReliAscent assists small business with passing the CAP review by 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
- A chart of accounts that meets the requirements
- A calculation system for allocating indirect cost
- 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.
Usually, implementation and bringing a company up to the minimum requirements takes a couple of months. So, when the Program Officer lets the company know that the Phase II technical proposal is acceptable to continue for the award process, it is time to call ReliAscent. Soon that PO will call to ask for accounting and financial information.
The best time to call ReliAscent is when the Phase II budget is being prepared. Many companies get the budget process wrong failing to understand the magnitude and nature of indirect cost and the restriction that indirect cost limitations can have on the financial health of the company over time. Our experts have a 100% success rate helping clients pass their CAAR/CAP reviews, and most CAP reviews will cost between $4,000 - $8,000 depending on the state of your books and how prepared you are--if you are not already a ReliAscent® accounting client.
NSF SBIR/STTR Ph I Accounting Services & Products
The National Science Foundation has increasingly encouraged SBIR/STTR participants to set-up, and operate, a compliant accounting system even during a Phase I award. This is evidenced by their recommendation in each solicitation to add up to $10,000 as a direct cost under Detailed Proposal Instructions, section 6, Line G6 for reviewing accounting for compliance and/or adding a compliant accounting system. ReliAscent® recommends that Phase I applicants utilize this part of the budget to start a "building block" approach to compliant accounting. The foundation for this program sets the company up to be using a general ledger system that not only segregates direct costs and allocates them to projects (the SBIR being one project) but also sets up the company in compliant timekeeping that is required
by the NSF. The system also identifies what the government and NSF consider "unallowable" costs that they will not pay for. By doing this in Phase I, the awardee is poised for successful bidding on Phase II proposals, successful participation in the Phase II CAP review and then successful accounting during Phase II. It also establishes good accounting habits during the short period of performance of a Phase I award. This approach will help insure the awardee can avoid scrutiny by the Inspector General's office.