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Circular 05-05


DEPARTMENT OF HEALTH AND HUMAN SERVICES
Indian Health Service
Rockville, MD, 20852

Refer to: DGO/OMS

INDIAN HEALTH SERVICE CIRCULAR NO. 2005-05

Effective Date:  07/12/2005

ASSISTANCE AWARDS FUNDING LEVELS

  1. PURPOSE.  This circular establishes the Indian Health Service (IHS) policy for determining funding levels for assistance awards.

  2. BACKGROUND.  The Public Health Service Grants Administration Manual provides a step-by-step process for financial management systems reviews.  The manual may be used in whole or in part to assist in the comprehensive cost analysis of particular budget categories or to perform an in-depth financial evaluation of an applicant organization.  It may not be necessary to conduct a comprehensive review of all cost categories; an in-depth review of the cost categories of personnel, equipment, and supplies may be sufficient, as they generally represent a significant proportion of the total costs.

    If outside assistance or expertise is deemed necessary for the review of a particular application, resources available include IHS Division of Grants Operations and Division of Regulatory and Legal Affairs as well as the Office of the General Counsel and Office of Inspector General within the Department of Health and Human Services (HHS).  The steps that need to be taken in determining the appropriate funding level include an objective review of all available information, a grants management cost analysis or financial evaluation, and programmatic judgment and adjustments.

  3. RESPONSIBILITIES

    1. Chief Grants Management Officer.  The Chief Grants Management Officer (CGMO), Division of Grants Operations, or his/her designee is responsible for negotiating the final budget with the applicant institution.  The negotiation shall be closely coordinated with program staff when budget adjustments from the recommended level are due to programmatic aspects of the project.  The CGMO has the responsibility for:

      1. determining the form and extent of the cost analysis/financial evaluation to be performed based on the comments of the application reviewers,

      2. the amount and types of costs proposed,

      3. the nature of the project,

      4. past experience with the applicant organization, and

      5. ensuring that grants are awarded at the most economical level compatible with the approved project.

    2. Grants Management Specialist.  The Grants Management Specialist, on behalf of the CGMO will evaluate the grant applications with a likelihood of funding to determine the appropriate type of cost analysis review and will perform the analysis prior to award.

  4. OBJECTIVE REVIEW GROUP.  The review process primarily involves the evaluation of the merit of grant applications by an objective review group.  Objective review involves the thorough and consistent examination of applications based on an unbiased evaluation of scientific or technical merit or other relevant aspects of the proposal.  In addition to the merit, the group considers the reasonableness and adequacy of the justification of the proposed budget and the duration of support for each application.  The review is performed by a subject matter expert in the respective discipline for which support is requested and is intended to provide advice to the individuals responsible for making award decisions.

  5. ADMINISTRATIVE REVIEW TYPES.

    1. Cost Analysis.  Cost analysis is the process of obtaining cost breakdowns, verifying cost data, evaluating specific elements of cost, and examining data from the budget to determine the necessity, reasonableness, and appropriateness of the costs reflected in the grant budget.The cost analysis provides confirmation that an appropriate justification has been provided for all costs.

    2. Financial Evaluation.  The CGMO, should consider performing a financial evaluation on applications from prospective grantees with no prior Government awards, inexperienced grantees, or grantees known to be experiencing operational and/or financial difficulties, and on any application from an organization that is placed on the “HHS Alert List”; or is otherwise subject to special terms and conditions of award in accordance with 45 Code of Federal Regulations (CFR) 74.14, “Special Award Conditions.”

    3. Program Review.  For the purposes of this procedural document, the program official evaluates the programmatic aspects of each project to ensure that the application reflects project needs and programmatic priorities by considering such information as the specific aims, progress achieved (if applicable), long-term goals, and program relevance.  The program official also evaluates and reviews information for factors that may affect the budget recommendation and funding level.

  6. FILE DOCUMENTATION.  Any reductions below the requested budgetary level must be documented in the official grant and program information files.  In general, the summary statement will suffice for initial review group budgetary recommendations.  Adjustments based on allocability, allowability, or reasonableness and programmatic adjustments should be specifically identified and documented.  Programmatic adjustments should be based on a plan that specifies the general rationale and methodology for adjustments based on programmatic considerations.  This plan is to be available as a part of the program information file that is maintained by each program area.  If a revised statement of specific aims, the budget, and/or the timetable was submitted or requested, these should appear in the official grant file.

  7. COST ANALYSIS REVIEW.  A basic cost analysis review will assist in determining whether a comprehensive cost analysis or a full-scale financial evaluation is required, whether certain costs should be included in the award, and the ultimate funding level of the award.  If concerns are generated in the course of a basic cost analysis review, a greater degree of analysis may be merited.  If the concerns are not resolved in the course of a more comprehensive review, a financial evaluation may be necessary.

  8. CONDUCTING A COST ANALYSIS.  The cost analysis is intended as a supplement to the “PHS Grants Policy Statement,” other HHS or IHS policies, and applicable cost principles.  The following series of factors/questions should be considered during the grants management review of an application.  The factors/questions are intended to assist in determining whether a comprehensive cost analysis or a full-scale financial evaluation is required, whether certain costs should be included in the award, and the ultimate funding level of the award.  NOTE:  The following series of factors/questions should not be considered all-inclusive; each analysis is unique and must be treated as such.

    1. Direct Cost Analysis.  A direct cost analysis entails a review of all categorical budget information for reasonableness, necessity, allowability, and allocability; verification of the accuracy of the figures provided in the budget; and confirmation that appropriate justification has been provided for all costs.  In addition, special attention should be given to the costs and justification for the following items:

      1. Personnel.

        1. Are fringe benefits based on the current rate agreement for each position?  (Fringe benefit type costs include but are not limited to social security, health, unemployment, sick leave, holidays, and military leave.)

        2. Identify time/effort devoted to the project.

      2. Consultants.  Are costs clearly defined, do they represent reasonable compensation, and are they consistent with the applicant institution's policies for consultants?

      3. Equipment.  Equipment means tangible, nonexpendable personal property, including exempt property, charged directly to the award that has a useful life of more than 1 year and an acquisition cost of $5,000 or more per unit.  However, consistent with recipient policy, lower limits may be established.  (See 45 CFR, Part 74.2.)

        1. Is the requested equipment already available for the project?  If so, has the need for duplicate or similar items been justified?

        2. Has adequate justification been provided?  It may be necessary for the applicant to provide a price quote for a substantial equipment purchase.

        3. Has general purpose equipment been justified as directly allocable to and necessary for the grant?

      4. Supplies.

        1. Have a sufficient cost breakdown and justification for costs been provided?

        2. Are supplies requested typically charged as indirect costs?  If so, is the request consistent with the applicant organization's indirect cost agreement?

      5. Travel.

        1. Are the travel costs proposed, and do they take into consideration the origination and destination points?  If so, has the amount been justified?

        2. Is the proposed travel for meetings appropriately justified and allocable to the project?

      6. Patient Care Costs. (See also Public Health Service Policy Statement, 7-19, “ResearchPatient Care Rates.”)

        1. Is a cost breakdown provided (e.g., number of patient days, estimated cost per day, cost per test/treatment)?

        2. Are the requested costs for research care rather than for standard care?  If costs for standard care are requested, a justification for the exception must be provided.

        3. Are costs included in this category that should appear elsewhere in the budget (e.g., consultant physician fees, patient travel, per diem, donor fees)?

      7. Alterations and Renovations.

        1. Are a basis for a cost calculation and an adequate justification provided?  If they are not included, the applicant must provide a breakdown of costs.

        2. If the alterations and renovations costs are in excess of certain dollar thresholds, further limitations apply and additional documentation is required as detailed on page 7-2 of the “PHS Grants Policy Statement.”

        3. Have the National Environmental Policy Act requirements been met?

      8. Contractual Costs.

        1. Does the consortium/contractual cost request represent a significant proportion of the research (i.e., the percentage of research support or research activity proposed meets or exceeds that of the parent institution)?  If so, has an adequate explanation been provided as to why the applicant organization is the appropriate grantee?

        2. Have a budget and a budget justification been provided?

        3. Verify that the current and correct indirect cost rate(s) and base(s) have been used.  Review the performance sites to ascertain the correct rates (on-site/off-site) to be used.

      9. Other Expenses.  Are items requested in the budget that are normally charged indirectly (e.g., books and journals, dues, rent, space charges, departmental expenses)?  If so, is the request consistent with the applicant organization's indirect cost agreement?  Does the organization have a method for accounting for these costs as a direct charge?

      10. Indirect Costs.  Verify that the current and correct indirect rate(s) and base(s) have been used. Review the performance sites to ascertain the correct rates (on-site/off-site) to be used.

      11. Future Year Budgets.  Review and verify the accuracy of future year budget estimates.  Are any unusual increases or decreases in future years explained/justified?

      12. Correspondence.  Review correspondence for any communication with the applicant/grantee that could affect the current budget request or award.

  9. RENEWALS.

    1. Competitive Renewals.  The following steps are necessary:

      1. Review previous salary and fringe benefits for changes since the prior award.  Are increases based on existing salary and fringe benefit agreements?  Are changes in salary, fringe benefits, and percent of effort reasonable and necessary?

      2. Review previous “Notice(s) of Grant Award” to identify any restricted funds or other restrictions that may have a bearing on the current award or application.

      3. Review the “Financial Status Report(s)” and other financial reports to obtain a history of unexpended balances, large carryover balances, or unusual expenditure patterns and to verify the status of previously restricted funds.

      4. Review prior grants management worksheets or comparable file documentation for issues requiring attention and follow-up.

    2. Noncompetitive Renewals.  Noncompetitive renewals require a cost analysis review.  The following components of the non-competing application should be reviewed along with indirect costs, other support, and correspondence:

      1. Compare the categorical budget requested with the recommended level of funding as shown in the “Notice of Grant Award” to determine any changes in personnel, salary levels, fringe benefits, percent of effort, consultants, large equipment purchases not originally requested and recommended, alterations and renovations, and patient care costs.

      2. If there was a to-be-named position(s) included in the previous budget and award, has the position been filled?

      3. Review both the progress review and the program official's written comments on the progress review for remarks pertaining to the budget not found elsewhere in the application (e.g., carryover requests).

      4. Review previous “Notice(s) of Grant Award” to identify any restricted funds or other restrictions.

      5. Review the “Financial Status Report(s)” and other financial reports to obtain a history of unexpended balances, large carryover balances, or unusual expenditure patterns and to verify the status of previously restricted funds.  Significant unobligated balances should be noted.

  10. SUPERSEDURE.  None.

  11. EFFECTIVE DATE.  This circular is effective on the date of signature.

/Robert G. McSwain for/
Charles W. Grim, D.D.S., M.H.S.A
Assistant Surgeon General
Director, Indian Health Service


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