Understanding effort reporting and payroll certification can be somewhat confusing and a very difficult decision for some institutions. Given that salary expenses represent the single largest expense charged to sponsored projects, the federal government requires certification of all salary expenses on federal projects. As such, the government requires institutions to have a process in place to certify that salary expenses on federally funded sponsored projects represent an equitable distribution of charges based on an employee’s work activities.
Over a year ago, the Office of Management and Budget (OMB) published new guidance for the federal grants and agreements known as the OMB Uniform Guidance: Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (a.k.a. Omni Circular). Given that this new circular eliminates specific examples of acceptable methods for payroll distribution (2CFR Part 220 Appendix A, Section J10c), some tend to think it suggests or implies that an effort reporting system may not be required. However, the institution is still required to have an auditable system of internal controls which provide reasonable assurance. Some institutions have considered transitioning from effort reporting to payroll certification because of this.
This blog is the first of a two-part series. Today, I will define what effort reporting and payroll certification are and the differences between the two. In my next blog, I will address common challenges and potential benefits of both.
What is Effort Reporting?
Effort is the total work completed to achieve a particular activity. It is expressed as a percentage of time worked. Contrary to popular belief, it does not represent how an individual’s payroll was distributed, unless the data is linked to payroll data, or how someone was budgeted.
Effort reporting is the process of reporting and certifying to sponsoring agencies that effort charged to a sponsored project has been completed. An effort report is supporting documentation that certifies or attests to the accuracy of the employee’s distribution of effort. This report supports the salaries that were expensed on a particular project.
What is Payroll Certification?
Payroll certification uses a project based methodology and utilizes the concept that charges are reasonable in relation to work performed. It is a means of providing assurance to federal sponsors that work was devoted at a level that reasonably reflects the activity for which the employee is compensated by the institution. It is an alternative method to effort reporting.
Effort Reporting versus Payroll Certification
|Description||Effort Reporting||Payroll Certification|
|System Focus||Person-based certification||Project-based certification|
|Certification Frequency||Typically occurs two to four times per year||Typically occurs at the completion of projects or annually|
|Timeframe for Distribution||Consistent points in time||End of project budget year|
|Certifying Individual||Employee, PI, or other personnel could be the certifying individual||Principal Investigator (PI) is the certifying individual|
|System Rationale||Amounts are reasonable based on percentage of effort performed||Salary amounts paid are reasonable based on work performed|
|Committed Salary Cost Sharing||Shown as percentage of effort||Shown as amount reasonable based on work performed|
Note: The table above is a representation of information that was collected from presenters at the NCURA Annual Conference as well as documentation generated by several different institutions regarding the differences between the two. It is possible that some descriptions listed under effort reporting could also apply to payroll certification and vice versa. IT Works does not promote one process over the other.
Effort Certification Software Solutions
As mentioned above, although some tend to think that the Omni Circular suggests or implies that an effort reporting system may not be required, it does require an institution to have a process in place which includes an auditable system of internal controls which provide reasonable assurance of salaries paid on projects. It also doesn’t suggest or imply that if you have an effort reporting system, that you cannot continue to use it or provide preference for one particular process (i.e. effort reporting or payroll certification) over the other.
IT Works offers effort certification software solutions that support both effort reporting and payroll certification, automate your certification process, and enable your institution to meet all federal time and effort certification mandates. Depending upon an organization’s needs and policies, our Effort Administrator product can be configured to accept data by either one of the methods mentioned or a combination of methods. IT Works recognizes that time and effort management is reviewed in terms of both employees and projects. Our solution allows both. So, whether your institution performs effort reporting or payroll certification, our Effort Administrator can cater to either process. For more information regarding this product, please contact the IT Works team.