Establishing and Charging Preaward or Advance Accounts

Evaluate the risk involved in establishing an advance account or requesting preaward authorization.

Preaward and advance accounts are advantageous and reduce audit risk because they allow costs to be correctly charged to their benefitting activity without the need to perform retro distributions (RTD) or cost transfers. In addition, they allow billing to a sponsor to happen soon after the award is received.  However, because disallowed pre-award or advance account charges may result in significant expenditures being transferred to departmental accounts, it is important to consider carefully the risk factors involved with establishing one of these accounts. Sponsored Projects Administration (SPA) staff are available if there are questions about the level of risk likely to be incurred for your specific situation.

Some risk factors to consider:

• All sponsors: the sponsor may refuse to pay for costs incurred before the start date of the award. In addition, if the University has not yet received the award, it may not be clear what costs are and are not allowable; the department must cover costs not allowed by the sponsor.
• Business, associations, foundations:
  • The sponsor may have a policy that the start date of the project is the date of final signature (thus spending cannot begin until the award is fully signed). The sponsor's policy supersedes the University's policy.
  • The Principal Investigator may assume the start date will be the same as the date listed on the proposal or may have an informal agreement to begin on a certain date. The sponsor, however, may not process the award on a timely basis. If the award arrives at the University with a start date that is later than the proposed or assumed start date and the sponsor will not backdate the award, any advance account charges are unallowable unless specifically approved by the sponsor.
• State of Minnesota agencies: the date of final state signature on the award usually determines the effective date. Advance expenditure authorization is occasionally granted. Consult your SPA Grant and Contract Officer before proceeding with the preaward or advance account request.

It is very important to be careful with advance or preaward accounts for incoming subawards (the University is a subrecipient to another organization that holds a prime grant or contract with the sponsor). All of the above issues apply for approval by both the sponsoring organization and the prime sponsor.

Ensure that criteria for establishing the account are met.

Advance Account (an account established before all parties have signed the award):

• All regulatory requirements must be satisfied before activity related to those issues can begin.
  • Example: Conflict of Interest requirements must be satisfied prior to any expenditure of funds.
  • Example: No work with human subjects or animal subjects can begin until the corresponding compliance approval is on file.
• The Principal Investigator must comply with PI Eligibility education requirements.
• The project must have a Proposal Routing Form fully processed through Sponsored Projects Administration (See below for special provisions for Industry-Sponsored Clinical Trial preaward accounts).
• The department must accept the financial risk in the event that the award is not made or the costs are not allowable within the period of the award.

Preaward Account (an account established before the project start date or prior to receipt of an award document indicating the start date) for example, a federal award that starts on June 1 but the Principal Investigator needs to begin project setup on April 1):

• All regulatory requirements must be satisfied before activity related to those issues can begin.
• The Principal Investigator must comply with PI Eligibility education requirements.
• The department must accept the financial risk in the event that the award is not made or the start date is changed.
• The project must have a Proposal Routing Form fully processed through Sponsored Projects Administration.
• The preaward account start date must be within the preaward period allowed by the sponsor.
• The award is a new or a renewal award (continuation awards or supplements do not require filing of a preaward/advance project form though departments remain responsible for all costs not covered by the sponsor). Consult your SPA Grant and Contract Officer if you are uncertain whether a form is required.

Industry-Sponsored Clinical Trial Preaward Account:

• All regulatory requirements must be satisfied before activity related to those issues can begin.
• The Principal Investigator must comply with PI Eligibility education requirements.
• The department must accept the financial risk in the event that the award is not made.
• An expedited Proposal Routing Form must be received by SPA (see related information on processing an expedited Proposal Routing Form).

Extension requests (costs incurred to the sponsored account when a no-cost extension has been submitted to the sponsor but no response has been received at the University):

Institutional approval is NOT necessary because if in the event the request is denied, these costs will be removed from the sponsored account in accordance with Administrative Policy: Managing Billings to and Receivables from External Customers.

Charge the expenses.

Facilities and administrative costs will be charged. All costs incurred on an advance and preaward project must meet the same criteria as costs incurred after the award arrived. If unsure as to whether the cost would be allowed, please consult with your SPA Grant and Contract Officer to determine if prior approval is necessary.

• Preaward costs on federal projects must be incurred within the timeframe allowed by the sponsor. For example, most federal agencies allow institutions to approve preaward costs within 90 days of the award's effective date. Costs incurred before this 90 day period require specific agency approval.
• Clinical trial preaward accounts: on charging documents, include in the justification that the charge is a start-up cost as defined in this policy.

Monitor preaward / advance accounts.

Expenditures:

• Effort must be certified at the time it occurs. Thus effort must be certified for work conducted on the project that has the preaward or advance account.
• Departmental and collegiate staff must review financial reports to ensure that preaward expenditures meet the criteria outlined above.
• Departmental staff must review financial reports to monitor spending levels. If spending appears to be excessive, the individual in the unit responsible for processing documents or reviewing expenditures should stop and refer the matter to the department head and Sponsored Projects Administration.

Age (the number of days since an account has been active):

• Check the status of the award and use financial reports to monitor the age of the account.
• If the account has been established for an excessive period of time (e.g., more than 90 days), the department must follow up with the Principal Investigator (first) or SPA (second) to ensure that the awarded funds will be forthcoming.
• Grant and Contract Officers in Sponsored Projects Administration periodically monitor the age of preaward and advance accounts and request explanations or facilitate closing of unawarded projects.

Upon award start date or finalization, reconcile the preaward / advance account to the award.

• If no award is issued: the department is responsible for transferring the charges from the preaward / advance account onto the non-sponsored account listed on the preaward / advance account request form. Sponsored Financial Reporting (SFR) will terminate the preaward / advance account upon notification from SPA. If the department does not transfer the charges in 30 days from the request, SFR will process the charge transfer and charge a fee in accordance with Administrative Policy: Selling Goods and Services to University Departments.
• If some or all preaward or advance account charges are not allowed by the sponsor: If the sponsor disallows certain costs listed in the proposal and includes that information in its award documents, SPA makes a note on the Notice of Grant Award (NOGA) for the new award. Upon receipt of the award documents, the department is responsible for reviewing the award terms and verifying that all preaward or advance costs are allowable or ensuring that a special request to the sponsor for approval is initiated. For unallowable costs, the department is responsible for transferring them onto the non-sponsored account listed on the preaward / advance project request form using the deadlines specified in the Cost Transfer Approval Matrix. SFR handles these unallowable charges in accordance with Administrative Policy: Managing Billings to and Receivables from External Customers.
• If award information changes: Occasionally the award will be issued by a different sponsor than that listed on the proposal, or the type of funding used will come from another source. In these cases, the account (“chart-string”) may be changed upon award receipt. The department will be responsible for transferring charges from the advance account to the revised chart-string.