Chapter 6: Financial - General

Revision History

Archive of Chapter 6 prior to August 24, 2021. Chapter 6 was republished on August 24, 2021 to reflect changes to the chapter in light of the implementation of 2 CFR 200 (Uniform Guidance).

6-200 Expenditure Authority And Responsibility

6-300 Expenditure Advance Based On Firm Commitment

6-400 Responsibility For Financial Management & Control Of Project Funds

6-600 Financing Agreements - Advance Payments

6-700 Financial Reporting Requirements

6-100 Introduction

The University's general financial policy with regard to extramurally sponsored projects is set forth in University Regulation No. 4, "Special Services to Individuals and Organizations," set forth in Academic Personnel Manual APM-020 (PDF).This Regulation states that:

For all tests and investigations made for agencies outside the University, a charge shall be made sufficient to cover all expenses, both direct and indirect.

This policy objective should be applied in a manner which best accommodates the policies and objectives of the extramural sponsor and The Regents. Exceptions to the policy must receive appropriate reviews and approvals.

This Chapter provides a general background to the University's financial practices regarding extramurally-funded projects. It traces the authority to expend funds from extramural sponsors and describes the financial responsibilities and considerations involved in the management of extramural agreements. Chapter 7, "Budgets and Expenditures," provides more detailed information and definitions of allowable direct costs. Chapter 8, "Indirect Cost," provides further background on the University's indirect cost policy and practices.

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6-200 Expenditure Authority and Responsibility

6-210 The President

The authority to expend contract and grant funds is authorized under The Regents of the University of California Standing Order (S.O.) 100.4(n), "Duties of the President of the University," which states:

The President is authorized to permit expenditures against contracts, grants, and gifts, or against firm commitments thereon, provided that the contracts, grants, and gifts have been solicited or negotiated in accordance with established Regental policy.

This Presidential expenditure authority has these important features:

Contract and grant expenditure authority is an expressly stated power of the President.
Expenditure authority is derived from S.O. 100.4(n) whereas authority to enter into the contract or grant is derived from S.O. 100.4(dd). (See Chapter 13 for information about contract and grant authority.)

The Presidential authority to spend contract and grant funds under Standing Order 100.4(n), as well as the authority to solicit and enter into extramural awards under Standing Order 100.4(dd), have been delegated to Chancellors and Vice Presidents.

6-220 Chancellors and University Vice Presidents

The delegation of authority from the President to Chancellors and Vice Presidents under the authority in Standing Order 100.4(n) permits "expenditures or commitments of funds against any approved research, training, or development contract or grant when a fully executed contract is in hand or a written notice of grant award has been received." Section 6-300, "Expenditure Advance Based on Firm Commitment," discusses the restrictions in this delegation of expenditure authority to Chancellors in cases where a fully executed contract or notice of grant award has not been received.

Chancellors may further authorize individual campus departments to incur contract and grant expenditures through authorization of the department's budget by the Accounting Officer. (See 6-230.) After the budget has been authorized by the Accounting Officer, the department may delegate signature authorization to specific individuals within the department to incur expenses. (See 6-240.)

6-230 Campus Departments

The expenditure authorization process involves two separate but related actions:

Chancellor's approval of department's budget, (See 6-231) and
authorization of the agreement budget and appropriation of funds by the Accounting Officer with the concurrence of the Principal Investigator. (See 6-232.)

6-231 Budget Authority

Business Financial Bulletin BFB-BUS-10, "Principles of Accountability with Respect to Financial Transactions," (PDF) states that “Chancellors have redelegated certain authority to departments and schools to initiate transactions” and “The dean or manager of each school or department, while responsible for managing the department's financial resources, will normally delegate the overall administration of financial resources to a Department Administrator (DA). The DA is responsible for developing an appropriate structure for handling the department's financial resources, within the boundaries set by the controller’s office, the budget office, procurement and other central units.”

6-232 Accounting Officers’ Authorization of Extramural Funds

Acceptance of the award agreement by the Contracts and Grants Officer under authority of Standing Order 100.4(dd) and approval of rebudgeting actions do not, in fact, constitute authorization to expend the awarded funds. With the concurrence of the Principal Investigator, the Accounting Officer has the ultimate responsibility for appropriating, recording and journalizing, extramural fund transactions as part of the University operating budget. The agreement budget is authorized when the Accounting Officer enters the appropriation into the campus' general ledger and the assigned fund and account number become part of the campus accounting system.

The Accounting Officer must establish the agreement appropriation in the campus accounting system (via a uniquely assigned fund number) to enable the Chancellor's delegated authority in a campus department to expend contract and grant funds. Because the expenditure authority under Standing Order 100.4(n) is restricted to contracts and grants that "have been solicited or negotiated in accordance with established Regental policy," actions of both the Contracts and Grants Officer and the Accounting Officer must precede contract and grant expenditures by the campus department.

6-240 Signature Authorization

Once the budget is established and the department has been authorized to expend the awarded funds for the budgeted purposes, individuals in a department who have delegated expenditure authority can proceed to incur expenses. Business Financial Bulletin BFB-BUS-10, "Principles of Accountability with Respect to Financial Transactions," (PDF) states:

University management formally delegates signature responsibility to provide a method to control who may approve financial transactions and to meet the University's financial stewardship responsibilities. University employees who have been delegated signature authority should understand the University's financial stewardship philosophy, applicable policies, regulations, rules and laws. University employees delegated signature authority are responsible for the application of University policy and procedures to ensure the efficient and effective use of resources and to prevent and detect fraud in the areas in which they are involved. The delegation should be reviewed for appropriateness on a regular basis or as necessary.

The Signature Authorization or Cancellation Form U242-1 (Exhibit I in Section D-244-17), or its equivalent, is the official record used to delegate expenditure authority and to record signature specimens. The U242-1 states, "A signature authorization is a delegation of authority and remains in effect until cancelled." In an electronic environment, some type of document is required to record the assignment of electronic signatures or authorization codes and the approval hierarchy levels and codes associated with a particular function or database.

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6-300 Expenditure Advance Based on Firm Commitment

6-310 Delegation of Authority

In DA 0666, the President has delegated to Chancellors the authority to approve expenditures for projects for which documentation of the award has not been received:

….when (a) the contract or grant is within the solicitation authority previously delegated to you and you have satisfied yourself that a firm commitment exists to reimburse the University for the amount of its own funds advanced, and (b) there is an essential need to advance or commit funds (which normally means to pay salaries or meet other expenses of a continuing project).

For projects which are beyond the solicitation authority of the Chancellor (e.g., actions requiring Office of the President approval), the President retains the authority to make the "firm commitment." (See Chapter 13 for discussion of the contract and grant solicitation authority of the Chancellor.)

6-320 Firm Commitment Requirement

General Counsel has provided the following guidance in interpreting what constitutes a "firm commitment" which is incorporated in the April 14, 1980 delegation:

While firm commitment has no legal definition, it is obviously something less than a contract. The phrase is applicable to situations where University personnel are advised by representatives of Government agencies that a contract or grant will be forthcoming, and the only delay is a ministerial one of document processing. An agency representative making such a representation must be one who can be relied on for such representation.

6-330 Responsibility for Loss

The University has no provisions to cover losses resulting when an award is denied by the sponsor and the campus has incurred costs in advance of receiving the denial. Campuses have established policies for determining where to charge such losses.

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6-400 Responsibility for Financial Management and Control of Project Funds

6-410 Responsibility Attendant to Delegated Expenditure Authority

Business Financial Bulletin BFB-BUS-10, "Principles of Accountability with Respect to Financial Transactions," (PDF) states:

The [Department Administrator] DA is responsible for developing an appropriate structure for handling the department's financial resources, within the boundaries set by the controller’s office, the budget office, procurement and other central units.… Each department head and DA must establish monitoring procedures to provide assurance that financial transactions are accurately recorded and comply with applicable regulations, policies, departmental budget plans, etc.

Any unauthorized deviations from the approved award budget or award terms and conditions may subject the campus to risk of audit disallowance.

6-420 Summary of Standards for Financial Management

Consistent with 6-410, the following list summarizes the basic standards which must be met to ensure that extramural funds are properly managed:

Funds must be expended consistently with:
1. The purpose for which the award is made;
2. The terms of the budget as approved by the sponsor;
3. Any applicable sponsor requirements;
4. Any applicable federal government-wide requirements such as 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; and
5. University policies and procedures.
Fiscal transactions must be completed in conformance with internal control standards and supporting documentation requirements. (See Chapter 7 for references to Accounting Manual sections which detail control standards and documentation requirements for different types of expenditures.)
Fiscal records and reports must be prepared and submitted in a timely, accurate, and complete manner.

6-430 Summary of Financial Management Duties

The general financial management duties which must be assumed by the University in administration of contract and grant awards include:

Preparation of the proposed budget according to University and sponsor requirements;
Certification of current cost and pricing data when required;
Acceptance of the agreement;
Establishment of the approved award budget;
Expenditure of funds consistent with agreement, sponsor, and University policies;
Procurement of equipment and supplies, and execution of subcontracts, in accordance with sponsor and University policies;
Recording of expenditures in the appropriate account in the month the expenditure occurs to enable accurate, current, and complete disclosure of financial results;
Preparation and submission in a timely manner of all required interim and final fiscal reports, including cost sharing, if any;
Preparation and submission in a timely manner of all required technical reports or other deliverables where required for payment;
Avoidance of cost over-runs and unallowable cost-transfers;
Identification of the need for revised budgets and/or need for additional funds;
Negotiation of revised and/or increased budget in order to secure full cost recovery;
Negotiation of advance payment provisions, including the establishment of letters of credit;
Timely invoicing and monitoring for prompt payment when advance payments cannot be negotiated;
Prompt completion of project close-out; and
When warranted, submission of requests for waiver or exceptions to established University costing and other policies.

6-440 Responsibilities of the Principal Investigator

The Principal Investigator has primary responsibility for financial management and control of project funds in accordance with University and sponsor policies and procedures. The campus Controller is also responsible for many of the management and control responsibilities listed in 6-430 as well as those listed in 6-460. Some of the responsibilities are shared with others, including the Contracts and Grants Officer, Department Chair and College Dean. However, it is the Principal Investigator who is involved in all aspects of award administration.

6-450 Responsibilities of Department Chair (or Equivalent Officers)

The Academic Personnel Manual Section 245 (APM-245), "Department Chairs," (PDF) divides the Department Chair duties into two categories: leader of the department and administrator of the department. The administrative duties which are directly related to the financial management and administration of extramural funds, as provided in APM-245, Appendix A, include the following:

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5. To prepare the budget and administer the financial affairs of the department, in accord with University procedures

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8. To be responsible for the custody and authorized use of University property charged to the department, and for assigning departmental space and facilities to authorized activities in accordance with University policy and campus rules and regulations

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10. To maintain records and prepare reports in accord with University procedures.

6-460 Responsibilities of Campus Controllers

The campus Controller also has responsibility for many of the financial management duties listed in 6-430. The missions, goals, and objectives of campus accounting are outlined in Accounting Manual, A-000-4, "University Accounting Program," Section III. C. 1. Specifically, among other things, the campus Accounting Office is responsible for:

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b) Monitoring all financial and budgetary transactions to ensure compliance with University and campus policies and procedures, with provisions of governing laws and related statutory regulations, with the terms and conditions prescribed by external funding sources, and with generally accepted accounting principles. This includes administering all funds to ensure that expenditures are kept within amounts appropriated and that estimates of revenue are adjusted as required.

c) Preparing and distributing most campus financial reports and statements, including those for the total campus as well as those for Federal, State, and gift funds and for auxiliary and service enterprises, and preparing claims against funding agencies for reimbursement of expenditures incurred.

d) Maintaining the campus sections of the General Ledger, the official book of accounts, and other required campus accounting records. This includes assigning account numbers, processing budgetary, financial, and lien entries to properly reflect the transactions of campus funds, ensuring that subsidiary ledger records maintained outside of the accounting office are reconciled to control accounts, and closing the General Ledger at fiscal year end.

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6-500 Allowability of Costs

6-510 General Principles

Funds derived from contracts and grants are University funds and are to be expended in accordance with contract and grant terms and conditions and University policies. When University policy and funding agency restrictions on expenditures differ, the more restrictive of the two policies shall prevail. Any questions on allowability of an expense should be directed to the campus Contracts and Grants Officer or other appropriate campus fiscal or administrative officer prior to incurring the expense.

6-520 Classification of Direct and Indirect Costs

Business and Finance Bulletin A-47, "Direct Costing Procedures" outlines University policy regarding direct charging of all appropriate costs to a sponsored agreement when such costs are not reimbursed as indirect costs through application of approved indirect cost or facilities and administrative (F&A) rates. For federal awards, 2 CFR 200 incorporates the following principles for determining direct and indirect costs:

Identification with the Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect (F&A) costs of Federal awards.

Indirect (F&A) costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.

For specific information on direct cost elements, see Chapter 7. For specific information on indirect costs, see Chapter 8.

6-530 Federal Cost Principles

It is the University's policy to follow the federal cost principles for federal awards as set forth in 2 CFR 200 (Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards). Proper costs under federal awards must be reasonable, allocable, consistent, and allowable.

2 CFR 200 provides the general federal framework for determining costs applicable to grants, contracts, and other agreements with educational institutions. 2 CFR 200.403 describes "factors affecting allowability of cost":

Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

(a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles.

(b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.

(c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity.

(d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.

(e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part.

(f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. See also §200.306(b), Cost sharing or matching.

(g) Be adequately documented. See also §§200.300 (Statutory and national policy requirements) through 200.309 (Period of performance).

(h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to 200.308(e)(3).

6-531 Reasonable Costs
In the expenditure of extramural funds, the University follows the 2 CFR 200.404 definition of reasonable costs.

6-532 Allocable Costs
In the expenditure of extramural funds, the University follows the 2 CFR 200.405 definition of allocable costs.

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6-600 Financing Agreements - Advance Payment

6-610 Policy

As a matter of sound financial management, the University seeks to minimize the use of its operating funds as working capital for extramurally sponsored projects. Because the University receives a large part of its total budget support from extramural sponsors, when monies from certain sponsors are not received simultaneously with cash expenditures, the University is forced into an unacceptable cash deficit management problem. With the objective to minimize the University's cash deficit problem, the University policy and procedures for operation of the cash advance program promulgated in the Accounting Manual, C-557-21, "Contracts and Grants: Cash Advance Program" (PDF) states:

… campuses must secure advance payment for all sponsored projects, unless an advance payment arrangement is not feasible.

6-620 Negotiation Responsibility of Contracts and Grants Officers

The Contracts and Grants Officer is responsible for negotiating a cash advance payment method with the sponsor whenever feasible. Advance payments are specifically required for contracts with commercial sponsors since the University does not subsidize work for a for-profit company with State funding.

The responsibilities of Accounting Officers and other University personnel for other aspects of the University's cash management program are set forth in Accounting Manual, C-557-21 (PDF), Section VII., "Responsibilities."

6-630 Federal Sponsors‌

The University policy regarding securing cash advances for federal awards operates within the federal guidelines established by the United States Department of the Treasury and 2 CFR 200.305.

This University policy of securing advance payment is set forth in the Accounting Manual, Chapter C-557-21, Contracts and Grants: Cash Advance Programs (PDF). While federal agencies have their responsibilities of monitoring cash advances, additional or excessive requirements outside of standard practices should be resisted. Extra reporting requirements should not be accepted unless the campus Accounting Officer agrees that the campus accounting office is able to comply with them.

6-640 State Sponsors

Accounting Manual Chapter C-557-21 (PDF), Section III. B., provides the following guidance on negotiating cash advance payments with State sponsors:

The State of California does not have a cash advance program comparable to the Federal program. The State, as a matter of policy, discourages cash advances or progress payments. Letters of credit are not available, but negotiations should always include a request for some form of cash advance. Even though the State agency may refuse to consider advances over the full term of the agreement, it may be possible to negotiate advances for the estimated costs of starting a program.

Use of the Interagency Agreement rather than Standard Agreement allows for negotiation of cash advances...

State agencies generally will not consider advance payments, even though they are allowed in State interagency agreements. However, for State standard agreements, the State Contracting Manual specifies:

7.32 Advance Payments

Advance payments by the state are permitted only when specifically authorized by statute and should be made only when necessary. Contracts or agreements containing provisions for advance payments by the state should preferably provide for small periodic payments rather than the total contract price or lump-sum advances (GC §§ 11256 - 11263, 11019 and 12502).

Contract and Grants Officers are encouraged to request advance payments whenever possible, particularly under interagency agreements, and when the University is advancing significant start-up funding for the State under a State agreement.

6-650 Private Sponsors

Accounting Manual, Chapter C-557-21 (PDF), Section III. C, "Private Sponsors," states:

Each contract and grant issued by a private sponsor should be negotiated to include some method of cash advance payment. Sponsors are generally receptive to negotiating cash advances; however, because of individual policies and needs, flexibility is necessary. The preferred advance would be to receive the full amount at the time of execution of the contract or acceptance of the award. If negotiation results in an agreement to pay periodic advances based on estimated reimbursable costs, the understanding should be clearly spelled out in the contract. The sample advance payment clause attached as Appendix I should be tailored to meet the campus' needs and its ability to comply.

During negotiations, the Contracts and Grants Officer should coordinate with the campus Extramural Funds Office if an invoice or financial report is required to secure periodic cash advance. A clause which may be used as a model in negotiations for a cash advance provision when the sponsor requires that the advance request be based on estimated expenditures appears in the Accounting Manual, Chapter C-557-21 (PDF), Appendix I.

Advance payments are required from for-profit sponsors. The campus Contracts and Grants Officer and the Extramural Funds Accounting Officer should work out a mechanism so that the Contracts and Grants Office is notified in the event of persistent failure or material breach of contract advance payment terms by the sponsor.

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6-700 Financial Reporting Requirements

6-710 Standards

The Accounting Manual, Chapter A-000-4, "University Accounting Program", Section II, provides a brief statement of the goals and objectives of the financial accounting and reporting program, as follows:

The University, as a public institution, has a special stewardship obligation to process properly and accurately all receipts and disbursements of funds; to account for all financial resources received and used; to ensure that all financial transactions conform to legal requirements and administrative policies, and are recorded in accordance with generally accepted accounting principles for colleges and universities; and to provide reports which present to University administrators and the public a complete picture of the University's funds and their use.

The University accounting program records all financial transactions by account and fund numbers in order to control expenditures against established budgets and to prepare management reports. Among other duties, the campus Accounting Officers prepare "Departmental information to assist managers in administering their funds by presenting budgets, expenditures, liens, and remaining balances." (See Accounting Manual, Chapter A-000-4, Section IV.C.)

Further policy regarding submission of financial reports to extramural sponsors who have provided advance payments is outlined in the Accounting Manual, Chapter C-557-21, "Contracts and Grants: Cash Advance Programs" (PDF), Section VI. A., "Reporting Requirements," which states:

To avoid possible suspension of funding under an advance payment program, the requisite reports should be filed within the time frame specified by the granting agency.

This Accounting Manual Chapter also provides additional policy guidance concerning reporting requirements, such as recording expenses in the appropriate account in the month the expense is incurred, thereby allowing for accurate, current, and complete disclosure of financial results; substantiating cost transfers in a well-documented and timely manner; and conforming with internal control standards and adequate supporting documentation requirements.

6-720 Formats

The University must prepare various financial reports on contract and grant expenditures for internal management purposes and to meet external reporting requirements.

Sponsors have different budgeting and financial reporting requirements. Contracts and Grants Officers must coordinate with the appropriate campus Accounting Office officials whenever a sponsor requests financial data or documentation which is not routinely provided by the accounting system. The Accounting Manual, Chapter A-115-2 (PDF), "Accounting Codes: General Ledger," outlines the account code structure and the cost categories which are routinely provided by the accounting system. Acceptance of funding agency restrictions or practices which are unreasonable or otherwise are deemed arbitrary which would result in paperwork burden or hardships for the University should be avoided.

Certain standard financial reporting formats for use with federal assistance awards are permitted under 2 CFR 200.327. Contracts and Grants Officers should ensure that budgeting and reporting requirements accepted in federal agreements are consistent with these federal government-wide reporting requirements. See 17-400 and 17-410 for University policy on negotiating and responding to external reporting requirements and other paperwork requirements.

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