Financial Overview
As a PI (Principle Investigator) you will receive funding from various sources and sponsors. In addition, you may receive gifts from donors and other types of funds from the University. Each of these sources has the right to establish its own requirements for how you can use the funds. At Stanford, the PI has overall responsibility for the technical and fiscal management of a sponsored project. This section will help you to fulfill your stewardship responsibilities.
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Types of Financial Resources
A variety of financial resources are available to you and, depending on the type of funding and/or how it was acquired, there are different rules and conditions that you need to consider before spending.
For your purposes, it will be important to pay attention to some major fund categories. For example, you will hear the terms “restricted” versus “unrestricted.” This is one of the key distinctions for you to understand when it comes to spending your funds in the most advantageous way. There are also degrees of “restrictiveness,” which will further guide the way you selectively use your financial support. Before giving some practical guidance, it is helpful for you to understand the main fund types that you will come across.
Restricted Funds
These funds are those whose use is specifically governed by the terms and conditions of the source. Examples of this type of funding include:
- Federal grants or contracts with legally binding terms and conditions
- A gift provided by a donor with expressed preferences as to how it is spent
- Interest generated by an endowment, generally made available with explicit spending instructions
These funds can only be used for the purpose stated in the awarding documentation. The use of funds provided from gift or endowment sources are generally somewhat more broadly defined, and thus can be used with more individual discretion. Grant funds are restricted to the specific scope of work that was described in the submitted proposal and subsequently awarded. Additionally, there are very specific terms and conditions associated with grants and contracts that govern such things as spending differently than proposed (rebudgeting), spending particular types of expenditures (e.g., foreign travel, capital equipment), or changing the effort of key personnel.
Unrestricted Funds
These funds have no strings attached and can be used for any institutional purpose at the University, keeping in mind good stewardship. Unrestricted funds come to you from a number of sources, including:
- Tuition and fee revenue
- Interest earned on investments
- Indirect cost (from grant and contracts) recovery, known as F&A (Facilities & Administrative) costs
These funds can be allotted to support any University business. Faculty sometimes think of a gift fund as being unrestricted; however, while a gift is generally less restricted than a federal grant or contract, gifts given in the name of individual faculty members do come with some use requirements.
For example, Prof. Jones might get a financial gift to support work in her laboratory. While less restricted than the terms and conditions that come with a grant, the use of the fund is nonetheless restricted to use in Prof. Jones’ lab. The Provost has published guidelines for using unrestricted funds for business meals.
Designated Funds
These funds come from an unrestricted source; however, they are identified for a specific purpose by the Board of Trustees. Some examples are:
- Revenue collected from the parking permit program at Stanford is designated to support the campus shuttle service
- Revenue resulting from specific analytical services can be designated solely to support the ongoing operation of those services
Start-Up Funds
In some campus schools and departments, when a new faculty member comes to campus, funds are made available to help that person build his or her research program. These funds could be used to support lab renovations, staff recruitment, student or postdoctoral scholars, and/or general operating and travel costs. Often, that support will be made available as a mix of designated and restricted (gifts or endowment) funds.
Spending Guidance
All spending of University funds must be reasonable, necessary and consistent with established University policies and practices, and it must support the work of the University. In addition, if you are using restricted funds, you must comply with the award terms and conditions.
As a general rule, you should spend your most restricted funds first, as long as you are using them in line with the award restrictions. This will help ensure that you have unrestricted funds available for unanticipated needs or for purposes that can’t be covered with your restricted funds. Some restricted funds have a specific period of performance with a set end date, so you want to be sure and not leave any unused balance after that date. When in doubt, check with your department staff members who have expertise in the use of Stanford funds, and who can assist you with financial planning.
What Are the Rules?
Managing your sponsored research funding requires specialized knowledge and careful attention to the sponsor’s specific terms and conditions, as well as compliance with Stanford’s policies and procedures for responsible spending and management. Because such a large portion of Stanford's sponsored projects are federally funded, most of Stanford's research policies found in the RPH (Research Policy Handbook) follow federal regulations.
The federal government has published a regulatory document, OMB A-21: Cost Principles for Educational Institutions and the Uniform Guidance, which contains legally binding regulations applicable to the use of federal funds. There is a lot of very specific detail in this circular, but the overarching guidance for spending from your sponsored research accounts requires that the following criteria are satisfied:
- The cost must be allowable, as defined by federal regulations and/or by the terms of the award.
- The cost must be allocable, meaning that the cost must directly support the scope of the project to which it is being charged. Costs may be allocated only if they advance the work of the project in the same proportion as the cost. Example: You cannot allocate 12 months of computer storage costs to a project ending in 2 months. You can allocate 2 months of costs.
- The expense must be reasonable, which means that the cost of acquiring the items or services should be in line with what a “prudent person” would pay.
If costs are not allowable, allocable, and reasonable, then they may not be charged to a sponsored project.
If a research expenditure benefits more than one of your projects, you must allocate the costs across the projects. The allocation methodology must reasonably approximate the degree to which each project benefits from the expenditure. Allocation methods must be documented in department files or in the online transaction documentation. It is good practice to document (e.g., in the purchase requisition itself) any additional information that would be relevant to the allowability, allocability, and/or reasonableness of a purchase, especially if there could be any question in the case of a future audit.
Terms and Conditions
Ongoing communication between you and the sponsor is a critical component of sound fiscal management. Such conditions as rebudgeting requests, no-cost extensions, or considerations related to the scope of the project warrant communication in writing, with submission through the OSR (Office of Sponsored Research) or RMG (Research Management Group in the School of Medicine).
In addition, regulations applicable to different types of projects require written notification or prior approvals in the following situations:
For Federal Grants: prior written approval from the sponsor is required for either of the following circumstances involving the PI or approved Project Director:
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A reduction in time devoted to the project of 25% or more from the proposed and awarded level.
The Uniform Guidance recognizes that a PI can be absent from campus but fully engaged in his or her research team by means of Skype, video, computer or other means of communication.
PIs are required to report deviations from budget or project scope or objective, and request prior approvals from Federal awarding agencies for budget and program plan revisions, in accordance with this section.
- Change in the scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval).
- Change in a key person specified in the application or the Federal award.
- The disengagement from the project for more than three months, or a 25 percent reduction in time devoted to the project, by the approved Project Director or Principal Investigator and key personnel.
Note that number 3 above does not use the term "absence" but "disengagement" from the project. The distinction is a PI/PD or key personnel can be off campus and still engaged in the research, which would not require prior written approval.
The new term "disengagement" in the Uniform Guidance will become part of Stanford Policy prospectively and retrospectively.
Specific to the School of Medicine, evidence of engagement or disengagement from a sponsored project should be documented on Attachment A of the Sabbatical Leave form which must be reviewed and approved by the School Dean's office, and forwarded to the Institutional Official who will review, countersign and uploaded it into the appropriate SeRA record(s).
Example:
The PI is working in New Zealand on coral reef research as part of the statement of work. She is absent from the Stanford Campus but still engaged in the research.
- Change in the scope or the objective of the project or program (even if there is no associated budget revision)
- Change in a key person specified in the application or award document
- Need for additional Federal funding
- Transfer of funds allotted for training allowances (direct payment to trainees) to other categories of expense
Restrictions often apply and appear in the grant award itself or in the accompanying agency policy manual or administrative guide. Check the terms of your particular award. In all cases, notifications of contract or grant status, including those described above, must be made in writing to the administrative official in the sponsoring agency. Such notifications must be coordinated through the Office of Sponsored Research or RMG.
Effort
The commitment of effort made in proposals is the starting point for a significant amount of project cost. The following fundamental rule applies in this regard: salary is allocated on the basis of a distribution of total effort FTE (Full Time Equivalent), including teaching, research activities, University citizenship, etc.
Stanford Base Salary
Stanford Base Salary (SBS) is the annual compensation paid by Stanford to individuals whose time is spent on research, teaching and/or other activities.
Stanford Base Salary:
- Includes regular and supplemental salary
- Excludes honorarium (effective CY2015), vacation accrual, bonus payments and extra compensation such as faculty housing allowance, tuition reimbursement, etc.
- Excludes any income that an individual is permitted to earn outside of the Stanford responsibilities (e.g., consulting payments)
- May not be increased as a result of replacing Stanford’s salary funds with sponsored project funds
Faculty Effort
No one has more than 100% FTE , and most schools require that a specified percent be reserved for non-sponsored activity. Research-only faculty on 12-month appointments may typically charge up to 95% to sponsored projects year round.
PIs may submit proposals on the assumption that not all will be awarded, but, at the time of award, a reasonable representation of time to be devoted to the project, whether that effort will be paid for by the sponsor or by Stanford, is necessary.
Stanford requires a commitment of effort on the part of the Principal Investigator during the period in which the work is being performed. This effort may be expended during the academic year, summer quarter only, or both.
The requirement of PI effort does not extend to:
- equipment grants
- seed grants for students/postdocs where the faculty mentor is named as PI, dissertation support, training grants, or other awards intended as "student augmentation"
- limited-purpose awards characterized by Stanford as Other Sponsored Activities, including travel grants, conference support, etc.
Effort committed in a proposal, awarded by the sponsor, and expended on the project must be matched with an equivalent salary charge either directly to the sponsor, or to a cost-sharing account, to some combination of these.
See Faculty Effort on Sponsored Research - FAQs
Agency Specific Guidance
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NIH imposes a cap on salaries. For more detailed explanation, see RPH 15.5 Salary Cap Administration.
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NSF limits PI salary compensation to two months for all NSF funded projects. Should a PI have other NSF award(s) with salary support and the new proposal would put them over the two months of support in any one year, they will need to justify in the budget justification why support for the pending project is needed. The Program Officer will consider this and determine if it is feasible to support the additional time.
Administrative Salaries
While administrative salaries and expenses are normally charged through the F&A (Facilities & Administrative) cost rate, federal regulations describe when administrative and clerical salaries can be charged directly to federally sponsored projects.
You can propose charging administrative and clerical salaries to a federally sponsored project if ALL of the following conditions are met:
- Administrative or clerical services are integral to a project or activity. The requirement that the cost is “integral” means the services are essential, vital, or fundamental to the project or activity
- Individuals involved can be specifically identified with the project or activity
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Such costs are explicitly included in the budget or have the prior written approval of the federal awarding agency
- A budget justification must be included in the proposal
- The cost are not also recovered as F&A costs
NIH modular grants or similar grant instruments do not require line-item budgets. (Note: Rebudgeting authority may be used to charge administrative expenses not included in the approved budget if specific rebudgeting authority for clerical and administrative expenses is allowed by award and sponsor rebudgeting guidelines. See, for example, NIH administrative requirements.)
All deans' office administrative activities must be consistently treated as F&A costs. Therefore, no deans' office administrative expenses shall be charged directly to sponsored awards . Deans' sponsored project activities are subject to RPH 15.4.3
Any other administrative costs that are required to perform the technical scope of work may be directly charged as long they provide technical benefit to the sponsored project.
Non-federally Sponsored Projects
Direct charging of administrative or clerical salaries to a non-federally sponsored project is appropriate if the services benefit the sponsored project. Some non-federal sponsors may have specific requirements for direct charging of administrative costs. Such requirements need to be addressed in proposals.
Read RPH 15.4: Charging for Administrative and Technical Expenses
Cost Sharing
When a PI proposes, and the University agrees, to cost share University resources, the University is required to provide the stated resources in the performance of the awarded project.
Considering the administrative requirements and responsibilities inherent in the cost sharing commitment, the PI (or other person responsible for the identified fund) should carefully weigh the cost effectiveness versus the expected benefits of each potential cost-sharing commitment. Cost sharing of direct expenditures represents a redirection of departmental or school resources from teaching or other departmental and school activities to support sponsored agreements.
This commitment must be indicated on the Proposal Development Routing Form (PDRF). By signing the PDRF, the department chair or designee approves the cost-sharing commitment. Implicit in the University’s commitment to cost share is the PI's agreement to ensure that:
- Voluntary cost sharing is permitted by the particular sponsor and project for which it is being proposed and that funds are available for cost shared direct costs.
- He/She understands that unless specified in both the federal awarding agency regulations and in a notice of funding opportunity, voluntary cost sharing is not expected by federal sponsors and cannot be used as a factor during the merit review of proposals.
- Cost shared expenses will be appropriately charged, tracked, reviewed, certified and accounted for in compliance with University and sponsor requirements.
- University space is coded in the University's Space Inventory System, consistent with the coding of expenditures in the accounting system.
Note: The tracking, reporting, and certifying of cost sharing are subject to audit.
Equipment cannot be offered as cost sharing unless the receipt of the award is contingent upon such cost sharing.
Do not commit to the use of Stanford owned or government-owned equipment as cost sharing, but rather characterize the equipment as "available for the performance of the sponsored agreement at no direct cost to the project."
Spending is Reviewed Monthly and Reviewed and Certified Quarterly
Monthly Review
Each month, the PI or a designated person knowledgeable about the PI’s accounts must review all expenditures for that month. Any errors or requests for clarification should be brought to the PI's attention and, if corrections are required, these should be processed promptly.
Cost Transfers
A cost transfer is an after-the-fact reallocation of costs associated with a transaction from one Project-Task-Award (PTA) to another.
Costs should be charged to the PTA for the benefiting sponsored project when first incurred. However, at times it may be necessary to transfer a cost to a sponsored project subsequent to the initial recording of that cost. Such transfers require careful monitoring for compliance with Stanford University policy, federal regulations and policies, and the federal cost principles that underlie all fiscal activities of sponsored projects.
The cost transfer procedure requires thorough documentation to support the transaction. In addition, the transfer must be timely, complete, and comply with allowability, allocability, and reasonableness requirements.
A cost transfer invites the assumption that the transaction was not handled properly initially. The charge will be scrutinized for allowability and allocability to the benefiting sponsored project. The documentation or justification for moving charges will be scrutinized as well.
Quarterly Review and Certification
Sponsored project and cost sharing accounts must be reviewed and certified by the PI every academic quarter, and recorded by signature on the Quarterly Expenditure Statement OBI 149 report.
The following certification statement appears on Expenditure Statements for every sponsored project and cost sharing account, The PI confirms:
To the best of my knowledge, salary and wages charged to this project are appropriate in relation to work performed on this project. All other costs charged to this project are, to the best of my knowledge, appropriate. Where required, corrections have been or will be made through the accounting system.
This certification is the responsibility of the project PI (or Co-PI). A PI may delegate the monthly review of expenditures for accuracy, but may not delegate certification of the appropriateness of the charges with one exception: The PI may only delegate review and certification to a participating Academic Council member or PI eligible individual who is responsible for a portion of the statement of work and is identified as the Task Owner in the accounting system.
The purpose of the review and certification is to confirm that all expenses charged to the account are allowable, allocable to the project, and reasonable. The certification of salary expenditures confirms that salaries charged to the account are supported by a corresponding expenditure of effort during the time period being certified. The certification also assures that other expenditures are for items or services purchased and used during the project period as specified by the award. It is the PI's responsibility to seek a no-cost extension of the award if that is necessary in order to complete the project.
To be considered timely, the expenditure statement must be reviewed and signed within two months of the end of the academic quarter being certified. Issues regarding the timely certification of expenditures should be discussed with the appropriate Department Chair, School Dean, and/or the Associate Vice Provost for Research or the Research Financial Compliance Services Office. Each school and independent laboratory must retain reviewed and certified Quarterly Expenditure Statements.
Adequate explanation and documentation for all project charges must be maintained for four years after the sponsor closes out the award. Where documentation cannot be provided as to the allowability, allocability and reasonableness of any project expense, including but not limited to expenses incurred late in the project period, the sponsor may deny them. In this case, the PI, department or school will be expected to cover the expense from unrestricted sources.
Any departure from the policy or procedures regarding summarization of Quarterly PI Review and Certification must be approved in advance by the DoR (Office of Vice Provost and Dean of Research) and RFCS (Research Financial Compliance and Services Office).
Direct and Indirect Costs
According to Stanford policy and federal regulations, an expense qualifies as a direct cost for a sponsored project when it meets all four of the following criteria.
- Allowable - as defined in OMB Circular A-21, the Uniform Guidance, Stanford Policy an in the terms & conditions of specific awards
- Allocable - only those expenses that benefit a project may be charged to that project
- Reasonable - Costs must reflect what a prudent person would pay
- Consistent - costs must be handled consistently across the University by following Stanford policy
Everyone who authorizes expenses at Stanford for any purpose must confirm prior to approving a transaction that the expenditures are:
- reasonable and necessary
- consistent with established Stanford policy and practices, as well as sponsor or donor terms & conditions
- applicable to the work of Stanford, which includes; instruction, research, and public service
Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Direct costs include, but are not limited to:
- salaries
- travel
- equipment
- material and supplies directly benefiting the sponsored project or activity
