Module 5: Financial, Resource and Risk Management

5.1 General principles

The following points list some general principles about research project finances.

• The only legal entity that can enter into a research contract or accept a research grant is the university – not the faculty, school, or department.
• All universities require sign-off by a senior designated officer of the university, such as the DVC Research. You are not permitted to sign on behalf of the university.
• Research grants and research contracts may only be entered into when the research activities and its outputs and outcomes accord with your university's interests and those of its staff and students.
• The Chief Investigator is responsible for properly managing and acquitting the funds received from the funding body. A funding body is a grant-awarding body, industry partner, sponsor, client organisation that contracts out research work, or any other external organisation which provides funding for research or research consultancy undertaken by staff of the university.
• Funds provided for research may only be used for research and may only be used on items listed in the original deed, agreement, or contract, unless specific authorisation has been received from the funding body. Misapplying funds constitutes a breach of the deed, agreement, or contract.
• Research funds revenue is recognised on an accrual basis in accordance with ‘Australian Equivalents to the International Financial Reporting Standards’ (AEIFRS) and is cognisant of the contractual obligations attached to the funding provision. Where the funding is reciprocal, the recognition of research revenue received may require a figure for the proportion of the transaction that has been completed.
• In compiling its annual income statement and its internal reports, your university complies with AEIFRS.
• You may not need to handle the daily transactions of your research project. Check to see if there is an available finance officer or administrative officer to assist you with financial processes.

5.2 Overview of the accounting process

5.2.1 Submitting applications and establishing projects
Research projects must be fully costed, taking into account any limitations imposed by the funding body. The application for funds must be necessary and sufficient for the research activity to be undertaken. For further guidance on the construction of research budgets you should access your university's policy on research grant administration.

5.2.2. Review of grant applications and draft contracts
All grant applications and draft research contracts should be reviewed and approved by your university's research office. In addition, your university's financial management division will review the research budget and if necessary consider any taxation implications.

5.2.3. Establishing the research project
Each approved research project will be given its own discrete costcode.

Once the research contract is approved, the research office will confirm the status of the research project and request the establishment of a research account costcode which will be created by your accounting staff. You need to identify names and contact details of the appropriate accounting staff available to you.

Invoices relating to the research project must be raised to the correct research account costcode.

5.2.4. Invoicing for research funds
You will have, within your faculty or school, accounting staff who will have responsibility for the preparation and dispatch of invoices to the funding body, requesting payment. You need to ensure that invoices are prepared and dispatched in a timely manner, in accordance with the payment schedule for the grant deed, agreement, or contract.

5.2.5. Goods and Services Tax (GST)
Tax invoices (including GST) must be issued. GST is chargeable for research projects with the following exceptions:

• ARC grant funding
• The Industry Partner component of ARC Linkage grant funding
• Funding provided by an overseas entity, where the transactions are treated as 'exports'; and
• Funding in the form of gifts and donations.

Any in-kind (non-cash) contributions received from the funding body may also be liable for GST. You should consult with your accounting staff regarding the full GST implications for research grants.

Some funding bodies such as the National Health and Medical Research Council (NHMRC) operate on a "recipient created invoice" basis, which means that the university, as a "service provider", is not required to issue a tax invoice in order to receive payment. It will be clear in the deed, agreement, or contract whether the funding body will issue recipient created invoices.

 

5.3 Accounting for research fund revenue

Revenue in the form of research funding is recognised on a basis that reflects the contractual obligations attached to the funding provision.
Research funds may be provided as:

• A contribution (a non-reciprocal transfer)
• A payment in exchange for deliverables (a reciprocal transfer).

Non-reciprocal basis funding

Research grant contributions received on a non-reciprocal basis are recognised as revenue in full upon the receipt of the funds when the following conditions have been satisfied by the university:

• It has control of the contribution; or
• It has the right to receive the contribution; and
• It has fulfilled the conditions under which the funding is provided.

Invoices for the grant funds are raised in accordance with the payment schedule as set down in the terms and conditions of the grant award. When a single upfront payment is made, an invoice for the total amount of the research grant is raised when the university has been awarded the grant.

Reciprocal basis funding

When research grant contributions are received on a reciprocal basis, at the end of the financial year the stage of completion of the project is estimated by measuring the costs of the research project effort in producing the deliverable to date.

The total expenditure incurred by the end of the financial year therefore defines the revenue earned on a stage-of-completion basis, and this amount is recorded in the university's annual ‘income statement’ as the research revenue earned. Costs relating to the research activity must be properly isolated so that the costs (and therefore the stage of completion) can be measured accurately.

 

5.4 Accounting for research fund expenditure

Research expenditure, like all other types of expenditure, may only be incurred and approved in accordance with your university's policies and financial delegations. You should familiarise yourself with the delegations you have authority to exercise.

 

5.5 Use of research funds

Unless specific authorisation has been received from the funding body, research funds may only be expended on items listed in the research grant deed, agreement, or contract.

Expenditure of funds on ARC projects involving industry collaborators must be in line with the budget. The budget justification text should, in most cases, explain what the industry collaborator's funds are meant for. If the industry collaborator's funds are not clearly allocated in the budget, then ARC funds are spent first. The reason for this is that ARC funds must be returned to the ARC and this affects your university's total research quantum in subsequent years.

Expenditure of funds under the University Industry Collaboration Grants Scheme must be in line with the budget. Where the budget is unclear on the allocation of funds, then the industry collaborator's funds will be spent before university funds.

The Chief Investigator must ensure that expenditures are in accordance with the deed, agreement, or contract. Misapplying funds provided under a deed, agreement or contract will constitute a breach of contract and has the potential to place the university in an invidious legal and financial position.

 

5.6 Assigning costs

Since most funding bodies require the return of unspent monies, surplus funds which result from non-charging or under-charging of costs incurred on the research activity results in a financial loss to the university, and this reduces resources available for other activities. In this regard, particular attention needs to be paid to the assignment of salaries to the research account costcode, the recognition of capital expenditure items, and the costs associated with the use of high cost facilities.

Chief Investigators need to be mindful of the on-costs associated with staff. On-costs such as superannuation, leave loadings, maternity leave, etc. can add as much as 26% to base staff costs, depending on whether the staff member in question is employed full time with employer super contributions; employed full time without employer super contributions (for example, a contractor); or employed on a casual basis.

A consistent and transparent approach must be taken to the classification and coding of expenditure. All difference between the university and the funding body in the way that expenditure is coded must be reconcilable between the financial reports of the university and those of the funding body.
Under conditions of a grant or research contract, a research assistant may be entitled to additional payments for activities undertaken. Where such payments are allowed, remuneration and associated on-costs must be paid through the university's payroll system.

 

5.7 Limits to research fund expenditure

The Chief Investigator must ensure that research expenditure does not exceed the funding available for the research project. Expenditure which exceeds available funds is deemed to be unauthorised.

Over-expenditures on a research project are met by the Chief Investigator's faculty or school.

 

5.8 Financial reporting and acquittal requirements

Chief Investigators are responsible for the successful outcome of the research project, including meeting all project milestones and complying with reporting requirements set out in the deed, agreement, or contract.

Progress Financial Reports

Most funding bodies require regular financial reports to be provided. Where there is a need for progress financial reports, your university's research office will usually co-ordinate report preparation. If you are the Chief Investigator, you will need to check reports before they are sent to funding bodies. You will need to refer to the original deed, agreement, or contract documents and the budgets specified in them, together with any approved variations.

Your university's research office has responsibility for submitting reports to funding bodies on time.

Acquittal and final financial reports

Funding bodies usually require that the funds are to be expended by the date stipulated in the deed, agreement, or contract, and if you are Chief Investigator it is your responsibility to ensure that all research activities occur within the period for which funding has been awarded.

Most funding bodies require a certification from your university confirming that funding has been spent in accordance with the terms and conditions attached to the funding. Therefore, on completion, you will need to provide a final acquittal, or financial report. Your university's research office will have responsibility for coordinating preparation of the report. As with progress financial reports, you will need to refer to the original deed, agreement, or contract and their budgets, together with approved variations.

You should ascertain from your research office the form and contents of reports provided to funding bodies.

Your faculty support staff should ensure that all invoicing is complete and that all expenditure has been properly allocated to the research project within 2 months of the completion of the research project.

Audits

Funding bodies may require an audit at any stage of the project. From a financial perspective, you should ensure that your faculty/school support staff have retained all income and expenditure documents and that these are forwarded to your research office. The research office will coordinate the university's obligations in respect of a response to the audit.

Authority to close research projects

The final financial position of the research project must be reported to your supervisor. If the research project is in deficit, your school or faculty will have to expunge the debt, usually within a month of receiving notification.

After the completion of the final report and acquittal statement for the research project, your school/faculty support staff should arrange with the university's finance division to close the research account costcode.

Unspent research funds

The use of unexpended funds after completion of an externally funded research project is subject to the terms and conditions associated with the original deed, agreement, or contract.

Research grant agreements and research contracts usually specify that unexpended funds are to be returned to the funding body, although some agreements specifically allow your university to retain unspent funds.

If the funds that are unspent are returned in the same year as received, the refund must be debited (offset) against the same revenue account that was used to record the original receipt of the funds. If the refund of unspent research funds relate to funds received in a prior year, then the refund must be treated as an expense in the year that it is refunded.

Where the deed, agreement, or contract does not specify whether unspent funds are returnable, your university may deem it as a "fixed price contract". In such cases any unspent funds will be retained by your university.

You should liaise with your school/faculty support staff, research office, and, if necessary, central finance staff to clearly understand how long such unexpended funds are available to you, if at all, and where these funds go if not retained by you or your school/faculty.

Funds provided for research may only be used for research.

 

5.9  What to do if your grant is not tracking well financially

It is important to keep checking how you are travelling, so that you can see targets and compare one period to another – that will allow you to see how things have changed. Your project must be able to deal with rapid change and so must your budgeting/financial systems. So it makes sense that you can update and reforecast your budget.
 
If you don't update, then variances become meaningless and information is useless. If you don't reforecast you will find the budget very much out of whack. Report against your reforecast budget (revised budget). And don't forget you can also do several reforecasts – for best-case and worst-case scenarios.

Below is a typical budget cycle. It illustrates the need to regularly revise and adjust your original plans and budget.

 

If your grant is not tracking perfectly well, it’s time to revise your costing, your budget, and your plans. Here are some proposed solutions:

• Decide which costs can be eliminated or reduced – and do this as the first step
• Find out what extra funding can be accessed and make enquiries
• Then, talk to the dean about seeking supplemental funding – Nothing ventured, nothing gained! However, it’s better to show what you have done to resolve the problem first.
• Seek supplemental funding opportunities.
• Develop a reforecast budget.