Financial reconciliation

Reconciling financial activities on sponsored projects is an important element to maintaining compliance with institutional and sponsor regulations, and ensuring all financial transactions meet Allowable, Allocable, and Reasonable (AAR) standards. This page provides guidance on the process and resources for validating the ledger of transactions on a sponsored project. Information on other activities that some departments consider reconciliation, such as projections, may be found on other pages in the Manage Award and Finances stage of myRESEARHpath.

Depending on the department and the sponsor, the threshold of risk for reconciliation of transactions utilizing sponsored funds will vary. GAP 200.012, Reconciliation of Financial Transactions, provides more information about the general procedures, process, and responsibilities involved with reconciliation.

Allowable, Allocable, Reasonable (AAR)

All costs charged to a sponsored project must meet all conditions for being Allowable, Allocable, and Reasonable:

• Allowable: In compliance with sponsor, state, institutional, and other applicable regulations
• Allocable: Cost is incurred specifically and proportionally for the sponsored project in a documentable manner
• Reasonable: Necessary for the scope of work with no unnecessary add-ons, and the price is realistic and sensible

If during the regular review (see Monthly financial reconciliation below) of financial activity on a sponsored project a cost is determined to be non-compliant with AAR conditions, the ledger will need to be promptly adjusted to remove this charge from the sponsored account. Federally sponsored projects should follow the procedures in GAP 200.150, Cost Transfers on Federally Sponsored Projects, and should have all ineligible costs transferred from the project within 3 fiscal periods of the initial posting date.

There should be a discussion with the appropriate business manager or lead research administrator to determine if a transaction should be moved to a discretionary code or other code. It is also important to communicate with the research team about any unallowable charges and create a plan to mitigate further unallowable spending. In some instances adjustments may need to be made to the budget. 

Duplicate expenses do not meet any of the AAR conditions described above and those with financial responsibility for the sponsored projects should be alert to potential duplicate charges.  Supporting documentation should be reviewed to determine whether the same charge has been allocated to the sponsored project more than once for charges noticed during financial reconciliation or other reviews where a possible duplicate charge may have been identified.  If a duplicate expense is confirmed, the charge must be removed from the sponsored project via a cost transfer (ZJ) journal voucher (JV).

Monthly financial reconciliation

On a monthly basis, transactions for sponsored funds should be reconciled to ensure they meet AAR standards. This usually happens via workflow in the Universal Worklist, and depending on department, review of the expenses may occur before they post to a specific account. Transactions must be necessary and reasonable for the performance of the Federal award:

• Allowable
• Allocable to the Federal award in proportions that may be approximated using reasonable and documented methods
• Reasonable in nature and amount
• Consistent with policies and procedures and consistent treatment of cost

Refer to the Uniform Guidance Code of Federal Regulations Part 200 Subpart E Cost Principles for additional guidance.

The expectations for monthly financial reconciliation vary based on management center, department, and sponsor requirements. Some departments will reconcile 100% of transactions on sponsored codes (full reconciliation), while others reconcile select codes according to Financial Assessment & Management (FAM) risk thresholds (most SoM/SoN departments). 

Documentation for transactions must support the transaction and demonstrate AAR standards are met. Examples of documentation may be detailed text and/or attachments for journal entries, purchase order, invoice, receipts, or an accounts payable check request. Documentation should reflect why the transaction is necessary and support that the costs benefit the award and represent items received. As described above in the AAR definitions, all costs on a Federal award that fail to meet all AAR conditions must be promptly removed via a cost transfer entry.

To better understand the process and requirements for specific departments refer to GAP 200.012, Reconciliation of Financial Transactions and talk to business managers or lead research administrators. The “Related Resources” on this page provide additional training and reference guides for reconciliation and FAM.

Burn rates and spending analyses

Monitoring burn rates and conducted spending analyses is important to ensure project spending aligns with proposed activities and timelines, and that the project is progressing on schedule and budget. This is also important in determining that spending meets AAR compliance.

Some departments have developed their own process and tools for determining burn rates and analyzing spending. For unit specific information, the department business manager or lead research administrator should be contacted. If a unit uses the projection and reporting tool in SAP, explore the "Related Resources" on this page for guidance and training on utilizing this tool.