NIH Letter of Credit Sub account Transition Institutional Leadership Update
Over the course of the current fiscal year (FY16), the National Institutes of Health (NIH) will officially transition all awards to a sub-account-based Letter of Credit (LOC) draw process to request reimbursement funds for Payment Management System awards.
The NIH recently announced the transition of all NIH awards to sub-accounts will be completed by Sept. 30, 2016. This transition to a sub-account-based LOC draws will have an impact on research institutions in a variety of ways. As such, it is important that institutional leadership ensures their research administration units and departments are ready for this change to minimize operational and financial burden.
What does this change mean and how does it affect the current process?
The original process for requesting reimbursements, or “drawing funds," was via the NIH’s web-based cash system, the Payment Management System (PMS), which is a cumulative process requiring no award-level specifics (e.g. institutions request $2 million in funds across 1,000 awards) or detailed data at the time of the draw.
The new process for sub-accounts, however, is much more detailed, requiring funds to be requested on an award-by-award basis (e.g. $12,754.36 for Award A, $35,601.24 for Award B, etc. totaling to $2 million on 1,000 awards). The draw process will include a more detailed reconciliation, requiring more effort and time on the institution’s part (or at least additional reports).
In addition, this change is a necessary precursor to the NIH’s more strict timelines for award closeout. Any payment requests for awards more than 120 days past the project period end date will be held pending additional detail from the institution and approval by the NIH.
How will my institution’s operations be affected?
As the NIH completes the transition to the sub-account process during FY16, institutions should prepare for the short-term spike in award set-up, financial reporting, and award closeout activity resulting from the transition to the NIH’s new LOC draw methodology.
Institutions should also update their financial reporting processes to include instructions for completing Sub-account Transitional FFR expenditure reports (additional FFRs that would not otherwise be required). Long-term, institutions should review and tighten business processes impacting award closeout, clarifying roles and responsibilities, enhancing tools and reports, and establishing formal procedure to ensure the stricter closeout timeframes are consistently achieved.
How will this transition affect my institution’s finances?
At this time, your institution should be reviewing and fully reconciling all old NIH LOC accounts to ensure all reimbursements have been requested, received, and properly applied to reduce the risk of “leaving money on the table” or incurring institutional write-offs.
The stricter timeframe for closeouts can put institutions at risk for not receiving reimbursement for otherwise allowable award costs not processed within the closeout timeframe. This could represent significant financial write-offs or losses that can easily be avoided by well-established award closeout policies and procedures.
How can my institution be prepared for this change?
Institutions should evaluate the readiness of a few key areas:
- Technology: How will your systems facilitate the draw process during transition and beyond?
- Processes: Are efficient processes developed and deployed to accommodate the closeout time frames?
- People: Does your research community understand the change and how they will be impacted?
In order to help our clients prepare for the change, Huron has developed a one-day review of your processes and status related to these core post-award functions to determine your institutional readiness for this change and what level of effort is needed to ensure you are ready to meet this change head-on with minimal financial and operational fall-out.
For more information, or to contact our team, visit our Research Enterprise Solutions page and follow us @Huron.Contact Us