Time and Effort Reporting:
Documentation for Nonprofit Organizations
Organizations receiving federal funds must ensure compliance with the Uniform Guide 2 CFR Part 200, related to the policies and practices of the federal government. In this article, we will discuss the standards and criteria for the Documentation of Personnel Expenses, also known as ” Time and Effort Reporting,” which found in the regulations of the Office of Management and Budget (OMB).
In essence, there are two fundamental standards related to the compensation of employees remunerated by federal funds. The first is that the pay for employees who work with federal funds is consistent with the remuneration of similar work in other organizations / regional companies. The second is that employee compensation must be for a permissible purpose within the federal regulations and requirements of those funds.
In recent years, the OMB has focused on promoting that recipients of federal funds move towards the creation of their internal controls instead of requiring standard or similar reports to personnel reports “PAR” (Personnel Activity Reports). What they do emphasize is that organizations must have some way or tool to be able to accurately report all expenses to funds concerning employee pay and at the same time that this report contains evidence of the work or service provided. A premise that we always emphasize is that the OMB puts this series of principles as guidelines and not necessarily as regulations. However, if they have several criteria regarding the documentation of these reports:
- The reports must comply with the internal policies and practices of the organization.
- The reports must be supported by an internal control system that provides reasonable assurance that the time the grants are invoiced is appropriately allocated, is allowed within the regulations and is accurate with what these funds are invoiced.
- The reports must be incorporated with the official payroll records of the entity.
- The reports should reasonably reflect the total activity for which the employee is compensated.
- Reports should cover both federally assisted activities in the same way as all other activities compensated in an integrated manner ( the use of subsidiary records is allowed ).
- The reports should distribute the salary of employees who are paid from various federal funds ( two or more ) or if they divide the time between federal and non-federal activities.
It is essential to say that budget estimates can still be used for interim accounting purposes. If an organization decides to use these budget estimates to collect federal grants, the system used to make those initial estimates must produce reasonable approximations. Any significant change in the work activity of each person must be identified and appropriately adjusted. Also, internal controls must include processes to review post-event charges based on budgetary estimates. The goal of organizations that use budget estimates should be to make sure that the final amounts charged to the grants are accurate, allowed, and appropriately allocated.
For reasons of fiscal clarity, it is a great benefit for organizations that process payroll and document the effort jointly to start using separate processes, especially if not all employees work in grants. These new criteria focused on promoting internal controls allow more flexibility to organizations to design systems that adapt to their needs, as long as they meet the underlying principles. However, we should note that the lack of standard requirements can be a double-edged knife. The lack of standard requirements can make it more difficult for federal agencies to determine if the internal controls of organizations are designed correctly. If a federal agency determines that the records of an organization do not meet the criteria listed above, the federal agency may require reports of employee activities that validate the documents provided. Compliance with these criteria does not necessarily require a complete review of processes or reporting systems. It is possible that many organizations already have internal controls over the documentation of staff compensation. Similarly, over time, organizations should review and determine if existing internal control systems meet the criteria. Future changes may cause it to be necessary to strengthen the controls for time and effort reports, ensuring compliance with the general requirements for your organization.