New Process for Managing Contract & Grant Deficits

Sent to the AFS-Update mailing list on March 18, 2024

Beginning at end of March, UCI will begin using a new annual process to clear deficits on all awards that ended in the prior fiscal year. Any award that ended in the last fiscal year and is still in deficit by March is significantly past the usual 120-day window for clearing deficits. These deficits must be addressed promptly to ensure UCI can accurately report financial data and avoid other fiscal impacts.

What Causes Deficits?

For sponsored research funds, a deficit is defined as the amount by which final cumulative expenditures exceed the budget amount after final reconciliation by Contracts & Grants Accounting (CGA). This can be caused by:

  • Expenditures beyond the authorized amount by the sponsor
  • Non-payment by the sponsor even if expenditures are within original authorized amount
  • Untimely posting of expenses at the end of the award or during a restricted budget period when CGA may only bill or draw cash for the final expenses per ledger.

How are Deficits Normally Cleared?

During the life of an award, departments are responsible for moving specific payroll and non-payroll expenses that are the cause of the overspending from the award to another department funding source. After project ends, deficits are expected to be cleared by departments within 120 days of the award end date. If a fund is expecting an amendment or pending final transactions at 120 days, Departments need to inform their CGA accountant.

New Annual Process for Clearing Deficits

Deficits on expired awards that were not addressed using the normal means described above will be cleared using a new process that was created by the campus Research Compliance Assessment Workgroup (RCAW). The steps below have been approved by the Office of Research and Division of Finance and Administration.

Each year, the following actions will be taken:

  • March 31: Any awards that ended in the prior fiscal year and remain in a deficit on March 31 of the current year (i.e., 270 calendar days or longer in deficit) will be cleared starting in April. This will ensure they are cleared in time for fiscal year-end close, ensuring financial reporting accuracy.
  • April 15: The Assistant Dean of each school will be provided with a list of awards requiring a deficit clearing by April 15 of each year. The department will be required to confirm the deficit clearing option they prefer to be used for their School’s C&G deficits. The two options available for the year-end C&G deficit clearing are:

Option 1: Clear Deficits to Continuation Accounts

Clear C&G deficits to their continuation accounts. All deficits will be cleared by transferring direct expenses on C&G accounts to their continuation accounts. A detailed list of transfers and affected continuation accounts will be provided to each school that elected this option by May 31.

Option 2: Clear Deficits as a Reduction to Total Overhead Allocation

Clear deficits as a reduction of the total overhead allocation for the current fiscal year, using no more than 2% of the overall overhead earned by the school for that year. C&G Accounting will transfer direct costs from the projects in deficits to a designated holding account, and in June of each year up to 2% of overall overhead brought in by the school during the fiscal year will be used to cover deficits in the C&G awards that ended before the start of that year.

  • April 30: Schools must notify C&G Accounting which option they chose to use no later than April 30 of each year. This will allow for all entries to be completed before the end of June of each year.

For units that select Option 2, the final total overhead will be transferred to the Budget Office at fiscal close and by the required deadline, to allow for timely allocations and fiscal close.

If a response from the school is not received by the April 30 deadline, C&G Accounting will use Option 1 and complete the required cleanup before the end of May.

Have Questions?

Information about the new deficit clearing process is available on the CGA website. If you have any questions about your awards or need help with clearing deficits, please contact your assigned CGA accountant.