5 Steps To Avoid Mismanaging Biopharma Grant Funds
By Mike Trinks, Fiondella, Milone & LaSaracina LLP
After an exhausting process, you finally received the grant you need to make your passion project a reality. The tough part is over, right? Not exactly.
Yes, you now have money to continue your research and start a business, but with that comes the responsibility of answering to the entity paying the bill. Manage your grant funds correctly and you’ll find yourself operating smoothly with the potential to secure more in the future. Mismanage the situation and you could end up on the government’s naughty list. (There is, in fact, such a list.)
Here’s how to ensure you’re successfully maximizing that infusion of money and setting yourself up for further success in the grant world.
1. Establish An Accounting And Reporting Process
Chances are, you think big. That’s what landed you the grant in the first place. But many big thinkers are so preoccupied with changing the world that they miss the smaller details. For people who spend their days toiling away in labs or workshops, concepts like bank reconciliations, purchase orders, requisitions, time cards, and compliance are often extremely overwhelming or downright alien.
Programs like QuickBooks can help you organize projects and keep track of every financial expenditure, including wages, office expenses, insurance costs, meals, legal fees, consultancy expenses, supply costs, and travel. But even with software doing the hard work, it’s crucial to have somebody with a thorough knowledge of finance and budget tracking on staff, or as a partner, to ensure that everything is being properly logged when it comes time to report to the government.
2. Know What Types Of Expenses Are Allowed
Securing grant funds is not a license to spend freely. Each grant comes with detailed rules about how funds are allocated. Those expenses generally fall into direct and indirect funds.
As an example, an employee’s wage is a direct expense. But there are also indirect expenses that can be paid through the grant funds. They include health benefits for employees (and you), computers, office supplies, and even lawyer and CPA fees.
Even if an indirect expense is allowed, it’s important to read the fine print. For example, one of my clients was flagged for misallocation on an unallowable expense. They hadn’t purchased anything suspicious or uncommon — they were academics looking for the best materials for their project. But it turned out the material they needed was only available through Chinese vendors, and the grant stipulated that all materials be purchased from U.S. suppliers. Eventually, we wrote a letter and got an exemption for the expense, but the lesson was clear: Grant issuers — especially government agencies — are watching closely.
3. Don’t “Double Dip” With Grant Funds
Believe it or not, the government has a naughty list. Landing on it means you’re banned from receiving future grant awards.
In addition to noncompliance, another common offense is double-dipping. Oftentimes, a researcher or organization will be awarded multiple grants for separate projects that overlap, but using funds for materials that are designated for two separate projects run by the same company can raise eyebrows.
In the biotech industry, more than one grant being issued to an organization is fairly common, as multiple technologies are being researched simultaneously. Even with something as simple as Petri dishes, there needs to be a process in place to differentiate which grant’s funds are used to purchase the culture plates, and for which project they will be used. There have been instances where Petri dishes were purchased and expensed for one grant, then a few months down the road they are used again for a different project and, unintentionally, expensed again toward a second grant.
These scenarios apply to employees, too. For example, if you’ve got a researcher working on multiple projects, it’s essential that their work on the grant-funded project be invoiced separately, lest you be accused of appropriating funds toward business not outlined in the grant award.
Items like meals and entertainment definitely qualify as indirect expenses, but overdoing it or flippantly expensing activities tangentially related to the project can also put a grant recipient under the microscope.
4. Know Your Funding Categories & Track Spending As You Go
While you may have allocated a certain amount of your grant money for materials related to scientific research, you could arrive at your conclusion faster than anticipated and have funds left over. Also, as we’ve seen over the past couple years, there could be volatility in costs. Something that was $50 per unit when you started your research could end up being $80 per unit before all is said and done.
For these reasons and others, it’s important to track your grant spending closely on a regular basis. Many grants have a funding allocation for different categories of spending, such as materials, consultants, etc. I’ve seen companies inadvertently max out a category and then have to cover an overage they weren’t expecting. Meanwhile, they left money on the table in another category. Knowing where you stand at any given moment can help you make smart decisions and get the most out of the grant, while avoiding unexpected expenses.
5. Anticipate An Audit, And Prepare Accordingly
Yes, a grant is a huge step, but receiving one in turn requires you or somebody on your team to be a financial pro. Should an audit happen — and an audit will happen automatically for any grant in excess of $750,000 — ensuring your books are in order and every penny is accounted for is key. If you set yourself up for success early by establishing a thorough system of reporting, things will fall into place and allow you to focus on the big picture.
By avoiding mismanagement of grant funds, you’ll make sure your project is a success and, potentially more importantly, you remain eligible for future grants. For some organizations in the biotech industry, grants may be the only source of income. Your CPA will handle the minutia of the grant funds, so you can work on changing the world.
About The Author:
Mike Trinks is a partner at the Connecticut accounting and advisory firm Fiondella, Milone & LaSaracina LLP (FML CPAs). He specializes in audit and consulting for clients in the biotech industry, including accounting and grant compliance, as well as serving as interim or fractional CFO.