Contributory Sponsored Agreements - Unrestricted - Immediately Released
On the Exchange Transactions web page the definition of an exchange transaction is provided along with details and examples. Here we will discuss what Drexel University and the Academy of Natural Sciences are defining as a Contributory Sponsored Agreement - Unrestricted - Immediately Released. For details on how Contributory Sponsored Agreements - Restricted (Fund Type 24) are handled, please refer to the corresponding web page.
As part of the required transition to Accounting Standards Update 2018-08 - Not-For-Profit Entities (Topic 958): Clarifying the Scope ad the Accounting for Contributions Received and Contributions Made in fiscal year 2019, we have found it necessary to create a new fund type in Banner to track awards that fall into this category. The new fund type is Fund Type 23 - Contributory Sponsored Agreements - Unrestricted - Immediately Released. Research Accounting Services will determine if an award falls into the Contributory Sponsored Agreement - Unrestricted - Immediately Released or the Contributory Sponsored Agreement - Restricted category by evaluating each award's contracts for stipulations of a right of return of funding and a barrier that must be overcome. Prior to the new guidance, federal, state and local government awards were by default all classified as exchange transactions under the logic that the government doesn't make contributions and that the entity is being paid for services it performs on the government's behalf.
For almost all federal, state and local awards, the barrier is typically compliance with the Uniform Guidance and agency regulations. This barrier is overcome as soon as qualified expenditures are charged to the award. As such, they meet their conditions immediately and to distinguish these awards from awards that are also Contributory Sponsored Agreements but that also have restrictions that are not immediately met, we have developed this classification. Fund Type 23 - Contributory Sponsored Agreements - Unrestricted - Immediately Released are classified on the statement of financial position as without restrictions. This category of fund will now be used for almost all federal, state, and local government awards that were previously classified as Fund Type 18 - Exchange Transactions. The exception to this rule is federal, state or local clinical trials, which will continue to be classified as Fund Type 18 - Exchange Transactions.
The awards falling into the Fund Type 23 - Contributory Sponsored Agreement - Unrestricted Immediately Released will be assigned fund numbers that begin with a "9". The second digit of the fund will delineate the type of funding (i.e. DHHS, NSF, Department of Education) in this category. The third digit of the fund will range from 0 to 4. The predecessor (or roll-up) funds will always have a "0" in the third position. Please refer to our fund hierarchy for a visual depiction of the fund number hierarchy.
The University's consolidated financial statements and the Academy's stand-alone financial statements will look very much as they do today as a result of this change. The reason for this is related to what the Financial Accounting Standards Board (FASB) calls a simultaneous release option in Section 958-605-45-4A. This option allows the University and the Academy to adopt a policy to report any sponsored agreements that were transitioned from Fund Type 18 - Exchange Transactions to Fund Type 23-Contributory Sponsored Agreements - Unrestricted - Immediately Released as without restrictions on the Statement of Activities. This practice is known as a practical expedient and allows us to adopt this accounting treatment for only the awards being transitioned to the new fund type of Fund Type 23- Contributory Sponsored Agreements - Unrestricted - Immediately Released (i.e. those awards whose conditions are met over time as the award is expended and are subject to the Uniform Guidance). The simultaneous release option allows the University and the Academy to consistently report under the old and new guidance the revenue streams for these awards as without restrictions on the Statement of Activities. Further, the simultaneous release option also allows this policy to apply to only these types of contributory sponsored agreements and to continue to report other types of conditional contributory sponsored agreements as we have historically, within net assets with donor restrictions and then to release those revenues to without restrictions as the conditions of the agreement are met.
Example 1: Contributory Sponsored Agreement - Unconditional or Exchange Transaction?
Scenario: Drexel is awarded a grant from the National Institutes of Health (NIH). The NIH is an agency of the federal government and the largest biomedical research organization in the world. Its declared mission is to uncover new knowledge that will lead to better health for all. It works toward that mission by conducting research in its own labs as well as by supporting the research of non-government scientists in universities and research institutions. Drexel applies for an receives an award of $500,000 to study infectious diseases from the NIH. This award is cost-reimbursable and subject to the Uniform Guidance. All of the intellectual property is owned by Drexel resulting from this award.
Conclusion: The ASU emphasizes that the analysis should focus on whether reciprocal benefits actually flow between the parties to an agreement. The NIH in this example is not receiving goods, services or intangible rights in return for the resources provided. Although the NIH's mission is furthered by carrying out research, that benefit is secondary to the benefit received by the general public. Because the NIH isn't receiving benefits in return (apart from advancement of its mission), the arrangement would be a contributory sponsored agreement (non-exchange). The award's only barrier is that it must comply with the Uniform Guidance. This barrier is being met upon expenses being charged and drawn down. Therefore, it would be considered an unconditional contributory sponsored agreement.
Classification: This award would be considered by Drexel to be a Fund Type 23 - Contributory Sponsored Agreement - Unrestricted - Immediately Released in its chart of accounts using a fund number that begins with a 900XXX.
Example 2: Contributory Sponsored Agreement - Unconditional or Exchange Transaction?
Scenario: Drexel is awarded a sub-contract to assist on a research project in which the Temple University holds the prime award with DHHS. Drexel will complete certain specific tasks outlined in the contract and must meet specific performance targets with respect to measurable output and reporting. Drexel will not retain and rights to intellectual property or data findings.
Conclusion: This sub-contract is considered a Contributory Sponsored Agreement - Unconditional (Fund Type 23) because this award is subject to Uniform Guidance and as such there is a barrier but that barrier is immediately overcome when spending the funds in accordance with the Uniform Guidance.
Classification: This award would be set up as a Fund Type 23 - Contributory Sponsored Agreement - Unrestricted - Immediately Released in Drexel's chart of accounts using a fund number that begins with 960XXX. This fund is considered unrestricted and revenues will be recognized as the award is expended.
Example 3: Contributory Sponsored Agreement - Unconditional or Exchange Transaction?
Scenario: Drexel has been awarded a clinical trial contract with a large pharmaceutical company to test the efficacy of a new drug. As part of the clinical trial Drexel must recruit a population of patients to properly test the new medication on and develop results. The award has specific time frames in which to recruit patients for the study, test the medication and report outcomes. The pharmaceutical company will retain any intellectual property and data findings with the intent on profiting from the drug, if approved by the Food and Drug Administration.
Conclusion: This clinical trial is considered an exchange transaction because commensurate value is being exchange for services. The pharmaceutical company retains all intellectual property, so it can not be considered a contribution.
Classification: This clinical trial would be set up as a Fund Type 18 - Exchange Transactions in Drexel's chart of accounts using a fund number that begins with 480XXX. The fund would be considered unrestricted and revenues would be recognized over time as the award is expended.
1. PwC In Depth No. US2018-13, August 22, 2018, https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/us-2018-13-fasb-grants-contribution-accounting-model.pdf
2. Accounting Standards Update (ASU) 2018-08 - Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting for Contributions Received and Contributions Made, Financial Accounting Standards Update, Financial Accounting Standards Board.