Friday, February 11, 2011

[PDADC-L] Resolving Unrecoverable Deficits in Restricted Research Funds

Communication from the Vice-President, Research on Resolving Unrecoverable Deficits in Restricted Research Funds

February 9, 2011

Dear Principals, Deans, Directors and Chairs

On September 24th, 2010, I wrote to Principals and Deans about unrecoverable deficits or losses in non Tri-Council restricted research funds and our plans for resolving the underlying issues. I am writing today to provide an update on the progress we have collectively made and the significant events coming up. For these purposes, I am extending this communication to include Academic Directors and Chairs.

Over the past year my office initiated a review of non Tri-council restricted research funds with deficit fund balances. The review was triggered by concern expressed by the external auditors over the increasing number and age of funds in deficit positions that remained unresolved year after year. The preliminary review process was completed in April 2010 and resulted in an estimate of $4.5M in cumulative research deficits in non Tri-council funds across all divisions. This represented approximately 500 funds where the deficits were considered to be unrecoverable. This estimate was charged against the operating fund in fiscal 2009-10 to preserve the integrity of the University’s audited financial statements. At the time of this estimate, and due to the complexity of developing and compiling the amount, it was agreed by the Research Oversight and Compliance Office (ROCO) and divisions that a more extensive review of the individual deficits would be conducted by ROCO, with assistance from divisions. In anticipation of the more detailed review, the $4.5M charge to the operating fund was reversed with the intention to replace the entry in fiscal 2010-11 by a more accurate amount based on the identification and tabulation of individual restricted research funds

Over the course of the past 9 months, staff in the Division of the Vice-President Research, in cooperation with divisional CAOs and Departmental Business Officers, has investigated hundreds of funds to understand the causes and validate the deficit amount. We have corrected data entry errors, mathematical miscalculations and, on occasion, we have collected monies owing to us. As a result of the clean-up effort, the total of deficits in non Tri-Council research funds for the entire University currently amounts to approximately $2.75 million. During this exercise we have identified many scenarios and circumstances through which deficits occurred in the first place. Armed with this insight and as part of the RAISE project ( ), we have implemented changes to certain processes which will safeguard against the creation of deficits in the future, including an automated fund close-out process to ensure revenue-expenditure reconciliation at the end date of each restricted research fund. In relation to that we have also developed an early warning report which will enable PIs, departments and divisions to identify the impact of research funds that will be automatically closed, so they may resolve any potential issues before deficits are charged to operating funds as described below. Training for your admin staff on the early warning report and the supporting processes is currently underway.

We are now preparing for the first monthly record keeping entry whereby, commencing March 1, 2011, deficits in non Tri-Council restricted research funds with grant end dates older than 2 years will be charged to the PI fund centre or other fund centre associated with the restricted research fund. By posting these old deficits to the ‘one-up’ operating fund centre, we are making these deficits the responsibility of the academic unit in which they originated, starting with the individual PI. This ‘one-up’ charge methodology was based on feedback and instruction from various academic divisions consistent with the transparency intended under the new budget model. However please be aware that there may be cases where the PI was diligent in the management of the grants funds, spent the funds in accordance with the expenditure budget provided, but now a deficit will be attributed to the PI. Deficits may arise from various reasons unbeknownst to the PI. For example, the cash may not have been received from the sponsor because the sponsor is bankrupt, or the non-monetary in-kind matching value was insufficient or expenditures were charged to an invalid research fund number. I encourage you to consider the individual circumstances surrounding each of the deficits and use your discretion in re-allocating the deficits charged from the individual PI fund center to another operating fund center where you feel it is warranted. At the end of the fiscal year, these deficits will be included in the overall year-end position for each department and collectively for the division, and therefore should be addressed before April 30, 2011. In the event that a deficit is subsequently favourably resolved, the recovery of the amount will be credited to the fund center that was originally charged.

Finally, let me outline the scope of our ongoing activities in this area. As a first step, we have been analyzing non Tri-Council research funds, since these funds held the highest risk of materializing losses. The second step will be to analyze Tri-Council restricted research funds and then close out old funds and match revenues to expenditures for current activities. Analysis and projections of the magnitude of deficits in these accounts will be forwarded to you in the coming months (for resolution in next fiscal year). The final step will be to analyze surpluses in all restricted research funds and formulate a process for dealing with these items.

I am grateful for your patience and support of our activities, especially during the implementation of some significant changes to some long standing institution-wide practices. Our goal is to create an environment in which staff in my division can work in partnership with you, your faculty and staff, to enable more effective and accountable management of research funds with as little risk or administrative interruption as possible. Should you have any questions on our progress or our plans for future activities, please do not hesitate to contact Elizabeth DiDonato, Executive Director, Research Oversight and Compliance Office at Thank you for your assistance with this matter.

Professor R. Paul Young Ph.D., FRSC
Vice-President, Research

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