The government is utilizing existing agency structures and federal funding assistance programs to award stimulus funding for research and innovation projects. From the Department of Energy, Department of Health and Human Services and others, projects are in the proposal process, and businesses of all shapes and sizes are looking for part of the action. The big question is, “How prepared are these organizations for the reporting and compliance requirements that are imposed on the organizations as a result of taking these funds?” Have they considered:

  • Job creation or saved tracking
  • Audit and reporting requirements
  • Accounting and business management system redesign
  • Management control and oversight requirements
  • Intellectual property ownership negotiations and issues
  • Subcontracting and manufacturing requirements

Big Opportunities for Innovative Technologies

Big dollars are being made available for research and product development in many areas. Using existing federal funding assistance award processes and mechanisms, many federal agencies are ready to fund projects, especially those projects aligned with other government initiatives including energy (e.g., biofuels, LEDs, cost reduction in manufacturing of existing products) and health (e.g., bioengineering, lasers, imaging cameras). The opportunities are “in process” with proposal deadlines looming and businesses scrambling to put together complete and credible proposals.

A few opportunities have award amounts of a maximum of $600,000; others are not capped, enabling companies to submit proposals for millions of dollars. These funds are expected to fund the next generation of innovation, technology and hopefully jobs. One of the key requirements of projects funded by “recovery” funds is to track and report jobs created (or “saved”) using these funds. That is one new reporting element of many, and some of the reporting elements have yet to be determined. These reporting requirements will be in addition to the financial, accounting, and business management system compliance requirements already imposed under federal funding assistance.

Funding: The Cost Side

The cost of compliance and reporting is something that many first-time applicants have neither considered nor fully understand. The accounting that many private companies utilize is typically not structured to provide the project-by-project reporting, segregation of costs and compliance with government regulations for accounting and financial control systems. Further, these companies will now have government “strings” attached to the business, including:

  • Project and cost accounting established by government cost principles
  • Restrictions on use of funds to “allowable” cost based upon the cost principles and award agreements
  • Intellectual property reporting and tracking, as well as the potential need to negotiate the exact terms and conditions of IP rights
  • Management oversight and controls on transactions and reporting
  • Audits by the government and by independent auditors retained by the company to perform company funded audits that meet Generally Accepted Auditing Standards and Government Auditing Standards

Federal funds have never been awarded without including the cost of compliance and reporting. Whether funds are from existing government programs like Small Business Innovation Research and Small Business Technology Transfer Research programs (which provide billions of dollars to fund high-risk, innovative technology proof-of-concept and product development through grants, cooperative agreements and contracts) and other research programs or acquisition contracts, strings are always attached to the tax dollars being provided to various institutions. For those businesses just getting started, the investment in putting into place compliant and capable business, financial, and accounting systems should not be overlooked in developing the proposals. Many organizations have undoubtedly jumped in with visions of “free money” and will find that having government funds means doing business differently.

From Proposal to Compliance Be Aware

The cost of proposal development and compliance is not necessarily a reason for organizations to opt out of seeking government funding. However, businesses do need to be strategic and fully aware of the costs of receiving government funds, from monthly, quarterly and annual reporting, to restrictions on how funds are used, to requirements to provide funding for matching dollar for dollar the federal funds with non-government funds (or sharing as much as 50% of the total project costs). Signing on the dotted line to receive “recovery” funds may just put some businesses in need of “recovery” when project and business costs exceed the capability of the organizations to provide them.

Copyright ©2009 Lea A. Strickland, F.O.C.U.S. Resource, Inc.

 

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