OpenMRS Inc should start auditing its financials over the next few years

Community Leadership
, , ,
1

Bahmni is receiving grant funding through Digital Square, with OpenMRS Inc as our fiscal sponsor. Our fiscal sponsorship agreement says that we should pay a 12% fee to OpenMRS of inbound funding. (This is fine by us.)

It seems that the simplest way to do things would be to have a 12% indirect rate on incoming grants, that goes to cover OpenMRS Inc’s costs for PM, accounting, etc, that we’re leveraging. (Someone should point out if this is the wrong approach!)

In any case, we have not been allowed to charge an indirect rate on the grant from PATH per their policies, because to do that OpenMRS Inc would either need to have (1) a NICRA, or (2) 3 years of audited financials that support the indirect rate.

There is an easy enough workaround with PATH, so this isn’t urgent. Although when we got DIAL funding earlier they preferred to do 5 different contracts with individual Bahmni Coalition members because it would have taken too long to get approval to contract with OpenMRS Inc. (I didn’t explore why at the time, but could follow up now.)

As Bahmni, we suggest that OpenMRS Inc should start taking the steps necessary to be able to receive indirects a few years down the road.

(Justifying an indirect rate probably requires putting a value on things like “advising from Terry and Jan”, and they’re not paid by OpenMRS but rather doing this as an in-kind contribution. So I guess it’s not totally trivial to do this, but I also assume there are standard approaches.)

2 Likes
2

Let me try saying a few things to see if I have it right.

  • PATH is the funder, and OpenMRS is the recipient of those funds
  • OpenMRS then subcontracts/cost reimburses to get the work done on Bahmni
  • Path doesn’t allow indirect cost recovery by OpenMRS

That’s OK - the “12% fee that Bahmni and OpenMRS have agreed upon” isn’t an indirect cost, and OpenMRS is not recovering it from PATH (which PATH would not permit). The 12% is not paid on top of the funds PATH pays for the work (as indirect costs would be), but rather is a cost PATH allowed in the budget as a direct expense (I think). Quite reasonable. Presumably that 12% was reflected in a budget that PATH saw, and so PATH approved it as direct expense - presumably for directly attributable management and administrative expenses. That does not violate their policy of not allowing grantees to recover indirect costs. (costs not directly attributable to the work).

So, it’s not really a workaround - it’s a deliberate fiscal management strategy by PATH to minimize the unattributable costs they pay grantees. I propose that OpenMRS, Inc., behave the same way to it’s grantees. I propose that OpenMRS have a policy of not paying indirect costs to it’s grantees, but that OpenMRS consider and approve grantee budgets that include true attributable costs that the grantees occur in getting the work done, including attributable costs of administration, rent, capital expenses, etc.,

The policy about whether we pay indirects is not directly related to the policy about whether we charge indirects to our funders. If we did have (1) a NICRA, or (2) 3 years of audited financials, we could set an indirect rate, but individual sponsors could still tell us they had a policy of not paying, or of capping indirect charges, and we’d have to waive the indirect cost recovery to meet their conditions of of funding.

If we have an audited indirect rate of 25%, but we accept funds from RWJ - who caps at 15%, or PATH - who caps at 0%, then it actually causes problems, as we’re now donating part of the indirect costs that we’d expect to recover, and this would change our indirect rate at the next audit.

So, it seems like a lot of work, and uncertainty, for little benefit unless we were getting large federal grants from groups like NIH that pay full indirect costs. If NIH funds $500K, they will pay $500K plus indirects. CDC, for instance, typically funds to a “total cost cap”, so the higher the indirect rate, the less funds are available internally to do the work. If CDC funds a $500K project, and we have a 25% indirect rate, the amount we have left to spend on the project is only $375K.

Hopefully that all makes some sense, and equally hopefully, it is accurate…!

3

Hi Bill and Darius

Thanks for this important discussion.

From the point of view of the Pineapple funds it would be helpful to have some standard OpenMRS indirect rate so that recipients could cover essential expenses. Maybe it would be best to look at the question of what the real costs are for supporting projects as you describe and include and element for that.

Hard to know what to do about institutions that require some negotiated rate. I suggest we get advice about the 3 year audit process as you suggest.

Regards

Hamish

4

My post was pretty long, but what it comes down to is this: there are a few ways to allow grantees to cover essential costs. One is for OpenMRS to pay the grantee institutions standard indirect rate. The second is for OpenMRS to set a cap on the indirect rate it will pay. The third is for OpenMRS to not pay indirects, and to allow grantees to include essential costs as line items in their proposal budgets.

Both the second and third approaches require OpenMRS to have a uniform policy, applicable to all grantees. My University, for instance, likes to see that that policy is published on an open web site. The process (for me) to get a wavier that allows me to write a proposal with anything other than the standard indirect rate is the same - pointing to the policy, and requesting permission. I’ve never had my university refuse to allow me to submit a proposal, whether at 15% indirects (RWJ), or 0% (some foundations).

I believe it is in OpenMRS’ best self interest (not in my personal self interest) for us to have (as a policy) a zero % indirect cost recovery rate for all grantees.

Best

Bill

PS - one other caveat - I don’t think a policy could specify different indirect cost recovery rate for different sources of funds (Pineapple, vs other donations, vs subcontracts on federal funds, etc.). That would be very difficult to administer, and might lead to tempting (but shady) accounting practices.

5

+1. I included this in the non-profit evaluation metrics for the BOD to oversee. Audited financials is a component that non-profit evaluators use, such as GuideStar, etc. My guess is that Props could help us set up auditing - whether we do an internal or external audit.

6

I agree (I think). I believe it would be different if OpenMRS was a funder itself, but we are just acting as a pass through, and it should be a work-for-hire sort of think (in my opinion). It is up to the grantee to specify their costs as part of the grant. No indirects. When OpenMRS is acting as the pass through for someone else doing the fundraising, OpenMRS should levee a fee for the financial administration (as I think we are doing), but not an indirect fee.

Andy

7

It’s a good point that the situation I’m describing is not an indirect. I will talk more with PATH and DIAL about how to include this in future grants.

That said, I presume we should still be doing audits and/or whatever is best-practice for non-profits.

1 Like
8

I want to make clear there are two completely different topics:

  1. OpenMRS should establish an audited and recognized indirect cost recovery rate so when we receive funding we can be paid for indirect costs, if the funder is one that pays those costs. (I agree that the costs we add on top of the funding Bahmni gets - and which PATH pays - are not indirects. From PATH’s pov, they are an approved/allowable direct cost for oversight and administration of the Bahmni funds).

  2. OpenMRS should not pay indirect costs when we are funding others through grants or contracts. This would apply to the PATH funds we give Bahmni - we should allow Bahmni’s direct costs, including administrative costs, but we should not permit recovery of Bahmni’s indirect costs. It would also apply to Pineapple funds. To be honored, this needs to be a published policy, and it needs to be evently applied to all grantees or contractors receiving funds from OpenMRS.

These two are completely separate issues.

Bill

9

https://wiki.openmrs.org/display/RES/OpenMRS+Funding+Award+Policy

10

I think we want to caution using the language “acting as a pass through” since that has specific meaning in financial and tax implications. We are actually not doing that with Bahmni. We are acting as a fiscal sponsor with a set of responsibilities and accountability to the donor providing the money to ensure that it is used by the Bahmni coalition to achieve our aligned mission by producing the project deliverables. :slight_smile: