Foreign currency fluctuations are a significant concern when managing awards paid in foreign currency or projects where work is conducted or expenses are incurred in countries using foreign currency.
Variances between the value of the US dollar and the currencies of other countries can impact the budgeting and implementation of projects. Most of the time, currency fluctuations are relatively moderate, but a particular event or series of events can lead to more severe fluctuations. Exchange rate gains and losses are common when managing a project involving multiple currencies. Gains or losses are not generally charged to sponsor awards and are prohibited under Federal funding.Below are recommendations for best managing projects that utilize foreign currencies.
Awards Paid in Foreign Currency
Fluctuations in exchange rate can have a significant effect on the payments for sponsored research projects when projects are paid in foreign currency rather than U.S. dollars. UCSF has implemented specific guidelines to manage the risk associated with accepting awards in foreign currency. If the negotiated terms of the award require foreign currency payments over the award’s life, this condition will be disclosed and acknowledged by the department through an OSR informed consent memo. At the time of award acceptance, the department will choose whether the financial risk associated with foreign currency exchange rates will be funded through a department discretionary fund or by adjusting the award budget(while maintaining the promised scope).
For the full procedure, see the Controller’s Office quick reference guide on Foreign Currency Awards.
Budgeting for Projects Implemented with Foreign Currency
While awards are typically budgeted and paid in U.S. dollars, components implemented in other countries may require payment in local currency. In the case of sponsored awards, program administrators should generally update budgets as close as possible to the award stage to minimize exchange rate variations. The authorized spending amount is based on cash received in U.S. dollars, so fluctuating values could result in a reduction of services under the agreement. If allowed, consider a contingency amount to cover fluctuations in exchange rates.
To budget costs in a foreign currency, UCSF departments can use the spot rate, the exchange rate prevailing at the time of budget preparation and submission. For more volatile currencies, an average or exponential moving average from the previous 6 to 12 months could be considered, if allowed by the Sponsor. Currency exchange assumptions and sources of information should made transparent at the initial budgeting stage.
Foreign Currency Exchange Source: OANDA Currency Conversation
Project Implementation and Budget Monitoring
Currency exchange rates vary over a project lifecycle, from the proposal stage to when the funds are transferred, drawn and spent, and when the financial reports are prepared and submitted. As a result of these fluctuations, your project may end up with less (or more) foreign currency than originally anticipated. Review exchange rates often so that you are aware of and can prepare for the impact of significant fluctuations and consider revising your budget closer to award stage or implementation.
Currency Conversion for Subaward Invoicing
The accurate conversion from local currency to USD for invoicing purposes is crucial to fully compensate international partners for their costs incurred in completing the project work as well as to ensure that the sponsoring agency is not overcharged due to fluctuation in currency exchange rates. Therefore, the actual currency conversion rate at as close to the time of the incurrence of the expenses (e.g., day of charge, last day of month being invoiced) should be used for invoicing. The budgeted conversion rate should never be used.
As soon as identified, a large fluctuation in the exchange rate from the budgeted rate should be brought to the attention of the UCSF Controller’s Office. UCSF will assess the currency exchange rates over the life of the subaward to help identify the impact of rate fluctuations on the budget and determine mitigation measures.