C LARK N UBER P. S. Prepare Your Organization for Major Changes to Federal Award Requirements October 6, 2014 Troy Rector, CPA Senior Manager Not-for-Profit

CLARK NUBER P.S.

Prepare Your Organization

for Major Changes to

Federal Award Requirements

October 6, 2014

Troy Rector, CPASenior Manager

Not-for-Profit Group

Page 2CLARK NUBER P.S.

Agenda

• Summary and Incentives for Change• Framework of 2 CFR 200, aka the “Super

Circular” or “Omni Circular”• Pre-Award Requirements• Post-Award Requirements• Cost Principles• Single Audit• Resources


Incentives for Change

• OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, was issued under the Single Audit Act of 1984

• Some amendments to the Single Audit Act in 1996


A Lot Has Changed Since Then:

• 1984 Top Music Hits– “Ghostbusters” Ray Parker, Jr.– “Purple Rain” Prince– “Thriller” Michael Jackson

• 1984 Top TV Shows– Dallas– Cheers– 60 Minutes

• 1984 Statistics– World population: 4.769 B (as of July 2013 - 7.151 B)– Nobel peace prize: Desmond Tutu– Bell phone conglomerate was broken up

• (we still used pay phones)


Federal Spending: Financial Assistance and Procurement

2000 2002 2004 2006 2008 2010 2011 $-

$200

$400

$600

$800

$1,000

$1,200

$295 $406 $450 $490 $419

$612 $559 $206

$264

$346

$432 $541

$537 $537

Grants Contracts

(in billions $)

www.fedspending.org


Complexity:Standardization Lacking

• 2,199 Federal assistance programs are currently listed in the Catalog of Federal Domestic Assistance

• 63 Federal agencies administer Federal programs

• OMB deals with 700 different application forms alone


Framework – USG Instrumental Entities

• OMB Office of Federal Financial Management• Federal Awarding Agencies• Council on Federal Assistance Reform (COFAR)

– Formed in October 2011– COFAR replaces two Federal boards– Consists of:

• Controller of the OMB• Senior policy officials from 8 Federal agencies

providing the largest $ assistance• Senior policy official from 1 additional agency (2-

year term)


Because We Knew You’d Ask….

• Department of Agriculture• Department of Education• Department of Energy• Department of Health and Human Services• Department of Homeland Security• Department of Housing and Urban

Development• Department of Labor• Department of Transportation• National Science Foundation, FY2012 - 2014


Objectives of Change and Policy Reform

• Unify• Clarify• Simplify• Standardize• Leverage technology• Shift focus to outcomes• Minimize waste, fraud and abuse


Framework – Guidance

Administrative Circulars: A-89, A-102, A-110

Cost Circulars: A-21, A-87, A-122

Audit Circulars: A-133, A-50

2 CFR 200


2 CFR 200 – Uniform Administrative Requirements, Cost

Principles, and Audit Requirements for Federal Awards

• Subchapter A – Acronyms and Definitions• Subchapter B – General Provisions• Subchapter C – Pre-Award Federal Requirements and Contents of Federal Awards• Subchapter D – Post Federal Award Requirements• Subchapter E – Cost Principles• Subchapter F – Audit Requirements• Appendices• Bonus – the Preamble

The Guidance can be found at: https://federalregister.gov/a/a2013-30465

“Super

Circular”

https://federalregister.gov/a/a2013-30465

https://www.federalregister.gov/articles/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards


To WHOM Does it Apply?

• State and Local Governments• Institutes of Higher Education • Not-for-Profit Organizations• Subrecipients• Not Included:

– Commercial and foreign entities (discretionary except for Subchapter F )


To WHAT Does it Apply?

• Direct federal awards and cooperative agreements

• Pass-through awards• Procurement contracts under grants• There are some exceptions

– these are discussed in sections 200.101 and 200.102 of the CFR


WHEN Does it Apply?

Date Item

12/26/13 Becomes applicable to Federal agencies

6/30/14 Federal agencies must submit to OMB their drafts for implementing the changes

12/26/14 Federal agencies’ regulations are uniformly effective for all federal awards or funding increments issued after this date*

* - Effective date of Procurement requirements delayed until first full fiscal year that begins on or after December 26, 2014 [FAQ 8-29-14]

12/26/14 New single audit changes for fiscal years beginning after 12/26/14


Pre-Award Requirements


Pre-Award Requirements and Contents of Federal Awards Significant ChangesSubpart C

• 200.201 – Use of Grant Agreements, (Including Fixed Amount Awards), Cooperative Agreements, and Contracts– Specifically addresses “fixed amount awards” that rely

more on performance than compliance for accountability– See OMB M-13-17 (Evidence and Innovation Agenda)

• 200.202 – Requirement to Provide Public Notice of Federal Financial Assistance Programs– New requirement for the Federal agency to identify

whether the award is subject to Single Audit– Name of CFDA will not be changed at this point


Subpart C, Continued

• 200.203 – Notices of Funding Opportunities– Competitive awards– General rule – minimum of 60 days– Some exceptions, but in no case shorter than 30

days• 200.204 – Federal Awarding Agency

Review of Merit Proposals– Competitive awards– Must design and perform a merit review process

separate from the financial risk review



• 200.205 – Federal Awarding Agency Review of Risk Posed by Applicants– Federal agencies are required to use information

available through any OMB-designated repositories:• Single Audit reports, FAPIIS, D&B, “Do Not Pay”

– Must create a “framework” for reviewing risk • Competitive awards• Conditions of the award may be adjusted to

match the assessed level of risk. – See 200.207



• 200.207 – Specific Conditions– Has been expanded to include a list of examples of

specific conditions that may be applied to an award by either the Federal agency or pass-through entity• Certain approvals, additional financial reporting,

etc.; however,• Must provide the nature of, reason for, action

required, timeline allowed, and method for requesting reconsideration

• 200.210 – Information Contained in a Federal Award– a(14) – Identification of R&D awards


Post-Award Requirements


Post Federal Award Requirements:Overview

• Converges requirements from OMB Circulars A-110 and A-102, mostly keeping provisions from OMB Circular A-110

• Largest impact of new requirements is located in a small number of areas for NFP’s

• Remember use of “must” and “should”

Oversight


Post Federal Award Requirements:Major Changes

• New sections added– Mandatory disclosure– Performance management– Internal controls– Subrecipient monitoring and management

• Significant changes from existing guidance – Procurement (NFP’s, IHE’s)– Financial and performance reporting– Record retention and access


Internal Controls:Overview

• OMB Directive– Mitigate the risk of fraud, waste and abuse

• “Internal Control” not previously mentioned – use of term “controls” was used throughout

• Explicit mention now made in new section titled Internal Controls [200.303]

• References several sources of Internal Control guidance with which the system of internal controls should be in compliance


Internal Controls:What is the “Must”?

Entity must:• Establish and maintain effective internal controls over

Federal awards• Comply with terms and conditions applicable to the

Federal award and other applicable laws and regulations• Evaluate and monitor the non-Federal entity’s

compliance with Federal awards• Take prompt action when issues of noncompliance are

identified• Take reasonable measures to ensure the protection of

personally identifiable information


Internal Controls:Internal Control Guidance

• ‘‘Internal Control Integrated Framework’’, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)

• ‘‘Standards for Internal Control in the Federal Government’’ issued by the Comptroller General of the United States [Green Book]– Issued September 10, 2014 and significantly

expanded from prior version– Adopted from COSO Framework and adapted for

government environment– Grant compliance not explicitly addressed


Internal Controls:Considerations

• How are your internal controls (not necessarily same as processes) documented?

• Challenge of “reasonable assurance” – matter of auditor judgment

• COSO frame work already evaluated as part of the Single Audit

• Part 6 of the 2015 OMB Compliance Supplement expected to incorporate the Green Book and changes in COSO framework


Subrecipient Monitoring [200.330 - 200.332]:Overview

• Requirements based on existing guidance - nothing new?– OMB Circular A-133– OMB Compliance Supplement

• What are the “musts”?• Subrecipient vs. Contractor determination • Subaward agreement contract provisions • Monitoring of subrecipients


Subrecipient Monitoring:The List of “Musts”

• All pass through entities must:– Subaward agreement requirements including Federal indirect

cost recovery (terms and conditions)– Evaluate subrecipient’s risk – Consider imposing specific subaward conditions [200.207]– Monitor the activities of the subrecipient– Depending on the subrecipient risk assessment, perform such

other monitoring procedures (monitoring tools listed)– Verify that every subrecipient is audited– Consider results of subrecipient audits and monitoring on the

pass through entity’s records– Consider taking enforcement action on subrecipient [200.338]


Subrecipient Monitoring:What Monitoring is Required?• Monitoring of the subrecipient must:

– Review financial and programmatic reports required by the pass through entity

– Ensure deficiencies identified through audits, on-site reviews and other means are followed up on timely

• Risk assessment is key in determining level of further monitoring [200.331(b)]

• Optional monitoring tools [200.331(e)]:– Provide technical training and assistance– On-site reviews– Arrange Agreed Upon Procedure Engagements

(allowable audit costs [200.425])


Subrecipient Monitoring:Considerations

• Evaluate current system of internal controls over subrecipient monitoring to ensure the “musts” are performed

• Audit “verification”– Knowing pass through entity’s responsibility

for follow up– Full audit reports to now be available

• “It didn’t happen if it wasn’t documented”


Procurement [200.317 – 200.326]Overview

• Language taken from governmental administrative requirements as noted in OMB Circular A-102 (large number of “musts”)

• Previous requirements applicable to NFP’s and IHE’s were minimum standards w/ new requirements more proscriptive

• Applicable to procurements of goods and services under Federal awards

• Focus to mitigate risk of fraud, waste and abuse – “oversight”


Procurement:Key Changes for NFP’s and IHE’s

• Methods of procurement covering all procurements

• Noncompetitive procurements• Procurement records to be maintained

for all procurements• Prohibits geographical preference and

trumps State or local laws• Encouraged use language will be new


Procurement:Procurement Methods [200.320]

The entity must use one of the following procurement procedures:• Procurements by micro-purchases (new for gov’t

entities)– Purchase <$3k– Competitive quotations not necessary if price is determined

to be reasonable

• Procurement by small purchase procedures– Simplified Acquisition Threshold (currently $150k)– Price or rate quotations must be obtained by an adequate #

of qualified sources

•Procurement by sealed bid (formal advertising)– Construction contracts

• Procurement by competitive proposals


Procurement:Noncompetitive Procurements• Existing requirements for NFP/IHE’s required

documents to be available for review (if requested) for noncompetitive bids greater than small purchase threshold

• Noncompetitive procurements may only be used when one or more of the following circumstances apply:– Item is available only from a single source– Public exigency or emergency will not permit delay

from competitive proposal process– After solicitation of a number of sources, competition is

determined inadequate– Awarding agency expressly authorizes noncompetitive

upon written request


Procurement:Considerations

• Compare new requirements to existing, written procurement policies and procedures (if any)

• Evaluate existing circumstances which noncompetitive procurements were utilized

• Consider entity-wide change provision of the Super Circular’s effective date


Financial and Performance Reporting [200.327 – 200.328]

• Financial Reporting– OMB-approved data elements for collection

of financial information– No less frequently than annually nor more

frequently than quarterly except under unusual circumstances

• Monitoring and Reporting Program Performance– Expanded with increased focus on reporting

of program performance– Non-construction performance reports– Construction performance reports


Methods for Collection, Transmission and Storage of Information [200.335]

• Whenever practical, store documents in open and machine readable formats

• Federal or pass through agencies must still accept paper versions (for example, reports)

• Consideration of original, electronic versions

• Quality Control over electronically stored data


Cost Principles


Cost Principles:Key Changes

• Language converged from existing cost principles (except for hospitals)

• Prior written approval• Time and effort reporting• Indirect cost recovery• Other selected items of cost


Cost Principles:The Convergence

• The “best of” language picked from each of OMB Circulars A-87, A-122 and A-21– General tests of allowability remain unchanged

• Certain industry specific costs (student activities, costs of government added)

• For many selected items of costs, guidance enhanced but principle not necessarily changed

• Hospital cost principles– Located in Appendix IX– To be updated at later date


Cost Principles:Prior Written Approval [200.407]

• Consideration of advanced approval from cognizant Federal agency or Federal awarding agency

• Comprehensive list of selected items of cost where prior written approval is needed


Standards for Documentation of Personnel Expenses:Overview [200.430]

• Comparison to existing cost circulars (A-122, A-87, A-21)

• Motivators for change• Key element:

– System of internal control that provides reasonable assurance charges are accurate, allowable and properly allocated

• Expected impact to existing processes


Standards for Documentation of Personnel Expenses:The Requirements

• System of internal control providing reasonable assurance charges are accurate, allowable and allocable

• Records incorporated into official records of entity

• Reasonably reflect total activity for which employee is compensated

• Encompass all activities• Comply with entity’s policies and procedures• Support allocations (exemption for 100%

indirect)• Budget estimates for interim accounting

purposes


Standards for Documentation of Personnel Expenses:What’s Not Included?

• Certifications– Annual– Semi-annual

• Personnel activity reports– Only mentioned in context of what may be

required if standards are not met• “After-the-fact determination”


Standards for Documentation of Personnel Expenses:Other Considerations

• Existing requirement intact for nonexempt employees

• Existing requirement intact to support wages claimed for meeting cost sharing or matching requirements

• Approval of “alternative proposals” by the entity’s Cognizant Federal agency for indirect costs

• Federal awards of similar purpose activity or instances of approved blended funding


Standards for Documentation of Personnel Expenses:Special Considerations for SLG’s and IHE’s

• State and Local Governments and Indian Tribes– Availability of substitute systems previously available

in A-87 continues in new requirements• Institutions of Higher Education

– Areas requiring special consideration– Salary basis– Intra-IHE consulting– Extra service pay– Periods outside the academic year– Part-time faculty– Sabbatical leave costs– Salary rates for non-faculty members


Indirect Cost Recovery:Overview

• Final outcome in Super Circular different from ANPR and Proposed Guidance

• Focus of new Circular on ensuring adequate indirect cost recovery

• Guidance on indirect cost procedures located in separate appendices for Nonprofit Organizations, Institutions of Higher Education and States and Local Government and Indian Tribe


Indirect Cost Recovery:Federally Negotiated IDC Rates [200.414(c)]

• Negotiated rate must be accepted unless cap on indirect recovery required by statute or approved by Federal agency head or designee – Federally agency approval, policies and general

decision making criteria for lowered IDC recovery must be made publicly available

– Indirect cost reimbursement policy to be included in the Notice of Funding Opportunity

• May apply for an extension of previously negotiated rate for up to 4 years– Impact on settlement of provisional and fixed

carryforward rates?


Indirect Cost Recovery:Entities w/o Federally Negotiated IDCR

• Lack of direct relationship with Federal awarding agency

• Options for indirect cost recovery– Negotiate IDCR with pass through entity using

guidelines of this Part– Indefinite application of “de minimis” indirect cost

rate of 10% of Modified Total Direct Costs (MTDC) with no reconciliation to actual costs

• Impact on pass through agencies– Negotiation capacity– Required use of existing Federal agency methods

(DHHS, DOL)


Indirect Cost Recovery: Other

• Institutions of Higher Education (IHE)– Threshold requiring Cost Accounting Standards coverage

raised to $50M in Federal Awards

• State and Local Governments (Tribes not included)– Required to complete Indirect Cost Rate Proposal if

charging indirect costs but not required to submit and negotiate IDCR if Federal assistance < $35M

• Guidance in Subpart E and appendices remain significantly the same– General direct and indirect cost classification– Consistency provisions still apply

• Selected items of costs required to be treated as indirect or conditions for including as direct


Allowable Costs:Other Selected Items of Cost• Bonding• Compensation – fringe benefits• Conferences• Contingency provisions• Depreciation• Employee Health and Welfare Costs• Exchange rates• Interest costs• Proposal costs• Intellectual property (software)• Supplies – computing devices


Single Audit(fka A-133 Audit)


Subpart F: Audit, Threshold Changes

• 200.501 – Audit Requirements– Threshold increased to $750k from $500k in federal

expenditures during the fiscal year• 200.518 Major Program Determination – Type A

Program Determination

• Percentage of coverage rule– Reduced to 20% / 40%– From 25% / 50%


Subpart F: Audit, (more significant changes)

• 200.516 – Audit Findings– Questioned costs threshold for reporting is $25k,

increased from the current $10k• Note this is both “known” and “likely”

• 200.510 – Financial Statements– New disclosure for whether or not the non-Federal

entity elected to use the 10% de minimis cost rate (200.414)


Subpart F: Audit (changes to audit coverage)

• 200.512 – Report Submission– Audit package will be publicly available– Indian tribes may “opt out” of publishing through the

FAC• Opting out is NOT the default

– New FAC Submission Website• Remember to set up your account

• Number of Compliance Requirements– Was NOT reduced and will remain at 14 for now– COFAR recommended a separate process for

evaluation to avoid creating unintended consequences, i.e., increased administrative burden

– 2015 OMB Compliance supplement to be issued August 2014 for public comment


Current Action Steps

• Take the deep dive– User friendly

• Communicate proposed uniform guidance to internal stakeholders

• Understand required compliance policies and procedures and update existing to incorporate OMB circular references and related compliance requirements– will need to be updated

• Develop an implementation plan based on a discussion of the impact of key provisions– (compensation costs, procurement, indirect cost recovery)

• Obtain training to supplement your internal work


Resources

• OMB – http://www.whitehouse.gov/omb/financial_default/

• Federal Register and Preamble– https://federalregister.gov/a/2013-30465

• COFAR– https://cfo.gov/cofar/– Includes webcasts and FAQs

• Crosswalk– http://www.whitehouse.gov/omb/grants_docs

• Federal Audit Clearinghouse Internet Data Entry System– https://harvester.census.gov/facides/(S(dgs1qw3wrpggtiy2k1arfjo

k))/account/login.aspx

• OMB M 13-17 (Evidence and Innovation Agenda)– http://

www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-17.pdf

• Clark Nuber– www.clarknuber.com

http://www.whitehouse.gov/omb/financial_default/

https://federalregister.gov/a/2013-30465

https://cfo.gov/cofar/

https://cfo.gov/cofar/

http://www.whitehouse.gov/omb/grants_docs

http://www.whitehouse.gov/omb/grants_docs

https://harvester.census.gov/facides/(S(dgs1qw3wrpggtiy2k1arfjok))/account/login.aspx



http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-17.pdf



http://www.clarknuber.com/


Questions, Comments, Other Considerations

Thank You

Troy Rector, Senior [email protected]

Documents

C LARK N UBER P. S. Prepare Your Organization for Major Changes to Federal Award Requirements October 6, 2014 Troy Rector, CPA Senior Manager Not-for-Profit