State of the grant: 2013 federal grants management update
If there was ever a year for nonprofit (NFP) decision-makers to pay attention to the federal regulatory climate, it is this year. Upcoming are significant changes in federal grants management that will affect just about every organization in one way or another. The most important change continues to be the development of proposed guidance on rules pertaining to management of federal awards. A new version of the proposal was released in February 2013, by the Office of Management and Budget (OMB), and was open to public comments through May 2. The NFP world is currently awaiting the final version of what promises to be the most significant reform to federal grants management in a generation.
Although this latest version has not been approved by the OMB, the February 2013 document appears to be moving towards its final form, and is likely a strong predictor of the final version. Thus, in order to prepare for the major changes ahead, NFP decision-makers should familiarize themselves with it now.
This critical issue was the headline topic at this year's Federal Grants Management Update Webcast, held on Aug. 22, 2013. Presented again this year by Tom Sneeringer, partner at RSM US LLP, the eighth annual webcast gave NFP decision-makers the opportunity to review recent events in federal grants management.
In addition to the OMB grant reform project, Sneeringer also discussed the following topics:
- Changes to the A-133 data collection form (Form SF-SAC)
- Update to proposed DATA Act
- 2013 OMB Compliance Supplement
- Revised COSO Model
To listen to the entire program and learn about other topics covered at this year's presentation, the webcast is available at RSM's website.
Update on OMB grant reform project
This latest version of the proposed guidance (Reform of Federal Policies Relating to Grants and Cooperative Agreements: Cost Principles and Administrative Requirements) is a revised version of the 2012 document of the same name discussed at last year's webcast. The current version incorporates and responds to comments received about the 2012 document. The overarching goal of the project is to make the entire process of federal grants management more efficient. The reforms take special aim at streamlining the A-133 audit process by eliminating multiple circulars, and consolidating them into one circular for all segments.
A second goal is to focus and streamline the audit process. The OMB hopes to make the audit process more relevant and efficient, allowing auditors to focus more narrowly on the important issues, and not waste time with less critical matters. Other changes discussed in the document include new threshold limits, revised cost principles and new or revised administrative requirements.
The OMB has made clear that it is interested in accelerating the OMB Circular A-133 submission process. Currently, NFP entities have nine months to complete and submit the A-133 to the Federal Audit Clearinghouse (FAC). With the view that nine months may be too long, the OMB would like to shorten that to three or six months. However, the idea has not been well-received by many NFP organizations. Although three or six months may be appropriate for a small organization, a large state or local government would face major difficulties in meeting such a short deadline. In the face of this pushback, the OMB has decided to take no action at the present time; for now, the nine-month deadline continues to be in effect.
As of our Muse publication date, the OMB has not announced a date for release of the final regulations, nor has it provided any timeline for implementation. There is speculation that the final regulations will be released by the end of 2013, but no one knows for sure, and even if this happens, the effective date is still uncertain. For NFP decision-makers, knowing that there may be new developments before the end of the year, the best course of action is to simply monitor events closely.
The February 2013 version, along with older versions of the proposed grant reform, can be found at the OMB website. To understand the difference between the old circulars and the new guidelines, you will also find the older versions available for review. Additionally available at the same link are the following documents:
- Crosswalk from Existing to Proposed Guidance
- Crosswalk from Proposed Guidance to Predominant Source in Existing Guidance
- Administrative Requirements Text Comparison
- Cost Principles Text Comparison
- Audit Requirements Text Comparison
- Definitions Text Comparison
Streamlining of circulars
There has been considerable confusion over the multiple circulars that exist for each category of NFP. If you are a typical organization, you are likely using at least three circulars at present, and you also are likely to have found many redundancies and repetitious requirements in these circulars. In order to eliminate all the duplications, the OMB has decided to have only one circular for all types of entities. Eight circulars will be rolled into one super circular. The single consolidated circular will embody the whole life cycle of grants management, including application process, awards process, administration, requirements and closeout. The consolidated circular is expected to make the updating process much easier for everyone.
Among the circulars that will be rolled into one super circular are:
- A-21 - Cost Principles for Educational Institutions
- A-50 - Audit Follow-Up, related to Single Audit
- A-87 - Cost Principles for State, Local, and Indian Tribal Governments
- A-89 - Federal Domestic Assistance Program Information
- A-102 - Awards and Cooperative Agreements with State and Local Governments
- A-110 - Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
- A-122 - Cost Principles for Non-Profit Organizations
- A-133 - Audits of States, Local Governments and NonProfit Organizations
Overview of other new proposals
Following is a brief rundown of other proposals in the revised OMB document:
Single audit threshold
The revised proposal increases the audit threshold from $500,000 to $750,000. Based on single audits submitted to the FAC for 2010, there would be over 6,100 fewer entities subject to a single audit, but there would only be a reduction in dollars covered of approximately 3/10th of 1 percent.
Type A threshold
- Groupings are based on dollars, with Type A programs defined as those above the dollar threshold, and Type B as those below the threshold.
- The minimum threshold is increased from $300,000 to $500,000.
- If the total amount of federal awards expended is $750 thousand to $100 million, then Type A programs are those with federal awards expended of the greater of $500,000 or 3 percent of total awards expended.
- If the total amount of federal awards expended is $100 million to $10 billion, then Type A programs are those with federal awards expended of the greater of $3 million or .3 percent of total awards expended.
- If the total amount of federal awards expended is $10 billion or more, then Type A programs are those with federal awards expended of the greater of $30 million or .15 percent of total awards expended.
High-risk Type A programs
The current default criteria for a high-risk Type A program are as follows:
- Not audited as a major program in one of two most recent audit periods
- In most recent period, had any of the following:
- Significant deficiency in internal control
- Material noncompliance finding
- Has ARRA (American Recovery and Reinvestment Act of 2009) expenditures in current year
- Has received a written request by federal awarding agency to audit as major (with 180 days' notice)
The proposed default criteria for a high-risk Type A program are as follows:
- Not audited as a major program in one of the two most recent audit periods
- In the most recent period, had any of the following for program:
- Other than an unmodified opinion
- Material weakness in internal control
- Known or likely questioned costs that exceed 5 percent of the total expenditures of the program
- A written request by federal awarding agency to audit as major (180 days' notice)
High-risk Type B programs
The current Type B risk assessment options are as follows:
- Option 1 – Perform risk assessments on all Type B programs (subject to de minimis threshold), and select one half of Type B programs identified as high risk up to the number of low-risk Type A programs.
- Option 2 – Perform risk assessments on all Type B programs until as many high-risk Type B programs have been identified as there are low-risk Type A programs.
The proposed Type B risk assessment option is to perform risk assessments on Type B programs (subject to de minimis threshold) until high-risk Type B programs have been identified up to 25 percent of low-risk Type A programs.
Percentage of coverage requirement
The proposal reduces the minimum coverage required as follows:
|Type of Auditee||Current||Proposed|
|Not Low Risk||50 percent||40 percent|
|Low Risk||25 percent||20 percent|
- Single audits are performed on an annual basis.
- Auditor's opinions on financial statements and SEFA (Schedule of Expenditures of Federal Awards) are unqualified.
- No material weakness under requirements of GAGAS (generally accepted government auditing standards).
- In either of the preceding two years, none of the Type A programs had:
- Material weakness
- Noncompliance with material effect
- Known or likely questioned costs that exceed 5 percent of total federal awards expended for a Type A program.
- Full single audits performed on annual basis
- Auditor's opinions on financial statements and SEFA are unmodified.
- No going concern issue opinion
- No material weakness under requirements of GAGAS
- In either of preceding two audit periods, none of the Type A programs had:
- Material weakness
- Other than an unmodified opinion on compliance
- Known or likely questioned costs that exceed 5 percent of total federal awards expended for a Type A program.
Consolidation of OMB cost principles
The proposal would consolidate cost principles into a single document by merging the following circulars (note: Hospitals are not incorporated in the proposal.):
- OMB Circular A-21 – Educational Institutions
- OMB Circular A-87 – Governments
- OMB Circular A-122 – Nonprofit Organizations
Administrative requirements for recipients
The OMB proposal consolidates the administrative requirements of OMB Circulars A-102 and A-110 into a uniform set of administrative requirements for all grant recipients. The basis appears to be A-110, except for procurement requirements, which align with A-102. The small purchase threshold is set at $150,000 for procurement purposes.
Changes to the data collection form (Form SF-SAC)
The A-133 data collection process is also a part of ongoing reform in federal grants management. The data collection form is being revised, and NFP organizations need to know what parts of the form are changing, what the data is being used for, as well as other changes in data input and collection.
Changes to FAC Form SF-SAC
The Federal Register Notice about changes to Form SF-SAC was released on May 9, 2013, and comments were due on July 8. The changes are more significant this time than they have been in recent years. The new form and instructions will be applicable for audit periods ending in 2013, 2014 and 2015. Release of the final form is now expected in late September or early October.
Among the changes to Form SF-SAC are:
Part I – General Information
- Beginning with 2013 audits, all audit firms must report their Employer Identification Number (EIN)
- Secondary auditors must report their EIN on the secondary auditor contact information page
Part III - Federal Programs
There are two new items on this part of the form (sample of form shown below):
- Identify Loan/Loan Guarantee
- Standardized Audit Finding Reference Numbers: YYYY-###, (ex. 2013-001)
Part III, Item 7 - Federal Awards Findings Summary
Changes are as follows, with a sample form shown below:
- Audit findings must be listed once for each federal award affected by that finding.
- Auditor must report the Type of Compliance Requirement (moved from Part III: Federal Programs).
- Type of finding must be indicated (Modified Opinion, Other Noncompliance, Material Weakness, Significant Deficiency, Other).
- Auditor must report questioned costs related to the finding.
Extension of time to file in 2013 only
If a single audit for a fiscal period ending in 2013 is due before the 2013 Form is available, auditees will not be able to meet the 30-day deadline prescribed by OMB Circular A-133, section .320(a). Therefore, OMB has granted an extension until Sept. 30, 2013, for reporting packages due before that date. The extension is automatic, and there is no approval required. This extension applies only to single audits for fiscal periods ending in 2013. When the final form is released, OMB is expected to increase the waiver deadline beyond the September 30 date to perhaps Dec. 31, 2013, in order to give auditors time to catch up from the backlog created by not having the form available earlier in the year.
Update - DATA Act
The proposed Digital Accountability and Transparency Act (DATA Act) (H.R. 2061 and S. 994) is a proposal for a public database that shows the flow of spending from appropriation through final spending at the subrecipient level. It has been under review for the past two years; its most recent version was reintroduced on May 21, 2013. However, prospects for passage of the bill do not look promising. The costs and benefits of the legislation have been seriously questioned for some time now, and states have voiced disagreements or objections to it. Thus, there appears to be declining support for the bill, and passage of it is not expected in either the House or the Senate.
2013 OMB A-133 Compliance Supplement
The 2013 OMB A-133 Compliance Supplement was slated to be issued in March, but was late and did not come out until July 2, 2013. The issuance date is typically behind schedule, although this year's release date was slightly better than last year's July 24 release date.
This year's Supplement is effective for A-133 audits for fiscal years beginning after June 30, 2012 (i.e., FYE 6/30/13 – 5/31/14). Four programs were added and 23 programs were deleted.
- "Good Faith Effort for Submission." This subsection within the Federal Funding Accountability and Transparency Act (FFATA) reporting section has been kept, so as to provide guidance for organizations who have documented evidence that they attempted to comply with FFATA reporting requirements, but could not.
- National Science Foundation (NSF) awards. OMB has added a new section to Appendix VII, entitled "Treatment of National Science Foundation Awards." It states that effective for proposals due after Jan. 14, 2013, all NSF awards meet the definition of "Research & Development" (R&D). As such, auditees should identify NSF awards as part of the R&D cluster on their Schedule of Expenditures of Federal Awards.
- Procurement, suspension and debarment. The part that covers Procurement and Suspension and Debarment requirements has several revisions, including changes in compliance requirements, and revisions to suggested audit procedures for testing compliance with suspension and debarment requirements.
- $100,000 threshold (soon to be $150,000) vs. current $25,000 threshold. Although the $100,000 threshold for procurement under grants will be changed to $150,000 when consolidation of OMB guidance is completed, the $100,000 threshold continues to apply, unless an agency has issued guidance raising the threshold.
- The EPLS (Excluded Party List System). EPLS has been replaced with SAM (System for Award Management).
Revised COSO model
NFP Organizations should consider using the COSO (Committee of Sponsoring Organizations of the Treadway Commission) model in the evaluation and design of its internal controls over financial reporting, compliance and operations. A revision to the model was released on May 14, 2013, including the introduction of 17 principles of control that align with the original five elements of COSO. The new principles are:
Element: Control environment
- Demonstrates commitment to integrity and ethical values
- Exercises oversight responsibility
- Establishes structure, authority and responsibility
- Demonstrates commitment to competence
- Establishes accountability
Element: Risk assessment
- Specifies relevant objectives
- Identifies and assesses risk
- Identifies and assesses significant change
- Assesses fraud risk
Element: Control activities
- Selects and develops control activities
- Selects and develops general controls over technology
- Deploys through policies and procedures
Element: Information and technology
- Generates relevant information
- Communicates internally
- Communicates externally
- Conducts ongoing and separate evaluations
- Evaluates and commutates deficiencies
For more information
For more information on this topic, please contact Tom Sneeringer, Partner, Nonprofit Practice, at 301.296.3642.