New uniform grant management framework: What you need to know today
The time is fast approaching for the new federal uniform grant requirements to go into effect. Following the issuance of the final rules on Dec. 26, 2013, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (UR) will soon become the framework that governs all federal grant awards. All grant recipients should take time to familiarize themselves with its key provisions, and especially the differences between past and new requirements.
On July 29, 2014, the New Uniform Grant Requirements – What you need to know today webcast was held to walk attendees through the key changes. Presented by Brian Schebler, national director of public sector services at RSM, the webcast set out to help listeners know:
- Where to obtain access to the new uniform requirements
- When to start applying the new requirements
- How the new requirements will affect grant management activities
Reform of the federal grants management rules has been ongoing since 2009 and subjected to extensive evaluation. Certain provisions of the final regulations become effective on Dec. 26, 2014. Nonfederal entities will need to implement the new administrative requirements and cost principles for all new federal awards made after Dec. 26, 2014, and for additional funding to existing awards made after that date.
Following is a summary of some of the highlights discussed in the webcast. Since this article only provides a cursory overview of the new regulations, you may want to access additional materials for further insight into the new regulations. To review all changes, plus keep up with ongoing developments, please refer to the following resources:
- A group of various documents on UR published by the White House, including policy statements, final rules, proposals and more. Especially helpful are crosswalk charts that compare previous rules to new ones.
- The Council on Financial Assistance Reform (COFAR) Mailing List to register and receive future announcements, information on upcoming webcasts, and other COFAR resources.
- An archive of Office of Management and the Budget presentation materials covering the contents of the various sections.
- A COFAR document entitled, Frequently Asked Questions for New Uniform Guidance at 2 CFR 200.
Implementation and effective dates
One of the first and most important considerations for grant recipients is which fiscal periods are subject to the new regulations. The new audit requirements are effective for fiscal years beginning on or after Dec. 26, 2014, with a few exceptions. For example:
June 30, 2014, Sept. 30, 2014, and Dec. 31, 2014, year-end periods
- No impact from the UR for nonfederal entities and auditors
March 31, 2015, June 30, 2015, and Sept. 30, 2015, year-end periods
- Nonfederal entities will have to adopt new administrative requirements and cost principles relating to all new federal awards and pertaining to additional funding to existing awards.
- Those subject to single audit requirements will continue to use the old regulations, but auditor compliance testing will be affected by client adoption of the new requirements (i.e., they will likely have to test some awards subject to the old requirements and some to the new requirements).
Dec. 31, 2015, year-ends and beyond periods
- New administrative requirements, cost principles and new single audit requirements will apply to all entities.
New and revised definitions
Section 200.XX contains a number of new and revised definitions, including:
- 200.23 Contractor. The term vendor (in contrast to the term subrecipient) as used in Circular A-133 is no longer used. The term contractor is defined in this section and will be used instead of vendor going forward.
- 200.54 Indian tribe. This term has been removed from the definition of state.
- 200.79 Personally Identifiable Information (PII) and 200.82 Protected Personally Identifiable Information. These terms are now defined for the first time. The new definitions are important to auditors and auditees since single audit reporting packages submitted under the new guidance will be publically available. Auditors and auditees must also ensure that no protected PII is included in their respective parts of the reporting package.
Section 200.100-113 overview
This section discusses the purpose, applicability, exceptions and effective date of the UR. A chart is included in section 200.101 that indicates which subparts are applicable to different types of awards. Auditors and auditees should pay close attention to section 200.101, which now states that the terms and conditions of federal awards flow down to subrecipients, unless the UR or the terms and conditions of a federal award specifically indicate otherwise.
- 200.112 Conflict of interest. Federal agencies must establish conflict of interest policies. Grantees must disclose in writing any potential conflicts of interest.
- 200.113 Mandatory disclosures. Grantees and applicants must disclose all violations of federal criminal law potentially affecting the federal award (e.g., fraud, bribery or gratuity violations).
Section 200.303 Internal controls
The nonfederal entity must establish and maintain effective internal controls over the federal award so as to provide reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. As a best practice, internal controls should be in compliance with the guidance in Standards for Internal Control in the Federal Government [aka, the Green Book] issued by the Comptroller General of the United States, and the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (aka, COSO).
Sections 200.317-200.326 Procurement
For nonfederal or state entities there are five procurement methods outlined in the UR. It includes small purchase procedures which are subject to the simplified acquisition threshold, micro-purchases, sealed bids, competitive proposals and noncompetitive proposals. In general, the new procurement standards adopt the majority of the language used in OMB-Circular 102.
Nonfederal entities that are currently subject to OMB-Circular A-110 will likely be affected more significantly.
All auditees should review these changes carefully to determine the impact on their procurement procedures, in particular those relating to procurement card programs.
Section 200.331(a) Subrecipient monitoring
In terms of identifying the subaward, recipients must do the following:
- Clearly identify the award - see Required Information List in 200.331(a)(1)
- Identify the requirements imposed by the pass-through entity (PTE) so that the award is used in compliance with statutes, regulations, terms and conditions
- Identify any additional requirements imposed so that the PTE meets responsibilities to the federal awarding agency (e.g., financial and performance reports)
- Subrecipient must give permission for PTE and auditors to access records
Section 200.331(b) Subrecipient monitoring
When auditors are evaluating the risks of noncompliance, they should consider such factors as:
- The entity's prior experience with subawards
- The results of its previous audits, including whether similar awards have been audited
- Changes in personnel or systems
- The extent and results of past and current federal monitoring
Section 200.331(d) Subrecipient monitoring
Monitoring procedures are for the purpose of ensuring that subwards are (1) used for authorized purposes,
(2) are in compliance with regulations and (3) that the award's performance goals have been met.
Monitoring procedures must include:
- A review of financial and performance reports required by the PTE
- A follow up ensuring timely and appropriate action on deficiencies
- Issuing a management decision for audit findings
Section 200.412-415 Direct and indirect costs
This section contains the following changes or noteworthy items concerning rates, as follows:
- Federal agencies will have to accept a nonfederal entity's negotiated indirect cost rate unless the statute or regulation allows for an exception or unless an agency head approves.
- Nonfederal entities will have the option to extend a rate for up to four years (a one-time extension with some caveats).
- Nonfederal entities that have never received a negotiated rate will be permitted to charge a de minimis rate of 10 percent of modified total direct costs which may be used indefinitely.
- The rate must be used consistently for all federal awards until the entity chooses to negotiate a new rate.
- All subawards should include a provision for indirect costs, which will be an approved negotiated rate between the subrecipient and the federal government.
- If no such rate exists, a rate will be negotiated between the pass-through entity and the subrecipient.
Section 200.430 Compensation and personnel services
The purpose of revising this section was to reduce the administrative burden of documenting time and effort. The section is now more principles-based (i.e., it removed the OMB Circular A-21 examples) than the old regulations. It is less prescriptive on documentation and places more emphasis on internal controls than on personnel-related costs. However, there is a requirement that charges must be based on records that accurately reflect the work performed.
The new rules will allow entities to replace detailed time-and-effort reports with performance-based reporting based on milestones. The appropriate agency will have to approve the use of such an approach, but entities could use performance-oriented metrics to account for multiple awards and their combined use.
Section 200.500s Audit requirements
The UR strengthens oversight by focusing audits on areas where there is the greatest risk of waste, fraud and abuse of taxpayer dollars. It improves transparency and accountability by making single audit reports available to the public online, and also encourages federal agencies to take a more cooperative approach to audit resolution.
The UR also:
- Increases audit threshold
- Strengthens a risk-based approach to determine major programs
- Strengthens agency use of the single audit process
Changes to the single audit threshold
The rules increase the audit threshold from $500,000 to $750,000 for audits of periods beginning after Dec. 26, 2014. Early implementation of the new audit requirements is not allowed.
- Based on recent single audit submissions to the FAC this could mean that there could be approximately 5,000 fewer entities subject to a single audit.
- The threshold increases when amounts expended exceed $25 million.
The thresholds and criteria for determining auditee risk and major programs (e.g., type A vs. type B programs, program risk and the percentage of audit coverage required) will also change.
The new guidance supersedes requirements from OMB Circulars A-21, A-87, A-110, A-122, A-89, A-102 and A-133, and the guidance in Circular A-50 on Single Audit Act follow-up.
For more information
For more information on how the new regulations may affect your organization, please contact your local RSM audit lead.