C LARK - PowerPoint Presentation

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C

LARK NUBER P.S.

Prepare Your Organization for Major Changes to Federal Award Requirements

October 6, 2014

Troy Rector, CPA

Senior Manager

Not-for-Profit GroupSlide2

AgendaSummary and Incentives for ChangeFramework of 2 CFR 200, aka the “Super Circular” or “Omni Circular”

Pre-Award RequirementsPost-Award RequirementsCost PrinciplesSingle AuditResourcesSlide3

Incentives for ChangeOMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations

, was issued under the Single Audit Act of 1984Some amendments to the Single Audit Act in 1996Slide4

A Lot Has Changed Since Then:1984 Top Music Hits“Ghostbusters” Ray Parker, Jr.

“Purple Rain” Prince“Thriller” Michael Jackson1984 Top TV ShowsDallasCheers60 Minutes1984 StatisticsWorld population: 4.769 B (as of July 2013 - 7.151 B)

Nobel peace prize: Desmond TutuBell phone conglomerate was broken up (we still used pay phones)Slide5

Federal Spending: Financial Assistance and Procurement

(in billions $)www.fedspending.orgSlide6

Complexity:Standardization Lacking2,199 Federal assistance programs are currently listed in the Catalog of Federal Domestic Assistance

63 Federal agencies administer Federal programsOMB deals with 700 different application forms aloneSlide7

Framework – USG Instrumental EntitiesOMB Office of Federal Financial ManagementFederal Awarding Agencies

Council on Federal Assistance Reform (COFAR)Formed in October 2011COFAR replaces two Federal boardsConsists of:Controller of the OMBSenior policy officials from 8 Federal agencies providing the largest $ assistanceSenior policy official from 1 additional agency (2-year term)Slide8

Because We Knew You’d Ask….Department of AgricultureDepartment of Education

Department of EnergyDepartment of Health and Human ServicesDepartment of Homeland SecurityDepartment of Housing and Urban DevelopmentDepartment of LaborDepartment of TransportationNational Science Foundation, FY2012 - 2014Slide9

Objectives of Change and Policy ReformUnifyClarify

SimplifyStandardizeLeverage technologyShift focus to outcomesMinimize waste, fraud and abuseSlide10

Framework – GuidanceSlide11

2 CFR 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards

Subchapter A – Acronyms and DefinitionsSubchapter B – General ProvisionsSubchapter C – Pre-Award Federal Requirements and Contents of Federal AwardsSubchapter D – Post Federal Award RequirementsSubchapter E – Cost PrinciplesSubchapter F – Audit RequirementsAppendicesBonus – the Preamble

The Guidance can be found at:

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

“Super Circular”Slide12

To WHOM Does it Apply?State and Local GovernmentsInstitutes of Higher Education

Not-for-Profit OrganizationsSubrecipientsNot Included:Commercial and foreign entities (discretionary except for Subchapter F )Slide13

To WHAT Does it Apply?Direct federal awards and cooperative agreementsPass-through awards

Procurement contracts under grantsThere are some exceptions these are discussed in sections 200.101 and 200.102 of the CFRSlide14

WHEN Does it Apply?

DateItem12/26/13Becomes applicable to Federal agencies6/30/14

Federal agencies must submit to OMB their drafts for implementing the changes

12/26/14Federal 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 12/26/14Slide15

Pre-Award RequirementsSlide16

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

200.201 – Use of Grant Agreements, (Including Fixed Amount Awards), Cooperative Agreements, and ContractsSpecifically addresses “fixed amount awards” that rely more on performance than compliance for accountabilitySee OMB M-13-17 (Evidence and Innovation Agenda)

200.202 – Requirement to Provide Public Notice of Federal Financial Assistance ProgramsNew requirement for the Federal agency to identify whether the award is subject to Single AuditName of CFDA will not be changed at this pointSlide17

Subpart C, Continued200.203 – Notices of Funding OpportunitiesCompetitive awards

General rule – minimum of 60 daysSome exceptions, but in no case shorter than 30 days200.204 – Federal Awarding Agency Review of Merit ProposalsCompetitive awardsMust design and perform a merit review process separate from the financial risk reviewSlide18

Subpart C, Continued200.205 – 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 awardsConditions of the award may be adjusted to match the assessed level of risk. See 200.207Slide19

Subpart C, Continued200.207 – Specific ConditionsHas 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 reconsideration200.210 – Information Contained in a Federal Awarda(14) – Identification of R&D awardsSlide20

Post-Award RequirementsSlide21

Post Federal Award Requirements:OverviewConverges requirements from OMB Circulars A-110 and A-102, mostly keeping provisions from OMB Circular

A-110Largest impact of new requirements is located in a small number of areas for NFP’sRemember use of “must” and “should”

OversightSlide22

Post Federal Award Requirements:Major ChangesNew sections added

Mandatory disclosurePerformance managementInternal controlsSubrecipient monitoring and managementSignificant changes from existing guidance Procurement (NFP’s, IHE’s)

Financial and performance reportingRecord retention and accessSlide23

Internal Controls:OverviewOMB Directive

Mitigate the risk of fraud, waste and abuse“Internal Control” not previously mentioned – use of term “controls” was used throughoutExplicit 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 complianceSlide24

Internal Controls:What is the “Must”?Entity

must:Establish and maintain effective internal controls over Federal awardsComply with terms and conditions applicable to the Federal award and other applicable laws and regulationsEvaluate and monitor the non-Federal entity’s compliance with Federal awardsTake prompt action when issues of noncompliance are identifiedTake reasonable measures to ensure the protection of personally identifiable informationSlide25

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 environmentGrant compliance not explicitly addressedSlide26

Internal Controls:ConsiderationsHow are your internal controls (not necessarily same as processes) documented?

Challenge of “reasonable assurance” matter of auditor judgmentCOSO frame work already evaluated as part of the Single AuditPart 6 of the 2015 OMB Compliance Supplement expected to incorporate the Green Book and changes in COSO frameworkSlide27

Subrecipient Monitoring [200.330 - 200.332]:Overview

Requirements based on existing guidance - nothing new?OMB Circular A-133OMB Compliance SupplementWhat are the “musts”?Subrecipient vs. Contractor determination Subaward agreement contract provisions Monitoring of subrecipientsSlide28

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 subrecipientDepending on the subrecipient risk assessment, perform such other monitoring procedures (monitoring tools listed)

Verify that every subrecipient is auditedConsider results of subrecipient audits and monitoring on the

pass through entity’s records

Consider taking

enforcement action

on subrecipient [200.338]Slide29

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

must:Review financial and programmatic reports required by the pass through entityEnsure deficiencies identified through audits, on-site reviews and other means are followed up on timelyRisk assessment is key in determining level of further monitoring [200.331(b)]Optional monitoring tools [200.331(e)]:Provide technical training and assistanceOn-site reviews

Arrange Agreed Upon Procedure Engagements (allowable audit costs [200.425])Slide30

Subrecipient Monitoring:ConsiderationsEvaluate current system of internal controls over subrecipient monitoring to ensure the “musts” are performed

Audit “verification”Knowing pass through entity’s responsibility for follow upFull audit reports to now be available

“It didn’t happen if it wasn’t documented”Slide31

Procurement [200.317 – 200.326]OverviewLanguage 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 proscriptiveApplicable to procurements of goods and services under Federal awardsFocus to mitigate risk of fraud, waste and abuse – “oversight”Slide32

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

ethods of procurement covering all procurementsNoncompetitive procurementsProcurement records to be maintained for all procurementsProhibits geographical preference and trumps State or local lawsEncouraged use language will be newSlide33

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 <$3kCompetitive quotations not necessary if price is determined to be reasonableProcurement by small purchase proceduresSimplified 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 proposalsSlide34

Procurement:Noncompetitive ProcurementsExisting 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 sourcePublic exigency or emergency will not permit delay from competitive proposal processAfter solicitation of a number of sources, competition is determined inadequate

Awarding agency expressly authorizes noncompetitive upon written requestSlide35

Procurement:ConsiderationsCompare new requirements to existing, written procurement policies and procedures (if any)

Evaluate existing circumstances which noncompetitive procurements were utilizedConsider entity-wide change provision of the Super Circular’s effective dateSlide36

Financial and Performance Reporting [200.327 – 200.328]Financial Reporting

OMB-approved data elements for collection of financial informationNo less frequently than annually nor more frequently than quarterly except under unusual circumstancesMonitoring and Reporting Program PerformanceExpanded with increased focus on reporting of program performanceNon-construction performance reportsConstruction performance reportsSlide37

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 versionsQuality Control over electronically stored dataSlide38

Cost PrinciplesSlide39

Cost Principles:Key ChangesLanguage converged from existing cost principles (except for hospitals)

Prior written approvalTime and effort reportingIndirect cost recoveryOther selected items of costSlide40

Cost Principles:The ConvergenceThe “best of” language picked from each of OMB Circulars A-87, A-122 and A-21

General tests of allowability remain unchangedCertain industry specific costs (student activities, costs of government added)For many selected items of costs, guidance enhanced but principle not necessarily changedHospital cost principlesLocated in Appendix IXTo be updated at later dateSlide41

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 neededSlide42

Standards for Documentation of Personnel Expenses:Overview [200.430]Comparison to existing cost circulars (A-122, A-87, A-21)

Motivators for changeKey element: System of internal control that provides reasonable assurance charges are accurate, allowable and properly allocatedExpected impact to existing processesSlide43

Standards for Documentation of Personnel Expenses:The RequirementsSystem of internal control providing reasonable assurance charges are accurate, allowable and allocable

Records incorporated into official records of entityReasonably reflect total activity for which employee is compensatedEncompass all activitiesComply with entity’s policies and proceduresSupport allocations (exemption for 100% indirect)Budget estimates for interim accounting purposesSlide44

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

AnnualSemi-annualPersonnel activity reportsOnly mentioned in context of what may be required if standards are not met“After-the-fact determination”Slide45

Standards for Documentation of Personnel Expenses:Other ConsiderationsExisting requirement intact for nonexempt employees

Existing requirement intact to support wages claimed for meeting cost sharing or matching requirementsApproval of “alternative proposals” by the entity’s Cognizant Federal agency for indirect costsFederal awards of similar purpose activity or instances of approved blended fundingSlide46

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

State and Local Governments and Indian TribesAvailability of substitute systems previously available in A-87 continues in new requirementsInstitutions of Higher EducationAreas requiring special considerationSalary basisIntra-IHE consultingExtra service payPeriods outside the academic yearPart-time faculty

Sabbatical leave costsSalary rates for non-faculty membersSlide47

Indirect Cost Recovery:OverviewFinal outcome in Super Circular different from ANPR and Proposed Guidance

Focus of new Circular on ensuring adequate indirect cost recoveryGuidance on indirect cost procedures located in separate appendices for Nonprofit Organizations, Institutions of Higher Education and States and Local Government and Indian TribeSlide48

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 availableIndirect cost reimbursement policy to be included in the Notice of Funding OpportunityMay apply for an extension of previously negotiated rate for up to 4 yearsImpact on settlement of provisional and fixed carryforward rates?Slide49

Indirect Cost Recovery:Entities w/o Federally Negotiated IDCRLack of direct relationship with Federal awarding agency

Options for indirect cost recoveryNegotiate IDCR with pass through entity using guidelines of this PartIndefinite application of “de minimis” indirect cost rate of 10% of Modified Total Direct Costs (MTDC) with no reconciliation to actual costsImpact on pass through agencies

Negotiation capacityRequired use of existing Federal agency methods (DHHS, DOL)Slide50

Indirect Cost Recovery: OtherInstitutions of Higher Education (IHE)

Threshold requiring Cost Accounting Standards coverage raised to $50M in Federal AwardsState 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 < $35MGuidance in Subpart E and appendices remain significantly the sameGeneral direct and indirect cost classificationConsistency provisions still applySelected items of costs required to be treated as indirect or conditions for including as directSlide51

Allowable Costs:Other Selected Items of CostBonding

Compensation – fringe benefitsConferencesContingency provisions DepreciationEmployee Health and Welfare CostsExchange ratesInterest costsProposal

costsIntellectual property (software)

Supplies – computing devicesSlide52

Single Audit

(fka A-133 Audit)Slide53

Subpart F: Audit, Threshold Changes200.501 – 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%Slide54

Subpart F: Audit, (more significant changes)200.516 – Audit Findings

Questioned costs threshold for reporting is $25k, increased from the current $10kNote this is both “known” and “likely”200.510 – Financial StatementsNew disclosure for whether or not the non-Federal entity elected to use the 10% de minimis cost rate (200.414)Slide55

Subpart F: Audit (changes to audit coverage)200.512 – Report Submission

Audit package will be publicly availableIndian tribes may “opt out” of publishing through the FACOpting out is NOT the defaultNew FAC Submission WebsiteRemember to set up your accountNumber of Compliance RequirementsWas NOT reduced and will remain at 14 for nowCOFAR 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 commentSlide56

Current Action StepsTake the deep dive

User friendlyCommunicate proposed uniform guidance to internal stakeholdersUnderstand required compliance policies and procedures and update existing to incorporate OMB circular references and related compliance requirementswill need to be updatedDevelop 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

workSlide57

ResourcesOMB

http://www.whitehouse.gov/omb/financial_default/Federal Register and Preamblehttps://federalregister.gov/a/2013-30465COFARhttps://cfo.gov/cofar/

Includes webcasts and FAQsCrosswalkhttp

://www.whitehouse.gov/omb/grants_docsFederal Audit Clearinghouse Internet Data Entry System

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

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.comSlide58

Questions, Comments, Other Considerations

Thank You Troy Rector, Senior Manager trector@clarknuber.com

425.990.7603