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OMB Begins Process of Reforming Grants Management Circulars

March 9, 2012

Following White House instructions to eliminate red tape across federal agencies, the Office of Management and Budget (OMB) has issued an advance notice of proposed guidance that outlines potential changes to federal grants management circulars that could significantly affect colleges and universities.

The ideas outlined in the February 28 Federal Register stem from a year of work by the federal and nonfederal financial assistance community. OMB is currently seeking comments on the ideas and suggestions included in the advance notice. Later in the year, proposed amendments to the circulars will be issued in the Federal Register. Then, after reviewing comments on the proposed changes, OMB will issue a final notice outlining the changes and effective dates.

Circulars A-133 and A-50

The first section of the notice discusses ideas for changes to Circulars A-133, Audits of States, Local Governments, and Non-Profit Organizations, and A-50, Audit Followup.  OMB suggests focusing oversight resources on higher-dollar, higher-risk awards by raising the thresholds for different groups receiving federal awards. Entities expending less than $1 million in federal awards would not be required to conduct a single audit. This would be an increase from the current $500,000 threshold. Entities that expend between $1 million and $3 million would be required to undergo a more focused version of the single audit, where auditors would only review two compliance requirements. Allowable and unallowable costs would always be one of the compliance requirements reviewed; the second would be determined at the discretion of agencies.  Lastly, under the suggested reforms, entities that expend more than $3 million would be required to undergo a full single audit.

For those undergoing a full single audit, OMB suggests streamlining the universal compliance requirements listed in A-133. This could be done, for example, "by emphasizing those elements that address improper payments, waste, fraud, abuse, and program performance." Certain compliance requirements, including allowable or unallowable activities and costs, would be targeted for increased testing. Conversely, other requirements could be made optional or could have smaller sample sizes and higher levels of materiality.

The advance notice also suggests that there could be changes to guidance on audit follow-up.  One possible approach would require agencies to designate a senior accountable official to oversee the audit resolution process. OMB would also like to see agencies implement audit-risk metrics, engage in cooperative audit resolution with recipients, and "take a proactive approach to resolving weaknesses and deficiencies, whether they are identified with single specific programs or cut across the systems of an audited recipient." To further improve audit follow-up, single audit reports would be entered into a digital, searchable database.

Flat Rate for Indirect Costs

One idea suggested in the advance notice would establish a flat rate for indirect costs. This rate would be discounted from the recipient's already negotiated rate. A second idea would give recipients the option of accepting a flat rate or negotiating a rate. "Recipients with a previously negotiated rate may have the additional option of accepting a discounted rate from their already negotiated rate," says OMB. That discounted rate could be maintained for up to a four-year period.

Direct Costs

This reform idea would involve clarifying the circumstances under which institutions of higher education "may charge directly allocable administrative support as a direct cost. Included are project-specific activities such as managing substances/chemicals, data and image management, complex project management, and security."

Time and Effort Reporting

OMB floats the idea of building on existing pilot projects, or developing new ones, to provide alternatives to current time and effort reporting requirements that would reduce administrative burden while maintaining compliance.

Utility Cost Adjustments

Currently, 65 universities receive at 1.3 percent indirect costs adjustment for utility costs associated with funded research. Extending the Utility Cost Adjustment to more institutions of higher education would address equity issues that have been raised.

Combined Circulars

To help increase consistency and decrease complexity, OMB is also considering implementing these reforms in an integrated set of guidelines that would "be contained in one consolidated circular, in which current administrative requirements that currently vary by type of recipient would be streamlined into one set of common requirements, while at the same time some provisions that vary among different types of recipients would be retained."

Comments Due March 29

The notice includes a number of other ideas for reform. Business officers at institutions with federal research activities or other federally funded programs are encouraged to review the notice and consider responding to some of the 16 questions posed by OMB. Comments are due by March 29. Please share a copy of your comments with Bryan Dickson at NACUBO.

Update: On March 26 OMB extended the comment deadline. Comments are due by April 30.

Contact

Bryan Dickson
Policy Analyst
202.861.2505
E-mail