OMB Proposes Sweeping Grants Management Reform
February 8, 2013
Update: In a notice in the March 21, 2013 Federal Register, OMB announced that it is extending the comment period to June 2, 2013.
The Office of Management and Budget proposed sweeping changes to the federal grants management circulars on February 1. The proposal aims to supersede and streamline requirements from eight existing OMB Circulars into one document, with sections and subsections clearly delineated by the type of entity to which they apply. The proposed guidance follows an advance notice of proposed guidance (ANPG) published on February 28, 2012, which floated numerous reform suggestions. NACUBO, along with several other higher education associations, offered comments on the suggested proposals in the ANPG.
OMB proposes to combine, and codify in Title 2 of the Code of Federal Regulations, the following circulars:
- Administrative Requirements
- A-102, Grants and Cooperative Agreements with State and Local Governments
- A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations
- A-89, Catalog of Federal Domestic Assistance
- Cost Principles
- A-21, Cost Principles for Educational Institutions
- A-87, Cost Principles for State, Local and Indian Tribal Governments
- A-122, Cost Principles for Non-Profit Organizations
- Audit Requirements
- A-133, Audits of States, Local Governments and Non-Profit Organizations
- A-50, Audit Followup
The move to consolidate the circulars has not met with universal approval. OMB explains that entities representing one type of constituent submitted comments to the ANPG generally opposed the move, while entities such as federal agencies and auditors who deal with multiple types of awardees support the consolidation.
OMB proposes to use language from Circular A-110 as the basis for the consolidated guidance on administrative requirements for grants and cooperative agreements in Subchapters A-E. Places where there are differences for state, local, and tribal governments are then noted explicitly. One exception is Section .504 on procurement, which is taken from A-102. OMB notes that it is particularly interested in feedback on the impact of this change from universities and other entities that are currently subject to A-110.
This section also addresses pre-award considerations of the applicant's financial risk; notices of funding opportunities; standard formats for announcements; new uniform terms and conditions; and more.
The three circulars on cost principles (A-21, A-87, and A-122) would be consolidated into Subchapter F of the new guidance, supplemented by Appendices IV through IX. Cost principles for hospitals currently laid out in regulations issued by the Department of Health and Human Services may be added in the future. Policy changes of particular interest to colleges and universities include the following:
Flat Indirect Cost Rates
OMB's ANPG suggested two possibilities for offering flat indirect cost rates. The first was a mandatory and universal discount from a negotiated rate, and the second would have given entities the option of choosing a flat discount from a previously negotiated rate. Based on the comments received, OMB has abandoned that idea. It does, however, provide the option of extending negotiated rates for up to four years subject to approval of the indirect cost cognizant agency. This one-time extension would only be approved if there were no major changes in indirect costs.
The proposed guidance also calls a minimum flat rate of 10 percent of modified total direct costs. This, says OMB, ensures that "entities without the capacity for a full negotiation receive a minimum reimbursement for no more than four years while they develop the capacity to engage in full negotiations." In addition, pass-through entities would have to either:
- honor the indirect cost rates negotiated at the federal level;
- negotiate a rate in accordance with federal guidelines; or
- provide the minimum flat rate.
OMB discussed expanding the Utility Cost Adjustment (UCA) to more higher education institutions in the ANPG. NACUBO agreed with this, but cautioned in its comments that institutions should not be required to provide extensive justification.
After reviewing all comments, OMB proposes replacing the 1.3 percent UCA (which only 65 institutions receive) with two options for utility cost reimbursement. The first would allow any institution to meter its utility usage at the sub-building level instead of by building. If sub-building metering is not feasible, entities could add a multiplier to their square footage used for research to calculate ‘effective' square footage for purposes of utility cost calculation. OMB is especially interested in comments from institutions regarding this proposal.
Certain Computing Devices as Allowable Direct Costs
Under the proposed guidance, computing devices would be classified as allowable direct cost supplies, rather than equipment, if the cost of the item is less than $5,000 (or the acquiring institution's capitalization threshold, if lower). A suggestion in the ANPG that would have required a separate line item to the budget for such purchases would not be adopted.
Three ongoing pilot programs intended to identify alternatives to current reporting requirements for validating the costs of salaries and wages were discussed in the ANPG; however, comments received from the auditing community convinced OMB that time and effort reporting is still important in ensuring appropriate use of funds. Comments from institutions recommended that the language be broadened and that specific examples - which have a tendency to become the rule over time - be eliminated.
OMB now proposes consolidating reporting requirements that previously differed across types of entities and eliminating specific examples in order to clarify broad principles. OMB "recognizes the potential to integrate the necessary information in automated payroll distribution systems where clear internal controls govern those systems, thereby reducing duplication." Again, OMB is interested in feedback on this section, from both the audit community and recipients.
A number of other modifications to existing policy are proposed by OMB, including the following:
- Charging directly allocable administrative support as a direct cost would be allowed as long as the work is allocable to only one award.
- The threshold for unused supplies at the end of an award would be $5,000, with no restrictions on use.
- Requirements for cost-reasonableness studies for large research facilities would be eliminated.
- Restrictions on use of indirect cost recovered for depreciation or use allowances would be eliminated.
- Requirements to conduct lease-purchase analyses and to provide notice before moving federally sponsored activities into a debt-financed facility would be lifted.
- Budgeting for contingency funds for construction of large facilities, instruments, or IT projects would be allowed.
- Requirements to document cost-accounting practices would be strengthened, but the requirement for universities to file cost accounting standards disclosure statements would be eliminated.
- Agency heads would have to approve any exceptions to following negotiated indirect cost rates, which would either need to be stipulated in legislation or via a documented determination that the exception is important to the success of the program.
The single audit threshold would increase from $500,000 to $750,000, not to $1 million as was suggested in the ANPG. This would relieve the burden on 5,000 entities that would no longer be required to undergo an A-133 audit, but may increase the burden on entities required to monitor subrecipients. OMB has proposed consolidating subrecipient monitoring requirements in one section of the consolidated guidance.
OMB proposes a series of changes to the criteria used to designate major programs for audit purposes, in order to focus effort on higher risk areas and limit the number of major programs which must be tested.
- Increase the threshold for a Type-A program from $300,000 to $500,000 in federal dollars expended.
- Refocus the criteria for a Type-A program to be designated high-risk to include only those which, for the most recent period, did not receive an unqualified opinion, had a material weakness in internal controls, or had questioned costs exceeding five percent of expenditures.
- Lower the proportion of high-risk Type-B programs that must be tested.
- Change the calculation of "relatively small" Type-B programs that do not require a risk assessment to a flat 25 percent of the Type A/B threshold.
- Reduce the minimum coverage required from 50 to 40 percent for a regular auditee and from 25 to 20 percent for a low-risk auditee.
The minimum threshold for reporting questioned costs would rise from $10,000 to $25,000. This will allow follow up to focus on the greatest risks.
Targeted Subset of Compliance Requirements in A-133 Compliance Supplement
OMB intends to limit the types of requirements in the compliance supplement to a small group which, if violated, would likely result in improper payments, waste, fraud, or abuse. These changes would be implemented in the first Compliance Supplement to be issued after the proposed guidance becomes final.
The compliance requirements include:
- A. Activities Allowed or Unallowed
- B. Allowable Costs/Cost Principles
- C. Cash Management
- E. Eligibility
- L. Reporting
- M. Subrecipient Monitoring
- N. Special Tests and Provisions
The following compliance requirements would be removed:
- D. Davis Bacon
- F. Equipment and Real Property Management
- The final- two components of G. Matching, Level of Effort, and Earmarking
- H. Period of Availability of Federal Funds Except Where Tested to Verify Allowable/Unallowable Costs
- I. Procurement and Suspension and Debarment
- J. Program Income
- K. Real Property Acquisition and Relocation Assistance
OMB notes that in programs where the eliminated requirements are essential to oversight and required by statute or regulation, requests from agencies to add one or more of these requirements back under special tests and provisions will be considered. If the requirements are mandated by statute or regulation, such requests would only be accepted when the federal agency:
- makes a strong case for how noncompliance with these types of requirements could result in increased risk or improper payments, waste, fraud, or abuse; and
- provides a targeted compliance supplement write-up identifying improper-payment risks and focusing audit tests to address these risks.
OMB also proposes changes to audit follow-up, reducing burden on pass-through entities and subrecipients, and more.
Comments Due May 2
Update: In a notice in the March 21, 2013 Federal Register, OMB announced that it is extending the comment period to June 2, 2013.
Comments on the proposed guidance are due to OMB by May 2. After the comment period ends, OMB will review all comments received and will issue final guidance, including effective dates. Institutions are encouraged to share their comments and concerns with NACUBO as it develops the association's comments.
The February 1 Federal Register notice discusses comments that were received in response to the ANPG and explains the decisions that were made in drafting the proposed guidance. It does not, however, include the lengthy text of the proposed guidance itself. Instead, OMB has posted the text, along with other detailed documents on the Internet, including:
- Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards full text
- 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
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