Dynamic Changes Occurring!OMB’s Uniform Grant Guidance

August 25, 2015

Presented by:Adam Roth, StreamLink SoftwareMichelle Watterworth, Plante Moran

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Agenda

Uniform Grant Guidance issued 12/26/2013, effective 12/26/2014:

2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.• Cost principles• Administrative requirements• Audit requirements

Brief overview of the changesDiscuss Implications and practical approaches• Administrators• Auditors

Cost Principles and Administrative Implications of the Uniform Grant Guidance

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UGG Expands on A-87, A133,etc.

Target Areas of Improvement from Previous Requirements

• Eliminating duplicative and conflicting guidance• Focusing on performance over compliance for accountability• Encouraging efficient use of information technology and shared

services• Providing for consistent and transparent treatment of costs• Limiting allowable costs to make the best use of Federal resources• Setting standard business processes using data definitions• Encouraging non-Federal entities to have family-friendly policies• Strengthening oversight• Targeting audit requirements on risk of waste, fraud, and abuse

Cost Principles. Summarized.

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Where to find them:Then & Now

Cost Principles for State, Local, and Indian Tribal Governments Section in Previous Circular Section in Uniform Grant Guidance

A. Purpose and Scope Direct and Indirect (F&A) costsB. Definitions Subpart A - DefinitionsC. Basic Guidelines Basic Considerations.D. Composition of Cost 200.402 Composition of CostsE. Direct Costs 200.413 Direct CostsF. Indirect Costs 200.414 Indirect (F&A) costsG. Interagency Services 200.417 Interagency ServiceH. Required Certifications 200.415 Required CertificationsAttachment A General Principles for Determining Allowable Costs

Subpart E - Cost Principles

Attachment B Selected Items of Cost General Provisions for Selected Items of Cost.Attachment C State/Local Wide Central Service Cost Allocation Plans

Appendix V - State/Local Government and Indian Tribe - Wide Central Service Cost Allocation Plans

Attachment D Public Assistance Cost Allocation Plans

Appendix VI - Public Assistance Cost Allocation Plans

Attachment E State and Local Indirect Cost Rate Proposals

Appendix VII - States and Local Government and Indian Tribe Indirect Cost Proposals

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Accountability of Funds

Increase recipient accountability for performance.

Required Certifications• Goal is to strengthen awardee accountability by providing explicit

and consistent language for required certifications that includes awareness of potential penalties under the False Claims Act.

Cost Accounting Standards and Disclosure Statement• Every awardee must meet the threshold in the Federal Acquisition

Regulations.• Goal is to strengthen accounting standards, while lowering the risk

of noncompliance.

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Accountability of Funds

Time and Effort Reporting Requirements• Strengthens requirements for awardees internal controls over

salaries and wages, while allowing flexibility to meet such requirements.

• Emphasizes that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed.

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Treatment of Costs

Direct Costs• Makes consistent the guidance

that administrative costs may be treated as direct costs if the awardee demonstrates that such costs are directly allocable to a Federal award.

Indirect Costs• Provides for an indirect cost

rate of 10% of modified total direct costs to awardees that have never had a negotiated indirect cost rate.

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Allowable Costs

Acceptable costs based on program performance.

Conferences• Clarifies allowable conference spending and requires conference

hosts/sponsors to exercise judgment in ensuring that conference costs are appropriate.

Idle Facilities and Idle Capacity• Allows for the expense of idle facilities when necessary to meet

workload fluctuations of an award.

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Allowable Costs

Contingency Provisions• Provides detailed circumstances under which contingency costs

may be included in awards.

Travel Costs• Allows temporary dependent care costs that result directly from

travel to conferences and that meet specified standards.

Indirect Costs Identification and Assignment and Rate Determination for Institutions of Higher Education (IHEs)• Extends to all IHEs provisions allowing for recovery of increased

utility costs associated with research.

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Allowable Costs

Interest

• Allows awardees to be reimbursed for financing costs associated with patents and computer software capitalized in accordance with GAAP for fiscal years beginning on or after 1/1/2016.

Prior Written Approval• Provides a single comprehensive list of circumstances under which

awardees must seek prior approval from the Federal awarding agency, the cognizant agency or the pass-through entity.

• Examples could include: Travel costs of dependents, Cost of membership in any civic/community organization, Indirect costs related to severance payments, etc.

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Prohibitions/Limitations

Employee Health/Welfare Cost• Eliminates the allowance for “morale” costs.

Relocation Costs of Employees• Limits the amount of time for which a Federal award may be

charged for the costs of an employee’s vacant former home to six months.

Student Activity Costs• Limits for on student activity costs.• For example, costs incurred for intramural activities, student

publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the Federal award.

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Implications to Administrators

Identify key performance metrics.• Ensure you are equipped to monitor program performance.• Be able to product standardized reports.

Eliminate/mitigate program waste.• Demonstrate change to risky programs.

Sub-Recipient Monitoring• Increased performance and cost consistency presents greater pressures on

real-time knowledge of subs

Negotiate an indirect cost rate.

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Implications to Administrators

Be familiar with the new conference spending guidelines that are applicable to your programs.

Understand which contingency costs can be included in awards.• Risky programs are more likely to have unexpected costs.• Know the circumstances under which they can be included as contingencies

to protect yourself.

Keep track of your certifications to avoid penalties.

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OMB Circular A-133Compliance Supplement 2015

OMB has released additional information related to compliance requirements of Federal Departments.

The 2015 documentation offers both an in-depth look at each department, as well as a table matrix of Types of Compliance Requirements by CFDA number.

Find more information at: http://bit.ly/compliance-supplement

For a look at the Matrix of Compliance Requirements, visit: http://bit.ly/compliance-matrix

Audit Implications of the Uniform Grant Guidance

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Audit challenges/implications

• Identifying which rules are applicable• Major program determination**• Testing compliance requirements (effective now!)• Reporting**• Other audit-related considerations

**These changes not effective until 12/31/2015 year ends

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Uniform Grant Guidance Effective Dates

Federal AgenciesBy 12/26/2014

Non-federal agenciesNew awards and funding increments made AFTER 12/26/2014

Audit requirement (Subpart F) start with 12/31/2015 year ends

Funding increments

“Where the Federal agency considers funding increments to be an opportunity to modify the terms and conditions of the federal award” (COFAR)

Potential issues for auditors and for administrators:

• Funding increments received but no modification to terms and conditions were made. Does that mean UGG does not apply?

• Fund increments received with no mention by federal agency of UGG applicability. Does that mean UGG does not apply?

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Effective Dates – Incremental funding

Effective Dates - Subawards

• Subaward effective date for applying UGG is the same as the effective date of the federal award from which the subaward is made

• Implications: • Subawards made after 12/26/2014 do not necessarily have to

comply with the UGG• To determine effective date for subawards, need to look back to

the effective date of the federal award from which the subaward is made

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Implementation of Effective Dates

What is the applicable fiscal year end?

March, June, September 2015

Possible grantee expenditures under

UGG

Audit compliance testing under UGG for

the first time

December 2015 and after

New audit requirements apply (major program and reporting changes)

Continued compliance testing under OLD and

NEW rules

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Current Rules New Rules

• Single audit threshold

• Low risk auditee

• $500,000

• Unmodified opinion on basic FS in accordance with GAAP

• Unmodified SEFA opinion• No material weaknesses

at the basic FS level or federal programs

• No material non compliance

• No questioned costs that exceed 5%

• Timely filing with the clearing house

• $750,000

• Financial statement opinion could be on the basis of accounting required by state law

• Unmodified SEFA opinion• No material weaknesses at the

basic FS level or federal programs

• No modified opinion on compliance

• No questioned costs that exceed 5%

• Timely filing with the clearing house

• No going concern opinion

Major program selection (effective starting with 12/31/2015 year ends)

Major program selection (effective starting with 12/31/2015 year ends)

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Current Rules New Rules

• Coverage requirements

• Type A threshold

• Risk assessment for Type As (2 year lookback)

• Low risk 25% and no low risk 50%

• $300,000

• Sig deficiency OR material weakness

• Noncompliance condition reported

• Low risk 20% and not low risk 40%

• $750,000

• Material weakness• Modified opinion• Questioned costs over 5%

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Compliance testing

• Internal control over compliance• Possible changes as a result of implementation of UGG

• Allowable costs• Procurement• Subrecipient monitoring

• Sampling challenges• Testing major programs with expenditures under both “old” rules

and “new” rules• Sampling methodology

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Compliance testing requirements

• 2015 OMB compliance supplement• Part 3.1 – Old rules• Part 3.2 – Under UGG

• Removal of 2 compliance requirements• Davis Bacon• Real property and relocation assistance

• FFATA testing removed

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Compliance testing requirements

• More significant testing changes under UGG:• Allowable cost/cost principles• Cash Management• Period of Performance (fka Period of Availability)• Procurement and Suspension and Debarment• Subrecipient Monitoring

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Allowable costs

• Changes in allowable costs due to moving from the various cost circulars to the UGG

• New/revised steps:• De minimis indirect cost rate• Improper payments focus• Time and effort testing

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Cash Management

• Need to understand the payment method or system a non-Federal entity uses

• New/revised steps• Program income• Unearned revenue• Written procedures to implement 200.305

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Period of Performance

• Previously called “Period of Availability”• Focused steps depending upon when performance period

begins• Beings during audit period• Ends during audit period

• Deleted statement about testing period of performance with the same samples used to test allowable cost/cost principles!

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Procurement and S&D

• New/revised steps• Geographical preferences• Other changes

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Subrecipient Monitoring

• Audit steps more focused• Gain understanding• Compliance focus:

• Subaward documents• Monitoring• Required audits obtained

Audit reporting**

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Current Rules New Rules

• Question costs reporting threshold

• SEFA

• $10,0000

• Subrecipient awards are NOT required to be reported on the FACE of the SEFA. Typically reported in the footnotes.

• $25,0000

• Report subrecipient awards by grant on the FACE of the SEFA (totals by grant) and no longer in the footnotes

**Not effective until 12/31/2015 year ends

Audit reporting**

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Current Rules New Rules

• SSPAF/Corrective action plan

• Audit due dates

• Required ONLY for SECTION III findings

• Extensions allowed

• Required for both SECTION II and SECTION III findings

• Extensions NO LONGER allowed

**Not effective until 12/31/2015 year ends

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Other audit-related considerations

• May need to update testing templates for UGG and non-UGG transactions

• Auditees may not have been as proactive as necessary• Possible additional testing issues• Possible additional findings

• Federal quality study every 6 years beginning 2018• Results of reviews must be made public• Auditor focus on now to ensure audit quality

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Contact Information

Adam Roth, Founder and CEOStreamLink Software216.377.5555aroth@streamlinksoftware.com

Michelle Watterworth, CPAPartnerPlante Moran248.223.3520Michelle.Watterworth@plantemoran.com