OMB Issues the “Supercircular”

In December 2013, the Office of Management and Budget (“OMB”) issued the ‘Supercircular’ which is effective December 26, 2013 and will be implemented by December 26, 2014. The objective of the Supercircular is to provide a government-wide framework for grants management, reduce administrative burden, and improve performance. The Supercircular streamlines the Federal government’s guidance on the following three categories for Federal awards:

Administrative Requirements

The following three circulars are superseded into the Code of Federal Regulations:

  • 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

The significant reforms to the administrative requirements are focused on the following areas:

  • Conflict of Interest Guidance
  • Definition of Supplies
  • Review of Risk
  • Procurement Standards
  • Performance Measurement
  • Greater focus on Internal Controls
  • Cost Sharing
  • Requirements for Pass-Through Entities
  • Mandatory Disclosures

Cost Principles

The Supercircular consolidates the cost principles in the following three circulars in the Code of Federal Regulations:

  • 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

The final guidance covers changes to direct costs, indirect cost rates, and cost accounting standards. The Supercircular provides guidance since currently there is no universal rule for classifying certain costs as either direct or indirect, a cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award or other final cost objective.
Indirect Costs: Organizations will be permitted to elect an automatic indirect cost rate of 10% of modified total direct costs – which can be used indefinitely if they wish, or negotiate a higher rate.
Direct Costs: In certain circumstances, program administration costs can be reported as direct costs applicable to a specific program. Previously, grantees sometimes were required to pass these charges on via their indirect cost rates.

Audit Requirements

The Supercircular amends the following two circulars in the Code of Federal Regulations:

  • A-133, Audits of States, Local Governments, and Non-Profit Organizations
  • A-50, Audit Follow-up

The single audit changes consist of 1) Increased Threshold for Single Audit Requirement; 2) Changes to the Major Determination Process; 3) Reduction in the Number of Compliance Requirements (will be in compliance supplement); and 4) Modification to Reporting of Audit Findings and Questioned Costs.

The OMB has increased the Single Audit Threshold to $750,000 (from $500,000), the threshold for reporting questioned costs was raised to $25,000 (from $10,000), and changes were made to the risk determinations and the process of distinguishing between Type A and Type B programs. The percentage of coverage rule was decreased to 20% (from 25%) of total federal awards expended for low-risk auditees and decreased to 40% (from 50%) for all others. The following are the criteria that all must be met for each of the two preceding audit periods to qualify as Low-Risk Auditees:

  • Single audits were performed annually, including submitting the data collection form and the reporting package to the Federal Audit Clearinghouse in a timely manner;
  • Unmodified auditor’s opinion on the financial statements and the auditor’s in relation to opinion on the schedule of expenditures of awards;
  • No Generally Accepted Governmental Accounting Standards (GAGAS) material weaknesses;
  • No substantial doubt about the auditee’s ability to continue as a going concern; and
  • None of the Type A programs had internal control deficiencies identified as material weaknesses, questioned costs that exceeded 5%, or a modified opinion on a major program in the auditor’s report.

The proposed changes to the compliance requirements will be published separately in the annual compliance supplement, and are expected to reduce/consolidate/eliminate many of the compliance attributes. A preview of the modified 2015 requirements is expected to be published in the 2014 edition of the compliance supplement.

In summary, this article provides an overview of the new uniform guidance and highlights the significant changes issued by the OMB. Stay tuned for release of the final compliance supplement changes and action from Federal agencies once OMB’s guidance is implemented in their policies, procedures and official regulations by December 26, 2014. Organizations that receive federal funding will be impacted by the Supercircular and should consider these modifications to ensure they are in compliance with upcoming federal agencies regulation.

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