OMB Circulars– An Introduction

1. OMB Circulars– An Introduction Jing Liu Assistant Director, Sponsored Projects Services 520-626-6442 jingliu@email.arizona.edu

2. Agenda • The Federal pronouncements applicable to grants and contracts management • Codification of the pronouncements into law • Structure of each pronouncement • The newly published Omni-Circular A-81 • Principles of cost accounting for higher education institution

3. Federal Pronouncements • The White House Office of Management and Budget (OMB) provides guidance via pronouncements or Circulars to Federal agencies in formulating regulations applicable to Institutional Research Financial Activities • The following OMB Circulars apply to higher education • OMB Circular A-21: Cost Principles for Educational Institutions • OMB Circular A-110: Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations • OMB Circular A-133: Audits of States, Local Governments, and Non-Profit Organizations

4. Codification of OMB Circulars • OMB Circular A-21 and A-110 are codified in the Code of Federal Regulations (CFR) • A-21: 2 CFR PART 220 • A-110: 2 CFR PART 215 • Each agency determines its own regulations based on OMB Circular A-110. These regulations are then codified in the CFR. For example: • Regulations in 45 CFR 1-199 apply to the Department of Health and Human Services, General Administration • Regulations in 45 CFR 600-699 apply to the National Science Foundation.

5. OMB Circular A-21 • Cost principles for educational institutions • Principles for determining costs applicable to research and development, training, and other sponsored work • Apply to grants, contracts, and other agreements with the Federal Government • Prescribes government-wide policies on cost reimbursement • Uniform standards of cost allowability • Uniform standards of cost allocation • Assures the Federal Government bear its fair share of costs • Encourages consistent treatment of costs

6. OMB circular A-21 - Structure • 11 sections (A to K) • Purpose and scope • Definition of terms • Basic considerations • Direct costs • F&A costs • Identification and assignment of F&A costs • Determination and application of F&A cost rate or rates • Simplified method for small institutions • Reserved • General provisions for selected items of cost (54 items) • Certification of charges

7. OMB circular A-21 – Structure (Cont’d) • 3 exhibits (A to C) • Exhibit C: Examples of "major project" where direct charging of administrative or clerical staff salaries may be appropriate • 3 appendixes (A to C) • Appendix A: CAS • Appendix B: DS 2 • Appendix C: Documentation Requirements for F&A Rate Proposals

8. OMB Circular A-110 • OMB Circular A-110 establishes uniform administrative requirements for Federal grants and agreements awarded to institutions of higher education, hospitals, and other non-profit organizations. • OMB Circular A-110 structure: • Subpart A – General • Subpart B - Pre-award requirements • Subpart C– Post-award requirements • Subpart D – After the award requirements • Appendix A – contract provisions

9. OMB Circular A-110 – Subpart A: General • Purpose • Definitions, such as • Award, subaward and contract • Cost sharing or matching • Equipment • Exempt property • Obligations • Prior approval • Program income • Project costs • Supplies • Unliquidated obligations • Unobligated balance

10. OMB Circular A-110 – Subpart B: Pre-Award • Pre-award policies • Agency decides type of funding instrument, i.e. , grant, contract or cooperative agreement • Federal agencies must notify public of funding opportunities (RFP, RFQ, Federal Register, program announcements) • Forms for applying for Federal Assistance • Federal agency specific • SF-424 • Special award conditions • Certifications and representations

11. OMB Circular A-110 – Subpart C: Post-Award • Post-award requirements • Standards for financial management systems • Payment methods • Cost sharing • Program income • Revision of budget and program plans • Audit • Allowable costs • Period of availability of funds • Property Standards • Procurement Standards • Reports and Records • Termination and Enforcement

12. OMB Circular A-110 – Subpart D: Close-out • Close-Out Procedures • Financial and performance reports submitted within 90 calendar days • Liquidate all obligations incurred under the award not later than 90 days after the funding period • The awarding agency must make prompt payments to recipient • The recipient must account for any property acquired with Federal funds or received from the Federal Government • Subsequent adjustments and continuing responsibilities • Collections of amounts due

13. OMB Circular A-133 • Sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal awards • Issued pursuant to the Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 • Non-Federal entities that expend $500,000 or more in a year in Federal awards shall have a single audit conducted for that year • The single audit or A-133 audit is an annual audit of all federally funded programs at an institution • Establishes the “cognizant agency” policy • The Federal agency from which the institution received the most funding • Cognizant agency is the oversight agency for the institution

14. OmniCircular/SuperCircular • Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards • A combination of OMB Circular A-21, A-87, A-122, A-110, A-102, A-89, A-50 and A-133 • Codified under Title 2 of the Code of Federal Regulations, Part 200 • Issued on December 26, 2013 with an effective date of December 26, 2014 for non-Federal entities. • The audit requirements will be effective for non-Federal entity fiscal years beginning on or after the effective date. For UA, this means FY16 (July 1, 2015 to June 30, 2016)

15. OmniCircular/SuperCircular – Cont’d Objectives: Reduce administrative burden and risk of waste, fraud, and abuse • Eliminate duplicative and conflicting guidance • Focus on performance over compliance for accountability • Encourage efficient use of information • Provide for consistent and transparent treatment of costs • Limit allowable costs to make best use of Federal resources • Set standard business processes using data definitions • Encourage non-Federal entities to have family-friendly policies • Strengthening oversight • Target audit requirements on risk of waste, fraud, and abuse

16. OmniCircular/SuperCircular – Cont’d Structure: • Subpart A – Acronyms and Definitions • Subpart B – General Provisions • Subpart C – Pre-Federal Award Requirements and Contents of Federal Awards • Subpart D – Post Federal Award Requirements • Subpart E – Cost Principles • Subpart F – Audit Requirements • 11 Appendices

17. OmniCircular/SuperCircular – Cont’d Examples of Significant Changes: • Section 200.112: Non-Federal entity must disclose in writing any potential conflict of interest to the Federal awarding agency or pass-through entity • Section 200.201: Use of fixed amount awards to minimize compliance requirements in favor of requirements to meet performance milestones • Section 200.207: Require Federal awarding agencies to evaluate the merit and risks associated with a potential Federal award and to impose specific conditions necessary to mitigate potential risks of waste, fraud, and abuse, before the money is spent.

18. OmniCircular/SuperCircular – Cont’d Examples of Significant Changes: • Section 200.306: Voluntary committed costs sharing may never be considered during the proposal merit review. • Section 200.307: Program income may be added to the Federal awards with prior approval of the Federal awarding agency. Program income may be used as matching with prior approval of the awarding agency.

19. OmniCircular/SuperCircular – Cont’d Examples of Significant Changes: • Section 200.407: Prior Written Approval provides both Federal agencies and non-Federal entities with a one-stop comprehensive list of the circumstances under which non-Federal entities should seek prior approval from the Federal awarding agency. • Section 200.413: Administrative and clerical salaries can be treated as direct costs only when all conditions are met: • Services are integral to a project • Individuals can be specifically identified with the project • Costs are explicitly budgeted or have prior written approval • Costs are not also recovered as indirect costs

20. OmniCircular/SuperCircular – Cont’d Examples of Significant Changes: • Section 200.415: Certification required for annual and final financial reports or payment requests should contain these wording: “…I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise…” • Section 200.438: entertainment costs that have a programmatic purpose and are approved in budget or with a prior written approval are allowable

21. OmniCircular/SuperCircular – Cont’d Examples of Significant Changes: • Section 200.453: Computing devices costing less than $5,000 are treated as supplies. As long as the devices are essential and allocable, the costs are allowed as direct costs even when the devices are not solely dedicated to the performance of an award. • Section 200.501: Raised the Single Audit threshold form $500,000 to $750,000 in Federal awards per year.

22. Cost Accounting Principles • OMB Circular A-21 provides the following cost accounting principles to test the allowability of costs associated with federally funded sponsored projects for Colleges and Universities: • Reasonable • Allocable • Treated consistently • Allowed by regulations and by terms of the sponsored agreement

23. Reasonable Costs • Necessary: Is it necessary for the completion of the project? • Arm’s length transaction: Is it treated as a transaction with an unrelated third party? • Due prudence: Is it a decision made by a prudent person under similar circumstance? • Consistent with institutional policies and practices: Is it treated consistently across campus when under similar circumstance?

24. Allocable Costs • Chargeable or assignable to a cost objective in accordance with relative benefits received • Costs incurred solely to benefit the project • Reasonable allocation method if costs benefit multiple activities • Indirect costs have to be necessary to the overall operation of the institution • Equipment items that are budgeted and benefit the project may be charged entirely to the project regardless its useful life (A-21 Sec. C.4.a)

25. Allocable Costs (Cont’d) • Costs may not be shifted to other sponsored agreements to • Relieve deficits • Avoid restrictions imposed by law or by terms of the sponsored agreement • For other reasons of convenience • May not shift costs charged to non-federal projects to federally sponsored projects • Allocation standard • Can be allocated without undue effort or cost • Allocated based on the proportional benefit • Reasonable allocation basis • Document allocation basis

26. Other Consideration of Allowability • Applicable credits to be applied • Purchase discounts, rebates, allowances, adjustments of overpayment, or erroneous charges, etc… • Consistency in estimating, accumulating and reporting costs • Consistency in allocating costs incurred for the same purposes • See OMB Circular A-21, Section J for discussion of allowability for selected items of cost

27. Websites • Omni-Circular: http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf • OMB Circulars: http://www.whitehouse.gov/omb/circulars_default • SPS Financial Compliance: http://www.sps.arizona.edu/financialcompliance/ • SPS Training Resource: http://www.sps.arizona.edu/financialcompliance/training/

28. Questions? • Contact • Jing Liu, 626-6442, jingliu@email.arizona.edu • Marcel Villalobos, 626-6660, marcel@email.arizona.edu • Jennifer Brown, 626-6676, brownjj@email.arizona.edu