C LARK N UBER P . S .

1. Prepare Your Organization for Major Changes to Federal Award Requirements Troy Rector, CPA Senior Manager Not-for-Profit Group CLARK NUBER P.S. October 6, 2014

2. Agenda • Summary and Incentives for Change • Framework of 2 CFR 200, aka the “Super Circular” or “Omni Circular” • Pre-Award Requirements • Post-Award Requirements • Cost Principles • Single Audit • Resources

3. Incentives for Change • OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, was issued under the Single Audit Act of 1984 • Some amendments to the Single Audit Act in 1996

4. A Lot Has Changed Since Then: • 1984 Top Music Hits • “Ghostbusters” Ray Parker, Jr. • “Purple Rain” Prince • “Thriller” Michael Jackson • 1984 Top TV Shows • Dallas • Cheers • 60 Minutes • 1984 Statistics • World population: 4.769 B (as of July 2013 - 7.151 B) • Nobel peace prize: Desmond Tutu • Bell phone conglomerate was broken up • (we still used pay phones)

5. Federal Spending: Financial Assistance and Procurement (in billions $) www.fedspending.org

6. Complexity:Standardization Lacking • 2,199 Federal assistance programs are currently listed in the Catalog of Federal Domestic Assistance • 63 Federal agencies administer Federal programs • OMB deals with 700 different application forms alone

7. Framework – USG Instrumental Entities • OMB Office of Federal Financial Management • Federal Awarding Agencies • Council on Federal Assistance Reform (COFAR) • Formed in October 2011 • COFAR replaces two Federal boards • Consists of: • Controller of the OMB • Senior policy officials from 8 Federal agencies providing the largest $ assistance • Senior policy official from 1 additional agency (2-year term)

8. Because We Knew You’d Ask…. • Department of Agriculture • Department of Education • Department of Energy • Department of Health and Human Services • Department of Homeland Security • Department of Housing and Urban Development • Department of Labor • Department of Transportation • National Science Foundation, FY2012 - 2014

9. Objectives of Change and Policy Reform • Unify • Clarify • Simplify • Standardize • Leverage technology • Shift focus to outcomes • Minimize waste, fraud and abuse

10. Framework – Guidance

11. 2 CFR 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards • Subchapter A – Acronyms and Definitions • Subchapter B – General Provisions • Subchapter C – Pre-Award Federal Requirements and Contents of Federal Awards • Subchapter D – Post Federal Award Requirements • Subchapter E – Cost Principles • Subchapter F – Audit Requirements • Appendices • Bonus – the Preamble “Super Circular” The Guidance can be found at: https://federalregister.gov/a/a2013-30465

12. To WHOM Does it Apply? • State and Local Governments • Institutes of Higher Education • Not-for-Profit Organizations • Subrecipients • Not Included: • Commercial and foreign entities (discretionary except for Subchapter F )

13. To WHAT Does it Apply? • Direct federal awards and cooperative agreements • Pass-through awards • Procurement contracts under grants • There are some exceptions • these are discussed in sections 200.101 and 200.102 of the CFR

14. WHEN Does it Apply?

15. Pre-Award Requirements

16. Pre-Award Requirements and Contents of Federal Awards Significant Changes Subpart C • 200.201 – Use of Grant Agreements, (Including Fixed Amount Awards), Cooperative Agreements, and Contracts • Specifically addresses “fixed amount awards” that rely more on performance than compliance for accountability • See OMB M-13-17 (Evidence and Innovation Agenda) • 200.202 – Requirement to Provide Public Notice of Federal Financial Assistance Programs • New requirement for the Federal agency to identify whether the award is subject to Single Audit • Name of CFDA will not be changed at this point

17. Subpart C, Continued • 200.203 – Notices of Funding Opportunities • Competitive awards • General rule – minimum of 60 days • Some exceptions, but in no case shorter than 30 days • 200.204 – Federal Awarding Agency Review of Merit Proposals • Competitive awards • Must design and perform a merit review process separate from the financial risk review

18. Subpart C, Continued • 200.205 – Federal Awarding Agency Review of Risk Posed by Applicants • Federal agencies are required to use information available through any OMB-designated repositories: • Single Audit reports, FAPIIS, D&B, “Do Not Pay” • Must create a “framework” for reviewing risk • Competitiveawards • Conditions of the award may be adjusted to match the assessed level of risk. • See 200.207

19. Subpart C, Continued • 200.207 – Specific Conditions • Has been expanded to include a list of examples of specific conditions that may be applied to an award by either the Federal agency or pass-through entity • Certain approvals, additional financial reporting, etc.; however, • Must provide the nature of, reason for, action required, timeline allowed, and method for requesting reconsideration • 200.210 – Information Contained in a Federal Award • a(14) – Identification of R&D awards

20. Post-Award Requirements

21. Post Federal Award Requirements:Overview • Converges requirements from OMB Circulars A-110 and A-102, mostly keeping provisions from OMB Circular A-110 • Largest impact of new requirements is located in a small number of areas for NFP’s • Remember use of “must” and “should” Oversight

22. Post Federal Award Requirements:Major Changes • New sections added • Mandatory disclosure • Performance management • Internal controls • Subrecipient monitoring and management • Significant changes from existing guidance • Procurement (NFP’s, IHE’s) • Financial and performance reporting • Record retention and access

23. Internal Controls:Overview • OMB Directive • Mitigate the risk of fraud, waste and abuse • “Internal Control” not previously mentioned – use of term “controls” was used throughout • Explicit mention now made in new section titled Internal Controls [200.303] • References several sources of Internal Control guidance with which the system of internal controls should be in compliance

24. Internal Controls:What is the “Must”? Entity must: • Establish and maintain effective internal controls over Federal awards • Comply with terms and conditions applicable to the Federal award and other applicable laws and regulations • Evaluate and monitor the non-Federal entity’s compliance with Federal awards • Take prompt action when issues of noncompliance are identified • Take reasonable measures to ensure the protection of personally identifiable information

25. Internal Controls:Internal Control Guidance • ‘‘Internal Control Integrated Framework’’, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) • ‘‘Standards for Internal Control in the Federal Government’’ issued by the Comptroller General of the United States [Green Book] • Issued September 10, 2014 and significantly expanded from prior version • Adopted from COSO Framework and adapted for government environment • Grant compliance not explicitly addressed

26. Internal Controls:Considerations • How are your internal controls (not necessarily same as processes) documented? • Challenge of “reasonable assurance” • matter of auditor judgment • COSO frame work already evaluated as part of the Single Audit • Part 6 of the 2015 OMB Compliance Supplement expected to incorporate the Green Book and changes in COSO framework

27. Subrecipient Monitoring [200.330 - 200.332]:Overview • Requirements based on existing guidance - nothing new? • OMB Circular A-133 • OMB Compliance Supplement • What are the “musts”? • Subrecipient vs. Contractor determination • Subaward agreement contract provisions • Monitoring of subrecipients

28. Subrecipient Monitoring:The List of “Musts” • All pass through entities must: • Subaward agreement requirements including Federal indirect cost recovery (terms and conditions) • Evaluate subrecipient’s risk • Consider imposing specific subaward conditions [200.207] • Monitor the activities of the subrecipient • Depending on the subrecipient risk assessment, perform such other monitoring procedures (monitoring tools listed) • Verify that every subrecipient is audited • Consider results of subrecipient audits and monitoring on the pass through entity’s records • Consider taking enforcement action on subrecipient [200.338]

29. Subrecipient Monitoring:What Monitoring is Required? • Monitoring of the subrecipient must: • Review financial and programmatic reports required by the pass through entity • Ensure deficiencies identified through audits, on-site reviews and other means are followed up on timely • Risk assessment is key in determining level of further monitoring [200.331(b)] • Optional monitoring tools [200.331(e)]: • Provide technical training and assistance • On-site reviews • Arrange Agreed Upon Procedure Engagements (allowable audit costs [200.425])

30. Subrecipient Monitoring:Considerations • Evaluate current system of internal controls over subrecipient monitoring to ensure the “musts” are performed • Audit “verification” • Knowing pass through entity’s responsibility for follow up • Full audit reports to now be available • “It didn’t happen if it wasn’t documented”

31. Procurement [200.317 – 200.326]Overview • Language taken from governmental administrative requirements as noted in OMB Circular A-102 (large number of “musts”) • Previous requirements applicable to NFP’s and IHE’s were minimum standards w/ new requirements more proscriptive • Applicable to procurements of goods and services under Federal awards • Focus to mitigate risk of fraud, waste and abuse – “oversight”

32. Procurement:Key Changes for NFP’s and IHE’s • Methods of procurement covering all procurements • Noncompetitive procurements • Procurement records to be maintained for all procurements • Prohibits geographical preference and trumps State or local laws • Encouraged use language will be new

33. Procurement:Procurement Methods [200.320] The entity must use one of the following procurement procedures: • Procurements by micro-purchases (new for gov’t entities) • Purchase <$3k • Competitive quotations not necessary if price is determined to be reasonable • Procurement by small purchase procedures • Simplified Acquisition Threshold (currently $150k) • Price or rate quotations must be obtained by an adequate # of qualified sources • Procurement by sealed bid (formal advertising) • Construction contracts • Procurement by competitive proposals

34. Procurement:Noncompetitive Procurements • Existing requirements for NFP/IHE’s required documents to be available for review (if requested) for noncompetitive bids greater than small purchase threshold • Noncompetitive procurements may only be used when one or more of the following circumstances apply: • Item is available only from a single source • Public exigency or emergency will not permit delay from competitive proposal process • After solicitation of a number of sources, competition is determined inadequate • Awarding agency expressly authorizes noncompetitive upon written request

35. Procurement:Considerations • Compare new requirements to existing, written procurement policies and procedures (if any) • Evaluate existing circumstances which noncompetitive procurements were utilized • Consider entity-wide change provision of the Super Circular’s effective date

36. Financial and Performance Reporting [200.327 – 200.328] • Financial Reporting • OMB-approved data elements for collection of financial information • No less frequently than annually nor more frequently than quarterly except under unusual circumstances • Monitoring and Reporting Program Performance • Expanded with increased focus on reporting of program performance • Non-construction performance reports • Construction performance reports

37. Methods for Collection, Transmission and Storage of Information [200.335] • Whenever practical, store documents in open and machine readable formats • Federal or pass through agencies must still accept paper versions (for example, reports) • Consideration of original, electronic versions • Quality Control over electronically stored data

38. Cost Principles

39. Cost Principles:Key Changes • Language converged from existing cost principles (except for hospitals) • Prior written approval • Time and effort reporting • Indirect cost recovery • Other selected items of cost

40. Cost Principles:The Convergence • The “best of” language picked from each of OMB Circulars A-87, A-122 and A-21 • General tests of allowability remain unchanged • Certain industry specific costs (student activities, costs of government added) • For many selected items of costs, guidance enhanced but principle not necessarily changed • Hospital cost principles • Located in Appendix IX • To be updated at later date

41. Cost Principles:Prior Written Approval [200.407] • Consideration of advanced approval from cognizant Federal agency or Federal awarding agency • Comprehensive list of selected items of cost where prior written approval is needed

42. Standards for Documentation of Personnel Expenses:Overview [200.430] • Comparison to existing cost circulars (A-122, A-87, A-21) • Motivators for change • Key element: • System of internal control that provides reasonable assurance charges are accurate, allowable and properly allocated • Expected impact to existing processes

43. Standards for Documentation of Personnel Expenses:The Requirements • System of internal control providing reasonable assurance charges are accurate, allowable and allocable • Records incorporated into official records of entity • Reasonably reflect total activity for which employee is compensated • Encompass all activities • Comply with entity’s policies and procedures • Support allocations (exemption for 100% indirect) • Budget estimates for interim accounting purposes

44. Standards for Documentation of Personnel Expenses:What’s Not Included? • Certifications • Annual • Semi-annual • Personnel activity reports • Only mentioned in context of what may be required if standards are not met • “After-the-fact determination”

45. Standards for Documentation of Personnel Expenses:Other Considerations • Existing requirement intact for nonexempt employees • Existing requirement intact to support wages claimed for meeting cost sharing or matching requirements • Approval of “alternative proposals” by the entity’s Cognizant Federal agency for indirect costs • Federal awards of similar purpose activity or instances of approved blended funding

46. Standards for Documentation of Personnel Expenses:Special Considerations for SLG’s and IHE’s • State and Local Governments and Indian Tribes • Availability of substitute systems previously available in A-87 continues in new requirements • Institutions of Higher Education • Areas requiring special consideration • Salary basis • Intra-IHE consulting • Extra service pay • Periods outside the academic year • Part-time faculty • Sabbatical leave costs • Salary rates for non-faculty members

47. Indirect Cost Recovery:Overview • Final outcome in Super Circular different from ANPR and Proposed Guidance • Focus of new Circular on ensuring adequate indirect cost recovery • Guidance on indirect cost procedures located in separate appendices for Nonprofit Organizations, Institutions of Higher Education and States and Local Government and Indian Tribe

48. Indirect Cost Recovery:Federally Negotiated IDC Rates [200.414(c)] • Negotiated rate must be accepted unless cap on indirect recovery required by statute or approved by Federal agency head or designee • Federally agency approval, policies and general decision making criteria for lowered IDC recovery must be made publicly available • Indirect cost reimbursement policy to be included in the Notice of Funding Opportunity • May apply for an extension of previously negotiated rate for up to 4 years • Impact on settlement of provisional and fixed carryforward rates?

49. Indirect Cost Recovery:Entities w/o Federally Negotiated IDCR • Lack of direct relationship with Federal awarding agency • Options for indirect cost recovery • Negotiate IDCR with pass through entity using guidelines of this Part • Indefinite application of “de minimis” indirect cost rate of 10% of Modified Total Direct Costs (MTDC) with no reconciliation to actual costs • Impact on pass through agencies • Negotiation capacity • Required use of existing Federal agency methods (DHHS, DOL)

50. Indirect Cost Recovery: Other • Institutions of Higher Education (IHE) • Threshold requiring Cost Accounting Standards coverage raised to $50M in Federal Awards • State and Local Governments (Tribes not included) • Required to complete Indirect Cost Rate Proposal if charging indirect costs but not required to submit and negotiate IDCR if Federal assistance < $35M • Guidance in Subpart E and appendices remain significantly the same • General direct and indirect cost classification • Consistency provisions still apply • Selected items of costs required to be treated as indirect or conditions for including as direct