Knowledge and Insights

On December 26, 2013, the Office of Management and Budget (OMB) issued its final grant reform rules to the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, effective for fiscal years beginning after December 26, 2014.  The reform streamlines the language from eight existing OMB Circulars into one consolidated set of guidance in the code of Federal Regulations.  The objective of this reform is to reduce both administrative burden and risk of waste, fraud and abuse by:

• 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 best use of federal resources;
• Setting standard business processes using data definitions;
• Encouraging non-federal entities to have family-friendly policies;
• Strengthening oversight; and
• Targeting audit requirements on risk of waste, fraud and abuse.

How will the impending reform really affect your entity and what should you do to prepare for it?  While there are various revisions to the guidance, first and foremost, be aware of the major changes and how they might impact your organization.  The three most significant follow.

• Single Audit Requirements – The reform raises the Single Audit threshold from $500,000 in Federal awards per year to $750,000, which will eliminate the audit burden for approximately 5,000 non-federal entities.
• New Cost Principles – Numerous changes were made that are applicable to local, state and tribal governments, colleges and universities, and organizations.  They are largely focused on the following cost areas:
• Compensation for Personal Services – Time and effort reports must be maintained for all employees whose salaries are paid either in full or in part with federal funds and/or are used to meet a match or cost-sharing requirements.  These reports must now be based on actual, not budgeted, expenses and should reasonably reflect the total activity for which the employee is compensated.
• Equipment and Other Capital Expenditures – These types of expenditures have been redefined to include assets with a cost of the lesser of $5,000 or the entity’s capitalization threshold, with a recommendation that entities revisit their capitalization policy if under $5,000.  In addition, computing devices (e.g., tablets, laptops and smart phones) that do not meet the new threshold requirements are considered supplies.
• Indirect Costs – Salaries of administrative and clerical staff should now be treated as indirect expenses unless all of the following conditions are met:
  • Such services are integrated to the activity;
  • Individuals can be specifically identified within the activity;
  • Such costs are explicitly included in the budget or have prior written approval; and
  • Costs are not also charged as indirect costs.
• Procurement – The reform revised the number of methods from four to five, as follows, providing more flexibility in sourcing:
  • Micro-purchases of services or supplies with a value not to exceed $3,000 that are awarded without soliciting competitive quotations if the price is considered reasonable;
  • Small purchase procedures that are subject to the simplified acquisition threshold of $150,000;
  • Procurement by sealed bids;
  • Competitive proposals; and
  • Non-competitive proposals.

Learn more about the above new reforms and how they will impact your organization by contacting the professionals in Mercadien’s Government Services Group today – 609-689-9700 or [email protected].

The author of this article, Christine Thomas, is a former employee of Mercadien.