OMB’s “Super Circular” significantly changes how government agencies, nonprofits, and higher education institutions apply for and receive federal grants.
Significant reforms are on the horizon for government agencies, nonprofits, and higher education institutions applying for and receiving federal grants and cooperative agreements. The Office of Management and Budget’s (OMB) so-called “Omni Circular” promises to increase competition for grant funds, add new administrative processes, change long-established cost principles, and impact the audits of organizations receiving federal awards.
Although the guidance in OMBs’ Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards took effect on December 26, 2013, federal agencies have six months to implement the regulations. Nonprofits, colleges and universities, and state and local governments have until December 26, 2014, to comply with the new rules.
"This sweeping reform effort requires changes at both ends of the grant-making process ... Any entity that awards or receives federal financial assistance is affected in some way. Those who are directly involved in the process must become familiar with the new regulations and when they need to be implemented." Rebecca Field
government practice manager
CliftonLarsonAllen
The Omni Circular guidance finalizes OMB rules proposed in February 2013, and eliminates duplicate language found in eight OMB circulars (A-21, A-87, A-110, A-122, A-89, A-102, A-133, and A-50) that applied to federal awards. Prior to the new guidance, policies were often inconsistent across different types of entities. OMB says it will now be able to better manage approximately $600 billion awarded annually for grants and other financial assistance.
Objectives of the OMB Omni Circular
- Eliminate duplication and conflicting guidance
- Focus on performance over compliance for accountability
- Encourage efficient use of information technology and shared services
- Provide for consistent and transparent treatment of costs
- Limit allowable costs to make the best use of federal resources
- Set standard business processes using data definitions
- Encourage non-federal entities to have family-friendly policies
- Strengthen oversight
- Target audit requirements on risk of waste, fraud, and abuse
Changes that may affect your organization
If your organization receives federal grants, the Omni Circular will affect your grant management procedures and streamline the audit process. Following are some of the key changes included in the final guidance.
Competition in grants
The new guidance increases competition for federal grant funds. The goal was to improve transparency and make more information available to interested parties:
- Public notice for grants — Federal awarding agencies must notify the public of federal programs through the Catalog of Federal Domestic Assistance (CFDA). The notice must include: program description, purpose, goals and measurement, projected total amount of funds available for the program, anticipated source of funds, general eligibility requirements, and applicability of single audit requirements.
- Merit-based review of proposals — Federal awarding agencies must design and execute a merit review process for all grant applications. The review process must be described or referred to in the corresponding funding opportunity.
- Risk analysis of potential grantees — Prior to making a federal award, an agency must have a framework in place to determine the eligibility and risks of applicants. Risk factors include: financial stability, quality of management systems, performance history, audit findings, and the applicants' effectiveness in implementing statutory and regulatory requirements. Evaluation criteria must be described in the announcement of funding opportunity.
- Standardization of information — In an attempt to reduce the huge variation between federal agencies, the Omni Circular requires each federal award to include 15 uniform data sets, including the timing and scope, and expected performance and outcomes.
Administrative requirements
The new guidance includes significant reforms to current administrative requirements (formerly circulars A-102, A-110, and A-89). Here is how some of the reforms may affect your organization:
- Mandatory disclosure — Organizations must disclose all violations of federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the federal award. Failure to make the required disclosures can result in suspension and/or debarment from government grants.
- Conflict of interest — Non-federal entities must maintain conflict of interest policies as well as written policies on organizational conflict of interest to protect the integrity of procurements under federal awards and sub-awards.
- Greater responsibilities for sub-recipient monitoring — Pass-through entities must include (at the time of a sub-award) an approved, federally recognized indirect cost rate negotiated between the sub-recipient and the federal government. If no such rate exists, either a negotiated rate or a 10 percent de minimis rate, should be included.
- Greater focus on internal controls — Organizations must establish and maintain effective internal controls over federal awards to provide reasonable assurance that awards are being managed in compliance with laws and regulations. Non-federal entities and their auditors will need to exercise judgment in determining the most appropriate and cost effective internal control in a given circumstance. Non-federal entities must also take measures to safeguard personally identifiable information.
- Definition of supplies — If the acquisition cost of computer equipment is less than the capitalization level established by the non-federal entity for financial statement purposes, or $5,000 (regardless of the length of the device's useful life), it should be considered a supply. In addition, the final guidance includes a new micro-purchase procurement method. This method applies to the purchase of supplies or services when the aggregate dollar amount does not exceed $3,000. If the non-federal entity considers the price reasonable, these purchases may be awarded without soliciting competitive quotes.
- Performance measurement — Recipients of federal awards must relate financial data to the performance accomplishments of an award. Recipients must also provide cost information to demonstrate cost-effective practices. The intent is to help awarding agencies improve program outcomes, share lessons learned, and spread the adoption of best practices.
- Cost sharing — Voluntary committed cost sharing cannot be used as a factor during the merit review of applications or proposals, but may be considered if it is both in accordance with federal awarding agency regulations and specified in a notice of funding opportunity. For research projects, only mandatory cost sharing or cost sharing specifically submitted in the project budget will be included for computing indirect costs. Voluntary committed cost sharing is not expected under federal research proposals.
Cost principles
The new guidance also includes significant reforms to cost principles (formerly circulars A-21, A-87, and A-122). These are some of the changes that may affect your organization:
- Indirect costs — Under the new rules, federal agencies and pass-through entities must accept a negotiated indirect cost rate if one exists, or negotiate a rate in accordance with federal guidelines. There are exceptions when a statute or regulation requires it, or if the head of the agency approves it based on publicly documented justification.
- Non-federal entities that have never had a negotiated indirect cost rate may use a rate of 10 percent of modified total direct costs.
- Entities with an approved federally negotiated indirect cost rate can now apply for a one-time extension of up to four years without further negotiation.
- Administrative salary direct costs — In certain circumstances, administrative costs can be charged directly when there is prior approval and the costs are specifically allocated to one award. Administrative and clerical staff salaries are normally treated as indirect costs, but direct charging may be appropriate if:
- The services are integral to a project or activity
- Individuals involved can be specifically identified with the project or activity
- Costs are explicitly included in the budget or have prior written approval of the awarding agency
- The costs are not also recovered as indirect costs
- Compensation — To prevent duplicating efforts in entities that have good internal controls, the final guidance allows for alternatives to the current reporting requirements for salaries and wages. Auditors must test these internal controls. Federal agencies can also now approve alternative accounting methods for salaries and wages based on the achievement of performance outcomes. This includes areas that blend funding from multiple programs.
- Materials and supplies — Materials and supplies used for the performance of a federal award are typically charged as direct costs. Going forward, computer equipment can be charged as direct costs if they are essential and allocable, but not solely dedicated, to the performance of a federal award.
Audit changes
Several changes will impact how your organization is audited for federal awards:
- Increased threshold for an A-133 audit — A new higher threshold (from $500,000 to $750,000) will relieve approximately 5,000 non-federal organizations from the audit requirement, while still having 99.7 percent of federal award dollars subject to single audit oversight
- Increased Type A threshold — Auditors are now required to use a risk-based approach to determine major programs to be tested. A new table simplifies the Type A / Type B determination. For those organizations with federal expenditures below $25 million, the threshold is increased from $300,000 to $750,000.
- Fewer expenditures are required to be tested — The new percentage-of-coverage rule decreases the level from 25 percent to 20 percent of total federal awards expended for low-risk auditees and from 50 percent to 40 percent for all others.
- Questioned costs reporting — Increases the threshold for reporting known or likely questioned costs from $10,000 to $25,000.
- Compliance supplement — OMB did not include the reduced compliance requirements that would appear in its annual compliance supplement. (The proposed guidance eliminated half of the requirements.) However, no changes were made in the final rules due to the compliance supplement being published as part of a separate process. A preview of the modified 2015 requirements is expected to appear in the 2014 edition, which is expected to be released in April 2014.
Effective dates
While the Omni Circular took effect on December 26, 2013, federal agencies have six months to submit a draft of their implementing regulations to OMB; non-federal entities have until December 26, 2014, to comply fully.
- For federal agencies the requirements must be implemented and effective by December 26, 2014.
- Subpart F, Audit Requirements, will apply to audits of the fiscal years of non-federal entities that begin on or after December 26, 2014. The revised audit requirements do not apply to fiscal years beginning prior to that date. For organizations whose fiscal year ends on December 31, this will be your December 31, 2015, audit. For those with a June 30 fiscal end, this will be your June 30, 2016, audit.
- Administrative requirements and cost principles apply to new awards and to additional funding (funding increments) to existing awards made after December 26, 2014.
- Existing federal awards will continue to be governed by the terms and conditions of the federal award.
"Even in this new streamlined, consolidated form, the awarding and receiving of federal assistance are complex and demanding ... The key to successfully implementing the new rules is knowing the provisions that apply to your specific type of organization and your situation. If you can get a handle on that, you’re halfway home." Rebecca Field
government practice manager
CliftonLarsonAllen
How we can help
CliftonLarsonAllen professionals have burrowed deep into the Omni Circular guidance to find the issues that concern you most, and developed methods for implementing change. No matter how you are impacted, we can help you find effective solutions for your needs.