On December 26, 2013 the Office of Management and Budget (OMB), in conjunction with the Council on Financial Assistance Reform (COFAR), published policy changes in the Federal Register regarding federal agencies' interactions with contractors and vendors on federal grants, contracts and cooperative agreements. The long-awaited OMB guidance titled, "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards," replaces rules in OMB Circulars A-21, A-50, A-87, A-102, A-89, A-110, A-122, and A-133. The latest OMB guidance, which consolidates several OMB circulars to standardize and streamline applications and reporting, is designed to improve the delivery, management, coordination and accountability of federal awards, while reducing the administrative burden on non-federal entities that receive federal awards. The goal of these changes is to improve performance and outcomes by eliminating duplicative and conflicting guidance, while promoting stronger oversight and accountability for taxpayer dollars. The changes should also hopefully reduce waste, fraud and abuse in the process.

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On December 26, 2013 the Office of Management
and Budget (OMB), in conjunction with the Council
on Financial Assistance Reform (COFAR), published
policy changes in the Federal Register regarding
federal agencies’ interactions with contractors and
vendors on federal grants, contracts and cooperative
agreements. The long-awaited OMB guidance
titled, “Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal
Awards,” replaces rules in OMB Circulars A-21, A-50,
A-87, A-102, A-89, A-110, A-122, and A-133.
The latest OMB guidance, which consolidates
several OMB circulars to standardize and streamline
applications and reporting, is designed to improve
the delivery, management, coordination and
accountability of federal awards, while reducing the
administrative burden on non-federal entities that
receive federal awards. The goal of these changes is
to improve performance and outcomes by eliminating
duplicative and conflicting guidance, while promoting
stronger oversight and accountability for taxpayer
dollars. The changes should also hopefully reduce
waste, fraud and abuse in the process.
March 2014
Federal OMB Grant Rules Overhauled
Audit Requirements
OMB changed the audit threshold for single audits by
increasing the threshold from $500,000 to $750,000,
essentially reducing costs for smaller awardees
of federal contracts and grants. It is estimated that
5,000 small recipients of federal funding are expected
to be relieved of their audit requirement with this
threshold change. The Labor Department estimates
that this move will save the federal government about
$250 million each year in costs associated with the
compliance and oversight of such awards.
Additionally, there are new thresholds in the
determination of type A and B programs and lower
minimum coverage rules pertaining to the percentage
of federal awards expended that must be tested based
on risk assessment, which may reduce the level of
testing for some not-for-profit entities.
Apart from the audit-related changes, perhaps
the most compelling changes involve direct and
indirect costs.
Direct Costs
Previously, federal agencies assigned certain
administrative costs to the indirect cost pool rather
than recognizing such program administration costs
as direct costs. In some cases this led to confusion
with not-for-profit entities, and in turn, led to either
improper categorization of expenses or expenses
that were not accounted for using the proper federally
negotiated indirect cost rates. By better defining
direct costs, and expanding the direct cost pool, more

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Please contact your MHM auditor to further discuss the impact on your audit or audit report.
expenses associated with federal programs will now
be more clearly allowable to not-for-profit entities.
In the past, a by-product of this confusion was that
certain not-for-profit entities ended up paying more for
program delivery than necessary, as some of these
costs were not reimbursed because they were either
not captured or reported properly.
Indirect Costs
Under the new guidelines, non-federal entities now
have two options when accounting for indirect costs.
If they currently have a federally negotiated indirect
cost rate agreement in place, that cost rate can be
utilized. If not, a new 10% de minimus indirect cost rate
is now available for non-federal entities indefinitely.
This change affords not-for-profits the ability to utilize
a rate of 10% of modified direct costs to be used on
all federal awards. Additionally, a one-time extension
of an existing federally negotiated indirect cost rate
is allowable without further negotiation for up to four
years.
Conclusion
The effective date for the new uniform guidance is
December 26, 2014, which is exactly one year from
the publication of the new guidance. The guidance
will first impact single audits of not-for-profits with
fiscal years beginning on or after December 26, 2014,
meaning the first single audits affected by the new
rules will be for those not-for-profits with December
31, 2015 year-ends.
The new guidance is the result of a two-year effort
by the OMB, working in concert with the eight
largest grant making federal agencies, state and
local governments and other stakeholders. Federal
agencies have six months from the publication in
the Federal Register on December 26, 2013 to draft
regulations to implement these changes. We will keep
you updated as further developments occur related to
the policy changes.
If you have questions in the meantime about
how the overhaul of federal awards policies and
procedures will impact your organization, please
feel free to contact your local MHM office or
Michelle Spriggs of MHM’s Professional Standards
Group. You can reach Michelle at 774.206.8336 or
mspriggs@cbiztofias.com.