Watkins, Ward and Stafford

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1 Watkins, Ward and Stafford Professional Limited Liability Company Certified Public Accountant OMB Super Circular: How it Affects Your Organization Presented by: Jason D. Brooks, CPA, Partner 1 About the Author Jason D. Brooks, CPA is a partner with Watkins, Ward and Stafford, PLLC. He graduated with a bachelor of Accountancy degree from Mississippi State University. He is a certified public accountant. He is a member of the Mississippi Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Jason s practice is concentrated in providing auditing, accounting, cost allocation and tax services to grant funded nonprofit and governmental organizations that are subject to requirements of Governmental Auditing Standards and OMB Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations. Jason has conducted training sessions for accounting personnel on these topics for various governmental and nonprofit organizations, including Mississippi Association of Community Action Agencies and Grants Management Systems (GMS). 2 1

2 What is the Super Circular? OMB Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards Super Circular or Omni Circular Published in the Federal Reserve on December 26, CFR Chapter I, Chapter II, Part 200 Effective for grants received on or after December 26, 2014 Audit provisions effective for fiscal years beginning on or after December 26, Objectives Reduce administrative burden for those receiving federal awards, while also reducing risk of waste, fraud and abuse Improve the integrity of financial management and operation of federal programs Strengthen accountability for federal dollars by improving policies that protect against waste, fraud, and abuse Increase impact and accessibility of programs by minimizing time spent complying with unnecessarily burdensome administrative requirements 4 2

3 Objectives Refocus recipients toward achieving program objectives Award grants based on merit Increased management focus on performance outcomes Streamlined rules governing federal funds Single audit oversight tool is better focused to reduce waste, fraud, and abuse 5 Streamlining of Related Circulars Consolidates and supersedes the following circulars: A-21, Cost Principles for Educations Institutions A-50, Audit Follow-Up A-87, Cost Principles for State, Local, and Indian Tribal Governments A-89, Federal Direct Program Assistance Information A-102, Awards and Cooperative Agreements with State and Local Governments A-110, Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations A-122, Cost Principles for Non-Profit Organizations A-133, Audits of States, Local Governments, and Non-Profit Organizations 6 3

4 Subpart A Acronyms and Definitions Acronyms Definitions Acquisition cost Advance payment Allocation Audit finding Auditee Auditor Budget Central service cost allocation plan Catalog of Federal Domestic Assistance number CFDA program title Capital assets Capital expenditures Claim Class of Federal awards Closeout Cluster of programs Cognizant agency for audit Cognizant agency for indirect costs Computing devices Compliance supplement Contract Contractor Cooperative agreement Cooperative audit resolution Corrective action Cost allocation plan Cost objective Cost sharing or matching Cross-cutting audit finding Disallowed costs Data Universal Numbering System (DUNS) number Equipment Expenditures Compliance supplement Contract Contractor Cooperative agreement Cooperative audit resolution Corrective action Cost allocation plan Cost objective Cost sharing or matching Cross-cutting audit finding Disallowed costs Data Universal Numbering System (DUNS) number Equipment Expenditures Federal agency Federal Audit Clearinghouse (FAC) Federal awarding agency Federal award Federal award date Federal financial assistance Federal interest Federal program Federal share Final cost objective Fixed amount awards Foreign public entity Foreign organization General purpose equipment Generally Accepted Accounting Principles (GAAP) Generally Accepted Government Auditing Standards (GAGAS) Grant agreement Hospital Improper payment Indian tribe (or federally recognized Indian tribe ) Institutions Of Higher Education (IHEs) Indirect (facilities & administrative) costs Indirect cost rate proposal Information technology systems Intangible property Intermediate cost objective Internal controls Internal control over compliance requirements for Federal awards. 7 Subpart A Acronyms and Definitions (Continued) Loan Local government Major program Management decision Micro-purchase Modified Total Direct Cost (MTDC) Non-Federal entity Nonprofit organization Obligations Office of Management and Budget (OMB) Oversight agency for audit Pass-through entity Participant support costs Performance goal Period of performance Personal property Personally Identifiable Information (PII) Program income Property Protected Personally Identifiable Information (Protected PII) Project cost Questioned cost Real property Recipient Research and Development (R&D) Simplified acquisition threshold Special purpose equipment State Student Financial Aid (SFA) Subaward Subrecipient Supplies Termination Third-party in-kind contributions Unliquidated obligations Unobligated balance Voluntary committed cost sharing. 8 4

5 Subpart B & Subpart C Subpart B General Provisions Purpose Applicability Exceptions Authorities Supersession Effect on other issuances Agency implementation OMB responsibilities Inquiries Review date Effective date English language Conflict of interest Mandatory disclosures. Subpart C Pre-Federal Award Requirements and Contents of Federal Awards Purpose Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts Requirement to provide public notice of Federal financial assistance programs Notices of funding opportunities Federal awarding agency review of merit of proposals Federal awarding agency review of risk posed by applicants Standard application requirements Specific conditions Certifications and representations Pre-award costs Information contained in a Federal award Public access to Federal award information. 9 Subpart D Post Award Requirements Standards for Financial and Program Management Statutory and national policy requirements Performance measurement Financial management Internal controls Bonds Payment Cost sharing or matching Program income Revision of budget and program plans Period of performance. Property Standards Insurance coverage Real property Federally-owned and exempt property Equipment Supplies Intangible property Property trust relationship. Procurement Standards Procurements by states General procurement standards Competition Methods of procurement to be followed Contracting with small and minority businesses, women s business enterprises, and labor surplus area firms Procurement of recovered materials Contract cost and price Federal awarding agency or passthrough entity review Bonding requirements Contract provisions. Performance and Financial Monitoring and Reporting Financial reporting Monitoring and reporting program performance Reporting on real property. Subrecipient Monitoring and Management Subrecipient and contractor determinations Requirements for pass-through entities Fixed amount subawards. Record Retention and Access Retention Requirements for Records Requests for transfer of records Methods for collection, transmission and storage of information Access to records Restrictions on public access to records. 10 5

6 Subpart D Post Award Requirements (Continued) Remedies for Noncompliance Remedies for noncompliance Termination Notification of termination requirement Opportunities to object, hearings and appeals Effects of suspension and termination. Closeout Closeout. Post-Closeout Adjustments and Continuing Responsibilities Post-closeout adjustments and continuing responsibilities. Collection of Amounts Due Collection of amounts due. 11 Subpart E Cost Principles General Provisions Policy guide Application. Basic Considerations Composition of costs Factors affecting allowability of costs Reasonable costs Allocable costs Applicable credits Prior written approval (prior approval) Limitation on allowance of costs Special considerations Collection of unallowable costs Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs. Direct and Indirect (F&A) Costs Classification of costs Direct costs Indirect (F&A) costs Required certifications. Special Considerations for States, Local Governments and Indian Tribes Cost allocation plans and indirect cost proposals Interagency service. Special Considerations for Institutions of Higher Education Costs incurred by states and local governments Cost accounting standards and disclosure statement. General Provisions for Selected Items of Cost Considerations for selected items of cost Advertising and public relations Advisory councils Alcoholic beverages Alumni/ae activities Audit services Bad debts Bonding costs Collections of improper payments Commencement and convocation costs Compensation personal services Compensation fringe benefits Conferences Contingency provisions Contributions and donations Defense and prosecution of criminal and civil proceedings, claims,appeals and patent infringements Depreciation Employee health and welfare costs Entertainment costs Equipment and other capital expenditures Exchange rates Fines, penalties, damages and other settlements Fund raising and investment management costs Gains and losses on disposition of depreciable assets. 12 6

7 Subpart E Cost Principles (Continued) General Provisions for Selected Items of Cost (Continued) General costs of government Goods or services for personal use Idle facilities and idle capacity Insurance and indemnification Intellectual property Interest Lobbying Losses on other awards or contracts Maintenance and repair costs Materials and supplies costs, including costs of computing devices Memberships, subscriptions, and professional activity costs Organization costs Participant support costs Plant and security costs Pre-award costs Professional service costs Proposal costs Publication and printing costs Rearrangement and reconversion costs Recruiting costs Relocation costs of employees Rental costs of real property and equipment Scholarships and student aid costs Selling and marketing costs Specialized service facilities Student activity costs Taxes (including Value Added Tax) Termination costs Training and education costs Transportation costs Travel costs Trustees 13 Subpart F Audit Requirements General Purpose. Audits Audit requirements Basis for determining Federal awards expended Relation to other audit requirements Frequency of audits Sanctions Audit costs Program-specific audits. Auditees Auditee responsibilities Auditor selection Financial statements Audit findings follow-up Report submission. Federal Agencies Responsibilities. Auditors Scope of audit Audit reporting Audit findings Audit documentation Major program determination Criteria for Federal program risk Criteria for a low-risk auditee. Management Decisions Management decision. 14 7

8 Appendix Appendix I to Part 200 Full Text of Notice of Funding Opportunity Appendix II to Part 200 Contract Provisions for Non-Federal Entity Contracts Under Federal Awards Appendix III to Part 200 Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) Appendix IV to Part 200 Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations Appendix VII to Part 220 States and Local Government and Indian Tribe Indirect Cost Proposals Appendix VIII to Part 200 Nonprofit Organizations Exempted From Subpart E Cost Principles of Part 200 Appendix IX to Part 200 Hospital Cost Principles Appendix X to Part 200 Data Collection Form (Form SF SAC) Appendix XI to Part 200 Compliance Supplement Appendix V to Part 200 State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans Appendix VI to Part 200 Public Assistance Cost Allocation Plans 15 Three Major Sections of Reform Reforms to administrative requirements Reforms to cost principles Reforms to audit requirements 16 8

9 Administrative Requirements Reform 17 Pre-Award Requirements More standardization and uniformity in awarding process Standard definitions Standard application requirements Federal awarding agency must announce funding opportunities with six data elements on OMB designated website for finding and applying. Federal awarding agency must design and execute a merit review process for applications. Information contained in Federal awards must contain 15 data elements 18 9

10 Fixed-Price Awards Type of grant agreement in which the Federal awarding agency provides a specific level of support without regard to actual costs. Reduces some of the administrative burden and record keeping requirements. Accountability based on performance and results No government review of actual costs Cannot be used if there is cost/match sharing Can only be used if non-federal entity can assure that no profit will be realized 19 Procurement through New provision covering conflict of interest with parent, affiliate or subsidiary organizations Procurement records must be maintained sufficiently to detail the history of procurement. New provisions on time and material contracts Must be competition to the maximum extent practical is no more

11 Procurement Five methods described: Micro-purchase less than $3,000 (no quotations) Small purchase $3,000 - $150,000 (quotations) Sealed bids more than $150,000 (minimum of 2 bids) Competitive proposal more than $150,000 (RFP) Noncompetitive proposal Small and minority business, women s business enterprises, and labor surplus area firms: Positive efforts whenever possible changed to must take all necessary affirmative steps to assure 21 Procurement Cost or price analysis required only when purchase is in excess of Simplified Acquisition Threshold Process for pre-procurement review by awarding agency 22 11

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13 Subrecipient Monitoring A non-federal entity may receive Federal awards as a: Recipient Subrecipient Contractor Classification depends on the substance of the agreement. 25 Subrecipient Monitoring Recipient non-federal entity that receives a Federal award directly from a Federal awarding agency to carry out an activity under a Federal program. Subrecipient non-federal entity that receives a subaward from a pass-through entity to carryout part of a Federal program; but does not include an individual that is a beneficiary of such program. Contractor an entity that receives a contract

14 Subrecipient Monitoring Contract a legal instrument by which a non-federal entity purchases property or services needed to carry out the project or program under a Federal award. Does not include a legal instrument, even if the non-federal entity considers it a contract, when the substance of the transaction meets the definition of a Federal award or subaward Subcontract an award provided by a pass-through entity to a subrecipient for the subrecipient to carry out part of a Federal award received by the pass-through entity. Does not include payments to an individual that is a beneficiary of a Federal program. May be provided through any form of legal agreement, including an agreement that the pass-through entity considers a contract. 27 Subrecipient Monitoring Characteristics of a subrecipient include when the non-federal entity: Determines who is eligible to receive Federal assistance Has its performance measured in relation to whether objectives of a Federal program were met Has responsibility for programmatic decision making Is responsible for adherence to applicable Federal program requirements specified in the Federal award In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorized statute, as opposed to providing goods or services for the benefit of the pass-through entity

15 Subrecipient Monitoring Characteristics of a contractor include when the non-federal entity: Provides the goods and services within normal business operations Provides similar goods or services to many different purchasers Normally operates in a competitive environment Provides goods and services that are ancillary to the operation of the Federal program Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons. 29 Subrecipient Monitoring Subrecipient agreements are required to include 15 specific data elements, including: Subrecipient name (which must match registered name in DUNS) Federal award identification number Federal award date Amount of Federal funds obligated Identification of whether the award is for R&D Indirect cost rate for the Federal award (including the de minimus rate charged per Refer to for an all-inclusive list of the 15 specific data elements

16 Subrecipient Monitoring Pass-through entities are required perform the following procedures in monitoring subrecipients: Perform risk assessments to determine appropriate subrecipient monitoring Tailor monitoring procedures based on assessed risk Subrecipients with higher risk would be monitored more frequently than lower risk subrecipients Not every subrecipient would or should get the same level of attention Review reports that the pass-through entities require of the subrecipient Verify subrecipients have audits Consider how to address subreipient noncompliance Issue a management decision for audit findings of the subrecipient within six months 31 Technology Defines computers as supplies, not equipment (if cost is less than the lesser of the nonfederal capitalization threshold for financial statement purposes or $5,000) Flexibility in electronic document retention, with associated internal controls 32 16

17 Internal Control OMB emphasizes the internal control requirements of the Super Circular are extremely important Non-Federal entity must establish and maintain effective internal control over Federal awards. Internal control should be in compliance with: Standards for Internal Controls in the Federal Government issued by the Comptroller General of the U.S. and Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 33 Other Administrative Reform Conflict of Interest must disclose in writing any potential conflict of interest to the awarding agency. Mandatory Disclosures must disclose, in a timely manner, in writing to the federal awarding agency all violations of laws involving fraud, bribery or gratuity violations potentially affecting the federal award

18 Cost Principles Reform 35 Indirect Costs Federal agencies must accept negotiated rates Requires pass-through entities (e.g. states and local governments) to honor a nonprofit s indirect cost rate or negotiate a rate Nonprofits can elect an automatic 10% indirect cost rate which can be used indefinitely Alternately, may negotiate a higher rate (indirect cost proposal) 36 18

19 Indirect Costs 10% de minimis rate Must use modified total direct costs (MTDC) as base MTDC means all direct salaries and materials and supplies, services, travel, and subawards and subcontracts up to the first $25,000 of each subaward or subcontract. Excludes: Equipment, capital expenditures, patient care, rental costs, tuition reimbursement, scholarships and fellowships, participant support costs, and portion of each subaward and subcontract in excess of $25, Indirect Costs Indirect vs Direct? Certain circumstances provide that program administration costs (secretarial staff assigned to a specific program) can be charged as a direct cost In the past, in come cases, nonfederal entities were required to charge these costs via their indirect cost rates 38 19

20 Time and Effort Previously under OMB A-122, nonfederal entities were required to maintain written records of employees activities that documented an employee s time as an allowable cost Records included: After-the-fact determination of actual activity for each employee, not the budgeted amount; Total activity for which employees were compensated; Signed by individual employees or responsible supervisor with firsthand knowledge; and Prepared at least monthly to coincide with one or more pay periods. 39 Time and Effort Under Super Circular, nonfederal entity must meet much broader objectives specific time and effort documentation is no longer required. Must conform to nonfederal entity s written policies, be reasonable, and meet Standards for Documentation of Personnel Expenses at (i) 40 20

21 Other Cost Principles Reform Conferences Clarifies allowable conference costs. Requires discretion and judgment to ensure conference costs are appropriate, necessary and managed in a way to mitigate costs to the federal award. Employee Health and Welfare Eliminates Employee Morale as an allowable cost. 41 Audit Requirements Reform 42 21

22 Audit Requirements Reform The entire Circular A-133 reporting package, including the audited financial statements, will be publically available on the Federal Audit Clearinghouse Website Corrective Action Plan prepared by agency will be required to be submitted in a document separate from the auditor s report The name(s) of the contact person(s) responsible for the corrective action The corrective action planned The anticipated completion date 43 Audit Requirements Reform Circular A-133 threshold increases to $750,000 from $500,000 Type A/B program threshold increases to $750,000 from $300,000 High risk type A programs Type A programs will be designated as high risk if they meet one of the following criteria in the most recent period: Failed to receive an unmodified opinion on compliance Had a material weakness in internal controls over compliance Had known or likely questioned costs exceeding 5% of program expenditures 44 22

23 Audit Requirements Reform Type A programs are defined as follows: Total Federal Awards Expended Type A/B Threshold Equal to $750,000 but less than or equal to $25 million $750,000 Exceed $25 million but less than or equal to $100 million Total Federal awards expended times 0.03 Exceed $100 million but less than or equal to $1 billion $3 million Exceed $1 billion but less than or equal to $10 billion Total Federal awards expended times Exceed $10 billion but less than or equal to $20 billion $30 million Exceed $20 billion Total Federal awards expended times Audit Requirements Reform Reduce the number of type B programs Percentage of coverage required by Circular A-133 will decrease to 40% from 50% that are not low risk and to 20% from 25% for low-risk auditees. Low risk auditee criteria revised making it slightly more difficult to qualify Final guidance retains the current 14 types of compliance requirements but will be reduced with new compliance supplement Audit findings required to be reported in more detail Questioned costs threshold for reporting known or estimated questioned costs increases to $25,000 from $10,

24 Audit Requirements Reform Federal due date is still nine months after fiscal year end. Any future changes would require a change in Federal law. 47 Anticipated Compliance Requirements Reform Compliance Requirements Current Proposed A. Activities Allowed or Unallowd B. Allowable Costs/Cost Principles Incorporated into A C. Cash Management D. Davis-Bacon Act Agency could request to be part of N E. Eligibility F. Equipment Agency could request to be part of N G. Matching, Level of Effort, Earmarking Matching incorporated in A Agency could request remaineder to be part of N H. Period of Availability of Federal Funds Incorporated into A I. Procurement, Suspension, Debarment Agency could request to be part of N J. Program Income Agency could request to be part of N K. Real Property Agency could request to be part of N L. Reporting M. Subrecipient Monitoring N. Special Tests and Provisions 48 24

25 Recommendations Read and Understand: Federal Register 2 CFR Chapter I, Chapter II, Part 200 Guidance issued by Federal granting agencies and pass-through entities (including states) Take advantage of training opportunities Inform and Educate: Key grant personnel Management Governing body Subrecipients 49 Recommendations Create Plan of Action Research applicable literature Communicate plans or procedures to all employees, management and governing body Evaluate, revise and implement new policies and procedures to comply with Federal grantor requirements Frequently monitor internal control for effectiveness 50 25

26 Disclosure The content in this presentation is a resource for Watkins, Ward and Stafford, PPLC clients and prospective clients. Nothing contained in this presentation shall be construed as legal advice, opinion, or as an offer to buy or sell any property or services. In conformity with U.S. Treasury Department Circular 230, tax advice contained in this communication and any attachments is not intended to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code, nor may any such tax advice be used to promote, market or recommend to any person any transaction or matter that is the subject of this communication and any attachments. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments