By Jeff Burch
March 16, 2018
The Uniform Administrative Guidance, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance) became effective for grants or incremental funding made on or after Dec. 26, 2014. Because of the shift to Uniform Guidance, entities are now required to have written policies and procedures in place over certain compliance requirements. Compliance requirements that have been significantly affected due to the changes in Uniform Guidance include allowable costs, procurement, and subrecipient monitoring.
Two areas under allowable costs that have been impacted as a result of the change to Uniform Guidance are compensation and indirect costs.
Time and effort records must be maintained for: 1. Those paid in whole or in part with federal funds and 2. Those used to meet a matching or cost-sharing requirement. Time and effort cannot be based on budgeted amounts unless there is an appropriate mechanism and internal controls in place to ensure adjustments are made to the original budgeted amounts. This will ensure the final amount charged to the federal award is accurate, allowable and properly allocated. Compensation documentation that is supported by a system of internal controls must reflect the total activity for which the employee is compensated. This must be in compliance with established accounting policies and practices of the entity and support the distribution of salary and wages among activities and cost objectives if employees are working on more than one program.
For recipients of federal awards that currently have a negotiated indirect cost rate, federal agencies and pass-through entities must accept a non-federal entity’s negotiated cost rate, unless a statute or regulation allows for an exception. Non-federal entities have a one-time option to apply for an extension of a previously negotiated rate for up to four years. For non-federal entities who have never received a negotiated rate, a de minimis rate of 10 percent of modified total direct costs may be used indefinitely. Entities must maintain documentation supporting the allocation of indirect costs and ensure rates are applied in accordance with negotiated indirect cost rates. Conversely, if a negotiated rate is not in place, entities must document whether they have elected to use the 10 percent de minimis rate.
The procurement standards are one of the more significant changes to come from the Uniform Guidance. While procurement requirements most closely follow the previous OMB Circular A-102, Grants and Cooperative Agreements with State and Local Governments, Uniform Guidance introduced more defined policies and standards for procuring goods and services. Uniform Guidance prescribes five methods of procurement: micro-purchases, small purchases, sealed bids, competitive proposals, and noncompetitive proposals. The entity must have documented written procurement policies which outline these different procurement methods and ensure they are in conformance with Uniform Guidance, federal law and any state regulations. In accordance with 2 CFR, Part 200.318, the entity must also maintain records to sufficiently detail the history of the procurement, including rationale for the method of the procurement, selection of the contract type, contractor selection or rejection, and basis for the contract price.
Uniform Guidance also mandates written standards of conduct covering conflicts of interest to govern the performance of employees engaged in the selection, award, and administration of contracts as well as written standards of conduct covering organizational conflicts of interest. Uniform Guidance provided entities the option of implementing the procurement standards two full fiscal years after the effective date of the Uniform Guidance. This grace period was subsequently extended on May 17, 2017, for one additional year. For entities that elected to delay implementation, the new Uniform Guidance procurement standards are required to be followed starting for fiscal years beginning on or after Dec. 26, 2017
Similar to the changes in procurement requirements, Uniform Guidance also placed more stringent requirements around subrecipient monitoring, requiring written policies and documentation standards be in place to outline subrecipient requirements.
A pass-through entity is required to clearly identify the pass-through award and applicable requirements to the subrecipient as outlined in 2 CFR, Part 200.331. This includes identifying the award as a subaward, listing all requirements imposed by the pass-through entity to the subrecipient to ensure the federal award is used in accordance with federal statutes and any additional requirements the pass-through entity deems necessary. Entities should ensure these elements are included in their boilerplate subaward templates to assist in documenting all the required communication. If there is confusion as to whether a recipient is providing federal funds to a subrecipient or a contractor, the Association of Government Accountants (ACA) offers a free subrecipient versus contractor checklist to help recipients of federal funds determine whether they are disbursing funds to a subrecipient or contractor. Entities should retain records to support any questionable subrecipient versus contractor decisions made.
A pass-through entity must have documented policies and procedures for subrecipient risk determination. A pass-through entity is also required to evaluate each subrecipient’s risk of noncompliance for purposes of determining the appropriate monitoring. This evaluation is required to be documented and subrecipient monitoring plans must be “linked” to the related subrecipient risk assessment.
As evidenced with the changes above, Uniform Guidance requires additional documentation surrounding compliance requirements. While the above represent some of the significant changes noted under Uniform Guidance, this information is not all inclusive. Entities are encouraged to continue to familiarize themselves with the Uniform Guidance requirements to ensure federal awards are handled in an appropriate manner and all required written policies and procedures are in place to conform to the new requirements.
Please contact an Eide Bailly professional if you have any questions.