Grantee Implementation of Federal Uniform Administrative Requirements, Cost Principles and Audit RequirementsMay 27, 2015
Reed W. Risteen, CPA
In prior newsletters and alerts, we have broadly covered auditor and grantee requirements under Uniform Administrative Requirements, Cost Principles and Audit Requirements, which was originally abbreviated as the “Supercircular” but now is being referred to as “UG” (Uniform Guidance). This article addresses how to implement UG from a grantee perspective and how to transition from the former requirements to UG.
In terms of transition, UG was issued in the federal register on December 26, 2013, with all federal funding agencies (feds) required to adopt its provisions effective December 26, 2014. The general transition guidance is that UG apples to new awards or incremental funding of existing awards made after December 26, 2014. The feds have noted that federal grant award documents will indicate whether an award is subject to UG. However, that applies to direct federal awards. For pass-through awards the pass-through entity is required to include certain information in the pass-through grant that would enable the subrecipient to determine if the award is subject to the UG. A current concern is that certain federal agencies made slight wording changes to the transition guidance in UG when they adopted UG. The audit community is currently in dialogue with the feds to issue summary guidance in this area so grantees will not have to decipher the nuances of each federal agency’s transition implementation. The Council on Financial Assistance Reform (COFAR), a group representing various federal assistance constituencies, has issued Q&A concerning UG, which is another source of implementation guidance.
The UG comprises six subchapters, A through F. Grantee requirements are outlined in Subchapter D – Post Award (Administrative) Requirements and Subchapter E – Cost Principles.
The following grantee system requirements consist of:
- Financial Management
- Subrecipient Management and Monitoring
- Property Management
In terms of financial management, there is a new section on internal controls which states grantees should be in compliance with COSO (Committee of Sponsoring Organizations―the U.S. standard for internal control frameworks) and the federal Green Book. The word “should” in UG means recommended but not required. This is fortunate as few grantee organizations have controls robust enough to meet those standards.
Because systems are entity wide, it would be difficult to implement these changes on a grant-by-grant basis, as discussed above. Therefore, the UG provides for implementation of procurement policies by December 26, 2015. In addition, COFAR Q&A also addresses the topic, stating that procurement policies should occur by the start of the grantee’s first full fiscal year beginning after December 26, 2015. For example, a grantee with a fiscal year ending June 30 would have to implement UG compliant procurement policies by July 1, 2016. Another section states that grantees wishing to implement entity wide system changes to comply with the guidance after December 26, 2014 will not be penalized for doing so. To conclude, it makes the most sense to make entity wide system changes as of the beginning of a grantee’s fiscal year.
Revising procurement policies is probably the biggest area of effort as both the requirements and documentation of the system have changed. There are examples of UG-compliant procurement policies available on the internet; however, they should be customized to the grantee. Procurement policies must be written, must comply with UG procurement provisions and should include the following:
- Code of conduct
- Acquisition planning
- Acceptable methods of procurement
- Features of solicitation
- Conduct of competition
- Source evaluation and selection; record retention
- Required contract award schedules
- Contract administration
Subrecipient Management and Monitoring
Subrecipient management has been consolidated into one section under the UG and contains changes in the requirements. The definitions of subrecipient and vendor have not changed, but the UG is using the term “contractor” now instead of vendor. Implementation of new subrecipient policies would be on a grant-by-grant basis since the requirement is grant specific and would follow the new requirements for new awards or modification of existing awards after December 26, 2014.
The basic steps under subrecipient monitoring are:
- Determination of the relationship as subrecipient or contractor
- Pre-award risk determination
- Formation and issuance of subaward agreement
- Post-award monitoring
The most important area above is the contents of the subaward agreement. In our audits we have noted that, even prior to UG, the required elements were lacking in many subaward agreements we have examined. The UG increases the information required in the subaward to the following:
- Subrecipient name
- Subrecipient DUNS number
- Federal award identification number
- Federal award date
- Subaward period of performance start and end date
- Amount of federal funds obligated
- The total amount of the federal award
- Federal award project description
- Name of federal agency, pass-through entity and contact information for awarding official
- CFDA number and name
- Identification of whether the award is R&D
- Indirect cost rate information
Once the subgrant is awarded, the grantor must perform the following monitoring steps:
- Review financial and performance reports
- Verify federal single audit compliance
- Ensure corrective action on any deficiencies, regardless of how they are disclosed
- Issue management decisions on relevant subrecipient audit findings
- Consider whether audit results or other factors necessitate adjustment to pass-through entity records
- Consider whether enforcement actions are necessary
The UG states that subrecipient site visits are one way of monitoring but are not required.
Property management requirements have not changed significantly under the UG. Property with an original cost of $5,000 or more must still be included in a fixed asset’s inventory with certain information maintained on each asset. The UG confirmed that computers costing less than $5,000 are supplies and not subject to property management standards. A new requirement is that real property purchased or constructed with federal funds has to be reported on federal Form 429 annually.
The UG requires grantees to have written cost allowability procedures. The procedures should cover mechanical items like how direct and indirect costs are charged, allocation bases, etc. as well as how decisions are made, at what organizational levels and how differences of opinion are resolved. Connecticut grantees of state awards are currently required to have a cost allocation plan, which could be used as a base to document a cost allowability system.
As mentioned in prior articles, the explicit requirement for a timesheet or activity report to support wage allocations has been removed. However, based on webinars and discussions with other practitioners, it would still seem to be the case that a timesheet or activity report is the best support for wage allocations. The requirements of a payroll charging system are as follows:
- Must provide reasonable assurance that charges are accurate, allowable and properly allocated
- Must be incorporated into the official records of the grantee
- Must reasonably reflect the total activity for which the employee is compensated
- Must support the distribution of each employee’s salary if his/her time isn’t 100% allocable to a single award
Budget estimates alone do not qualify as support, but can be used for interim accounting purposes, provided that:
- The system produces reasonable estimates of activity performed
- Significant changes to work activity are identified and entered into the system in a timely manner
- The system includes processes to review actual activities and adjust estimates to actual, so the final amount is charged
- For hourly workers, records must indicate the total hours worked per day
Other Cost Principle Changes
Other cost principle changes for more common items of cost are as follows:
- Although fundraising costs for unrestricted funds are not allowable, the costs of data collection and grant preparation (state or federal) , successful or not, are now allowable
- The word “morale” has been removed from the cost category “employee health and welfare costs”, although losses from certain food service operations may now be charged as an indirect cost
- Computers costing <$5,000 are supplies
- Entertainment costs have loosened up slightly, allowing costs for social activities if the event has a programmatic purpose, has advanced approval (in the budget) and the underlying costs are allowable
- Conference costs must be reasonable and managed in a manner to minimize the cost to the feds
- Membership dues paid to organizations whose primary purpose is lobbying are unallowable
- Recruiting incentives are allowable if they conform to the grantee’s established practices, so if this is anticipated a policy should be adopted before the situation arises
- Training and educations costs for employee development are now allowable, and previous limitations and exclusions no longer apply
Items removed from the specific listing of costs include:
- Allowability of certain staff positions (colleges and universities)
- Communication costs: still allowable but no explanation considered necessary
- Labor relations costs: still allowable
- Meetings: replaced by conferences
- Foreign travel: covered under travel, advanced notice no longer a condition of allowability
In conclusion, adoption of the UG requirements is accomplished in two different ways. Adopting administrative requirements requires entity wide systems changes which are typically done as of the beginning of the grantee’s fiscal year. Generally system-wide changes must be adopted by the beginning of the first full fiscal year beginning after December 26, 2014.
Subrecipient monitoring and adherence to the new cost standards would be implemented on a grant-by-grant basis for grants that indicate they are subject to UG, which are generally new awards and revisions of existing awards on or after December 26, 2014.
Uniform Administrative Requirements, Cost principles and Audit Requirements – Federal Register -Title 2 of CFR, Subtitle a, Chapter II, Part 200