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:
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:
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:
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:
Once the subgrant is awarded, the grantor must perform the following monitoring steps:
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:
Budget estimates alone do not qualify as support, but can be used for interim accounting purposes, provided that:
Other Cost Principle Changes
Other cost principle changes for more common items of cost are as follows:
Items removed from the specific listing of costs include:
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