Not-For-Profit Leadership Summit XIII Presented by the Westchester Community Foundation and the United Way of Westchester and Putnam An Overview of the New OMB Uniform Grant Guidance May 4, 2015

Today’s presenters Bob Vanni, Senior Consultant for Government Relations Nonprofit Coordinating Committee of New York (NPCC)  Formerly, Vice President, General Counsel and Secretary of The New York Public Library, Astor, Lenox and Tilden Foundations  Currently serves on the Board of PILnet, The Global Network for Public Interest Law 1

Today’s presenters Tom Sneeringer, Partner McGladrey LLP  Over 20 years of experience focused on nonprofit organizations  Author and host of McGladrey’s Annual Federal Grants Management Update Webinar (August)  National Speaker on Federal Grants Management Topics  Champion for Use of the COSO Model of Internal Controls by the Nonprofit Sector 2

Learning objectives After completing this program, you should:  Know where to obtain access to the new uniform requirements  Know when you will need to start applying the new requirements  Know how the new requirements will likely impact your grant management activities  Know where you can find additional information to help you implement the new requirements 3

An Overview of the New OMB Uniform Grant Guidance 4

Background/History  OMB Circulars Issued for Nonprofits to manage Federal awards -OMB Circular A-21 (cost principles for higher education) issued in OMB Circular A-110 (administrative requirements) issued in OMB Circular A-122 (cost principles for all other nonprofit organizations) issued in OMB Circular A-133 (Audits) issued in All of the above have been incrementally updated over the years 5

UGG reform history Nov 2009: Executive Order: Reduce Improper Payments Feb 2011: Presidential Memo: Reduce Administrative Burden Feb 2012: Advance Notice of Proposed Guidance (public comments) Feb 2013: Notice of Proposed Guidance (public comments) Dec 2013: Final Uniform Guidance 6

OMB – Uniform Grant Guidance (UGG)  OMB issued Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards on December 26, 2013  Final Rule issued on December 19, 2014, with an effective date of December 26, 2014  The UGG replaces/consolidates eight previously issued OMB Circulars, including A-21, A-110, A-122 and A-133 7

OMB - Uniform Grant Guidance (UGG)  Management responsible for implementation  OMB resources that auditees (and auditors) should: -Access all the various UGG documents at: -Go to the COFAR Mailing List link to register and receive future announcements, information on upcoming webcasts, and other COFAR resourcesCOFAR Mailing List link -Access an archive of an OMB Web event and related presentation materials covering the contents of the various Subparts and requirementsarchive of an OMB Web event and related presentation materials -Access a COFAR FAQ document titled, Frequently Asked Questions for New Uniform Guidance at 2 CFR 200Frequently Asked Questions for New Uniform Guidance at 2 CFR 200 8

Provided to You Today  National Council of Nonprofits whitepaper: Nonprofits and the New OMB Uniform Guidance – Know Your Rights …. And How to Protect Them  McGladrey whitepaper: An overview of the new Uniform Grant Guidance  COFAR FAQ document (updated November 2014) 9

OMB – Uniform Grant Guidance (UGG)  Effective Dates: -Non-federal entities will need to implement the new administrative requirements and Cost Principles for all new federal awards made after December 26, 2014, and to additional funding to existing awards (referred to as funding increments) made after that date. Non-Federal entities wishing to implement entity-wide system changes to comply with the guidance after December 26, 2014, will not be penalized for doing so -Audit requirements effective for fiscal years beginning on or after December 26, Not permitted to early implement any of the audit provisions -One year deferral for the procurement rules 10

2 CFR 200 – Basic layout  6 Subparts A through F -Subpart A, 200.XX – Acronyms & Definitions (new) -Subpart B, 200.1XX – General (new) -Subpart C, 200.2XX – Pre Award – Federal (Old=A-110) -Subpart D, 200.3XX – Post Award – Recipients (Old=A- 110) -Subpart E, 200.4XX – Cost Principles (Old=A-122) -Subpart F, 200.5XX – Audit (Old=A-133)  11 Appendices - I through XI 11

Key Points  Use of “should” and “must” -Should = best practices or recommended approach -Must = required  Vendor vs. Contractor (200.23) -See page 5 of COFAR FAQ document -The term "vendor" as used in Circular A-133 (in contrast to a subrecipient) is no longer used. The term "contractor" is defined in this section and will be used instead of "vendor" going forward 12

Key Points  Personally Identifiable Information (PII) (200.79) and Protected Personally Identifiable Information (PPII) (200.82) – These terms are now defined for first time. -The definitions are important to auditors and auditees as single audit reporting packages submitted under the new guidance will be publically available (with exceptions for Indian tribes) and the UGG states that auditors and auditees must ensure that no protected PII is included in their respective parts of the reporting package -Discussed on page 3 of McGladrey whitepaper 13

Key Points  Conflict of interest – NEW! ( ) -Federal agencies must establish Conflict of Interest (COI) policies -Grantees must disclose in writing any potential COI -Discussed on page 11 of COFAR FAQ document  Mandatory disclosures ( ) -Grantees and applicants must disclose all violations of federal criminal law potentially affecting the federal award (e.g., fraud, bribery or gratuity violations) 14

Key Points Internal control clarification ( )  The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” [Green Book] issued by the Comptroller General of the United States and the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Discussed on page 13 of COFAR FAQ document 15

Five components of internal control - Adapted from COSO cube by AuditWatch

Key Points Procurement Standards ( – )  Five procurement methods outlined (The “Bear Claw”) -Micro-purchases (< $3,000) -Small purchase ($3,000 - $150,000) -Sealed bids (as appropriate) -Competitive proposals (as appropriate) -Noncompetitive proposals (as appropriate)  New concepts for Nonprofits (similar to old state/local government rules)  All auditees should review these changes carefully to determine the impact on their procurement procedures, in particular those relating to procurement card programs 17

Key Points Procurement Standards ( – ) (Continued)  Discussed on pages 15 and 16 of COFAR FAQ document  One-year deferral in place on the procurement rules – one year from the first day of organization’s fiscal year after 12/26/14 -12/31 year-end = 1/1/16 -3/31 year-end = 4/1/16 -6/30 year-end = 7/1/16 -9/30 year-end = 10/1/16 18

Key Points  Subrecipient vs. Contractor ( ) -Guidance on determination relocated to administrative requirements section -Term “contractor” replaces “vendor” Criteria for determination basically unchanged -Discussed on page 4 of the McGladrey whitepaper  Requirements for pass-through entities ( ) -Discussed on pages 17 and 18 of COFAR FAQ document  Fixed amount subawards ( ) -Allowed with permission under certain circumstances -Discussed on page 18 of COFAR FAQ document 19

Key Points  Fixed amount awards and Cost Principles ( and ) -Nonprofits can keep a “profit” on such awards -Cost principles used as a guide in pricing of such awards -Discussed on page 19 of COFAR FAQ document  Direct and Indirect Costs ( – ) -Federal agencies will have to accept a non-federal entity’s negotiated indirect cost rate unless statute or regulation allows for an exception or agency head approves -10% “de minimis” rate (total modified direct costs) available for those recipients that never had an official rate -Discussed on page 20 of COFAR FAQ document 20

Key Points  Compensation – Personal services ( ) -Purpose was to reduce the administrative burden of documenting time and effort -More principles based -Less prescriptive on documentation and places more emphasis on internal controls over personnel-related costs -However, there is a requirement that charges must be based on records that accurately reflect the work performed and there are requirements for such records -Will allow entities to replace detailed time-and-effort reports with performance-based reporting (based on milestones). The appropriate agency will have to approve the use of such an approach, but entities could use performance- oriented metrics to account for multiple awards and their combined use. 21

Key Points Audit Requirements  Revisions focus audit on risk -Increases audit threshold. -Strengthens risk-based approach to determine Major Programs. -Provides for greater transparency of audit results. -Strengthens agency use of the single audit process. -Provides for public outreach to focus Compliance Supplement on requirements of highest risk. 22

Audit Requirements Basic Structure of Single Audit Process Unchanged  Audit threshold ( ).  Subrecipient vs. Contractor ( (f) & ).  Biennial ( ) & Program-specific ( ) audits.  Non-Federal entity selects auditor ( ).  Auditee prepares financial statements & SEFA( ).  Audit follow-up & corrective action( & ).  9 month due date (set in law) ( (a)).  Reporting to Federal Audit Clearinghouse ( ).  Major programs determined based on risk ( ).  Compliance Supplement overall format (Appendix XI). 23

Single audit threshold  Increase audit threshold from $500,000 to $750,000 -Based on single audits submitted to the FAC there could be approximately 5,000 fewer entities subject to a single audit, but there would only be a reduction in dollars covered of less than 1/2 percent 24

Type A threshold  Groupings are based on dollars — Type A programs are those above the dollar threshold, Type B are those below -The minimum threshold is increased from $300,000 to $750,000. -Thresholds increase when amounts expended in excess of $25 million. 25

Percentage of coverage requirement  Minimum coverage required as follows: Type of AuditeeCurrentNew Not Low Risk50%40% Low Risk25%20%

Low-risk auditee Current (must meet all) :  Single audits performed on annual basis  Auditor’s opinions on financial statements and SEFA unqualified  No material weakness under requirements of GAGAS  In either of preceding two years, none of Type A programs had: -Material weakness -Noncompliance with material effect -Known or likely questioned costs that exceed 5% of total federal awards expended for a Type A program New:  Single audits performed on annual basis  Auditor’s opinions on financial statements and SEFA unmodified  No going concern opinion  No material weakness under requirements of GAGAS  In either of preceding two audit periods, none of Type A programs had: -Material weakness -Modified opinion on compliance -Known or likely questioned costs that exceed 5% of total federal awards expended for a Type A program 3 27

Single audit – Future enhancements – From the OMB  Included language to allow for future combining of the audit reporting and the data collection form if permitted under auditing standards and the approved FAC data collection ( (e)).  Single audit resolution project currently under supervision of COFAR is aimed at improving coordination for cross-cutting findings and improving transparency of management decisions. 28

OMB – Uniform Grant Guidance – Action items  Auditee education: -Auditees need to start planning now! -Consider… Have you read the new guidance? Do you have a plan to become compliant? How are you going to be addressing the new rules for 1.Procurement, 2.Allocating indirect costs, 3.Time and effort reporting, 4.Subrecipient monitoring, 5.Internal control? Is senior management involved? Are you aware of available resources? How are you planning to train staff? 29

Q&A and Workshop Discussion 30

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey ®, the McGladrey logo, the McGladrey Classic logo, The power of being understood ®, Power comes from being understood ®, and Experience the power of being understood ® are registered trademarks of McGladrey LLP. © 2013 McGladrey LLP. All Rights Reserved. McGladrey LLP