UNIFORM GUIDANCE: IMPLEMENTING THE NEWEST FEDERAL GRANT RULES Presented by Corey Arvizu, CPA Brittney Williams, CPA, CGFM Heinfeld, Meech & Co., P.C.

Agenda Background, Objectives, Effective Dates Administrative Requirements Cost Principles Audit Requirements Questions 2

Background Initiated by Executive Order in January 2011 which required each Federal agency to– ‘‘tailor its regulations to impose the least burden on society, consistent with regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.” Overarching purposes and impact Increase efficiency and effectiveness Eliminate unnecessary and duplicative requirements Focus audit efforts 3

Background Final grant reforms issued on December 26, 2013 in Federal Register Vol. 78, No. 248 Reforms over two years in development Consolidation of several OMB Circulars into one consolidated set of guidance Revised administrative requirements, cost principles, and audit requirements New guidance often referred to as the Super Circular, Omni Circular, or Uniform Guidance 4

Guidance Previous Guidance A-21, A-87, A-122 Cost Circulars A-133 Single Audit Guidance A-89 Catalog of Federal Domestic Assistance A-102, A-110 Administrative Requirements A-50 Audit Follow-up New Guidance 2 CFR Chapter II, Part 200 Subpart A – Acronyms and Definitions Subpart B – General Provisions Subpart C – Pre-Award Requirements Subpart D – Post-Award Requirements Subpart E – Cost Principals Subpart F – Audit Requirements 5

Objectives Goals of COFAR based on guidance from Executive Office Streamline guidance for Federal awards to ease administrative burden Strengthen oversight over Federal funds to reduce risks of waste, fraud and abuse Eliminate duplicative and conflicting guidance Focus on performance over compliance for accountability Use of grant agreements, cooperative agreements and contracts including provisions for fixed amount awards Encourage efficient use of information technology and shared resources Provide for transparent and consistent treatment of costs Limit allowable costs to make the best use of Federal dollars Setting standard business processes using data definitions Encourage non-Federal entities to have family friendly policies Strengthen oversight Target audit requirements on risk of fraud, waste and abuse 6

Effective Dates New guidance was issued on December 26, 2013 Federal agencies required to implement requirements to be effective December 26, 2014 Non-Federal agencies Administrative requirements and cost principals apply to any new awards and to additional funding to existing awards made after December 26, 2014 Procurement implementation given a one year extension Existing awards continue to be governed by terms and conditions of the original Federal award Subpart F – Audit Requirements for Non-Federal entities Entities with fiscal year-end 12/31 – Effective for December 31, 2015 audit Entities with fiscal year-end 6/30 – Effective for June 30, 2016 audit 7

Initial Considerations Reference most recent uniform guidance (e-CFR) from the COFAR website “Acronyms and Definitions” subpart and table of contents of CFR is very helpful See also FAQ posted to COFAR website Use of terms “MUST” means it is a required component for compliance “SHOULD” means it is suggested as a best practice and is the recommended approach 8

ADMINISTRATIVE REQUIREMENTS

Pre-Award Requirements Use of grant agreements (including fixed amount awards), cooperative agreements and contracts Requirement to provide public notice of Federal financial assistance programs through CFDA Notices of funding opportunities Merit based review of proposals 10

Pre-Award Requirements Federal awarding agency review of risks posed by applicants Risk analysis of the Federal awarding agency could potentially include any of the following factors: Financial stability Quality of management systems Performance history Audit findings Effectiveness in implementing statutory and regulatory requirements Standard application requirements Federal awards must include uniform sets of data, including timing and scope, expected performance outcomes 11

Pre-Award Requirements Public notice for grants through CFDA and must include 7 data points Program description Purpose Goals and measurement Projected total amount of funds available Anticipated source of funds General eligibility requirements Applicability of single audit requirements 12

Pre-Award Requirements Fixed Price Awards (Section ) Fixed price awards cannot be more than the Simplified Acquisition Threshold – currently $150,000 These awards are meant to: Minimize compliance requirements in favor of requirements to meet performance milestones Meant to be paid based on milestones achieved No governmental review of actual cost Accountability based on performance and results At end of the project, non-Federal entity must provide written assurance that the project was completed or the level of effort expended Can’t be used if there is mandatory cost sharing/match associated with grant The non-Federal entity may not realize a profit Subawards require prior written approval from Federal awards agency 13

Post-Award Requirements Internal Controls (Section ) Moved from audit requirements to post-award requirements Organization must establish and maintain effective internal control over Federal awards to provide reasonable assurance that awards are being managed in compliance with laws and regulations Internal controls should be in compliance with COSO and the Standards for Internal Control in the Federal Government (the “Green Book”) Must take prompt action when noncompliance is identified Must take reasonable measures to safeguard personally identifiable information and other information deemed sensitive 14

Post-Award Requirements Procurement (Section ) Majority of the language from A-102 The non-Federal entity must use its own documented procurement procedures which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this section Must have written procedures for procurement 15

Post-Award Requirements Procurement (Section ) “Integrity Rules” Must maintain written standards of conduct covering conflicts of interest with respect to employees engaged in the selection, award, and administration of contracts, including disciplinary actions for violations No real or apparent conflicts of interest permitted Must maintain written standards of conduct covering organizational conflict of interest for affiliates of subsidiary organizations Mandatory disclosure requirements for violations Non-Federal entities may set standards for non-substantial interests or gifts of nominal value 16

Post-Award Requirements Procurement (Section ) Must avoid acquisition of unnecessary or duplicative items Encourages the use of excess or surplus property Encourages the use of inter-entity agreements Must maintain records sufficient to detail the history of the procurement Must maintain oversight to ensure contractors perform the terms and conditions of contract “Federal agency will not substitute its judgment for that of the non-Federal entity unless the matter is primarily a Federal concern” 17

Post-Award Requirements Procurement (Section ) Competition is emphasized Must take all necessary affirmative steps to assure that minority businesses, women’s enterprises, and labor surplus area firms are used when possible Must use one of the following methods of procurement Micro-purchases Use of small purchase threshold Formal sealed bid Competitive proposals Non-competitive proposals 18

Post-Award Requirements Performance Reporting (Section ) Federal agencies should provide clear performance goals, indicators and milestones for each award Performance reporting emphasized Comparison of actual accomplishments/goals met Reasons why goals/accomplishments weren’t met Financial monitoring Cost information presented to demonstrate efficient practices 19

Post-Award Requirements Subrecipient Monitoring (Section ) Largely unchanged but does further emphasize the responsibilities of the pass-through entity “Contractor” replaces the term “vendor” New requirement to evaluate each subrecipient's risk of noncompliance Monitoring plan dependent upon assessment of risk Monitoring includes reviewing financial and programmatic reports Following up with subrecipient to ensure timely response to noted deficiencies 20

COST PRINCIPLES

Cost Principles Refresher Efficient and effective administration of Federal grant awards Administration of grants in a manner consistent with program objectives and grant conditions Grantee has primary responsibility for grant administration Application of cost principles should not require significant changes to accounting practices 22

Cost Principles Indirect Cost Rates (Section ) Federal agencies must accept negotiated indirect cost rates Exception – A Federal awarding agency may use a rate different from negotiated rate when required by statute or regulation, or when approved by a Federal awarding agency head or delegate Pass-through entities must also accept negotiated indirect cost rates Any non-Federal entity that has a Federally negotiated indirect cost rate may apply for a one-time extension of current rates for a period of up to four years If the extension is granted the entity may not request a rate review until the extension period ends 23

Cost Principles Indirect Cost Rates (Section ) Non-Federal entities that have never had a negotiated indirect cost rate may use a de minimis rate of 10% Must use the 10% de minimis rate on all awards until negotiated Costs must be consistently charged and may not be double charged in order to utilize the de minimis rate The SEFA must include a note as to whether or not the entity elected to use the 10% de minimis indirect cost rate 24

Cost Principles Time and Effort Reporting (Section ) Listed as “Documentation of Personnel Expenses” in the uniform guidance Final guidance allows for alternatives to current requirements Guidance emphasizes internal controls rather than prescriptive documentation requirements The three examples of effort reporting systems from A-21 not included in the new uniform guidance Changes intended to reduce administrative burden of time and effort requirements 25

Cost Principles Time and Effort Reporting (Section ) Current A-87 requirements – Detail time records required After-the-fact determination, budget estimates not permitted Semi-annual certifications required for employees which work 100% of time with a single cost objective Personnel activity reports required for employees which work on multiple cost objectives 26

Cost Principles Time and Effort Reporting (Section ) New requirements – Charges must be based on records that accurately reflect work performed Records must be supported by a system of internal control, encompass all activity, and part of official records Budget estimates may be used for interim accounting purposes provided adjustments applied for actual Certifications are neither required or prohibited 27

Cost Principles Other Revisions Measures to safeguard personal and sensitive information Encouragement of family-friendly policies Allowance for “morale” costs eliminated Conference hosts must ensure conference costs managed in manner to minimize costs to Federal award Grantee specifically prohibited from earning or keeping any profit from Federal assistance 28

Cost Principles Other Revisions Definition of supplies clarified to include computer equipment with an acquisition cost of less than $5,000 Computer equipment may be charged as a direct cost if essential to performance of a Federal award, even if it is not solely dedicated to an award cost objective Specific guidance provided on non-Federal entities seeking guidance from a cognizant agency for allowable cost matters Annual reports and payment requests must include a certification by an authorized official 29

Cost Principles Required Certification “By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and objectives set forth in the terms and conditions of the Federal award. I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise. (U.S. Code Title 18, Section 1001 and Title 31, Sections 3729–3730 and 3801–3812).” 30

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AUDIT REQUIREMENTS

Audit Requirements Focus on Audit Risk Strengthens risk-based approach to determine major programs Provides greater transparency of audit results Strengthens agency use of Single Audit process Provides for public outreach to focus Compliance Supplement on requirements of highest risk 34

Audit Requirements Basic Structure of Single Audit Process Remains Unchanged Audit threshold concept Nine (9) month due date Subrecipient vs. vendor Non-Federal entity selects auditor Auditee prepares financial statements and schedule of expenditures of Federal awards (SEFA) Risk-based approach to determine major programs Compliance Supplement overall format Reporting to Federal Audit Clearinghouse (FAC) Audit follow-up and corrective action 35

Audit Requirements Single Audit Threshold Increases audit threshold from $500,000 to $750,000 Expected to eliminate 6,000 single audits Maintains oversight “audit coverage” of 99.7% of current audit coverage Prior increase in 2003 was $200,000 36

Audit Requirements Type A/B Program Threshold Programs are grouped based on dollars Type A programs are those above the threshold Type B are all other programs below the threshold Type A/B threshold minimum increases from $300,000 to $750,000 Sliding scale with minimum used for certain amounts Single Audit threshold and Type A/B minimum threshold will be the same at $750,000 37

Audit Requirements Type A/B ThresholdTotal Federal Awards Expended $750,000$750,000 to $25 million Total expended times.03$25 million to $100 million $3,000,000$100 million to $1 billion Total expended times.003$1 billion to $10 billion $30 million$10 billion to $20 billion Total expended times.0015Exceeds $20 billion 38

Audit Requirements High-Risk Type A Program Prior criteria: Not audited as major program in 1 of 2 most recent audit periods. In most recent period had any audit finding: Provided for auditor judgment in limited cases, e.g., very small questioned costs. Auditor judgment to include consideration of oversight exercised by Federal agencies or pass-through entities, audit follow-up, or changes in personnel or systems which significantly increased risk. New criteria: Not audited as major program in 1 of 2 most recent audit periods. In most recent period had a high-risk audit finding: Modified opinion Material weakness in internal control Questioned costs exceeding 5% of program expenditures Auditor judgment 39

Audit Requirements High-Risk Type B Programs Prior criteria: Option 1 – Perform risk assessments on all Type B programs and select one half of Type B programs identified as high risk up to number of low-risk Type A programs. Option 2 – Perform risk assessments on all Type B programs until as many high-risk Type B programs have been identified as there are low-risk Type A programs. New criteria: Perform risk assessments on Type B programs until high-risk Type B programs have been identified up to 25% of number of low-risk Type A programs. The auditor is not expected to perform risk assessments on relatively small Federal programs. Therefore, the auditor is only required to perform risk assessments on Type B programs that exceed 25% of the Type A threshold. 40

Audit Requirements Percentage of Coverage Rule Type of AuditeeCurrentRevised Not Low Risk50%40% Low Risk25%20% 41

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Audit Requirements Low-Risk Auditee Prior Criteria - must meet all for the prior 2 years: Annual single audits Unmodified opinion on financial statements in accordance with GAAP Unmodified SEFA in relation to opinion No GAGAS material weaknesses In either of preceding two years, none of Type A programs had: Material weakness Material noncompliance Questioned costs that exceed 5% Timely filing with the Federal Clearinghouse Auditor reporting going concern not preclude low-risk Waivers permitted 43

Audit Requirements Low-Risk Auditee New Criteria - must meet all for the prior 2 years: Annual single audits Unmodified opinion on financial statements in accordance with GAAP or basis required by state law Unmodified SEFA in relation to opinion No GAGAS material weaknesses In either of preceding two years, none of Type A programs had: Material weakness Material noncompliance Questioned costs that exceed 5% Timely filing with the Federal Clearinghouse No going concern exception No waivers allowed 44

Audit Requirements Audit Findings Increases the threshold for reporting known and likely questioned costs from $10,000 to $25,000 Requires that questioned costs be identified by CFDA number and applicable award number Requires identification of whether audit finding is a repeat from the immediately prior audit and if so the prior year audit finding number Provides that audit finding numbers be in the format prescribed by the data collection form, i.e

Audit Requirements Single Audit Report Changes Used major headings to clarify that the reporting includes several distinct reports Opinion modification(s) on one or more major Federal programs modify the report wording and how the use of sub headers should be applied in this context Replaced the "restricted use alert" with a new "purpose alert" that only relates to the reporting on internal control over compliance Added example of how an auditor might include a table within the report to more clearly articulate findings Management's response to findings paragraph 46

Audit Requirements 2015 Compliance Supplement Will be used for both audit requirements under prior OMB A-133 and the new Uniform Guidance Part 6 – Internal Control will not be updated and may be removed from the compliance supplement Expected issuance by early June Useful grants management and audit preparation tool Available on OMB website 47

Audit Requirements Compliance Requirements CurrentProposed A.Activities Allowed or Unallowed 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 the remainder be part of N. H.Period of Availability of Federal Funds Incorporated into A. No significant changes to the compliance requirements. 48

Audit Requirements Data Collection Form Changes New Account Passwords Must receive required password from There are password requirements Expires every 60 days, or after 30 days of no activity Only one password reset allowed per day 49

Audit Requirements Data Collection Form Changes – PDF Requirement Over 40% of the audits uploaded in 2010 were not text searchable Began testing audit uploads in August 2012 All FY 2014 audits must be unlocked, unencrypted and 85% of pages text searchable FAC web site has PDF instructions 50

Additional Considerations Uniform Guidance provides for a government-wide audit quality project once every 6 years beginning in 2018 Included language to allow for future combining of the audit reporting and the data collection form OMB to evaluate implementation of guidance against previously developed metrics Reduction of compliance requirements may be revisited in the future Possible new COFAR guidance 51

Resources Council of Financial Assistance Reform Uniform grant guidance links Frequently Asked Questions Training webcast – January 2014 Implementation webcast – October 2014 Summary of agency differences Mailing list for future announcements OMB Guidance on administrative, cost principles, and audit requirements Crosswalks to existing guidance Text comparisons Current circulars Compliance supplement 52

Resources AICPA Governmental Audit Quality Center Various articles Implementation guidance and tools Archived webcasts COSO Internal control framework and related resources GAO Standards for Internal Control in the Federal Government (the “Green Book”) Uniform Guidance best practice 53

Objectives of Uniform Guidance Achieved? Eliminating duplicative and conflicting guidance Streamlining grants management Reduce administrative burden Target audit requirements Focus on performance Strengthen oversight Reduce fraud, waste, and abuse 54

QUESTIONS?