Dynamic Changes Occurring! OMB’s Uniform Grant Guidance August 25, 2015 Presented by: Adam Roth, StreamLink Software Michelle Watterworth, Plante Moran

Agenda Uniform Grant Guidance issued 12/26/2013, effective 12/26/2014: 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Cost principles Administrative requirements Audit requirements Brief overview of the changes Discuss Implications and practical approaches Administrators Auditors 2

Cost Principles and Administrative Implications of the Uniform Grant Guidance

UGG Expands on A-87, A133,etc. Target Areas of Improvement from Previous Requirements Eliminating duplicative and conflicting guidance Focusing on performance over compliance for accountability Encouraging efficient use of information technology and shared services Providing for consistent and transparent treatment of costs Limiting allowable costs to make the best use of Federal resources Setting standard business processes using data definitions Encouraging non-Federal entities to have family-friendly policies Strengthening oversight Targeting audit requirements on risk of waste, fraud, and abuse 4

Cost Principles. Summarized.

Where to find them: Then & Now 6 Cost Principles for State, Local, and Indian Tribal Governments Section in Previous CircularSection in Uniform Grant Guidance A. Purpose and ScopeDirect and Indirect (F&A) costs B. DefinitionsSubpart A - Definitions C. Basic GuidelinesBasic Considerations. D. Composition of Cost Composition of Costs E. Direct Costs Direct Costs F. Indirect Costs Indirect (F&A) costs G. Interagency Services Interagency Service H. Required Certifications Required Certifications Attachment A General Principles for Determining Allowable Costs Subpart E - Cost Principles Attachment B Selected Items of CostGeneral Provisions for Selected Items of Cost. Attachment C State/Local Wide Central Service Cost Allocation Plans Appendix V - State/Local Government and Indian Tribe - Wide Central Service Cost Allocation Plans Attachment D Public Assistance Cost Allocation Plans Appendix VI - Public Assistance Cost Allocation Plans Attachment E State and Local Indirect Cost Rate Proposals Appendix VII - States and Local Government and Indian Tribe Indirect Cost Proposals

Accountability of Funds Increase recipient accountability for performance. Required Certifications Goal is to strengthen awardee accountability by providing explicit and consistent language for required certifications that includes awareness of potential penalties under the False Claims Act. Cost Accounting Standards and Disclosure Statement Every awardee must meet the threshold in the Federal Acquisition Regulations. Goal is to strengthen accounting standards, while lowering the risk of noncompliance. 7

Accountability of Funds Time and Effort Reporting Requirements Strengthens requirements for awardees internal controls over salaries and wages, while allowing flexibility to meet such requirements. Emphasizes that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. 8

Treatment of Costs Direct Costs Makes consistent the guidance that administrative costs may be treated as direct costs if the awardee demonstrates that such costs are directly allocable to a Federal award. Indirect Costs Provides for an indirect cost rate of 10% of modified total direct costs to awardees that have never had a negotiated indirect cost rate. 9

Allowable Costs Acceptable costs based on program performance. Conferences Clarifies allowable conference spending and requires conference hosts/sponsors to exercise judgment in ensuring that conference costs are appropriate. Idle Facilities and Idle Capacity Allows for the expense of idle facilities when necessary to meet workload fluctuations of an award. 10

Allowable Costs Contingency Provisions Provides detailed circumstances under which contingency costs may be included in awards. Travel Costs Allows temporary dependent care costs that result directly from travel to conferences and that meet specified standards. Indirect Costs Identification and Assignment and Rate Determination for Institutions of Higher Education (IHEs) Extends to all IHEs provisions allowing for recovery of increased utility costs associated with research. 11

Allowable Costs Interest Allows awardees to be reimbursed for financing costs associated with patents and computer software capitalized in accordance with GAAP for fiscal years beginning on or after 1/1/2016. Prior Written Approval Provides a single comprehensive list of circumstances under which awardees must seek prior approval from the Federal awarding agency, the cognizant agency or the pass-through entity. Examples could include: Travel costs of dependents, Cost of membership in any civic/community organization, Indirect costs related to severance payments, etc. 12

Prohibitions/Limitations Employee Health/Welfare Cost Eliminates the allowance for “morale” costs. Relocation Costs of Employees Limits the amount of time for which a Federal award may be charged for the costs of an employee’s vacant former home to six months. Student Activity Costs Limits for on student activity costs. For example, costs incurred for intramural activities, student publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the Federal award. 13

Implications to Administrators Identify key performance metrics. Ensure you are equipped to monitor program performance. Be able to product standardized reports. Eliminate/mitigate program waste. Demonstrate change to risky programs. Sub-Recipient Monitoring Increased performance and cost consistency presents greater pressures on real-time knowledge of subs Negotiate an indirect cost rate. 14

Implications to Administrators Be familiar with the new conference spending guidelines that are applicable to your programs. Understand which contingency costs can be included in awards. Risky programs are more likely to have unexpected costs. Know the circumstances under which they can be included as contingencies to protect yourself. Keep track of your certifications to avoid penalties. 15

OMB Circular A-133 Compliance Supplement 2015 OMB has released additional information related to compliance requirements of Federal Departments. The 2015 documentation offers both an in-depth look at each department, as well as a table matrix of Types of Compliance Requirements by CFDA number. Find more information at: For a look at the Matrix of Compliance Requirements, visit:

Audit Implications of the Uniform Grant Guidance

Audit challenges/implications Identifying which rules are applicable Major program determination** Testing compliance requirements (effective now!) Reporting** Other audit-related considerations **These changes not effective until 12/31/2015 year ends 18

Uniform Grant Guidance Effective Dates 19 Federal Agencies By 12/26/2014 Non-federal agencies New awards and funding increments made AFTER 12/26/2014 Audit requirement (Subpart F) start with 12/31/2015 year ends

Funding increments “Where the Federal agency considers funding increments to be an opportunity to modify the terms and conditions of the federal award” (COFAR) Potential issues for auditors and for administrators: Funding increments received but no modification to terms and conditions were made. Does that mean UGG does not apply? Fund increments received with no mention by federal agency of UGG applicability. Does that mean UGG does not apply? 20 Effective Dates – Incremental funding

Effective Dates - Subawards Subaward effective date for applying UGG is the same as the effective date of the federal award from which the subaward is made Implications: Subawards made after 12/26/2014 do not necessarily have to comply with the UGG To determine effective date for subawards, need to look back to the effective date of the federal award from which the subaward is made 21

Implementation of Effective Dates What is the applicable fiscal year end? March, June, September 2015 Possible grantee expenditures under UGG Audit compliance testing under UGG for the first time December 2015 and after New audit requirements apply (major program and reporting changes) Continued compliance testing under OLD and NEW rules 22

23 Current RulesNew Rules Single audit threshold Low risk auditee $500,000 Unmodified opinion on basic FS in accordance with GAAP Unmodified SEFA opinion No material weaknesses at the basic FS level or federal programs No material non compliance No questioned costs that exceed 5% Timely filing with the clearing house $750,000 Financial statement opinion could be on the basis of accounting required by state law Unmodified SEFA opinion No material weaknesses at the basic FS level or federal programs No modified opinion on compliance No questioned costs that exceed 5% Timely filing with the clearing house No going concern opinion Major program selection (effective starting with 12/31/2015 year ends)

24 Current RulesNew Rules Coverage requirements Type A threshold Risk assessment for Type As (2 year lookback) Low risk 25% and no low risk 50% $300,000 Sig deficiency OR material weakness Noncompliance condition reported Low risk 20% and not low risk 40% $750,000 Material weakness Modified opinion Questioned costs over 5%

Compliance testing Internal control over compliance Possible changes as a result of implementation of UGG Allowable costs Procurement Subrecipient monitoring Sampling challenges Testing major programs with expenditures under both “old” rules and “new” rules Sampling methodology 25

Compliance testing requirements 2015 OMB compliance supplement Part 3.1 – Old rules Part 3.2 – Under UGG Removal of 2 compliance requirements Davis Bacon Real property and relocation assistance FFATA testing removed 26

Compliance testing requirements More significant testing changes under UGG: Allowable cost/cost principles Cash Management Period of Performance (fka Period of Availability) Procurement and Suspension and Debarment Subrecipient Monitoring 27

Allowable costs Changes in allowable costs due to moving from the various cost circulars to the UGG New/revised steps: De minimis indirect cost rate Improper payments focus Time and effort testing 28

Cash Management Need to understand the payment method or system a non-Federal entity uses New/revised steps Program income Unearned revenue Written procedures to implement

Period of Performance Previously called “Period of Availability” Focused steps depending upon when performance period begins Beings during audit period Ends during audit period Deleted statement about testing period of performance with the same samples used to test allowable cost/cost principles! 30

Procurement and S&D New/revised steps Geographical preferences Other changes 31

Subrecipient Monitoring Audit steps more focused Gain understanding Compliance focus: Subaward documents Monitoring Required audits obtained 32

Audit reporting** 33 Current RulesNew Rules Question costs reporting threshold SEFA $10,0000 Subrecipient awards are NOT required to be reported on the FACE of the SEFA. Typically reported in the footnotes. $25,0000 Report subrecipient awards by grant on the FACE of the SEFA (totals by grant) and no longer in the footnotes **Not effective until 12/31/2015 year ends

Audit reporting** 34 Current RulesNew Rules SSPAF/ Corrective action plan Audit due dates Required ONLY for SECTION III findings Extensions allowed Required for both SECTION II and SECTION III findings Extensions NO LONGER allowed **Not effective until 12/31/2015 year ends

Other audit-related considerations May need to update testing templates for UGG and non- UGG transactions Auditees may not have been as proactive as necessary Possible additional testing issues Possible additional findings Federal quality study every 6 years beginning 2018 Results of reviews must be made public Auditor focus on now to ensure audit quality 35

Contact Information Adam Roth, Founder and CEO StreamLink Software Michelle Watterworth, CPA Partner Plante Moran