Impact of New Guidance for Recipients of Federal Funding

By Baker Newman Noyes March 8, 2015

(Single audit threshold raised to $750,000)

The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Guidance) was published in the Federal Register on December 26, 2013 but was effective for non-Federal entities on December 26, 2014 and for audits of fiscal years beginning on or after December 26, 2014.

Impact on an organization’s Federal compliance audit (single audit)

“Single audits” are comprehensive tests of compliance and internal controls that are performed for certain entities that receive federal grants, awards and similar funds. The Guidance raises the Single audit requirement threshold from $500,000 to $750,000. Recipients spending less than $750,000 in Federal awards will not require an audit under Circular A-133. Also, for at least the first year of audits, some programs will be audited under the “old” guidance and some under the “new” guidance. Most entities will not see an immediate impact on their Single audit requirements for the fiscal year ending before December 26, 2015.

Impact on Federal awards received prior to the Guidance effective date

Federal awards after December 26, 2013 may or may not include reference to the Guidance. Federal awards prior to December 26, 2013 will refer to the original circulars. In each instance, the Federal award may impose additional terms and conditions.

It is important to remember that the terms and conditions of a specific Federal award will still govern. The Federal agencies will need to ensure that the non-Federal entities have full access to the terms and conditions for Federal awards prior to this Guidance.

Impact on cost principles

The Guidance supersedes the cost principle circulars (OMB Circulars A-21, A-87, and A-122) and removes duplicative and conflicting provisions that existed previously.

Impact on an organization’s internal control environment

The requirement for Federal award recipients to establish and maintain an appropriate and cost effective internal control environment has always existed. The Guidance has not modified this requirement; however, the OMB does refer organizations to the Committee of Sponsoring Organizations (COSO), the Standards for Internal Control in the Federal Government (Green Book), and the OMB Circular A-133 Compliance Supplement, Part 6, “Internal Control” for best practices.

The Guidance does not expect or require that an organization document or evaluate their internal control environment in relation to these internal control standards.

Impact on and organization’s handling of personally identifiable information (PII)

The Guidance states that an entity must take reasonable measures to safeguard protected PII determined by the Federal agency or pass-through entity as sensitive, or that the entity considers sensitive consistent with existing Federal, state and local laws.

This is a new requirement which may require some entities to evaluate their information system controls to ensure compliance.

Impact on subrecipient and contractor determinations

Since an entity may be a recipient, subrecipient and a contractor, the determination will need to be made case-by-case. The Guidance does provide the characteristics of a subrecipient and contractor as follows when the entity:

	Subrecipient	Contractor
1	Determines who is eligible to receive Federal assistance.	Provides the goods and services within normal business operations.
2	Has its performance measured in relation to the objectives.	Provides similar goods and services to many different purchasers.
3	Has responsibility for making program decisions.	Normally operates in a competitive environment.
4	Is responsible for adherence to Federal program requirements.	Provides goods or services that are ancillary of the Federal program.
5	Uses the funds to carry out the program not for the benefit of the pass-through entity.	Is not subject to compliance requirements of the Federal program.

While an entity will need to use judgment in making this determination, the Guidance states that the substance of the relationship is more important than the form of the agreement.

Impact on indirect cost rate

The Guidance provides for a de minimis rate of 10% for those entities that have never had a negotiated indirect cost rate which eliminates the administrative barrier to receiving this Federal financial assistance.

The Guidance also allows for a one-time extension without further negotiation of a federally approved rate for a period up to four years.

Conclusion

The selected areas above only touch upon some of the changes. The ultimate impact of the Guidance will vary by organization so we encourage each organization to review the Guidance and its federal grant programs to determine the impact.

More information may be found here:

• Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
• COSO Internal Control — Integrated Framework (2013)
• OMB Circulars

If you would like to discuss these matters further, please contact your BNN advisor at 800.244.7444