Navigating the New Uniform Grant Guidance. Jack Reagan, Audit Partner Grant Thornton LLP. Grant Thornton. All rights reserved.

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1 Navigating the New Uniform Grant Guidance Jack Reagan, Audit Partner Grant Thornton LLP

2 Objectives What s New with OMB: Uniform Administrative Requirements, Cost Principles, and Audit requirements for Federal Award The Uniform Grant Guidance (UGG) -Understand the overview/history of the UGG -Describe the major changes effective this year -Summarize how changes affect your entity, procedures and documentation -Describe changes to the compliance supplement 2

3 Challenge & Impact Challenge Under Previous Guidance 1. Eight Overlapping Sets of Compliance Requirements Impact of New Uniform Guidance Eliminate Duplicative and Conflicting Guidance 2. High Levels of Administrative Burden Performance and International Controls Over Compliance for Accountability 3. Hundreds of Forms with Non-Standard Data Definitions 4. Outdated Guidance Does Not Account for Modern Electronic Work Environment 5. Inconsistent and Non-Transparent Treatment of Costs 6. Lack of Support for Policies with Work-Life Balance 7. Audit Findings Repeated Each Year = Waste 8. Lack of Accountability for Effectively Correcting Financial Integrity Weakness Provides Framework for Standard Business Processes & Data Definition Promotes Efficient Use of IT and Shared Services Requires Consistent and Transparent Treatment of Costs Encourages Non-Federal Entities to Have Family-Friendly Policies Stronger Oversight & Target Audits on Risk of Waste, Fraud, and Abuse Increased Accountability for Effective Resolution of Weaknesses 3

4 Guidance Reform History Nov. 2009: Executive Order: Reduce Improper Payments Feb. 2012: Advance Notice of Proposed Guidance (public comments) Dec. 2013: Final Uniform Guidance Feb. 2011: Presidential Memo: Reduce Administrative Burden Feb. 2013: Notice of Proposed Guidance (public comments) 4

5 Eliminating Duplicative and Conflicting Guidance Then: Awards Received A-102 & A-89 A-87 A-133 & A-50 Grantee/Grantor must follow Subawards to universities A-110 A-21 Now: all OMB guidance streamlined in 2 CFR 200. Subawards to nonprofits A-110 A-122 5

6 Process Changes Driven by New Guidance Internal Control Section Procurement Section , 319 and 320 Personnel Costs Section i 6

7 Internal Control must establish and maintain effective internal control over federal award in accordance with COSO comply with federal statutes, regulations and terms of awards evaluate and monitor the recipient's compliance with statute, regulations and terms and conditions of federal awards take prompt actions when instances of noncompliance are identified, including noncompliance identified in audit findings take reasonable measures to protect personally identifiable information 7

8 Procurement must use its own DOCUMENTED policies and procedures which reflect applicable federal, state and local laws must maintain oversight to ensure contractors perform in accordance with terms of the contracts procedures must be designed to avoid acquisition of unnecessary or duplicative items, including documenting an analysis of lease vs. buy considerations encouraged to use intergovernmental agreements where appropriate encouraged to use federal surplus property in lieu of purchasing encouraged to use "value engineering" clauses in construction projects of sufficient size 8

9 Procurement must maintain records sufficient to detail the history of the procurement rationale for method of procurement selection of contract type contractor selection or rejection basis for contract price may use time and materials only under certain circumstances no other contract manner is suitable terms include a contract ceiling that the contractor exceeds at its own risk must include a clear and accurate description of the technical requirements of the material, product or service identify all requirements which must be fulfilled in evaluation of bids 9

10 Procurement Competition must be conducted in a manner providing full and open competition the following are considered restrictive of competition placing unreasonable requirements on firms in order to qualify requiring unnecessary experience or bonding noncompetitive contracts to consultants that are on retainer organizational conflicts of interest specifying only "brand name" products instead of allowing an "equal" product to be offered must be conducted in a manner that prohibits the use of statutorily or administratively imposed state or local geographic preference in evaluation of bids and proposals 10

11 Documentation of Personnel Costs (Time and Effort Reporting) must be based on records that accurately reflect the work performed be supported by a system of internal control providing reasonable assurance that charges are accurate, allowable and properly allocated be incorporated into the official records reasonably reflect the total activity for which employee is compensated encompass both federally assisted and all other activities compensating the employee comply with established accounting policies and procedures support the distribution of salary among specific activities or cost objectives if the employee works on more than one Federal award 11

12 Documentation of Personnel Costs (Time and Effort Reporting)- Budgeted Payroll Amounts Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: The system for establishing the estimates produces reasonable approximations of the activity actually performed; Significant changes in the corresponding work activity are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and The system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. 12

13 Documentation of Personnel Costs (Time and Effort Reporting)- Statistical Sampling for Payroll Allocation The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results The entire time period involved must be covered by the sample The results must be statistically valid and applied to the period being sampled Allocating charges for the sampled employees supervisors, clerical and support staffs, based on the results of the sampled employees, will be acceptable 13

14 New Subrecipient Definition Determines who is eligible to receive what federal assistance Has its performance measured in relation to whether federal program objectives were met Has responsibility for programmatic decision making Is responsible for adherence to applicable federal program requirements Uses the federal funds to carry out a program for a public purpose specified as opposed to providing goods or services for benefit of pass through entity 14

15 Pass Through Entities Must Ensure every subaward is clearly identified: Federal award identification Subrecipient name Federal award identification number Federal award date Subaward period of performance Total amount of federal award Federal award project description Name of federal awarding agency and contact official CFDA number and name Indirect cost rate applicable for the award 15

16 Pass Through Entities Must Evaluate each subrecipients risk of noncompliance Subrecipient s prior experience with same award Results of previous audits Whether subrecipient has new personnel or new systems Extent and results of federal monitoring Monitoring activities should include Reviewing financial and programmatic reports Follow up on deficiencies detected through audits and on site reviews Issuing management decisions for audit findings 16

17 Pass Through Entities Must No safe harbors you must do your own risk assessment and monitoring Very high degree of visibility at federal level increased oversight increased number of site visits 17

18 Audit Threshold Raise audit threshold from $500K to $750K. Still will cover 99.7% of all federal awards with a Single Audit 81% of all recipients will still receive a Single Audit 5,000 out of 37,500 entities that previously received a Single Audit will no longer get one 18

19 Major Program Determination Federal Awards Expended Type A/B Threshold >$750,000 but < $25 Million $750,000 >$25 Million but < $100 Million.03 x federal awards expended >$100 million but < $1 Billion $3 Million >$1 Billion but < $10 Billion.003 x federal awards expended >$10 Billion but < $20 Billion $30 Million >$20 Billion.0015 x federal awards expended 19

20 Low Risk Auditee Status Two year lookback on the following: single audits performed including whether submitted to clearinghouse timely unmodified GAAP opinion no GAGAS material weaknesses no material weaknesses on internal control at major program level no modified opinion on compliance at major program level no known or likely questioned costs that exceed 5% of program expenditures 20

21 Type B Program Risk Assessments Must only do risk assessments on Type B programs until arrive at ¼ the number of low risk type A programs Need only perform risk assessments on the Type B programs that exceed 25% of the Type A program threshold other historical Type B risk assessment considerations apply 21

22 Percentage of Coverage High risk auditee 40% of federal awards expended Low risk auditee 20% of federal awards expended 22

23 Audit Findings: MUST include Federal program name and CFDA # Pass-through entity (if applicable) Criteria - what is requirement Condition what did you find Statement of Cause Possible asserted effect Questioned costs Information to provide proper perspective - # of errors, size of sample, size of population (also known as context) 23

24 Audit Findings: What MUST be included Whether or not repeat finding Recommendations Views of responsible officials 24

25 Audit Findings Follow Up by Auditee Must prepare a summary schedule of prior audit findings If corrected, list the prior finding and state corrective action was taken If partially corrected or not corrected, must describe the reasons for the finding s recurrence and planned corrective action taken. If auditee believes finding is no longer valid, must describe position why no longer valid and must include: o Two years have passed since finding reported to FAC o Federal agency is not following up with auditee on finding o Management decision was not issued 25

26 Audit Findings Follow Up by Auditee Corrective Action Plan elements Address each audit finding in current year report Name of contact person responsible for remediation The remediation plan Completion date for remediation plan If disagree with audit finding, reasons behind disagreement must be disclosed 26

27 Questioned Costs Known questioned costs > $25k Likely questioned costs > $25k 27

28 Single Audit Reporting Package Audited Financial Statements Financial statement reporting period must agree with single audit reporting period Audited Single Audit report Letter of internal control over financial reporting. If separate letter was issued, need to include in issued report Letter of internal control and compliance over major programs Schedule of Expenditures of Federal Awards (SEFA) Schedule of findings and questioned costs 28

29 Single Audit Reporting Package Summary Schedule of Prior Audit Findings Corrective Action Plan, don t forget: employee contact information Timeframe when corrective action will be implemented Data Collection Form, the earlier of: 30 days after issuance or, 9-months after year end Non-compliance results in a reportable finding 29

30 Single Audit Report: SEFA Reminder Schedule of Expenditures of Federal Awards (SEFA)- Required Elements Individual federal programs by federal agency Catalog Federal Domestic Award # (CFDA#) For awards received as subrecipient, name of pass through entity and identifying number assigned. Include total amount provided to subrecipient. May be reported in the notes to the SEFA or on the face of the SEFA. 30

31 Single Audits: Public Document Federal Audit Clearinghouse (FAC) will make the reporting packages available to the public. For Subrecipients: only required to submit report to FAC & no longer required to submit to recipient For Pass-through entities: no longer required to retain copy of subrecipient single audit 31

32 Audit Applicability: When do the changes affect you OMB implemented the New Uniform Grant Guidance, December 26, Federal agencies had 6-months to comply. Nonprofits, colleges, universities and state and local governments must comply for audits of fiscal years beginning after December 26, 2014 (i.e..calendar year 2015 or Fiscal year 2016)

33 Other Major Changes Indirect cost rates combined 4 circulars with different guidance into a single piece of guidance generally will result in lower rates as rules are tightened Single Audit Coordinator at each federal agency single point of contact at each federal agency will drive subrecipient monitoring faster management decisions more robust oversight 33

34 Uniformed Grant Guidance 2015 Compliance Supplement Released in July 2015 Significant changes Title of the supplement changed to remove the reference to OMB Circular A-133 Part 3 Compliance Requirements, Introduction revised to address transitional issues for old and new requirements Part 3.1 old cost and administrative principles (before 12/26/14) Part 3.2 new cost and administrative requirements under Uniform grant reform (after 12/26/14) Part 2 Compliance Requirements Deleted Davis-Bacon Act (D) Deleted Real Property Acquisition and Relocation Assistance (K) Reporting (L) no longer includes sub-award reporting audit requirements under the Federal Funding Accountability and Transparency Act (FFATA) 34

35 Uniformed Grant Guidance 2015 Compliance Supplement Part 4 Added 5 new programs 8 clusters deleted and 1 new program was added to an existing cluster 2 programs with name changes only Davis Bacon-Bacon Act requirement deleted as result of the end of ARRA funding or because it is not considered material to the program More than minor changes made to 52 programs Deleted 11 programs 9 ARRA programs deleted based on their completion or limited amounts of funds still subject to audit Preventive Health and Services Block Grant Perkins Loan Cancellations 35

36 Uniformed Grant Guidance 2015 Compliance Supplement Part 6 Content this part, was replaced with a note stating that the section needs to be updated for recent internal control developments and that nonfederal entities and their auditors should look to COSO and the Green Book for guidance on internal controls. Working group has been established to work on updating for 2016 compliance supplement New enterprise approach to understanding the internal control environment 36

37 Uniformed Grant Guidance 2015 Compliance Supplement Appendix VII NIH has designated all of their programs as R&D similar to what NSF did in previous years Major program determination for FFATA findings 37

38 What questions do you have? Tennyle L. Walker Practice Director Grant Thornton LLP (703) Grant Thornton LLP. All rights reserved. 38