The Office of Management and Budget (OMB) has provided an advance notice of proposed guidance that is planned to be released in the Federal Register for comment as early as February 28, 2012. The Reform of Federal Policies Relating to Grants and Cooperative Agreements; cost principles and administrative requirements (including Single Audit Act) (link) appears to be the first anticipated output coming from the Council on Financial Assistance Reform (COFAR). For several months, we have heard hints of what they have been working on but little substantive information.
Over the past two years, the administration has released significant guidance designed to encourage and promote increasing effectiveness and efficiency of Federal programs; strengthen oversight of Federal grant dollars by aligning administrative requirements to better address ongoing and emerging risks; eliminate unnecessary and duplicative requirements; and intensify efforts to eliminate payment errors, waste, fraud, and abuse. Several of those executive orders and a memorandum are listed below:
- Executive Order 13520 on Reducing Improper Payments – November 23, 2009 link
- Presidential Memorandum on Administrative Flexibility, Lower Costs, and Better Results for State, Local, and Tribal Governments – February 28, 2011 link
- Executive Order 13563 on Improving Regulation and Regulatory Review – January 18, 2011 link
- Executive Order 13579 on Regulation and Independent Regulatory Agencies – July 11, 2011 link
OMB is considering implementing a wide series of reforms, some broad game changers, and some appear more esoteric. OMB is seeking comment on a series of “ideas” that are described in the proposed guidance and are summarized below.
OMB is inviting comments for ideas in three broad categories:
- Reforms to audit requirements (OMB Circulars A-133 and A-50)
- Reforms to Cost Principles (OMB Circulars A-21, A-87, A-122 and Cost Principles for Hospitals)
- Reforms to Administrative Requirements (OMB Circulars A-102, A-110, and A-89 as well as their respective codifications)
Note: My initial idea was to provide a summary of all the proposed changes…… it just got unmanageable for a blog. OMB has 28 separate “ideas”. I included those ideas that seem the most relevant to the broad community
Ideas for Reforms to Audit Requirements
1. Concentrate audit resolution and oversight resources on higher-dollar, higher-risk awards:
- Entities expending <$1million of federal award funding annually – no Single Audit
- Entities expending $1-3million – focused Single Audit with only two review areas
- Entities expending >$3 million – full Single Audit
2. Streamline the universal compliance requirements in the A-133 Compliance Supplement – emphasize those areas of highest risk but streamline/make optional other review areas.
3. Strengthen guidance on audit follow-up for Federal awarding agencies – designate senior accountable audit resolution official, require agencies to implement audit-risk metrics, encourage agencies to engage in cooperative audit resolution with recipients, and encourage agencies to take a pro-active approach to resolving weaknesses and deficiencies.
4. Reduce burden on pass-through entities and subrecipients by ensuring across-agency coordination.
5. Reduce burdens on pass-through entities and subrecipients from follow-up – require federal agencies to follow up on findings regarding financial or internal control systems enabling recipients to focus on programmatic delivery.
Ideas for Reforms to Cost Principles
1. Consolidate the cost principles into a single document, with limited variations by type of entity.
2. For indirect (“facilities and administrative”) costs, use flat rates instead of negotiated rates – various options to a full negotiation that would provide either a flat rate or streamlined negotiated rates.
3. Explore alternatives to time-and-effort reporting requirements for salaries and wages.
5. Charge directly allocable administrative support as direct cost – clarify the circumstances under which entities may charge directly allocable administrative support as direct costs.
12. Allow for budgeting for contingency funds for certain awards – clarify that budgeting for contingency funds for construction/upgrade of a large facility/IT system is acceptable and necessary and the methods for monitoring the use of these funds.
18. Provide non-profit organizations with an example of indirect cost proposal documentation requirements – aimed at providing uniformity in documentation requirements across different types of entities.
Ideas for Reforms to Administrative Requirements
1. Create a consolidated, uniform set of administrative requirements
2. Require pre-award consideration of each proposal’s merit and each applicant’s financial risk – This would be the first time that a merit review process (currently used by many agencies under current law and policy) is required in an OMB Circular.
3. Require agencies to provide 90-day notice of funding opportunities.
4. Provide a standard format for announcements of funding opportunities.
Thoughts for Moving Forward
Certainly not all of these proposed "ideas" will move forward, but smart money on the street is that many will. Many agencies are likely to need assistance in understanding both the implications of the reforms that are passed but also in implementing change to systems and processes to comply with the reforms. If we move quickly, we have the opportunity to work as trusted advisors to our clients to help them work through these reforms and also have the very real potential to identify opportunities for additional work. If you have specific ideas on how we can help our clients, please comment on this blog and share with the community