Webinar: Are you Prepared for the Supercircular? February 2014

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1 Webinar: Are you Prepared for the Supercircular? February 2014 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

2 Agenda Overview and Development Significant Features Reforms to Administrative Requirements Reforms to Cost and Audit Principles Strategic Considerations Page 2

3 OVERVIEW AND DEVELOPMENT OF SUPERCIRCULAR, REFORMS TO ADMINISTRATIVE REQUIREMENTS Stuart Turner, Counsel, Arnold & Porter

4 Overview December 26, 2013 OMB issued Uniform Administrative Requirements, Cost Principles, and Administrative Requirements for Federal Awards Consolidates regulations to provide consistent guidance for grant recipients and issuers Changes and consolidations include: Provides a single resource for requirements that apply to all recipients, eliminating the requirement for grants professionals to cross-reference between multiple resources Includes new measures designed to ensure merit-based grant awards and identify problems early in the process Introduces more formal requirements for certification of compliance and disclosure of noncompliant or criminal acts Attempts to streamline and standardize the cost principles in many ways, including new options for the recovery of indirect costs 4

5 Implementation - Key Dates Policies Applicable to Federal Agencies (effective 12/26/13) Federal Agencies to submit draft implementing regulations to OMB (due 6/26/14) Audit Threshold Change (FY Beginning after 12/26/14) Full text of uniform requirements for non-federal entities (effective 12/26/14) 5

6 Development In 2009, President Obama issued Executive Order declared a focus on reducing improper payments government-wide and eliminating waste and fraud January 18, 2011, the President issued Executive Order 13563, directed all executive agencies to review their regulations, and determine if they were tailor[ed]... to impose the least burden on society In an accompanying memorandum, the White House stated that Executive Order requires retrospective analysis of existing significant rules and greater coordination across agencies to simplify and harmonize redundant, inconsistent, or overlapping requirements, thus reducing costs 6

7 Development continued On February 28, 2012, OMB published an Advance Notice of Proposed Guidance (ANPG) in the Federal Register Proposed the consolidation of cost accounting principles, but did not propose to consolidate the various administrative requirements unique to each category of recipient On February 1, 2013, OMB issued the draft text of the Supercircular, currently designated as OMB OMB also published a 15-page summary and discussion document in the Federal Register setting forth a history Over 300 individuals and institutions submitted comments by the June 2, 2013 deadline The rule issued December 26, 2013 and will be fully implemented by December 26, 2014 OMB will integrate the new rule into Title 2 of the Code of Federal Regulations 7

8 Significant Features Imposes common requirements for both administrative and accounting functions Supersedes Circulars A-89, A-102, and A-110 for administrative requirements Provides across-the-board deadlines and thresholds for notice requirements, small purchase limits Requires new quality control and efficiency measures Significant new guidance for Federal grants personnel Consolidates Circulars A-87, A-21, and A-122 setting forth the cost principles governing the use of Federal grant funds for state and local public agencies, higher education institutions and nonprofit organizations not covered by the other circulars. All of these entities must now refer to the consolidated terms of the Supercircular. 8

9 Reforms to Administrative Requirements Pre-Award Requirements ( ) Notices of funding opportunities Federal awarding agency review of merit of proposals Opportunity announcement must disclose review procedures Must include risk review FAPIIS Past performance Available audits Standard application requirements Reduction of paperwork burden (Paperwork Reduction Act) Standard form of award requirements (award will be published) 9

10 Reforms to Administrative Requirements Subrecipient Monitoring and Management ( ) Determination of a subrecipient versus contractor A subrecipient uses the Federal funds to carry out a program for a public purpose specified in authorizing statute A contractor provid[es] goods or services for the benefit of the pass-through entity. Required terms Must negotiate an indirect cost rate with subrecipients or use the plug-in rate at Must have audit rights Pass-through Federal requirements 10

11 Reforms to Administrative Requirements Subrecipient Monitoring and Management (cont.) Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward ( (b).) Evaluate past performance of subrecipient Determine level of monitoring Determine if special conditions are required Monitor the activities of the subrecipient to determine progress and compliance ( (d).) Review of financial reports Manage and determine action on audits On-site reviews Provide training (if needed) Take enforcement action as described in (if needed) 11

12 Reforms to Administrative Requirements Procurement Standards for non-federal entities ( ) Requires a formal, almost FAR-like process, presumably to ensure the most efficient use of grant dollars. Procedure must be documented Must provide full and open competition Must consider cost and price Must consider OCI Description of records must be maintained to document the history of the procurement Prohibits state or local geographical preferences Must use one of 5 procurement methods ( ) Less formal methods OK if under the Federal simplified acquisition threshold of $150,000 12

13 Reforms to Administrative Requirements Mandatory disclosures ( ) Applicants, recipients and sub-recipients must disclose, in a timely manner, to the awarding agency or pass-through entity all violations of Federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award. Failure to disclose is noncompliance, and can lead to suspension/debarment Similar to contracting provisions found in FAR Part

14 Reforms to Administrative Requirements Certification Requirements For Applicants ( ) 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. Potential for False Claims Act (FCA) violations 14

15 Reforms to Cost and Audit Principles, Strategic Considerations Eric Sobota, Partner, BDO USA, LLP Page 15

16 Reforms to Cost and Audit Principles Effective 12/31/2014 farewell to the following: Administrative Requirements in A-102 and A-110 Cost Principles in OMB Circulars A-21, A-87 and A-122 (limited variations by entity type) Audit Policies OMB Circulars A-133 for audit provisions Federal Program Information Requirements in OMB Circular A-89 OMB s Directive on Federal Agency Assistance Program Announcements Page 16

17 New Guidance Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (also known as the SuperCircular and the Omni-Circular ) New Guidance broken out into six(6) subparts and several appendices: Subpart A Acronyms and Definitions Subpart B General Provisions Subpart C Pre-Award Federal Requirements and Contents of Federal Awards Subpart D Post Federal Award Requirements Subpart E- Cost Principles Subpart F Audit Requirements Specific elements of costs are addressed further in Appendix III for Educational Institutions and Appendix IV for Nonprofit Organizations Page 17

18 Oversight Conflicts of Interest Required to maintain conflicts of interest policies as previously required, but also to maintain written policies on organizational conflicts of interest. Internal Controls Required to take reasonable measures to safeguard protected information as well as any information that the Federal awarding agency or pass-through entity designates as sensitive. CAS and Disclosure Statement The threshold for institutions to comply with CAS is raised to align with the threshold in the FAR ($50 million). Responsible for maintaining and complying with an accurate DS-2. Must file amendments to the DS-2 to the cognizant agency six months in advance of a disclosed practice being changed. Page 18

19 Changes to Selected Items of Cost Compensation for Personal Services ( ) Sets forth documentation standards, does not refer to activity reports or personnel action forms. No rules regarding the time period in which effort must be confirmed and offers no guidance on who may document compensation costs. Must maintain records that accurately reflect the work performed. Equipment ( ) and Materials and Supplies ( ) Cost of certain computing devices are allowable as direct cost supplies. Charge and treat computing devices not considered depreciable assets based on capitalization policy as direct costs. Must follow practices for allocability of direct versus indirect costs. Page 19

20 Changes to Selected Items of Cost Depreciation ( ) All references to use allowances have been eliminated. Organizations that have facilities that they own and are old will have an issue with this as there is no use allowance anymore. Exchange Rates ( ) Cost increases for fluctuations in exchange rates are allowable costs subject to the availability of funding, and prior approval by the Federal awarding agency. Page 20

21 Changes to Selected Items of Cost Audit Services ( ) Pass-through entities may charge Federal awards for the cost of agreed upon procedure engagements for sub recipient monitoring. This cost is allowable only if the agreed-upon procedures engagements are: Conducted in accordance with GAGAS attestation standards; Paid for and arranged by the pass-through entity; and Limited in scope to one or more of the following types of compliance requirements: activities allowed or unallowed; allowable costs/cost principles; eligibility; and reporting. Page 21

22 Direct Costs Allows for direct charging of administrative and clerical salaries if all of the following conditions are met: Integral to a project or activity; Individuals can be specifically identified; Such costs are explicitly included in the budget or have the prior written approval of the Federal awarding agency; and The costs are not also recovered as indirect costs. Page 22

23 Indirect Cost Rates Negotiated rates accepted by all Federal awarding agencies A different rate may be used when required by Federal statute/regulation, or when approved by a Federal agency. May apply for a one-time extension of a current negotiated indirect cost rates for a period of up to four years. Any non-federal entity that has never received a negotiated indirect cost rate, (exceptions in Appendix VII) may elect to charge a de minimis rate of 10% of MTDC which may be used indefinitely. Award levels for Federal awards will not be adjusted throughout the life of the award due to changes in negotiated rates Negotiated rates include final, fixed and predetermined rates. Page 23

24 Indirect Cost Methods Negotiated Lump Sum for Indirect Costs Method may be used for self-contained, off-campus or primarily subcontracted activities where the benefits of the overall indirect activities cannot be determined. In lieu of detailed cost information, can negotiate a fixed amount per agreement for indirect costs. Predetermined Rates for Indirect Costs Permanent rate established for a specified current or future period and is not subject to adjustment. Negotiated Fixed Rates and Carry-Forward Provisions Allows a fixed rate for one fiscal year or longer and apply an adjustment for over/under billing to the next fixed price negotiation Page 24

25 Indirect Cost Methods Page 25

26 A-133 Audit Considerations Increase to $750,000 from $500,000 in the dollar threshold for the A-133 audit Still required to make records available for review or audit by appropriate officials of Federal agencies, pass-through entities and the GAO. Level of oversight needed for other provisions that would fall below the new threshold: Pre-award review of risks, Standards for financial and program management, Sub recipient monitoring Page 26

27 Considerations The guidance provides flexibility and new options for the recovery of indirect costs For recipients who strategically position themselves, these options may offer significant advantages Take action: Perform gap assessment of current requirements to uniform guidance Review current policies to update for new allowability changes Create a robust sub-recipient monitoring Policy and Procedure Improve efforts to strengthen oversight Review current indirect rate structure and determine options for next fiscal year (use flat rate, 10%, etc.) Conduct training sessions to communicate changes to key personnel Page 27

28 Considerations (continued ) Procurement standard changes represent an increase in the administrative burden of awarding contracts to fulfill grant program objectives Robust and effective procurement process will be critical to address this challenge Sub recipient monitoring and management will require increased staff oversight Assessing current policies and procedures for your organization now will help you to quickly incorporate this new approach into your processes. Page 28

29 Next Steps Read the published Uniform Requirements Including the commentary from Council on Governmental Relations (COGR) Note the key dates, and begin preparing Attend training session, other roundtable events Monitor OMB and Federal agency actions Page 29

30 Contact Information Stuart Turner: Eric Sobota : esobota@bdo.com February 2014 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

Amy Roberts, Appalachian State University

Amy Roberts, Appalachian State University Originally referred to as A-81, the Super Circular, or the Omni Circular Consolidates 8 previous Circulars All Federal funding agencies are required to implement