Uniform Guidance for Federal Awards Key Changes and Lessons

Transcription

1 Uniform Guidance for Federal Awards Key Changes and Lessons Learned Kinman Tong, Senior Manager Moss Adams LLP 1

2 PRESENTER Kinman Tong, Senior Manager Kinman has been in public accounting since He leads and manages audits of continuing care retirement communities, skilled nursing and long-term care facilities, home health agencies, hospice and private care organizations, affordable housing and LIHTC entities, community health centers, FQHCs, behavioral health providers, hospitals, and other ancillary health care and senior living organizations. He also serves a diverse spectrum of not-for-profit entities and governments, including higher education institutions, research organizations, foundations, international NGOs, and social welfare organizations. 2

3 OBJECTIVES An overview of the new Uniform Guidance and key changes regarding compliance areas within the Uniform Guidance, including a discussion regarding the new audit requirements impacting Single Audits. Best practices for and lessons learned from implementation of the Uniform Guidance and tips to help organizations comply with key requirements Resources for staying informed of any changes to the Uniform Guidance 3

4 Title 2 CFR Part 200 Federal Agency Regulations 4

5 COMBINES AND STREAMLINES GUIDANCE FROM EIGHT CIRCULARS A-133 A-89 A-87 A-50 A-21 A-122 A-110 A-102 5

6 TIMING CONSIDERATIONS RELATED TO THE UNIFORM GUIDANCE Old cost principles and administrative rules may apply to some or all existing awards UG cost principles and administrative requirements apply to new awards A-133 audit requirements FYs beginning before 12/26/2014 (years ended before 12/25/2015) UG audit requirements FYs beginning on or after 12/26/2014 (years ended on or after 12/25/2015) Important Note: Audit requirements are on a different timeline than cost principles and administrative requirements. 6

7 DEFINITIONS KEY CHANGES Use of should and must o Should = best practices or recommended approach Confirmed with COFAR FAQ 303-1, 303-2, and o Must = required procedure, action, characteristics, etc. Subrecipient versus contractor o Contractor terminology changed (no longer vendor ) (200.23) o Change in terminology; no change in criteria ( ) o Must document determination o See COFAR FAQ and

8 DEFINITIONS KEY CHANGES Personally Identifiable Information (PII) (200.79) and Protected Personally Identifiable Information (Protected PII) (200.82) o Not previously defined in OMB Circular A-133 o Important to auditors and auditees for Single Audit reporting packages o Must ensure their respective parts of the reporting package do not include protected personally identifiable information ( ) o Take reasonable measures to safeguard ( ) Program Income (200.80) o Not previously defined in OMB Circular A-133 8

9 UNIFORM GUIDANCE COST PRINCIPLES AND ADMINISTRATIVE REQUIREMENTS HIGHLIGHTS 9

10 UNIFORM GUIDANCE COST PRINCIPLES AND ADMINISTRATIVE REQUIREMENTS Key Areas of Focus Internal Control Procurement Subrecipient Monitoring Allowable Costs Indirect Costs Compensation for Personal Services 10

11 INTERNAL CONTROLS KEY CHANGES Auditee is required to establish and maintain effective internal control over Federal programs ( ) Previously included only in the Single Audit requirements COSO and Federal Green Book are cited, although COFAR FAQ clarifies usage as best practice Written procedures are required in various areas Implementation of the payment system Procedures in determining the allowability of costs in accordance with Subpart E (Cost Principles) and the terms and conditions of the awards Standards of conduct covering conflicts of interest governing performance of employees engaged in the selection of awards and administration of contracts as it relates to potential conflicts of interest Standards for procurement transactions 11

12 INTERNAL CONTROLS AREAS TO CONSIDER Conflict of interest policies for Federal awards ( ) Record retention ( ) Identification of Federal awards ( ) Allowable costs ( ) Pre-award expenditures ( ) Advance payments ( (b)(8)) Cost share/matching ( (a)) Program income ( ) 12

13 INTERNAL CONTROLS AREAS TO CONSIDER (CONTINUED) Equipment management ( ) Procurement ( ) Use of purchasing cards and micro purchase thresholds (200.67) Subrecipients vs. contractors ( ) Subrecipient monitoring ( ) Financial reporting ( ) Performance reporting ( ) Effort reporting ( ) 13

14 INTERNAL CONTROLS BEST PRACTICES Opportunity to revisit internal controls Update policies and procedures Not just general controls, but also controls over compliance requirements Changes from the Uniform Guidance need to be reflected in internal controls Any changes in internal control should be communicated to auditors 14

15 INTERNAL CONTROLS BEST PRACTICES Does your Organization have the following control activities? Reporting Supervision Documentation Separation of duties Safeguarding of assets Approval and authorization Verification/reconciliation 15

16 INTERNAL CONTROLS LESSONS LEARNED Control procedures exist, but are not well documented Risk assessment is not clear or comprehensive o How would your controls actually prevent or detect errors or fraud? Review and approval procedures are not detailed Training is not frequent enough for employees and management to remember their respective responsibilities 16

17 INTERNAL CONTROLS LESSONS LEARNED Get credit for what you are already doing, just complete the documentation. There are five elements of COSO. A simple memo with bullet points for each of the COSO elements will go a long way to ensure appropriate documentation: o Control Environment o Risk Assessment o Control Activities o Information and Communication o Monitoring 17

18 PROCUREMENT KEY CHANGES General requirements and five methods of procurement most closely follow the previous OMB Circular A-102 requirements ( ) Specific contract requirements ( ) o Contracts should be reviewed and verified for compliance, specifically non-federal entities Full and open competition ( ) Grace period two full fiscal years (COFAR FAQ.110-6) o If year end is 6/30/2015 not required to comply until 7/1/2017 (FY 2018) 18

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20 PROCUREMENT IMPORTANT UPDATES The micropurchase threshold for procurement under the Uniform Guidance increased from $3,500 to $10,000 for fiscal year 2017 under Section 217(b) of the National Defense Authorization Act (NDAA). ONLY applies to the following entities: o Institutions of higher education and related or affiliated nonprofit entities o Nonprofit research organizations o Independent research institutes 20

21 PROCUREMENT IMPORTANT UPDATES On May 17, 2017, the Federal Register provided an update to the implementation of procurement standards as outlined in the Uniform Guidance: o Allows a grace period of one additional fiscal year for non-federal entities to implement the procurement standards outlined in 2 CFR o With this update, the grace period for nonfederal entities continues through December 25, 2017, with the implementation date for the procurement standards starting for fiscal years beginning on or after December 26,

22 PROCUREMENT BEST PRACTICES Review procurement card and/or credit card purchasing policies to ensure polices are consistent with new procurement methods Consider reviewing the following: o Policies o Procedures o Internal controls o Staff training Document, document, document! o Documentation of procurement activities/steps are required 22

23 PROCUREMENT LESSONS LEARNED Procrastination of implementation of standard Management trying to break up invoices or procurement to avoid bidding process Employees are not sufficiently trained on new standard Suspension and debarment review o Reviewed at the time of procurement but no documentation was retained. During the audit, management struggles to produce documentation and runs the search the day of the audit. 23

24 SUBRECIPIENT MONITORING KEY CHANGES Subrecipient versus contractor determination relocated to administrative requirements in o Criteria for determination basically unchanged o Contractor replaces the term Vendor o Judgment should be used in the determination process o Substance of the agreement is more important than the form New requirements for Pass-Through Entities (PTEs) with regard to monitoring activities o Includes a required risk assessment of subrecipients 24

25 SUBRECIPIENT VS. CONTRACTOR Subrecipient Creates a Federal assistance relationship. Determines who is eligible to receive what Federal assistance. Has its performance measured in relation to whether objectives of a Federal program were met. Has responsibility for programmatic decision making. Responsible for adhering to Federal program compliance requirements. Contractor Purpose is to obtain goods and services for the non-federal entity s own use. Creates a procurement relationship. Provides the goods and services within normal business operations. Provides similar goods or services to many different purchasers. Normally operates in a competitive environment. Is not subject to Federal program compliance requirements. Checklist: 25

26 SUBRECIPIENT MONITORING KEY CHANGES Additional requirements for PTEs ( ) o Clearly identify award see required information list in (a)(1) o Identify requirements imposed by PTE so that the award is used in compliance with statutes, regulations, terms, and conditions o Identify any additional requirements imposed so that the PTE meets responsibilities to Federal awarding agency (e.g., financial and performance reports) o Indirect cost rate information o Subrecipient permission for PTE and auditors to access records o Closeout terms and conditions o May use fixed award up to simplified acquisition threshold ($150,000) Document Reference Subaward Agreement Templates: 26

27 SUBRECIPIENT MONITORING KEY CHANGES Additional requirements for PTEs ( ) o Evaluate subrecipient s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the award o Consider imposing subaward conditions o Monitor activities to ensure subaward is used appropriately o Consider whether the results of subrecipient audits, onsite reviews, or other monitoring activity indicate conditions that necessitate adjustment to the PTE s own records o Issue management decision for audit findings 27

28 SUBRECIPIENT MONITORING KEY CHANGES Additional requirements for PTEs ( ) o Other potential PTE monitoring tools depending on risk: Providing training and technical assistance Performing on-site reviews of program operations Arranging for agreed-upon procedures (AUP) engagements that meet certain requirements Verifying that every subrecipient is audited as required by Subpart F Changes in audit threshold may impact subrecipient monitoring 28

29 ALLOWABLE COSTS KEY CHANGES Good news no changes in overall definition! There are 21 items that require prior written approval ( ) Newly allowed cost with prior approval includes salaries of administrative and clerical staff, provided certain conditions are met: o Administrative and clerical services are integral to a project or activity o Individuals involved can be specifically identified with the project or activity o Such costs are explicitly included in the budget and have the prior written approval of the Federal awarding agency o The costs are not also recovered as indirect costs 29

30 ALLOWABLE COSTS KEY CHANGES Direct and Indirect Costs/Indirect Cost Rate ( ) Federal agencies will have to accept a non-federal entity s negotiated indirect cost rate unless statute or regulation allows for an exception or approval by Federal agency head Non-Federal entities that have never received a negotiated rate will be permitted to charge a de minimis rate of 10% of modified total direct costs, which may be used indefinitely 30

31 ALLOWABLE COSTS KEY CHANGES Any non-federal entity that has a federally negotiated IDCR: o May apply for a one-time extension (for a period up to four years) o If the extension is granted, non-federal entity may not request a rate review until the extension period ends o At the end of the extension period, the non-federal entity MUST re-apply to negotiate a rate Existing negotiated rates may be extended for up to four years PTEs are required to provide the indirect cost rate to subrecipients 31

32 ALLOWABLE COSTS KEY CHANGES Specific Costs ( ) o Compensation personal services ( ) Principles-based rather than rules-based Focus on high standards for maintaining strong internal controls to justify costs of salaries and wages Personnel activity reports are not specifically required focus shifted to internal controls Unchanged: when charges are based on budgeted amounts, internal controls must exist to ensure that any adjustments made to the final amounts charged to awards are appropriate Purpose is to reduce the administrative burden of time and effort reporting 32

33 ALLOWABLE COSTS KEY CHANGES Necessary documentation includes: 1. Be supported by a system of internal controls 2. Be incorporated into official records 3. Reflect total activity for each employee 4. Encompass both Federal and non-federal activities 5. Comply with accounting policies and procedures 6. Support distribution of salary 7. Budget estimates alone do not qualify 8. Allow distributions to be expressed as a % of total* 9. Recognize that a precise measurement of salary/wage isn t always feasible or expected in an academic setting* * Specific to IHE 33

34 ALLOWABLE COSTS KEY CHANGES Effort Reporting vs. Payroll Certification Description Current Practice Effort Reports Payroll Certification Pilot Certification focus Individuals Grant/Contract (award) Certification cycle Academic semesters or semi/annual fiscal periods End of each award budget year (every 12 months) and at the end of the award Approver Individual or PI PI Confirmation focus Individual s percentage of effort is reasonable based on overall effort All salaries/wages directly charged to the award are reasonable based on work performed Type of funds All sponsored funds Federal funds 34

35 ALLOWABLE COSTS BEST PRACTICES AND LESSONS LEARNED Time distribution records must be maintained for all employees whose salary is: o Paid in whole or in part with Federal funds o Used to meet a match/cost requirement Cannot be based on budgeted distributions alone must be supported by actual hours worked o Budgeted hours may need adjustment Include all time worked in order to calculate the portion that applies to Federal awards Nonexempt employees must also prepare records indicating the total number of hours worked each day Consider controls over existence of employees If previous system of controls worked well and meets current requirements, no changes may be necessary 35

36 UNIFORM GUIDANCE AUDIT REQUIREMENTS HIGHLIGHTS OF AUDITEE AND AUDITOR REQUIREMENTS 36

37 AUDITEE AND AUDITOR RESPONSIBILITIES Auditor ( ) Auditee ( ) Determine if financial statements fairly presented Report on Schedule of Expenditures of Federal Awards (SEFA) Arrange for Single Audit in accordance with Provide the auditor with access Understand and test internal control over compliance Determine whether auditee complied Prepare Financial Statements Prepare Schedule of Expenditures of Federal Awards (SEFA) Follow-up on prior audit findings Report findings Prepare Summary Schedule of Prior Audit Findings Follow-up and take corrective action on findings Complete and sign Data Collection Form Prepare Corrective Action Plan 37

38 UG AUDIT REQUIREMENTS - KEY SECTIONS WITH CHANGES (200.5XX) Audit threshold ( ) Low-risk auditee determination ( ) Auditee prepares SEFA ( ) Major program determination based on risk ( ) Report ( ) Compliance Supplement overall format (Appendix XI) Submitting to Federal Audit Clearinghouse (FAC) ( ) Testing internal control and compliance ( ) Audit follow-up and corrective action ( ) 38

39 AUDIT REQUIREMENTS KEY CHANGES Single audit threshold raised from $500,000 to $750,000 Low-risk auditee criteria updated o Going concern criteria added o Financial statements must be prepared in accordance with GAAP or a basis of accounting required by state law o No waivers! Major program determination method o Type A: Minimum threshold raised to $750,000 Criteria for high-risk Type A changed o Type B: Auditor is not required to identify more high-risk Type Bs than at least one fourth the number of low-risk Type As (round up) Threshold for risk assessment (floor) modified to 25% of the Type A threshold Must audit as major all Type Bs identified as high risk o Coverage requirements for major programs lowered 39

40 AUDIT REQUIREMENTS KEY CHANGES Questioned Costs o Threshold for reporting raised to $25,000 o Requires description of how calculated Findings o Require perspective (isolated, prevalent, type of sampling used) o Repeat findings require identification as repeat and the prior finding reference number 40

41 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS KEY CHANGES FACE of SEFA must now include all Federal awards expended including: Noncash assistance Amounts passed through to subrecipients from each Federal program For loans and loan guarantee programs: o Include on the face of the SEFA the beginning balance of outstanding loans plus loans disbursed during period plus interest subsidy, cash, or administrative cost allowance o See SEFA footnote disclosures next slide Noncash assistance (free rent, food commodities, and donated property, for example) Total for cluster of programs 41

42 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS KEY CHANGES NOTES to the SEFA must include: For loans and loan guarantee programs: o The loan balances outstanding at the end of the audit period o This is in addition to what is reported on the FACE of the SEFA Whether or not the non-federal entity elected to use the 10% de minimis cost rate Significant accounting policies 42

43 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS BEST PRACTICES AND LESSONS LEARNED Understand dual responsibilities for testing SEFA o For purposes of providing in relation to reporting o For purposes of compliance audit and testing major programs Understand changes that the Uniform Guidance has made to what is to be contained in the SEFA Use current practice aids: o Auditee: Use preparation or disclosure checklist to prepare your SEFA o Auditor: Use disclosure checklist to review the auditee s SEFA Opportune time to revisit the SEFA presentation Federal programs by Federal agency Options: o Special options for research and development o Other pass-through entity information o Non-federal awards o Multiple year information for multiple-year awards 43

44 DATA COLLECTION FORM KEY CHANGES Clarified CFDA field and how to treat when the 3-digit extension is unknown Identifying numbers assigned by a pass-through entity The name of the Federal program will be autogenerated once the CFDA number is input Will collect cluster name instead of cluster identification number FAC will automatically generate Federal program total and cluster total Auditee and auditor statements 44

45 OTHER CONSIDERATIONS Audit engagements may be more complex o Transitional auditing o New requirements o Updated internal control Potential increase in time to prepare for the audit and time for the audit to be conducted Potential increase in findings 45

46 IMPLEMENTATION Read the guidance Identify what needs to change Create a plan/timeline Collaborate with others Talk with your auditors Don t procrastinate 46

47 RESOURCES Council on Financial Assistance Reform (COFAR) o o FAQs September 2015 is the latest version o Webcasts Office of Management and Budget (OMB) o o Uniform Guidance Crosswalks (not updated for technical corrections or FAQs) Committee of Sponsoring Organizations of the Treadway Commission (COSO) o Government Accountability Office (GAO) o Green Book

48 RESOURCES (CONTINUED) Government Audit Quality Center (GAQC) o ality/pages/gaqc.aspx o Auditee Resource Center o Auditee and auditor tools and webcasts o Internal control information o Open web events on Uniform Grant Guidance 48

49 RESOURCES (CONTINUED) Moss Adams Uniform Grant Guidance Launch Page o Uniform Guidance in Focus: Updating Written Policies Uniform Guidance in Focus: Procurement Uniform Guidance in Focus: Subrecipient Monitoring 49

50 CONTACT INFORMATION Kinman Tong, Senior Manager (415)