Banking and Financial Services Sections

Not-for-profit Leaders Must Be Aware of Key Changes in Rules

Guidance on Grant Guidance


Donna Roundy, CPA

Donna Roundy, CPA

Not-for-profit organizations (NPOs) make up a sizable percentage of the economy in Western Mass. A number of these organizations rely, to some degree, on financial funding from the federal government for program support for the specific clients they serve and the general public.

It is important that leadership of these organizations be aware of a significant change in the grant guidance meant to usher in grant reform, improve consistency, and focus on performance. I recently facilitated informational sessions with local not-for-profit leaders to review this guidance and identify changes that may affect their organizations. This article will cover those topics that were most significant or asked about.

The Federal Office of Management and Budget (“OMB”) oversees the various federal agencies. OMB issued guidance on various aspects of awarding, financial and program management, monitoring, and auditing federal assistance. This guidance brings together seven different grant administration circulars and cost circulars for states, local governments, institutions of higher education, and non-profit organizations into one source. This guidance is being called Uniform Guidance (UG) or the Super Circular, and is applicable to organizations that receive federal funding that is effective for new federal awards received after Dec. 26, 2014, as well as for incremental funding increases for awards granted prior to that date.

The biggest take-away is the sub-recipient and contractor monitoring as well as internal-control review that organizations will have to perform to be compliant with these new requirements. Procurement methods and policies must be updated to conform to proscribed requirements. Organizations will be required to have conflict-of-interest policies and must disclose in writing any potential conflict of interest to the federal agency or pass-through entity. There is no stated materiality in relation to this potential conflict of interest.

A few points of interest came to light in reading through this guidance:

• The definition of ‘equipment’ compares the cost of the tangible personal property to the entity’s capitalization threshold, or $5,000, which signals that the federal government considers a $5,000 capitalization threshold reasonable; an organization will want to consider perhaps increasing their threshold;

• The guidance makes reference to electronic record keeping and reporting, and states that supplies, by definition, includes computing devices.

• The term “must” signifies a task or procedures that non-federal entities are required to perform. The term “should” signifies a  recommended best practice.

• NPOs looking to pass through a portion of the federal funding and program performance goals to another entity will need to perform a risk assessment of the sub-recipient, monitor the required activities and outcomes, and perform mandatory over-sight requirement.

• In the past, awards or grants with the federal government have not always included a budget line item for management and general. This reform requires that each grant or contract awarded will include an indirect cost rate approved for the non-federal entity or a 10% deminimus indirect cost rate.

• Organizations having federal awards must have document-procurement policies that include five approved procurement methods, and must maintain records of the history of procurements. That documentation will include, among other things, the rationale for the contractor selection and rejection. Competition in procurement was also a big emphasis;

• Conflict-of-interest standards must be maintained covering employees who deal with procurement contracts. If conflicts are identified they must be reported, in writing, to the federal awarding agenc;.

• A significant emphasis is placed on recipients of federal awards to establish and maintain effective internal controls based on the guidance in “Standards for Internal Control in the Federal Government” a.k.a. the “Green Book” and the standards issued by the Committee of Sponsoring Organizations of the Tread Way Commission (COSO), as both are examples of best practices;

• Because internal-control literature in recent years has been based on the recommendations found in COSO, it’s likely that a non-profit entity’s internal control system has a foundation in COSO. As monitoring is a key factor in internal control, routinely assessing risk and reviewing processes is good practice;

• As one reads through this easy-to-read and extremely thorough administrative and cost guidance, it’s a clear take-away that the requirements are based on best practices and are an effort by the federal government to get more effective use, monitoring, and performance results for the billions of dollars expended annually;

• An audit of an organization with federal funding is called a Single Audit, and has testing and documentation requirements that exceed those for a commercial audit. Effective for fiscal years ended Dec. 31, 2015, the government has increased the threshold for an organization required to have a Single Audit from $500,000 to $750,000. This will only relieve approximately 5,000 organizations nation-wide from this stringent testing and will still provide audit coverage of over 99% of federal expenditures; and

• Federal agencies have not provided implementation guidance to their award recipients. The Uniform Guidance places additional requirements on states that pass through federal funds to provide clear information on the CFDA and amount of federal funding to NFP organizations.

As the guidance is put into practice, there are sure to be practical implementation questions that arise. Be sure to contact your organization’s CPA or financial professional with any questions you may have.

Donna Roundy, CPA is a senior manager specializing in not-for-profit organizations with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C. (413) 322-3534; [email protected]

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