• Federal Grant & Contract News for Nonprofits
  • January 6, 2014 | Authors: Elizabeth A. Buehler; Dismas Locaria; Jeffrey S. Tenenbaum
  • Law Firm: Venable LLP - Washington Office
  • Overview

    As 2013 came to a close, on December 26, 2013, the Office of Management Budget (OMB) issued the long-awaited final rule to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, more commonly known as the “Super Circular.” This rule finalizes OMB’s proposed guidance from February 1, 2013, and represents the culmination of an effort that was more than two years in the making. Among other things, this rule streamlines eight Federal regulations (including OMB Circulars A-110, A-122, and A-133) into a single, comprehensive policy guide and affords the Federal government the ability to better administer the $600 billion awarded annually for grants, cooperative agreements, and other types of financial assistance. This will have important implications for all nonprofit recipients of, and applicants for, Federal grants and cooperative agreements ("awards").

    OMB’s Vision of the “Super Circular”

    OMB’s reformulation of the various circulars “embodies principles set forth by the President, who directed OMB to work with key stakeholders to evaluate potential reforms to Federal grants policies in Executive Order 13520 on Reducing Improper Payments and in the Presidential Memorandum on Administrative Flexibility, Lower Costs, and Better Results for State, Local, and Tribal Governments.” OMB further postulates that the guidance will improve upon current policies by:

    • Eliminating duplicative and conflicting guidance;

    • Focusing on performance over compliance for accountability;

    • Encouraging efficient use of information technology and shared services;

    • Providing for consistent and transparent treatment of costs;

    • Limiting allowable costs to make the best use of Federal resources;

    • Setting standard business processes using data definitions;

    • Encouraging non-Federal entities to have family-friendly policies;

    • Strengthening oversight; and

    • Targeting audit requirements on risk of waste, fraud, and abuse.

    In addition, OMB explains that it and its partners “are continuing complementary work to strengthen program outcomes through innovative and effective use of grant-making models, performance metrics, and evaluation, as described in OMB Memorandum M-13-17 on Next Steps in the Evidence and Innovation Agenda.”

    Notable Aspects of the “Super Circular”

    While the Super Circular does not entirely change the eight Federal regulations from which it is derived, it does include some noteworthy changes. For example:

    • Conflicts of Interest: The guidance requires Federal agencies to establish conflict of interest policies for Federal awards and mandates that non-Federal entities disclose in writing any potential conflict of interest to the Federal awarding agency (or higher-tiered entity) in accordance with the awarding agency’s policy.

    • Mandatory Disclosure: Much like the Federal Acquisition Regulation, the guidance requires organizations for a Federal award to disclose, “in a timely manner” and in writing to the Federal awarding agency or pass-through entity, “all violations of Federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award.” The guidance specifically adds that an organization’s failure to make required disclosures can result in a number of actions, including suspension and/or debarment. While many nonprofit organizations may have already taken this approach, this is a significant development in the grant arena, signifying the sea-change that may be taking place with respect to the Federal government’s grant compliance and enforcement efforts.

    • Indirect Costs: The guidance explicitly requires pass-through entities (typically states and local governments receiving Federal funding) to either honor a nonprofit’s negotiated indirect cost rate if one already exists or negotiate a rate in accordance with Federal guidelines. Nonprofits will be empowered to elect an automatic indirect cost rate of 10 percent of modified total direct costs - which can be used indefinitely if they so choose - or negotiate a higher rate. Without question, this is an important new provision for nonprofits, which had not been previously reimbursed by their higher-tiered grantors.

    • Direct Costs: The guidance makes clear that, in certain circumstances, program administration costs (e.g., secretarial staff dedicated to a specific program) can be reported as direct costs applicable to a specific program. In the past, in some instances, grantees were required to pass these charges on via their indirect cost rates.

    • Audit Rules: The new guidance raises the threshold for compliance audits of entities that receive Federal award money from $500,000 per fiscal year to $750,000 per fiscal year. This is another positive change for nonprofits - particularly smaller nonprofits and those that receive only small amounts of funding from the Federal government - as it should reduce costs for these nonprofits. OMB estimates that approximately 5,000 non-Federal organizations will be relieved from the audit requirement as a result of the higher threshold.

    Going Forward

    The Super Circular technically is effective as of December 26, 2013 (the date it was issued in the Federal Register); however, in practice, Federal agencies have one year to implement the policies and procedures applicable to Federal awards by promulgating a regulation by December 26, 2014, unless otherwise required by statute. With respect to non-Federal agencies, the rule is effective immediately; however, the rule recognizes the problems that may arise if non-Federal entities implement policies and procedures to comply with the Super Circular, even though agency-specific guidance has not been issued. As a result, comments to the rule provide that “Non-Federal entities wishing to implement entity-wide system changes to comply with the guidance after the effective date will not be penalized for doing so.”

    To assist organizations in understanding the final rule, OMB will host an informational webcast. Parties interested in the webcast should visit www.cfo.gov/cofar.

    In sum, while a true effective date of the Super Circular is a bit unclear, it will be imperative for nonprofit organizations to assess their current practices and policies and take appropriate steps to ensure that they conform with the final rule in a timely manner.