The effective date for the new Uniform Grant Guidance (the Guidance) is getting closer. As described in the previous newsletter, the new Guidance is effective December 26, 2014. There is no getting around reading the new requirements in order to become familiar with them. The Cost Principles are a significant portion of the new Guidance.
The new Guidance consists of three main categories:
Section A: Subparts A-D: Reforms to Administrative Requirements
Section B: Subpart E: Reforms to Cost Principles
Section C: Subpart F: Reforms to Audit Requirements
The Uniform Grant Guidance – Part I newsletter reviewed Section A, subparts A-D. Section B, subpart E is reviewed in this newsletter.
Subpart E (Sections 200.400 through 200.475 and Appendices III through IX) includes revisions to the Cost Principles that were previously found in Circulars A-21, A-87 and A-122. The goal in combining these three circulars was to provide consistency across entities in policies and eliminate duplicate language. The Cost Principles for hospitals are not included in the Guidance. OMB has stated they will be added at a later date.
Be sure to carefully read the full text of Subpart E as there are too many changes and details to fully describe in a summary. Implementation of the revised Cost Principles and other Uniform Grant Guidance is the responsibility of grantees. We have included below a description of several of the more significant changes grantees need to be aware of. To learn more about numerous other Cost Principles changes, refer to a useful tool that OMB issued titled, Uniform Guidance Cost Principles Text Comparison. This tool shows, in a side-by-side comparison, how the wording from OMB Circulars A-21, A-87, and A-122, compare to the new Guidance.Section 200.400, Policy Guide. This section discusses the fundamental premises of the Cost Principles and reminds us that the grantee is responsible for efficient, effective administration of the Federal award through sound management practices in accordance with agreements and terms of the Federal award.
- Section 200.407, Prior Written Approval. Provides one place for non-federal entities to consult regarding the circumstances under which they should seek prior approval from the federal awarding agency. 22 specific areas need prior approval, so all grantees should become familiar with these. For example, capital expenditures for general purpose equipment, buildings, and land are unallowable as direct charges, except with prior written approval of the Federal awarding agency or pass-through entity.
- Sections 200.412 through .414, Direct and Indirect (Facilities & Administration) Costs. The most significant change to this section relates to the indirect cost rates. Overall, the Guidance will allow for more consistency as it will require federal agencies to accept a non-federal entity’s negotiated indirect cost rate unless a statute or regulation allows for an exception or if the federal agency head approves an exception based on justification that has been publically documented. Non-federal entities will have the option to extend their negotiated rate for up to four years; this is a one-time only extension which is only available if there have been no major changes to their indirect costs and they receive approval from the cognizant agency responsible for their indirect cost rate. If an extension is approved, the non-federal entity may not request a review of the rate until the extension period is up. After the extension period ends, the entity will need to re-apply for a negotiated rate.
- Section 200.415, Required Certifications. To assure expenditures are proper and in accordance with the terms and conditions of the federal award and approved project budgets, this section clarifies that the annual and final fiscal reports or vouchers requesting payment under the agreements must include a certification that is signed by an official that can legally bind the organization. Cost allocation plans and indirect cost rate proposals must be certified by an individual at a level no lower than Vice President or Chief Financial Officer. The signing official is responsible for the accuracy of the information, and false data may be subject to penalties under the False Claims Act.
- Section 200.428, Collections of improper payments. Provides guidance that will allow entities to keep amounts collected to cover expenses related to the collection effort for recovering improper payments.
- Section 200.430, Compensation – Personal Services (Time and Effort Reporting). The Guidance related to compensation is more principles based than the current requirements. For example, all of the illustrations contained in the existing Cost Principles have been removed from the Guidance. Further, the Guidance places more emphasis on internal controls over personnel-related costs. Because of the far-reaching changes in this area, grantees will need to focus on understanding how the move to broad principles will impact them.The changes made by OMB in this area were aimed at reducing the administrative burden of documenting time and effort. Included in the Guidance is a requirement that charges must be based on records that accurately reflect the work performed. These records must:
- Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated
- Reasonably reflect the total activity for which the employee is compensated by the non-federal entity, not exceeding 100 percent of compensated activities
- Comply with the established accounting policies and practices of the non-federal entity
- Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one federal award; a federal award and non-federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activitySupport for payroll costs can be based on budget estimates made before the services are performed for interim accounting purposes in certain circumstances. However, an after-the-fact review process must be performed, and all necessary adjustments must be made, such that the final amount charged is accurate, allowable, and properly allocated. In addition to supporting performance based documentation, charges for non-exempt employee wages must also be supported by records showing the total hours worked each day. For states, local governments, and Indian tribes, substitute systems for allocating salaries may be used if prior approval is received. These systems may include rolling time studies and case counts. In some cases, the federal government may require personnel activity reports, including prescribed certifications, or equivalent documentation that supports the records.
- Section 200.433. Contingency Provisions. This section addresses contingency provisions relating to large construction or other significant projects that include budget estimates of future costs. It has been enhanced to include specific guidance on accepted estimating methodology.
- Section 200.446, Idle Facilities and Idle Capacity. This section now allows for the costs of idle facilities when they are necessary for fluctuations in workload, such as those which may be typical of developing shared service arrangements, provided the idle costs are allocated appropriately to all benefitting programs. In addition, idle costs are allowable if facility costs were necessary when acquired and are now idle due to changes in program requirements, reorganization, etc.; however, in this circumstance, they are only allowable for a reasonable period not to exceed one year.
- 200.449, Interest. Non-federal entities whose fiscal year starts on or after January 1, 2016, may now be reimbursed for financing costs associated with patents and computer software. Financing costs (including interest) to acquire, construct, or replace capital assets are allowable.
- 200.474, Travel Costs. Supporting documentation for travel costs charged directly to an award must justify that participation by the individual was necessary to the award and costs are reasonable and consistent with the non-federal entity’s established travel policy. Temporary dependent care costs, which directly result from travel to conferences and meet specified standards, are allowable.
- Appendices III through IX. The Cost Principles section is supplemented by Appendices III through IX that provide specific guidance on Indirect Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (Appendix III), Nonprofit Organizations (Appendix IV), State/Local Government and Indian Tribe Allocation Plans (Appendix V), Public Assistance Cost Allocation Plans (Appendix VI), States and Local Government and Indian Tribe Indirect Cost Proposals (Appendix VII) and a list of nonprofit organizations exempted from Subpart E (Appendix VIII).
For non-federal entities that have never received a negotiated indirect cost rate, the Guidance allows the non-federal entity to charge a de minimis rate of 10 percent of modified total direct costs which may be used indefinitely. If elected, this methodology must be used consistently for all federal awards until such time as the non-federal entity chooses to negotiate for a rate, which the non-federal entity may apply to do at any time. The Guidance also requires that pass-through entities honor the negotiated indirect cost rates, negotiate a rate in accordance with federal guidelines, or provide a minimum flat rate.
This is a summary of the Cost Principles in the new Guidance. The full Guidance is available at the following link: Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Future KT newsletters will review the Audit Requirements under the new Guidance. Please contact Traci Hanson, Shelley Goodrich, or Sandra Weaver with specific questions.