A deeper dive into standards for financial and program management
The prior administrative requirements that organizations had to follow were dependent upon the type of organization. For institutions of higher education, hospitals, and other nonprofit organizations, the prior rules were contained in OMB Circular A-110; for state and local governments, the prior rules were found in OMB Circular A-102. The new uniform guidance consolidates these two administrative requirement circulars into one document that will apply to all entities. The administrative requirements can be found in Subpart D “Post Federal Award Requirements,” §200.300 – 200.309 of the uniform grant guidance. In general, the administrative requirements provide the framework for how grants are to be managed. The overall goal is that Federal funding will be used for the purpose intended by an entity that has the ability to manage, capture, and report the use of these funds.
Helpful hint: Much of the guidance for the standards for financial and program management mirrors OMB Circular A-110. State and local governments will want to pay particular attention so they understand how the requirements might be different from OMB Circular A-102.
A key component of the Federal government's efforts is to more effectively focus Federal resources on improving performance and outcomes while ensuring the financial integrity of Federal funding. The Super Circular is more focused on performance than on a prescribed pathway to get there. The emphasis has shifted from process mandates to an emphasis on outcomes.
Helpful hint: As your entity begins to receive new grant awards or new funding increments, be certain you understand the outcomes that are expected and how they will be measured and reported. You will need to consider whether there are any new processes that may need to be designed to fully capture and report on new performance objectives.
As you read the Super Circular for yourself, you will notice the use of the words "must" and "should" throughout the administrative requirements. The word "must" is used to indicate mandatory requirements. On the other hand, the word "should" has been used to indicate best practices or recommended approaches.
Let's spend a few minutes addressing the key areas of the Standards for Financial and Program Management.
- Financial management system (§200.302)
The financial management system of an entity must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions, including the ability to trace funds to a level of expenditures in order to adequately establish that uses were in accordance with the Federal statutes, regulations, terms, and conditions of the Federal award. At a minimum, the financial management system must provide the following:
- Identification. Federal program and Federal award identification includes the Catalog of Federal Domestic Assistance(CFDA) title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if applicable.
- Accurate, current, and complete disclosure of the financial results of each Federal award or program.
- Record that adequately identifies the source and application of Federal-funded activities.
- Effective control over, and accountability for, all funds, property, and other assets, including the safeguarding of assets.
- Comparison of expenditures with budget amounts for each Federal award.
- Written procedures for cash management, based on the requirements of §200.305 “Payment.”
- Written procedures for determining the allowance of costs in accordance with Subpart E “Cost Principles.”
Helpful hint: Because certain written procedures are now required, all organizations should review their current written policies to ensure compliance with these documentation standards.
- Internal controls (§200.303)
The uniform guidance proscribes that each non-Federal entity must establish and maintain effective internal controls to a) evaluate and monitor compliance, b) take prompt action on audit findings, and c) safeguard protected personally identifiable or sensitive information. The Federal Register 2 CFR 200.82 defines protected personally identifiable information (PII) as an individual's first name or first initial and last name in combination with any one or more of the following types of information (list is not exhaustive): Social Security number, passport number, credit card numbers, clearances, bank numbers, biometrics, date and place of birth, mother's maiden name, educational transcripts, or criminal, medical, and financial records. This does not include PII that is required by law to be disclosed.
The uniform guidance also refers non-Federal entities to the following three documents for best practices:
- Standards for Internal Control in the Federal Government (Green Book) issued by the Comptroller General
- Internal Control Framework issued by the Committee on Sponsoring Organizations (COSO)
- Appendix XI, Compliance Supplement – Part 6 “Internal Control” (which currently follows only COSO, but future editions will consider both the Green Book and COSO)
While non-Federal entities must have effective internal controls, there is no expectation or requirement for the non-Federal entity to document or evaluate internal controls prescriptively in accordance with these three documents or for the non-Federal entity or auditor to reconcile technical differences between them. They are provided solely to alert the non-Federal entity to source documents for best practices. Non-Federal entities and their auditors will need to exercise judgment in determining the most appropriate and cost-effective internal control in a given environment or circumstance to provide reasonable assurance for compliance with Federal program requirements.
Helpful hint: Because of this renewed focus on internal controls, organizations receiving Federal funding may want to take this opportunity to view their internal control structure in light of the COSO framework.
- Payment (§200.305)
For entities other than states, the grant reforms state that the payment method utilized must minimize the time elapsing between the receipt of Federal funds and the use of that funding. This criterion applies regardless of whether you are a direct recipient or receive Federal dollars from a pass-through entity. Organizations will need to exercise judgment over timeliness, as the guidance does not delineate the maximum time allowed between transfers of funds; the regulations just indicate that the timing and amount of advance payments must be as close as is "administratively feasible" to the actual disbursement.
In order to receive advance payment of Federal funding, which is the default method for payment, a non-Federal entity must maintain or demonstrate a willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and subsequent disbursement as well as financial management systems that meet the standards established in the reforms. For entities receiving advance payments, payments are limited to the minimum amount needed and must be timed to be in accordance with the actual, immediate cash requirements.
Entities that cannot or do not qualify for advance payment will most likely be paid via reimbursement. Reimbursement is the preferred method when advance-payment requirements cannot be met. When the reimbursement method is used, the Federal awarding agency or pass-through entity must make a payment within 30 calendar days after the receipt of the billing, unless the Federal awarding agency or the pass-through entity reasonably believes the request is improper.
Helpful hint: All organizations receiving advance payment should take a good look at their payment systems to ensure compliance with the written requirements as well as compliance with minimizing the time elapsing between the receipt of Federal dollars and the payments of related invoices. Additionally, pass-through entities will want to ensure they have appropriate mechanisms to pay subrecipients within 30 days after the receipt of the billing.
- Program income (§200.307)
Entities are encouraged to earn income to defray program costs where appropriate. Program income is required to be used for current costs unless the Federal awarding agency authorization indicates otherwise. The following revenue sources are not deemed to be program income: taxes, special assessments, levies, fines, proceeds from the sale of real property or equipment, and other such revenues. It is interesting to note that the reforms indicate that program income earned after the end of the grant performance period are not governed by Federal requirements, unless the awarding agency regulations or grant agreement specifies otherwise.
Helpful hint: The grant reforms talk about the ability to use program income as an offset to eligible expense or as an addition to Federal source revenue. Understanding what your grant award stipulates in this regard may not only help your organization understand how to apply program income, but also aid in appropriate reporting on your Schedule of Expenditures of Federal Awards, if you are subject to a single-audit requirement.
- Revision for budget and program plans (§200.308)
This section mandates that recipients report budget deviations and request prior approvals from Federal awarding agencies for certain program or budget-related reasons, as follows:
- Changes in the scope or objective of the program (even if there is no associated budget impact requiring prior written approval).
- Changes in key personnel specified in the application or the award.
- Disengagement from the project for more than three months or a 25 percent reduction in time devoted to the project.
- The inclusion of costs listed in Subpart E “Cost Principles,” that require explicit prior approval.
- The inclusion of costs listed in 47 CFR 74 Appendix E “Principles for Determining Costs Applicable to Research and Development under Awards and Contracts with Hospitals” or 48 CFR 31 “Contract Cost Principles,” and procedures that require prior approval.
- Transfer of funds budgeted for participant support to other categories of expense. Participant-support costs are direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with conferences or training projects.
- Changes to subawards or the scope/magnitude of contracted work.
- Changes in the amount of approved cost-sharing or matching.
Paragraph (f) of this section states that all other changes to nonconstruction budgets do not require prior approval.
Helpful hint: Understanding the prior-approval requirements now will ensure that your organization complies in a timely manner with these budgetary and program requirements.
These administrative requirements will apply to new awards and to additional funding increments to existing awards made after Dec. 26, 2014. Existing Federal awards will continue to be governed by the terms and conditions of the existing grant agreement.