It seems like we constantly hear about government waste…..how about hearing some news about the government trying to reduce costs?
The federal government spends more than $600 billion annually in the form of grants and cooperative agreements. The Office of Management and Budget (“OMB”) and the federal agencies have been talking for some time about how grant policies can be reformed to increase the efficiency and effectiveness of federal programs, as well as to eliminate unnecessary and duplicative requirements and focus in on areas that emphasize achieving better outcomes at a lower cost. Improving federal oversight has also been included in the discussion. On February 28, 2012, OMB issued an Advance Notice to more fully describe the reform ideas it is contemplating so that the public can provide feedback.
Some of the key changes in the Advance Notice are as follows:
Single Audit Threshold for Audit Increased. Entities that expend less than $1,000,000 in federal awards would not be required to undergo a single audit. This would represent an increase from the current threshold for single audits of $500,000, which was established in 2003. It is estimated that approximately 10,000 auditees would no longer be required to have a single audit if the threshold is increased.
A New Category of Single Audit. For those entities expending between $1 million and $3 million in federal awards, a single audit would be required, but major program audit procedures would be focused on testing only two compliance requirements—that is, allowable and unallowable costs and one additional requirement that would be selected by the federal agency responsible for the program. The proposal is silent regarding the level of testing of internal control over compliance that would be expected.
Changes for Larger Single Audits. For entities expending more than $3 million in federal awards, a full single audit would be required. However, the proposal indicates that federal agencies may identify subsets of compliance requirements that they believe most effectively address improper payments, waste, fraud, abuse, and program performance and require additional testing for those requirements. At the same time, the proposal indicates that other compliance requirements could be made optional for testing or the auditor could be directed to perform less testing on those requirements. The proposal also states that federal agencies could move compliance requirements that would no longer be “universal” to a specific program’s special tests and provisions compliance requirement, if a requirement is deemed to be relevant to preventing waste, fraud, and abuse for that program.
Pass-Through Entities and Subrecipients. The ideas discussed in this section call for more federal coordination regarding additional federal agency audits of recipient entities. Further, for entities that receive a majority of funds directly from the federal government and some other awards from a pass-through entity, the suggestion is for the federal government to perform audit follow-up for all funds, both direct and subawards, when the findings are not specific to the program delivery of the subawards. However, once the federal government has resolved the “general” findings, it would be up to the pass-through entity to follow up to ensure that the subrecipient complies with the audit resolution.
Changes to the Cost Principles. The potential changes to the cost principles (i.e., OMB Circular A-21, Cost Principles for Educational Institutions, OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, OMB Circular A-122, Cost Principles for Non-Profit Organizations, and the Cost Principles for Hospitals) include consolidating the cost principles into a single document and ensuring limited variations by type of entity. Other ideas discussed include using flat rates instead of negotiated rates for indirect costs; exploring alternatives to time-and-effort reporting requirements for salaries and wages through the use of pilot projects; and other changes for specific cost elements.
Reforms to the Administrative Requirements. In large part, the changes to the administrative requirements are suggestions for federal agency change. For example, the Advance Notice discusses combining a consolidated set of administrative requirements; increasing pre-award considerations to include consideration of the merit of each proposal and financial risk; and changes to communication of funding opportunities.
The OMB is also asking for other suggestions to relieve administrative burden. It is also asking for feedback in terms of whether the proposals discussed in the Advance Notice would result in reduced burden.
As always, the Nonprofit Services Group at Hertzbach will keep you up-to-date on any developments. If you have specific questions regarding this Advance Notice, please feel free to contact a Hertzbach professional.