Uniform Grant Guidance Laura Hirst Office of the Auditor General

Agenda Background Overview of Uniform Grant Guidance Effective Dates Highlights of Key Changes New Audit Requirements Available Resources Questions

Background Consolidates multiple circulars into one format  A-21, A-50, A-87 A-110, A-122, A-89, A-102, and A-133  Purpose was to streamline and improve clarity and accessibility  Final guidance is located in Title 2 of the Federal Code of Regulations (CFR) and the Federal Agency implementation actions in joint interim final rule

Time line October 2011 – Council on Financial Assistance Reform (COFAR) created December 2013 – Final Uniform Guidance issued. February 2014 – 1 st COFAR Frequently Asked Questions (FAQ) issued October 2014 – 2 nd COFAR FAQs issued November 2014 – Update to COFAR FAQs December 2014 – Joint Interim Final Rule Issued (includes agency implementation and technical corrections).

Overview of Uniform Guidance Sub part A – Acronyms and Definitions Sub part B – General Provisions Sub part C – Pre-Federal Award Requirements and Contents of Federal Awards Sub part D – Post Federal Award Requirements Sub part E – Cost Principles Sub Part F – audit Requirements Multiple Appendices

Effective Dates Federal Agencies must implement policies and procedures by promulgating regulations to be effective December 26, Non-federal entities will need to implement the new requirements for all new federal awards and for additional funding to existing awards (referred to as funding increments) made after December 26, Audit requirements are effective for fiscal year beginning on or after December 26, 2014.

Funding Increments Funding increments are situations in which the federal agency provides additional funding on an existing grant and has the opportunity to modify the terms and conditions of the award. If the terms and conditions can not or are not modified, the grant will continue to be covered by the original terms and conditions and subject to the old requirements.

Effective Dates Example For fiscal year 2015:  Non federal entities will have to adopt the new requirements for all new federal awards and for funding increments to existing awards.  Single audit requirements continue to use “old” requirements  Auditor compliance testing will be affected by the adoption of the “new” requirements. For Fiscal year 2016:  New single audit requirement apply  Auditors may still have to test some awards subject to the “old” requirements.

Pass Through Awards A subrecipient's effective date is the same as the effective date of the federal award from which the subaward is made. The requirements for the subaward, no matter when made, flow from the requirements of the original federal award. As a pass through entity you are required to inform the subrecipient of the effective date.

Compliance Supplement 2015 Compliance Supplement, in conjunction with the Federal Agency implementation actions in joint interim final rule, will be key to getting through the transition 2015 Compliance Supplement will include old and new guidance Part 6 – Internal Control sections are currently out of date and auditees should refer to the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) or the Internal Control in the Federal Government (green book) issued by GAO for guidance

Key Changes Part D –Post Federal Award Requirement Standards for Financial and Program management  Internal Control  Procurement  Sub recipient Monitoring Part E – Cost Principles  Direct and Indirect Costs  Time and Effort

Internal Control The non federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal awards in compliance with federal statute, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the green book and COSO

Internal Control Auditors have always been required to test the effectiveness of an entity’s internal control, however, there was not an explicit requirement that the entity establish effective internal controls. This new section was meant to strengthen and make explicit the non-federal entity’s responsibilities with regard to effective internal control. The audit requirements in relation to internal control have not changed. COFAR FAQ 303-1, 2, and 3 clarify that should indicates a “best practice” and is not a presumptively mandatory requirement.

Internal Control A few more requirements:  The non-federal entity must comply with federal statutes, regulations, and terms and conditions of the award  Evaluate and monitor compliance  Take prompt action when instances of non compliance are identified (including audit findings)  Take reasonable measures to safeguard protected personally identifiable and other sensitive information

Procurement The non federal entity must use its own documented procurement procedures and must maintain an appropriate level of oversight to ensure that contractors perform in accordance with their contract. Entities must have written conflict of interest policies. No employee, officer, or agent must participate in the selection, award, or administration of a contract if he or she has a real or apparent conflict of interest. Entities must maintain records sufficient to document the procurement history including rationale for the method of procurement, selection of contract type, contractor selection or rejection, and basis for contract price.

Suprecipient Monitoring The pass through entity must make a case by case determination as to whether a Sub- awardee is a subrecipient or a contractor (formerly vendor) All characteristics listed in the uniform guidance do not have to be present Judgment is involved in the determination Substance of the relationship is more important than the form of the agreement

Determination SubrecipientContractor Creates a Federal Assistance RelationshipPurpose is to obtain goods and service for the entity’s use and creates a procurement relationship May determine eligibilityProvides the goods and services within a normal business operation Performance measured against federal program objectives Provides similar goods or services to many different purchasers May make programmatic decisionsNormally operates in a competitive environment Is responsible for adherence to federal program requirements specified in the federal award Provides goods and services ancillary to the operation of the federal program Uses federal funds to carry out a program for a public purpose as opposed to providing goods or services for the benefit of the pass through entity. Is not subject to compliance requirements of the federal programs as a result of the agreement, though similar requirements may apply for other reasons.

Pass through Entity Responsibilities Pass through entities must: Ensure that every subaward is clearly identified and includes certain information at the time of the subaward Evaluate each subrecipient’s risk of non compliance Monitor the activities of the subrecipient as necessary Verify that every subrecipient is audited as required by subpart F

Subaward Information Federal Award Identification  Subrecipient name and DUNS number  Federal award identification number and award date  Subaward period of performance start and end date  Amount of federal funds obligated by the action  Total amount of federal funds obligated to the subrecipient  Total amount of the federal award  Federal award project description  Name of federal awarding agency, pass through Entity, and contact information for the awarding official  CFDA number and name, must identify the dollar amount made available under each CFDA number at the time of disbursement  Whether the award is R&D  Indirect cost rate for the federal award, including if de Minimis rate is charged.

Subaward information All requirements imposed by the pass through entity on the subrecipient so that the federal award is used in accordance with the federal statutes, regulations, and terms and conditions of the federal award. Any additional requirements that the pass through entity imposes on the subrecipient in order for the pass through entity to meet its compliance requirements An approved federally recognized indirect cost rate negotiated between the subrecipient and the federal government, or between the pass through entity and the federal government or a de Minimis indirect rate defined in section A requirement that the sub recipient permit the pass through entity and auditors to have access to the sub recipient’s records and financial statements as necessary Appropriate terms and conditions concerning close out of the sub award

Subrecipient Monitoring Evaluate each subrecipient’s risk of noncompliance to determine the appropriate level of sub recipient monitoring  The Subrecipients prior experience with similar awards  Results of previous audits  New personnel or new or substantially changed systems  Other federal monitoring

Subrecipient Monitoring Consider imposing specific sub award conditions as outlined in Must monitor activities for compliance with requirements and performance goal achievement:  Review financial and Programmatic reports  Follow up on corrective action  Issue a management decision for audit findings

Subrecipient monitoring Depending on the results of the risk assessment, the pass through entity may:  Provide training and technical assistance  Perform on-site reviews  Arrange for agreed-upon procedures engagements (section ) Verify Subrecipient obtained a single audit, if required:  Consider whether the results of the audits or other reviews necessitate adjustments to the pass through entity records  Consider if enforcement actions are necessary.

Indirect Costs Federal agencies and pass through entities will have to accept a non federal entity’s negotiated indirect cost rate (unless statute or regulation allows for an exception) Non federal entities will have a one-time option to extend the rate for up to four years For non federal entities who have never received a negotiated rate, a de Minimis rate of 10% of modified total direct costs may be used indefinitely

Compensation/Personal Services New language intended to reduce the administrative burden of documenting time and effort Less prescriptive on documentation – places greater emphasis on internal control However, there is a requirement that charges must be based on records that accurately reflect the work performed.

Compensation/Personal Services Time and distribution records must be maintained for all employees whose salary is paid in whole or in part with federal funds and/or is used to meet a match/cost share requirement Must be actual not budget estimate alone Must document all time worked and what percentage is federal

Compensation/Personal Services New Standards for documentation:  Charges must be based on record that accurately reflect the work performed  Must be supported by a system of internal control which provides reasonable assurance that amounts are accurate, allowable, and properly allocated  Be incorporated into official records  Reasonably reflect total activity for which the employee is compensated  Activities may be expressed as a percentage of distribution of total activities  Non exempt employees must prepare records indicating the total number of hours worked each day  Salaries and wages of employees used in meeting cost sharing or matching requirements on federal awards must be supported in the same manner

Audit Requirements A non federal entity that expends $750,000 or more in federal awards during the non-federal entity’s fiscal year must have a single audit. Intended to be in lieu of any financial audit of the federal awards required by other federal statutes and regulations Generally completed annually

Auditee responsibilities Procure or otherwise arrange for audit to ensure that it is performed and submitted timely Prepare appropriate financial statements, including the schedule of expenditure of federal awards Promptly follow up and take corrective action on audit findings and prepare summary schedule of prior audit findings Provide the auditor with access to personnel, accounts, books, records, supporting documentation, and other information as needed for the auditor to perform the audit Auditees portion of the data collection form

Auditor Responsibilities Conduct audit in accordance with generally accepted government auditing standards (GAGAS) Provide financial statement opinion and a report on internal control over financial reporting and compliance Provide a report on compliance for each major program and a report on internal control over compliance Prepare a schedule of findings and question costs Prepare a summary of the auditors results Auditors portion of the data collection form

Changes to Audit Requirements Threshold for reporting questions cost increased to $25,000 in known question costs for major and non major programs $25,000 in known and likely question costs for major programs Major program determination Low risk auditee criteria

Major Program Selection Risk based approach considerations  Current and prior audit experience  Oversight by federal agencies or pass through entities  Inherent risk Steps outlined in section (b) through (i)

Major Program Selection Step 1 Identify Type A programs: Total Federal Awards ExpendedType A/b Threshold Equal $750,000 but less than or equal to $25 million $750,000 Exceeds $25 million but less than or equal to $100 million Total federal awards expended times.03 Exceeds $100 million but less that or equal to $1 billion $3 million Exceeds $1 billion but less than or equal to $10 billion Total federal awards expended times.003 Exceed $10 billion but less than or equal to $20 billion $30 million Exceeds $20 billionTotal federal awards expended times.0015

Major Program Selection Step 1 Programs meeting the threshold are type A, programs under the threshold are type B The new guidance pulls in steps when large entities have large loan programs If the loan program exceeds four times the largest non- loan program, it is automatically a type A program and it is excluded from the total federal awards expended when determining the Type A/B threshold for the remaining programs.

Major Program Selection Step 2 Identify Type A Programs that are low risk:  Must consider oversight by federal agencies or pass through entity  Results of prior audit follow-up  Changes in personnel or systems  Must have been audited as a major program in at least one of the two most recent audit periods  Had no material control weaknesses  Had an unmodified opinion on the program  Known or likely question costs less than 5% of the total federal awards expended for the program

Major Program Selection – Step 3 The auditor must identify high risk type B programs using the criteria in section Only perform risk assessment until the number of high risk type B programs identified are at least 1/4 th of the number of low risk type A. Auditor is encourage to use an approach that would provide an opportunity for different high-risk Type B programs to be audited as a major over a period of time.

Major Program Determination – Step 4 Additional programs may be necessary if the total expended for the programs selected in steps 2 and 3 do not meet the percentage of coverage rules. The auditor must then select additional programs to reach 20% of total awards expended for low risk auditees and 40% of total awards expended for auditees not identified as low risk

Low Risk Auditee Criteria Annual Single Audit submitted timely Unmodified financial statement opinion No material control weaknesses Auditor did not report a going concern None of the Major Programs audited in the previous two years had: ◦Material control weaknesses ◦Modified opinion on major program ◦Known or likely question costs that exceed five percent of the total federal awards expended for a Type A program

Resources Statewide Single Audit Intranet site:  ges/Statewide-Single-Audit.aspx ges/Statewide-Single-Audit.aspx Uniform Grant Guidance Documents:  Council on Financial Assistance Reform (COFAR):  To sign up for the COFAR mailing list: 

Questions