The Uniform Guidance © Elliott Davis Decosimo, LLC SC GFOA 2015 Fall Conference Brian D’Amico

This material was used by Elliott Davis Decosimo during an oral presentation; it is not a complete record of the discussion. This presentation is for informational purposes and does not contain or convey specific advice. It should not be used or relied upon in regard to any particular situation or circumstances without first consulting the appropriate advisor. No part of the presentation may be circulated, quoted, or reproduced for distribution without prior written approval from Elliott Davis Decosimo. © Elliott Davis Decosimo, LLC

What we will cover -Background including effective dates -Key Changes Internal Controls Subrecipient monitoring Procurement Cost principles -Audit Impact Changes to Audit Requirements Implementation Ideas © Elliott Davis Decosimo, LLC Learning Objectives

On December 26, 2013 the Office of Management and Budget (OMB) issued its Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance or UG). Combined eight OMB Circulars into one comprehensive, uniform set of regulations. © Elliott Davis Decosimo, LLC Background

What is the purpose of the new guidance? Eliminate duplicative and conflicting guidance Guidance for federal awards had been spread over these 8 circulars: A-102, A-87, A-89, A-133, A-50, A-110, A-21 and A-122 Ease administrative burden for Federal and non- federal agencies. Strengthen oversight to reduce the risk of waste, fraud and abuse. © Elliott Davis Decosimo, LLC Background

The new Uniform Guidance can be found in the Code of Federal Regulations (CFR), Title 2, Subtitle A, Chapter II, Part Subparts A – Acronyms and Definitions B – General Provisions C – Pre-Federal Award Requirements and Contents of Federal Awards D – Post Federal Award Requirements E – Cost Principles F – Audit Requirements -12 Appendices (I through XII) © Elliott Davis Decosimo, LLC

Background The new UG can be broken down into 3 sections -Subparts A – D – Administrative Requirements -Subpart E – Cost Principles -Subpart F – Audit Requirements © Elliott Davis Decosimo, LLC

Year-ends ending on or after December 26, 2014 and before December 26, Non-federal entities implement administrative requirements and cost principles for all Federal awards, including additions to existing awards (funding increments) made after December 26, Single audit requirements still under prior regulation (i.e., OMB A-133) -Auditors could have to potentially test some awards under new UG and old circulars © Elliott Davis Decosimo, LLC Effective Dates

Year-ends ending after December 26, New single audit requirements apply -Subpart F – will further discuss later -Auditors could potentially still have to test some awards under new UG and old circulars for several years © Elliott Davis Decosimo, LLC Effective Dates

Further clarification on effective dates -Funding increments after December 26, 2014 for existing Federal awards, must apply the new UG when the Federal agency considers there to be an opportunity to modify the terms and conditions of the award. -The effective date for application of the new UG for subawards is the same as the effective date of the original Federal award. It does not matter when the subaward is made. © Elliott Davis Decosimo, LLC Effective Dates

Summary recap for entities with a June 30 year-end: -For FY2014, there was no impact -For FY2015, non-federal entities will adopt new administrative requirements and cost principles relating to new Federal awards and additional funding of existing awards after December 26, For FY2016, the new audit requirements become effective in addition to the administrative requirements and cost principles © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements The UG explicitly references internal controls within its administrative requirements ( ). Previously only included within single audit requirements Council on Financial Assistance Reform (COFAR) Q&A clarifies the meaning of “must” and “should” -Must – Required, not optional -Should – Recommended, best practice © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Internal Controls ( ) -Non-federal entities must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-federal entity is managing the Federal award in compliance with Federal statutes, regulations and the terms and conditions of the Federal award Comply with Federal statutes, regulations and the terms and conditions of the Federal award Evaluate and monitor compliance Take prompt action when noncompliance is identified Take reasonable measures to safeguard protected personally identifiable information and other sensitive information © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Internal Controls ( ) -Non-federal entities should: Create an internal control environment that is in compliance with guidance in “Standards for Internal Control in the Federal Government” (Green Book) issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). -It is suggested but not required to strictly follow either the Green Book or the COSO Framework. © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Subpart A – Acronyms and Definitions -Subrecipient vs. Contractor – “Contractor” refers to an entity that receives a contract. The term “contractor” will be used instead of “vendor” – “Subrecipient” refers to a non-federal entity that receives a subaward from a pass-through entity to carry out part of a Federal program – Defines “contract” – Defines “subaward” © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Subrecipient and Contractor Determinations ( ) -Subrecipient Determines who is eligible to receive what Federal assistance Has its performance measured in relation to whether objectives of a Federal program were met Has responsibility for programmatic decision making Is responsible for adherence to applicable Federal program requirements specified in the Federal award In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Subrecipient and Contractor Determinations ( ) -Contractor Provides the goods and services within normal business operations Provides similar goods or services to many different purchasers Normally operates in a competitive environment Provides goods or services that are ancillary to the operation of the Federal program Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Subrecipient and Contractor Determinations ( ) -Use judgment in making the determination -Substance of the relationship is more important than the form of the agreement -Characteristics listed on prior slides may or may not be present in all cases © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Requirements for Pass-Through Entities ( ) -Must provide the following to the subrecipient: Subrecipient name and unique entity identifier (must match) Federal award identification number (FAIN) and award date Subaward period of performance start and end date Amount of Federal funds obligated by this action Total amount of Federal funds obligated to the subrecipient Total amount of the Federal award Federal award project description Name of the Federal awarding agency, pass-through entity, and contact information for awarding official © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Requirements for Pass-Through Entities ( ) -Must provide the following to the subrecipient, continued: CFDA number and name; the pass-through entity must identify the dollar amount made available under each Federal award and the CFDA number at the time of disbursement Identification of whether the award is R&D Indirect cost rate for the Federal award, including if the de minimis rate is charged © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Requirements for Pass-Through Entities ( ) -Must evaluate each subrecipient’s risk of noncompliance. Risk determination factors include: Subrecipient’s prior experience with the same or similar subawards Results of previous audits Whether the subrecipient has new personnel or new or substantially changed systems Extent and results of Federal awarding agency monitoring © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Requirements for Pass-Through Entities ( ) -Must monitor the activities of the subrecipient to ensure compliance. Monitoring activities must include: Review financial and performance reports Follow-up and ensure the subrecipient takes timely and appropriate action on all deficiencies Issuing a management decision ( ) for audit findings -Must verify that every subrecipient is audited as required by Subpart F when Federal awards expended are expected to exceed thresholds. © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Procurement – General Procurement Standards ( ) -Most closely follows OMB Circular A-102 -States may follow their own policies and procedures -All others must follow the general procurement standards Use documented procurement procedures No conflicts of interest Shared service purchases are recommend where practical Consider most economical purchase option © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Procurement – Competition ( ) -Contractors who draft specifications for RFPs must be excluded from competing for the opportunities -Cannot have unreasonable requirements to limit competition -Cannot require unnecessary experience and excessive bonding © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Procurement – Methods of Procurement ( ) Micro Purchases (<$3,000) -No quotations -Equitable distributions Small Purchases (<$150,000) -Rate quotations from an adequate numbers of sources -No cost or price analysis -Informal procedures acceptable Sealed Bids (>$150,000) -Formal solicitation required -Fixed price awarded to responsible bidder who conformed with all material terms and conditions and is the lowest price © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Procurement – Methods of Procurement ( ) Competitive Proposals (>$150,000) -Formal solicitation required -Fixed price or cost reimbursement contracts -Used when sealed bids are not appropriate -Awarded to responsible bidder whose proposal is most advantageous to the program, with price and other factors considered © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Procurement – Methods of Procurement ( ) Sole Source - may be used only when one or more of the following apply: -The item is available only from a single source -The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation -Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-federal entity -After solicitation of a number of sources, competition is determined inadequate © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Effective/Applicability Date ( ) -For the procurement standards in – , non-federal entities may continue to comply with the procurement standards in previous OMB guidance for one additional fiscal year after this part goes into effect. -If deferred, the non-federal entity must document this decision in their internal procurement policies. -This is the only section that allows deferral. © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Other changes to administrative requirements: & – Personally Identifiable Information (PII) and Protected Personally Identifiable Information (PPII) are included and defined – Conflict of interest (COI) Grantees must disclose in writing any potential COI to awarding agency – Mandatory Disclosures Non-federal entity must disclose in writing and in a timely manner all violations of fraud, bribery, or gratuity violations potentially affecting the Federal award. © Elliott Davis Decosimo, LLC

Key Changes – Admin. Requirements Other changes to administrative requirements, continued: – Performance Measurement Use standard forms Must relate financial data to performance Federal awarding agencies are to provide clear performance goals, indicators and milestones © Elliott Davis Decosimo, LLC

Key Changes – Cost Principles Compensation – Personal Services ( ) -“Time and effort reporting” Greater focus on internal controls surrounding compensation costs. Less focus on specific procedures that must be followed in tracking and allocating the costs. Non-federal entities will need to consider whether modifications can be achieved while still ensuring a strong internal control process. © Elliott Davis Decosimo, LLC

Key Changes – Cost Principles Indirect (F&A) Costs ( ) -Negotiated rates must be accepted by all Federal awarding agencies. -Non-federal entities may apply for a negotiated rate at any time. -Non-federal entities who have never had a negotiated rate may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC). -Existing negotiated rates may be extended for up to four years. -Pass-through entities are required to provide the indirect cost rate to its subrecipients. © Elliott Davis Decosimo, LLC

Key Changes – Cost Principles Other changes to cost principles: – Prior written approval (prior approval) – Advertising and public relations – Audit services – Compensation – fringe benefits – Conferences – Contingency provisions – Employee health and welfare costs – Entertainment costs © Elliott Davis Decosimo, LLC

Key Changes – Cost Principles Other changes to cost principles, continued: – Materials and supplies costs – Organization costs – Publication and printing costs – Recruiting costs – Relocation costs of employees – Travel costs © Elliott Davis Decosimo, LLC

Changes to Audit Requirements Audit requirements can be found in Subpart F Effective for years ending on and after December 31, Early implementation is not allowed. Revisions focus on audit risk -Increase in audit threshold -Risk based approach to major program determination -Greater transparency of audit results -Strengthening of agency’s use of single audit process © Elliott Davis Decosimo, LLC

Changes to Audit Requirements Audit threshold -Increases from $500,000 to $750,000 -Maintains oversight over 99.7% of the dollars currently subject to single audit but eliminates the single audit burden for approximately 5,000 entities -Last increase was in 2003 (increase from $300,000 to $500,000) © Elliott Davis Decosimo, LLC

Changes to Audit Requirements Low risk auditee criteria updated -Financial statements prepared in accordance with GAAP or a basis of accounting required by state law. -Auditor did not report a substantial doubt about the entity’s ability to continue as a going concern. © Elliott Davis Decosimo, LLC

Changes to Audit Requirements Type A/B threshold is a sliding scale with a minimum -Minimum increases from $300,000 to $750,000 -Threshold is presented in a table on the next slide for better understanding Audit requirement threshold and A/B minimum threshold will be the same at $750,000 (previously $500,000 overall and $300,000 A/B) Percentage coverage rule changed – 20% for low risk and 40% for non-low risk. © Elliott Davis Decosimo, LLC

Changes to Audit Requirements © Elliott Davis Decosimo, LLC

Changes to Audit Requirements Other single audit changes: -Questioned costs threshold raised to $25,000 (known or likely) -Presentation of findings must include: Identification of questioned costs and how they were computed. Information to provide proper perspective for judging the prevalence and consequences of the audit findings. Identification of whether the audit finding was a repeat of a finding in the immediately prior audit and if so include the prior year finding number. © Elliott Davis Decosimo, LLC

Implementation Ideas Assign a leader Create a team Begin reviewing the UG and other industry materials Break it down into manageable sections Hold team meetings to discuss effective dates and potential areas of change Reach out to your grantors Begin to rewrite policy changes Obtain approval for any changes from management and governing body Communicate the plan © Elliott Davis Decosimo, LLC

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Brian D’Amico Phone: Website: Elliott Davis Decosimo ranks among the top 50 CPA firms in the U.S. With seventeen offices across seven states, the firm provides clients across a wide range of industries with smart, customized solutions. Elliott Davis Decosimo is an independent firm associated with Moore Stephens International Limited, one of the world's largest CPA firm associations with resources in every major market around the globe. For more information, please visit our elliottdavis.com. © Elliott Davis Decosimo, LLC