Uniform Guidance: A Post-Implementation Recap
Auditees, auditors and regulators can move forward with
a more modernized accounting of federal awards, increased efficiency and an
improved audit process.
Randy Ottaway, CPA
Those of you who either receive or audit federally fund
awards have had the opportunity to become fully immersed in the requirements
of Title 2 U.S. Code of Federal Regulations Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance). Issuance of the Uniform Guidance
dusted off the rules and regulations from nearly two decades of trials,
tribulations and experiences encountered by auditees and auditors. It also
provides a refreshed look at what constitutes federally funded expenditures
worthy of audit consideration within a more organized uniform framework of
requirements.
Regardless of the underlying nature of the federal award
recipient, whether for a state or local government, hospital, higher
education or nonprofit organizations, the uniform guidance applies across
the board from which all participants are reading from the same script. With
more than years under our belt, now is a good time for a period of
post-implementation introspection on how the “Super Circular” has lived up
to its name.
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This article was
adapted for publication in the June 2017 issue of AZ CPA, the
magazine of the Arizona Society of Certified Public Accountants |
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Worthy of modern technology, the Uniform Guidance has been
electronically codified with well-organized subparts starting with a list of
acronyms and definitions, general provisions, pre-federal award
requirements, post federal award requirements, cost principles, and audit
requirements. Accordingly, the reader can easily navigate the Uniform
Guidance and drill down to the applicable regulation with precision and
efficiency.
One of the most refreshing aspects of the Uniform Guidance
was the consolidation and elimination of eight separate OMB Circulars. No
more trying to clarify the differences between circulars or evaluating the
applicability of a myriad of circulars to individual recipient
circumstances.
According to the OMB, the
objectives of the Uniform Guidance were to:
-
Change the focus from compliance to
performance
-
Eliminate conflicting and duplication of
cost principles
-
Provide consistent and transparent treatment
of costs
-
Improve and strengthen federal agency
oversight
-
Improve administration of federal awards
from the application through the close-out process
-
Provide better identification of risks
associated with federal awards
-
Target the audit for risk of fraud or waste
In 2013, it was estimated that approximately 5,000 nonfederal
entities would be relieved of the single audit requirements due to raising
the annual federal expenditure threshold to $750,000. With $600 billion
dollars in federal grants awarded annually, it was time to focus on the
dollars expended and provide some relief to the small recipients. An
overarching objective of the OMB and federal agencies was consideration
about how grant policies could be reformed to increase the efficiency and
effectiveness of federal programs and eliminate unnecessary and duplicative
requirements by focusing on areas that emphasize achieving better outcomes
at a lower cost.
The Uniform Guidance also provides relief to the recipients
in that they can elect to charge a de minimis indirect cost rate of 10% of modified total direct costs if they choose not to apply indirect
costs under either the simplified or direct allocation methods. This is
especially useful for not-for-profits who may not have had a federally
negotiated indirect cost rate.
In addition, there were several reporting changes affecting
non-federal entities under the Uniform Guidance including:
-
Subrecipient amount must now be shown on the face
of the schedule of expenditures of federal awards (SEFA) including the
pass-through entity’s identifier number.
-
Auditees may list amounts expended separately by
year for multiple federal award years.
-
Loan amounts from the beginning of year plus any
new additions must be shown on the face of the SEFA (for loans in which the
federal government imposes continuing compliance requirements) and
disclosure in the notes to the SEFA of the outstanding loan balances at the
end of the year.
-
Notes to the SEFA must include a disclosure as to
whether the non-federal entity elected to use the 10% de minimis cost
rate.
-
Corrective action plan must include both financial
statement and compliance findings and anticipated completion date.
Another change is that the issuance deadline for the data
collection form (Form SF-SAC) has been extended under the Uniform Guidance
to the next business day when the deadline falls on a weekend or holiday.
Federal agencies can no longer grant a waiver of the deadline and the
consequences to the auditee for not meeting the deadline is a material
weakness in compliance.
Criteria for a low-risk auditee had changes which require
the auditee to meet all of the following conditions for each of the
preceding two audit periods:
-
Single audits on an annual basis (i.e. no biennial
audits)
-
Unmodified auditor’s opinion on the financial
statements or in relation to the SEFA
-
No material weaknesses identified in the report
under GAGAS (Yellow Book)
-
Auditor did not report a substantial doubt as to
the entities ability to continue as a going concern
-
No audit findings of Type A federal programs for
the preceding two audit periods for (a) material weaknesses or modified
opinion in the report on internal control for major programs and (b) no
known or likely questioned costs
The Uniform Guidance also provides auditors with changes,
including:
-
$750,000 minimum threshold requiring a single audit (up
from $500,000)
-
$750,000 (or 3% of total federal expenditures) for Type A
programs (up from $300,000)
-
Type A program determination no longer considers inherent
risk
-
$187,500 (or 25% of Type A expenditure threshold) for Type
B programs (up from $100,000)
-
A need to sufficiently document basis for determining the
classification of a program as low versus high-risk
-
Lowered the minimum “percentage of total expenditures
test” to 20% for low-risk auditees and 40% for high-risk auditees (these percentages were previously 25% and 50%,
respectively)
-
Must classify a program as a Type A high-risk if, in
the most recent period, the auditor issued a modified opinion (i.e., material
weakness) or there were known questioned costs exceeding 5% of the total of that
program’s expenditures
-
Raised the threshold to $25,000 for known or likely
questioned cost of an audited major program or known questions costs of a
non-audited federal program (up from $10,000)
-
Summary schedule of prior audit findings must include both
financial statement and compliance findings
As for auditor compliance testing of major programs, two of the
prior general requirements under OMB Circular A-133 consisting of the prevailing
wage regulations under the Davis-Bacon Act and real property acquisition and
relocation assistance were removed from the compliance supplement. However,
certain programs retained wage-rate requirements in the special tests and
provisions section.
Recent Development. Effective for fiscal years beginning
on or after December 26, 2017, nonfederal entities are to have implemented
changes to their procurement policies and procedures in accordance with sections
200.317 through 200.326 of the Uniform Guidance. Many nonfederal entities are
finding the procurement policies and procedures requirement as noted below more
restrictive:
-
Documented procurement procedures that reflect federal
law, Uniform Guidance standards, and any state regulations
-
Focus on the most economical solution during the
procurement process and avoid using federal funds for acquisition of
unnecessary items
-
Written conflict-of-interest policies that include
restricting employees or agents from participating in the procurement
process if they have an actual or apparent conflict of interest
-
Must document the procurement activities including the
basis for the type of procurement, contract type and basis for selection and
price
-
Recipient of federal awards must maintain an appropriate
level of oversight
Conclusion. For auditees, the super-circular has been super challenging with
the additional work necessary to update policies and procedures to comply with
the revised procurement requirements and cost principles. However, on a positive
note, the level of documentation for personnel time and effort reporting
requirements has become more flexible.
So, looking back, did the Uniform Guidance achieve its
objectives? There certainly has been a significant investment by auditors and
auditees to learn and implement the new requirements. However, now empowered
with this knowledge, auditees, auditors and regulators have moved forward with a
more modernized accounting of federal awards, increased efficiency and an
improved audit process. |