By Deby MacLeod, CPA

Not-for-Profit recipients of Federal awards have been awaiting sweeping changes from the Office of Management and Budget (OMB) for the past two years, and the OMB delivered. On December 26, 2013, the OMB issued its new uniform guidance that changes the landscape of the administrative requirements, cost principles and Federal compliance audits for Federal awards.

The new guidance combines an expansive body of regulations currently found in eight OMB Circulars into one codified body, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200), also known as the “Super Circular” or “Omni-Circular.”

The Super Circular will be implemented by the end of 2014, and it will affect non-federal entities (NFEs) receiving Federal awards. The changes in the uniform guidance are extensive, and the Super Circular itself is voluminous and will take time to absorb. Therefore, developing a proactive, well-coordinated plan within your organization will help ensure a smooth transition. Here we’ll give an overview of the implementation timeline, what to expect with regard to the changes, and some resources to get you started on your transition.

How Soon Do the Changes Take Effect?

The OMB has established a fairly short timeline in which to implement the Super Circular. The regulations issued by the OMB on December 26, 2013 are applicable to Federal Agencies immediately. Federal agencies must submit their drafts implementing the new regulations to the OMB by June 26, 2014. The Agency regulations become effective December 26, 2014, and the new audit requirements apply for fiscal years beginning after December 26, 2014. Therefore, NFEs will be operating under the new uniform guidance for the calendar year-ending December 31, 2015, and fiscal years ending in 2016.

To What Types of Organizations Does this Apply?

The new uniform guidance applies to Federal awards to states, local governments, institutions of higher education (IHEs) and nonprofit organizations. Funding vehicles covered include direct Federal grants and cooperative agreements, pass-through grants to subrecipients and procurement contracts under grants. There are certain exceptions in the guidance for direct Federal grants and cooperative agreements, certain OMB-granted exceptions, and exceptions may be granted on a case-by-case basis by Federal Agencies.

Meet the Super Circular, 2 CFR 200

Every NFE receiving Federal awards will, at the very minimum, need to become familiar with the Super Circular. The final Super Circular is slightly different from the one described in the Notice of Proposed Guidance (NPG) distributed in February 2013. Its components are as follows:


Subpart A – Acronyms and Definitions:

Defines and standardizes terms throughout the final guidance. An example is clarification in terms for classifying certain property as “supplies” rather than “equipment.”

Subpart B – General Provisions:

This section includes a variety of changes for increased clarity.

Subpart C – Pre-Award Requirements and Contents of Federal Awards:

Sets forth requirements to standardize the pre-award process, information contained in Federal awards, application requirements, financial reporting, monitoring and program performance reporting. In short, it helps minimize special requirements included in award terms.

Subpart D – Post-Award Requirements:

This section includes many of the regulations previously included in OMB Circulars A-102 and A-110. It renews a focus on program outcomes and encourages NFEs to transmit and store award data in electronic, machine-readable formats. This sections also includes important changes to general procurement standards, requirements for pass-through entities, and internal controls. These items are discussed briefly below.

Subpart E – Cost Principles:

There are a number of important changes and clarifications to the cost principles. This is an area that Clark Nuber will discuss in detail in subsequent articles and seminars. Organizations will want to become very familiar with the changes here and their effect on your organization’s operations and policies. Notable changes are included in the requirements for obtaining prior written approval for certain costs. Changes also standardize guidance for when administrative costs can be treated as direct costs and distinguishing direct costs from indirect costs. Important items also include changes to indirect facilities and administrative costs (F&A) and time and effort reporting requirements, both discussed below.

Subpart F – Audit Requirements:

There were several very important changes to thresholds that will affect the number of Single Audits performed and the number of programs audited in each audit. There is also an important change regarding compliance requirements that was included in the NPG that is not included in the final uniform guidance.

Highlighted Changes

Internal Controls, §200.303:

Requirements that NFEs have in place internal controls to mitigate fraud, waste and abuse are strengthened and clarified. The final guidance specifies that the NFE “must” establish effective internal controls over Federal awards to provide reasonable assurance that the NFE is complying with Federal statutes, regulations, and the terms and conditions of the Federal award. The guidance further explicitly states the NFEs’ controls “should” be in compliance with both Standards for Internal Control in the Federal Government, issued by the Comptroller General of the United States (GAO) and the Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Compliance with the COSO standards is not a new requirement. However, the GAO standards, or “Green Book,” is explicitly now referenced and is currently undergoing extensive revision. The 2013 Exposure Draft is open for comment through February 18, 2014. NFEs will need to review the updated and expanded Green Book to ensure its internal controls are consistent with these stringent standards.

General Procurement Standards, §200.318:

The final guidance takes the majority of the language from OMB A-102, Grants and Cooperative Agreements with State and Local Governments, because this language is considered to better mitigate the risk of fraud, waste and abuse than OMB A-110, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations. Organizations currently following procurement regulations in OMB Circular A-110 will want to review this section in detail. The commentary included in the Federal Register is very helpful in identifying and understanding the key changes (beginning on page 78597 found here).

Subrecipient Monitoring and Management, §200.331:

One of the most notable changes in this area is the requirement for pass-through entities to include an indirect cost rate in subawards. If the subrecipient has a negotiated indirect cost rate, it must be observed. If not, a rate may be negotiated; however, a de minimis rate of 10% has been established. The final guidance also clarifies the pass-through entities’ responsibilities with respect to audit follow-up and monitoring of subrecipients; however, the OMB does not view these as significant changes. None-the-less, NFEs awarding subawards or subcontracts will want to review this section in detail.

Indirect F&A costs, §200.414:

A de minimis indirect cost rate of 10% of modified total direct costs is provided to NFEs that have not negotiated an indirect cost rate.

Time and Effort Reporting Requirements, §200.430:

The final guidance includes a number of changes and clarifications. However, not all of the changes outlined in the NPG were carried forward to the final guidance, and the requirements were not greatly simplified. The changes implemented are designed to provide organizations the flexibility in the process used to comply with the time and effort reporting requirements, yet NFEs must still maintain a strong system of internal control over records to justify that salaries and wages charged to an award are based on actual work performed.

Audit Requirements

The following changes included in the NPG for the Single Audit are also included in the final guidance:

Threshold for Requiring a Single Audit – Increased from $500k to $750k in Federal expenditures per year:

It’s estimated that approximately 5,000 fewer Single Audits will performed, yet audit coverage will be retained of approximately 99% of Federal dollars currently audited.

Determining Major Programs for Audit:

This process was modified to increase the base line threshold for selecting major programs for audit and clarifies upper thresholds. The changes will result in audits of larger and higher risk programs.

Audit Findings:

The threshold for reporting questioned costs increased from $10k to $25k.

NOT Included:

The NPG included a proposal to reduce the number of compliance requirements required to be audited from 14 to 6. This change is not incorporated into the final guidance. However, the Compliance Supplement will continue to be updated annually and modifications may be made in the future.


A number of tools are available at the OMB website to help digest and navigate the changes in the final guidance. Here you will find the entire Super Circular as well as crosswalks to and from the predominant source in the existing guidance and text comparisons in cost principles, audit requirements, definitions and administrative requirements. Keep your eyes open for upcoming articles in the Clark Nuber Not-for-Profit Newsletter for detailed analyses of the changes that will directly affect you.

© Clark Nuber PS, 2014. All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.