By Troy Rector, CPA and Kelly Rancourt, CPA
As one of its final deliverables, the Council on Financial Assistance Reform (COFAR) issued updates to the Uniform Guidance Frequently Asked Questions (FAQs). In all, the updated FAQs includes 24 new FAQs and revisions of four existing FAQs.
The FAQs have been issued and updated several times since the Uniform Guidance’s issuance, with the last update being September, 2015.
The updated FAQs provide additional guidance in the areas of indirect costs, subrecipient monitoring, payments to non-federal entities, and the Schedule of Expenditures of Federal Awards. They are intended to provide additional context and background for the guidance as Federal and non-Federal entities seek to understand the policy changes.
Most of the FAQ updates relate to the subject of indirect costs. This includes discussion regarding administrative costs, the de minimis rate, and indirect cost rates negotiated by a pass-through entity.
In some areas, the updated FAQs provide a reminder of changes made to indirect cost recovery in the Uniform Guidance, including the methods from which pass-through entities must select when being asked to reimburse indirect costs. These methods include:
- Federally negotiated indirect cost rate
- De minimis rate
- Negotiated rate with a pass-through entity
The updated COFAR FAQs provide guidance in the following key indirect cost areas:
- Federal program statutes can sometimes have a cap on administrative costs. The FAQs provide a discussion comparing the terms “indirect costs” to “administrative costs.” Generally, administrative costs include both direct administrative costs, as well as indirect costs. The FAQs further clarify that facilities costs, in an approved Facilities and Administrative (F&A) rate, would not normally be included in an administrative cost cap. If there is an administrative cap, the federal program statutes should be further referenced for the specific requirements and definitions [FAQ 200.56-1, 56-2].
- Clarification was provided that, even though rental costs are excludable costs for purposes of defining modified total direct costs, the Uniform Guidance considers rental costs to be an allowable cost as long as the requirements of §200.465 Rental Costs of Real Property and Equipment are met [FAQ 200.68-3].
- The FAQs state that pass-through entities that had previously negotiated indirect cost rates with subrecipients, or paid actual indirect costs, should continue to do so. This clarification will be helpful to a non-Federal entity whose pass-through entities are looking to lower their indirect cost recovery from previously negotiated indirect cost methodologies to the lower, de minimis rate. Furthermore, the FAQ provides clarification that, unless there is agreement between state agencies, the non-federal entity cannot utilize a negotiated indirect cost rate with one state agency for negotiating indirect cost recovery with another State agency [FAQ 200.331-9].
- The updated FAQ’s provided even more clarification on use of the de minimis rate in the following areas:
- Non-federal entities do not need to provide documentation to prove their indirect cost rate when using the de minimis rate. However, non-Federal entities are reminded in the OMB Compliance Supplement that they cannot keep or earn a profit on Federal financial assistance [FAQ 200.414-12].
- The de minimis rate is not the “de facto” rate between pass-through entities and subrecipients.
- The FAQs now include a listing of the various federal agency indirect cost guides, including the US Department of Labor, US Department of Health and Human Services, and the National Science Foundation as example methods for documenting negotiated indirect cost rates [FAQ 200.414-15].
Capitalization Level for Software
The FAQs clarify that software that is (1) purchased, (2) comes with hardware, and (3) costs over $5,000, should be capitalized as equipment. If the software is internally developed, the non-federal entity should capitalize in accordance with generally accepted accounting principles [FAQ 200.33-1].
Effective Dates and Grace Period for Procurement
In May 2017, the OMB added one year to the Uniform Guidance procurement standards’ optional three-year extension grace period. The FAQ is updated to discuss the three-year grace period.
For example, this means that a non-federal entity that has a year end of June 30, can defer the procurement standards through fiscal year June 30, 2018 [FAQ 200.110-6].
As was the case before, the election of the procurement grace period must be documented in the non-federal entity’s procurement policy. This means that entities would need to update their procurement policy to reflect the additional grace period year, if elected.
Payments to Non-Federal Entities – Advance or Reimbursement
The Uniform Guidance [200.305(b)(1)] presented some ambiguity as to whether it was requiring all Federal awards on a cost reimbursement basis to be changed to the advanced payment basis. The FAQs clarify that this is not the case.
Though the Uniform Guidance states that advance payment method is considered the default option, the FAQ clarifies that the conditions for advanced payment were to be applied if the non-federal entity requested the advance payment basis be used.
FAQs were also added to help pass-through entities understand their subrecipient monitoring requirements, including timing of the subrecipient risk assessment and suggested ways the pass-through entity could efficiently verify the subrecipient’s Single Audit.
The FAQ clarifies that the subrecipient risk assessment does not need to be performed prior to when the subaward agreement is issued.
The FAQs also affirm that a written confirmation from the subrecipient would suffice as proof when a Single Audit is performed and if audit findings are disclosed [FAQ 200.331-10-11].
Schedule of Expenditures of Federal Awards (SEFA), Summary Schedule of Prior Audit Findings and Corrective Action Plan
The OMB’s FAQs clarify that non-federal entities can organize the SEFA by department. The requirement to list awards by federal agency was intended to provide a useful presentation to readers. However, non-federal agencies can organize the SEFA in alternative ways.
The OMB also provides additional guidance, which states that non-federal entities are not required to provide subtotals by federal agency. Further, cluster name reporting is required, even if only one program in the cluster has expenditures [FAQ 200.510-1 to 3].
Another FAQ was added, which confirms that the auditee is required to prepare the summary schedule of prior audit findings and corrective action plans for current year findings. The findings must be reported separately from the audit finding. In addition, the corrective action plan must be prepared on client letterhead [FAQ 200.511-1].
The FAQs continue to be “required reading” when it comes to understanding and interpreting the Uniform Guidance. Though the COFAR disbanded since issuance of the FAQs, Chief Financial Officers Council will carry on its work in coordinating financial assistance and transforming the delivery of grant assistance.
Staying on top of newly issued FAQs, and updates to the Uniform Guidance itself, will be critical in ensuring continued compliance.
See below for a listing of helpful resources related to the Uniform Guidance:
Questions about information in this article? Please contact Troy Rector or Kelly Rancourt.
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