May 6, 2021

Federal Awards – Strings Attached

The historic amount of federal assistance being granted in response to the COVID-19 pandemic means that many not-for-profit organizations are either receiving federal award assistance for the first time or are significantly expanding their existing portfolio of federal awards. Whether being received directly from federal awarding agencies or being received as a subrecipient from a pass-through agency, federally funded awards come with strings attached, unlike any other non-federal grant an organization will likely receive.

When applying for a federally funded award or reviewing an award agreement, understanding the requirements your organization will be held to is key to ensuring you stay on the “good side” of the federal award. Award agreements often include terms and conditions that outline a myriad of requirements, including references to program regulations, certifications and (drum roll) the Uniform Guidance – 2 Code of Federal Regulations (CFR) Part 200 (Uniform Guidance). The Uniform Guidance includes the key administrative and cost requirements you will need to follow when administering the federally funded award and is what we will be covering in this article.

The Uniform Guidance – Getting Started

The Uniform Guidance is promulgated by the U.S. Office of Management and Budget, and federal agencies are required to adopt and incorporate it in their federal award regulations. Understanding the Uniform Guidance is a critical step that all other federal grants management efforts stem from. Its requirements must be understood in order to assess existing procedures and determine what changes are needed to comply with the Uniform Guidance. This process often results in new policies and procedures needing to be developed and deployed.

To help you get started in your Uniform Guidance quest, we have outlined key subparts to this regulation. When studying the Uniform Guidance, it’s helpful to keep in mind that a “must” is a requirement, whereas a “should” is more of a best practice.

Part Reference and TopicSummary
200.1 – DefinitionsIn reading and understanding federal regulations, words do matter. The Definitions section is referred to often when researching the Uniform Guidance.
200.101 – ApplicabilityThere are many types of arrangements where federal assistance can be provided and to many types of organizations. The Applicability section identifies what parts of the Uniform Guidance are (or are not) applicable to what types of federal awards.
Subpart C – Pre-Federal Award Requirements and Contents of Federal AwardsApplicable primarily to federal awarding agencies, this part prescribes instructions and other pre-award matters to be used in the program planning, announcement, application, and award processes.
Subpart D – Post Federal Award RequirementsPost-Award Requirements are of most importance to federal award recipients. These requirements apply from the start of the federal award to close-out and cover all administrative topics, with the exception of allowable costs, which are important enough to have their own part.
200.302 – Financial ManagementMinimum standards for financial management systems are detailed. This includes the identification of federal awards in its “accounts,” which translates to the accurate accounting and tracking of federal award activity in the general ledger.

Required policies for cash management and allowable costs are also included.
200.303 – Internal ControlsAn organization must establish a system of internal controls to ensure compliance with federal award requirements and should consider use of concepts in the COSO Framework when designing appropriate internal controls.

This part is more “high level,” but it emphasizes the importance of establishing sound internal controls in the management of federal awards.
200.313 – Equipment ManagementIf your federal award funded the purchase of equipment (based on your capitalization threshold if set at $5,000 or less), the organization will have responsibility for including certain federal award information in the fixed asset listing, physical observation of the equipment during the federal award, and following disposition instructions for the equipment once the federal award comes to an end.
200.318 to 200.327 – ProcurementFederal awards often reimburse costs beyond just payroll. This involves the purchasing of goods and services to carry out the award activities and meet its objectives. When purchasing goods and services for federal awards, the federal government wants organizations to follow specified procurement methods based on the dollar amount (size) of the procurement.

This section outlines Procurement Standards, including the Methods of Procurement to be followed. For many organizations not having managed federal awards previously, the Procurement Standards laid out in the Uniform Guidance are more restrictive than procurement procedures normally followed. This can add administrative burden to managing federal awards and is just one of those “strings attached”.

Written procurement policies will be required of the organization that incorporates the Procurement Standards. Differences between the organization’s existing procurement procedures and what is required by the Uniform Guidance must be determined prior to the start of the federal award so that proper acquisition planning can take place.
200.331 to 200.333 – Subrecipient MonitoringIf your organization is granting (passing through) federal funds received to other organizations, you must first determine the nature of the funding relationship in what is covered at 200.331 as being Subrecipient vs. Contractor. For subrecipient relationships, the organization has the responsibility to flow down the same terms and conditions you’re required to comply with to the subrecipient via the subaward agreement.

If your organization is acting in the capacity of a pass-through entity to subrecipients, much is required of you.

This part of the Uniform Guidance addresses requirements for pass-through entities from required elements to be included in the subaward agreement to evaluating subrecipient’s risk of non-compliance and performing required subrecipient monitoring.

Subrecipient monitoring policies and procedures are recommended here, as well as standard monitoring forms to ensure steps you’re taking to monitor subrecipients are adequately performed and documented.
Subpart E – Cost PrinciplesMost federally funded awards come in the form of cost-reimbursement arrangements. Subpart E identifies the Basic Consideration of determining the allowability of costs and then goes as far as detailing provisions for Selected Items of Cost.
200.402 to 200.411 – Basic ConsiderationsIn navigating the allowable cost provisions related to your federal award, you have to start somewhere. The Basic Considerations of costs provided are just that and are applicable to all types of costs either reimbursed by the federal award or claimed as cost sharing.

The Basic Considerations include:

• Factors affecting allowability of costs – this section includes criteria for allowability, such as the cost must be adequately documented and determined in accordance with Generally Accepted Accounting Principles

• Allocable costs – to be reimbursed as a direct cost, the allocation of the cost to the grant must be assigned in accordance with the relative benefits received – i.e. the allocation must be documented and based on actual and not budgeted activities.

• Applicable credits – with organizations receiving other federal grant and COVID-19 relief assistance, they must be careful to ensure the federal government is not reimbursing the same cost twice – i.e. not double dipping. That is part of what is covered in this concept.

• Prior written approval – there are certain types of costs that are allowable to be charged but only if the organization receives advanced written approval from the awarding agency to do so.
200.414 – Indirect CostsParts 200.412 and 200.413 work to differentiate between direct and indirect costs. Part 200.414 covers how organizations may be reimbursed for Indirect Costs as further supported by the Appendix associated with the organization’s type (Nonprofit, Institution of Higher Education, etc.).

The methods identified for the recovering of indirect costs are:

• Federally negotiated indirect cost rate

• Indirect cost rate negotiated with the pass-through entity

• De minimis rate

Understanding how each of these methods may work is of importance for the organization when ensuring that the federal government is paying for their fair share of indirect costs.
200.430(i) – Standards for Documentation of Personnel ExpensesIf payroll costs will be charged to the federal award, this section of the Uniform Guidance cannot be ignored and must be considered carefully.

The Uniform Guidance does not prescribe specific payroll documentation and allocation requirements but, instead, outlines standards that must be met when allocating and charging compensation. Each standard should be understood and linked to how the organization’s current methodology meets the standard. This includes ensuring that any allocations based on budgeted estimates are ultimately compared to the actual activity of the employee.

Though use of timesheets or personnel activity forms are common, the organization will need to be able to document how their specific methodology meets these standards.
200.475 – Travel CostsReimbursement of direct travel costs from federal awards is an allowable cost. However, the travel costs must be charged consistent with an established travel policy used by the organization for all of their activities (i.e. both federal and non-federal) or, if no such policy exists, the travel costs must be based on rates and amounts as established by the referenced federal travel regulations.
Other Items of CostThere are many more items of costs covered in this section of the Uniform Guidance that will require the organization to ensure costs charged to federal awards or claimed as cost sharing meet the specific allowability provisions outlined.
Subpart F – Single AuditWhen folks mention the Single Audit (or formerly known as the A-133 audit), Subpart F is the source regulation that establishes those requirements. Subpart F identifies when a Single Audit is actually required and, if one is required, the responsibilities of the auditee/auditor and everything else that comes along with a Single Audit.

Subpart F is further supplemented by Appendix XI to Part 200 – OMB Compliance Supplement, which is a 1,600 page guide auditors are required to follow when performing a Single Audit.

Action Required

Digging into and understanding the Uniform Guidance regulation is just the first step in ensuring that adequate systems are in place to maintain compliance with your federal award. A close examination is needed to compare requirements of the Uniform Guidance to existing finance practices of your organization. This investment of time and resources will ensure that your organization properly builds the capacity to comply with the federal award terms and conditions you have or are about ready to commit your organization to.

Want to learn more or need further help with your Uniform Guidance readiness efforts? Contact our Federal Grants Advisory group to help lead the way.

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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.