Source: RSM US LLP.   

ARTICLE

In September 2023, the Office of Management and Budget (OMB) announced tentative changes to loosen the constraints and ease the administrative burden on federal agencies and award recipients for grants and agreements subject to Title 2, Part 200 of the Code of Federal Regulations (Uniform Guidance). Proposed changes largely affect the administrative requirements, cost principles, and audit requirements sections.

Recipients are often hampered when working with multiple agencies that have inconsistent interpretations of the guidance. Therefore, proposed changes to applicable sections were rewritten in “plain language, improving flow, and addressing inconsistent use of terms,” according to the OMB. To provide clarity and reduce misinterpretation among recipients and agencies, the OMB revised sections, simplified guidance text, avoided or reduced technical jargon, and made the text more succinct. For example, the OMB replaced the term “non-Federal entity” with “recipient,” “subrecipient” or both. In section 200.331, the OMB has proposed characteristics indicative of a subrecipient or contractor determination to expand beyond the examples currently provided in the guidance. To provide more context, the OMB will also mention the specific appropriate system—such as SAM.gov, Grants.gov, and so on—instead of using the general term “OMB designated governmentwide systems.”

One of the most significant changes to the guidance is the proposed increase of several monetary thresholds that have not been updated for many years. The OMB proposed increasing the single audit threshold from $750,000 to $1 million and increasing the threshold for determining items that are considered supplies or equipment from $5,000 to $10,000 (sections 200.501 and 200.314, respectively). The OMB also clarified that costs requiring prior approval are considered “approved” if included in the recipient’s proposal and therefore do not require subsequent approval prior to expenditure. Additionally, the OMB has proposed clearer guidance to better align financial reporting with progress reporting requirements (section 200.328).

Other proposed changes include the following:

  • Increasing the amount of subaward costs counted within the modified total direct costs (MTDC) base from $25,000 to $50,000 (Appendix IV of Part 200). This will allow for more absorption and recovery of subrecipient costs, which can potentially drive down the indirect rate.
  • Increasing the de minimis indirect cost rate from 10% to 15% over MTDC (section 200.414), which allows for the more “reasonable and realistic” recovery of indirect rates, particularly for new or inexperienced organizations that may not have the capacity to undergo formal rate negotiations. Recipients and sub-recipients can apply a lower rate at their own discretion and are not required to use the de minimis rate. The new guidance also clarifies that the de minimis rate cannot be applied to cost-reimbursement contracts (i.e., only to federal assistance).
  • Removing the “simplified acquisition threshold” cap for fixed-amount sub-awards, which is currently in place to provide agencies and recipients with increased flexibility to make programmatic and budgetary decisions (section 200.333). The new guidance will allow recipients to establish their own award-specific thresholds with the prior written approval of the federal agency.
  • Including “veteran-owned business” in the list of the types of businesses that recipients or sub-recipients are encouraged to consider procurement contracts under federal award (section 200.321).
  • Clarifying guidance that pass-through entities must accept all federally negotiated indirect cost rates for subrecipients (section 200.414).

The industry believes that updating the Uniform Guidance is long overdue. Many organizations are optimistic that the new guidance will provide direction and leadership to federal agencies on policies and requirements. This should make compliance less cumbersome for the public sector.

Establishing the intent for improving federal financial assistance management, transparency, and oversight through the alignment of statutory requirements and administrative priorities is key for the path forward. Agency implementation and auditor application of the revised language will be the real measuring stick to determine whether awards are truly administered with greater ease and whether the complexities and confusion that currently exist for many federal assistance awardees are sufficiently mitigated.

This article was written by RSM US LLP and originally appeared on 2023-10-30.
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