On Jan. 31, 2013, the U.S. Office of Management and Budget (OMB) issued Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards for comment. The proposed guidance is intended to “ensure that grants are awarded based on merit; that management increases focus on performance outcomes; and that rules governing the allocation of federal funds are streamlined, and better focus the Single Audit oversight tool to reduce waste, fraud, and abuse.”
In addition, a Federal Register notice was issued on Feb. 1, 2013, to provide additional background on the proposed guidance. The proposed guidance would supersede and streamline the requirements from eight existing OMB circulars into one document. The provisions of the proposed guidance would apply uniformly to grant and cooperative agreement awards made to state, local, and tribal governments, institutions of higher education, and nonprofit organizations except where specific variations by entity type are included in the new circular.
In addition to consolidating administrative and cost principles into one circular, the proposed guidance provides clarity for expectations for subaward oversight and requirements for selected items of cost, while also eliminating certain existing requirements for selected items of cost.
The proposed guidance also provides for significant revisions to certain Single Audit provisions, including those utilized for determining if a Single Audit is required, major program determination, reporting of questioned costs, and types of compliance requirements tested. A summary of the key changes is as follows:
- Audit Threshold – The threshold for the Single Audit requirement would be raised from $500,000 to $750,000. This change would eliminate the Single Audit requirement for approximately 5,000 entities while maintaining single audit coverage over more than 99 percent of the funds that are currently covered.
- Type A/B Threshold – As part of the major program determination, the auditor calculates a threshold, based on federal dollars expended, to classify programs as either “Type A” or “Type B” programs. The proposed guidance would increase the minimum threshold for a program to be Type A from $300,000 to $500,000.
- High-Risk Type A Programs – The proposed criteria would require Type A programs to be considered high-risk only when in the most recent audit period the program failed to receive an unqualified opinion, had a material weakness in internal controls, or had questioned costs exceeding 5 percent of the program’s expenditures. Currently, Type A programs are also required to be considered high-risk after receiving any finding in the most recent audit period, even though that finding may not have been essential to the financial integrity of the program. The requirement that every Type A program be audited as major at least once every three years remains unchanged.
- Type B Programs – The proposed guidance reduces the number of high-risk Type B programs that must be tested as major from at least one-half to one-fourth of the number of low-risk Type A programs. In addition, Type B programs with expenditures less than 25 percent of the Type A/B Threshold would not need to be considered.
- Percentage of Coverage – The proposed language reduces the minimum coverage required under the percentage-of-coverage rule from 50 percent to 40 percent for a regular auditee and from 25 percent to 20 percent for a low-risk auditee. This calculation relates to the coverage of federal dollars expended under programs selected as major in relation to total federal dollars expended.
- Questioned Costs – The proposal includes increasing the minimum threshold for reporting questioned costs from $10,000 to $25,000 to focus on the audit findings presenting the greatest risk.
- Reduction in Types of Compliance Requirements Tested – The Federal Register discusses streamlining the types of compliance requirements to be found in the Compliance Supplement from the existing 14 to six. The remaining six types of compliance requirements would be Activities Allowed or Unallowed and Allowable Costs/Cost Principles, Cash Management, Eligibility, Reporting, Subrecipient Monitoring, and Special Tests and Provisions. The combined category of Activities Allowed or Unallowed and Allowable Costs/Cost Principles would also include some testing requirements for period of availability and matching. The Federal Register noted that federal agencies could request that deleted requirements be included under Special Tests and Provisions; however, such requests would only be accepted under certain circumstances.
To improve audit follow-up, the OMB is also considering making audit reports publicly available through the Federal Audit Clearinghouse. The OMB plans to work with the Federal Audit Clearinghouse to determine if privacy concerns over personally-identifiable information and confidential business information can be overcome.
One additional idea for reform suggested to the OMB was to shorten the amount of time for the Single Audit submission from nine months to six months after the entity’s year-end. While the OMB supports this idea, it would require changes to legislation and thus, has not been included in the proposed guidance.
Neither the proposed guidance nor the Federal Register provided an indication of the expected effective date for the new circular.
The OMB is interested in receiving broad public feedback to further refine the proposed guidance. Comments may be provided through www.regulations.gov through May 2, 2013.