On 26 December 2013 the Office of Management and Budget (OMB) issued final guidance titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” 72 Fed. Reg. 78590 (26 December 2013). This new guidance, often referred to as the “Super-circular” or “Omni-circular,” is a significant development for research compliance and legal professionals who must carefully consider how the new regulations will affect day-to-day management and administration of federally sponsored projects.
The Super-circular includes many positive changes, such as authority to issue fixed price subawards and broader authority to direct charge administrative-type costs to awards. But tremendous uncertainty surrounds certain reforms, particularly in the area of effort reporting, where the Super-circular allows grantees to use their own system of internal controls to document compensation costs, but continues to require an after-the-fact review of “records that accurately reflect the work performed.” It is uncertain what type of documentation regulators will find acceptable under these new rules.
Offered below are a few highlights from the Super-circular. More detailed analysis of how these and other developments affect institutions will appear in subsequent advisories.
- Objectives and applicability: The Super-circular streamlines and consolidates the federal government’s guidance on administrative rules, cost principles, and audit requirements for federal awards such as grants and cooperative agreements. The Super-circular is the culmination of a two-year initiative to reform and standardize the requirements for management of federal awards (including sponsored research awards) across the entire federal government.
- Supersession and effective date: The Super-circular, which supersedes current OMB Circulars A-110, A-21, A-122, and A-133 (among others), becomes effective upon each federal agency’s promulgation of implementing regulations, and no later than 26 December 2014. The new audit requirements will apply to grantee fiscal years beginning on or after 26 December 2014.
- Organization: The Super-circular is published at 2 C.F.R. Part 200 and is organized into the following Subparts:
- Subpart A — Acronyms and Definitions
- Subpart B — General Provisions
- Subpart C — Pre-Federal Award Requirements and Contents of Federal Awards
- Subpart D — Post Federal Award Requirements
- Subpart E — Cost Principles
- Subpart F — Audit Requirements
- Broader conflict of interest rules: Awarding agencies must establish “conflict of interest policies for federal awards”. Grantees must disclose in writing any potential conflict of interest to the agency (or pass-through entity) in accordance with those policies.
- Mandatory disclosures: Grantees “must disclose, in a timely manner, in writing to the federal awarding agency or pass-through entity all violations of federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the federal award.”
- Risk-based review of potential recipients: Awarding agencies must evaluate the risks posed by applicants before they receive federal awards. This process may include consideration of (among other items) prior performance, history of compliance with terms and conditions of awards, and reports and findings from audits.
- Limitations on cost sharing: Agencies cannot use voluntary committed cost sharing as a factor in the merit review of proposals unless so specified in the funding opportunity announcement.
- More rigorous procurement standards: If the grantee has a parent, affiliate, or subsidiary organization, the grantee must maintain written standards of conduct covering “organizational conflicts of interest” in which the grantee is unable or appears to be unable to be impartial in conducting a procurement action using federal funds and involving a related organization.
- New authority to make fixed amount subawards: With prior agency approval, recipients may award “fixed amount” subawards up to the Simplified Acquisition Threshold (currently US$150,000) without regard to actual costs ultimately incurred by the subrecipient.
- Increased use of electronic records: Recipients may collect, transmit, and store federal award-related information in electronic formats. Creation and retention of paper copies is not required where the electronic versions cannot be altered. When original records are paper, electronic versions may be substituted through the use of duplication or other forms of electronic media provided that they are readable and subject to reasonable safeguards.
- Broader authority to direct charge administrative-type costs: If directly related to a specific award, certain costs that otherwise would be treated as indirect (F&A) costs may be treated as direct costs, such as extraordinary utility consumption, the cost of materials supplied from stock, or services rendered by specialized facilities or other institutional service operations. The Super-circular eliminates the so-called “major project” rule, which limited a grantee’s authority to direct charge administrative and clerical salary costs and has been the subject of frequent enforcement activity. Salaries of administrative and clerical staff (which normally should be treated as indirect costs) may be appropriate direct charges if all of the following conditions are met: (1) Administrative or clerical services are integral to a project or activity; (2) Individuals involved can be specifically identified with the project or activity; (3) Such costs are explicitly included in the budget or have the prior written approval of the federal awarding agency; and (4) The costs are not also recovered as indirect costs.
- Cost accounting standards are reinstated but threshold is raised: Among the disappointments of the Super-circular is reinstatement of the A-21 provision making certain cost accounting standards applicable to universities. The proposed rule had deleted these requirements. Higher education institutions that receive aggregate federal awards totaling US$50 million or more per fiscal year must continue to disclose their cost accounting practices by filing a Disclosure Statement (DS-2), and amendments to the DS-2 must be filed six months in advance of a disclosed practice being changed . The prior threshold was US$25 million.
- Selected cost items:
- Salary charges: The Super-circular rejected calls for a move away from traditional effort reporting and toward performance- or outcome-based systems for supporting salary charges. Periodic certifications of effort are no longer explicitly required, and previously described acceptable methods of allocating payroll to sponsored projects were removed. Increased reliance is placed on a grantee’s system of internal controls. But the bottom line is that compensation costs must still be supported by “records that accurately reflect the work performed” and that are subject to after-the-fact review.
- Revised treatment for certain computers: The Super-circular includes in the definition of supplies those computing devices valued at less than US$5,000 or (if lower) the institution’s capitalization threshold.
- Exchange rates: Cost increases for fluctuations in exchange rates are allowable costs subject to the availability of funding and prior approval by the federal awarding agency.
- Value added tax: VAT charged on the purchase of goods or services that the grantee is legally required to pay abroad is an allowable expense.
- Audit requirements:
- Raises the Single (A-133) Audit threshold: The Single Audit threshold moves from US$500,000 to US$750,000. This change is relevant only to smaller institutions.
- Raises the threshold for reportable questioned costs: The threshold moves from US$10,000 to US$25,000.