On January 22, 2020 the Office of Management and Budget (OMB) proposed various revisions to the Code of Federal Regulations, including sections of 2 CFR 200, Uniform Guidance. A public comment period on the proposed changes is open through March 23, 2020. Entities that receive federal grants and/or cooperative agreements, or those who could otherwise be impacted by these changes, should review and provide feedback to OMB prior to the close of the comment period.
Why is the OMB Proposing these Changes?
Feedback from grants managers has indicated that revision, including modernization of processes used to monitor compliance, could result in efficiencies and increased time analyzing data to improve results.
Four strategies have been identified to maximize the value of grant funding by developing a risk-based, data-driven framework that balances compliance requirements with demonstrating successful results to the American taxpayer:
- Standardize the grants management business process and data
- Build shared IT infrastructure
- Manage risk
- Achieve program goals and objectives
In support of these strategies, the proposed revisions would update terminology, strengthen the government-wide approach to performance and risk, implement relevant statutory requirements and clarify areas of misinterpretation.
What are the Most Significant Changes Proposed?
Specific sections are geared towards improving the recipient selection process and finding a balance between compliance and performance. For example, 2 CFR 200.204 requires a merit review process with the objective of selecting recipients most likely to be successful in delivering results based on the program objectives for agencies selecting recipients. Additional changes would require agencies to establish clear performance goals, indicators and milestones prior to soliciting applications, and to provide these to the selected recipients. In the event that the award no longer effectuates the program goals or agency priorities, the changes would strengthen the ability of the agency to terminate the award (to the greatest extent authorized by law).
The addition of 2 CFR 200.216 would prohibit recipients from using government funds to enter in contracts with entities that use covered telecommunications equipment or services. This includes telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities) as well as equipment or services produced or provided by an entity that the Secretary of Defense reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country. There are other covered categories depending on the nature of the purpose of the equipment (i.e. public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes). This change could result in extensive work required for Federal recipients to ensure that they do not enter into any agreements in conflict with this requirement.
The sections on procurement (2 CFR 200.319 and 200.320) would be updated to reflect the higher micro-purchase threshold set forth in previously issued statutes ($10,000). In addition, the flexibility to request (from the relevant executive agency head) a higher micro-purchase threshold would be extended to all non-Federal entities.
Another addition, 2 CFR 200.321 (Domestic Preferences for Procurement), would further encourage the use of goods, products and materials produced in the United States to the extent permitted by law when using Federal award funding.
Revisions to 2 CFR 200.331 regarding requirements for pass-through entities (PTE) would clarify that a PTE is responsible for addressing only a subrecipient’s audit findings that are specifically related to their subaward. If the subrecipient has a current single audit report, the pass-through entity may rely on the subrecipient’s auditors and cognizant agency for routine audit follow up and management decisions (thus allowing the PTE to rely on the cognizant agency to address subrecipients’ entity-wide issues).
One proposed change that might be popular with non-Federal entities is the extension of the closeout period from 90 to 120 days for award recipients (but not sub-recipients which would still need to get their closeout complete by 90 days in order to allow the direct recipients to meet their deadline). This section (2 CFR 200.343) would also require Federal agencies to make every effort to complete closeout actions no later than one-year after the period of performance. On the other hand, failure on the recipient’s part to complete the closeout would result in being reported to the OMB-designated integrity and performance system for material failure to comply with the terms and conditions of the award.
Changes to 2 CFR 200.414 would permit nearly all non-Federal entities to elect to use the 10% de minimus indirect rate, whether or not they have previously received a NICRA. No documentation is required to provide proof of costs covered under the rate. This section also includes a requirement that all non-Federal entity rate agreements must be displayed on a public website.
The OMB proposes an addition (2 CFR 183) to implement “Never Contract with the Enemy”, which would only affect grants or agreements in excess of $50,000 performed outside of the United States in support of contingency operations in which member of the Armed Forces are actively engaged in hostilities. This addition would require increased due diligence and monitoring including checking contractors and subawards against the System for Award Management (SAM) on at least a monthly basis, as well as allowing the Federal Government additional access to the records of the non-Federal recipient and its subawards and contracts.
Another addition would require financial assistance applicants to provide information in SAM on their immediate owner and highest-level owner and subsidiaries, as well as on all predecessors that have been awarded a Federal contract, grant, or cooperative agreement in the last three years.
Opportunity to Submit Feedback and Comments on the Proposed Changes
The aforementioned items do not constitute a comprehensive summary of the proposed changes to the guidance, but are intended to highlight changes that appear likely to impact federal grant and cooperative agreement recipients. Recipients should review in detail and consider the effects of these proposed changes, whether beneficial or more burdensome, and express their views while the comment period is open.
The full detail of proposed changes can be reviewed, and comments made by visiting https://www.federalregister.gov/documents/2020/01/22/2019-28524/guidance-for-grants-and-agreements#open-comment.
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For questions or information on Uniform Guidance, contact Audit Senior Manager Lindsay Dean.
Lindsay Dean, CPA
Senior Manager, Audit