Ernst & Young Technical Line OMB Grant Guildelines 04 22 2013

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The US Office of Management and Budget has proposed streamlining its grant guidance and making other changes aimed at increasing the effectiveness and efficiency of federal programs.

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Ernst & Young Technical Line OMB Grant Guildelines 04 22 2013

  1. 1. What you need to know• The US Office of Management and Budget has proposed streamlining its grantguidance and issuing a single document.• The proposal also would allow new grantees to use a minimum flat indirectcost rate for a few years and provide new opportunities for certain granteesto simplify the reporting needed to support salary charges. It also may lead tomore robust subrecipient monitoring.• Other proposed changes include streamlining the Circular A-133 complianceaudit to focus on areas of waste, fraud and abuse, raising the audit thresholdto $750,000 and increasing the Type A/B program threshold to $500,000.• Comments are due by 2 June 2013.OverviewThe US Office of Management and Budget (OMB) is seeking comment on broadrevisions to its guidance for federal awards.The proposal, Proposed OMB Uniform Guidance: Cost Principles, Audit andAdministrative Requirements for Federal Awards, would streamline and consolidateeight existing OMB documents and regulations into one document. The proposedguidance would supersede the following OMB Circulars:• A-133, Audits of States, Local Governments and Non-Profit Organizations• A-21, Cost Principles for Educational Institutions• A-87, Cost Principles for State, Local, and Indian Tribal Governments• A-102, Awards and Cooperative Agreements with State and Local GovernmentsNo. 2013-0822 April 2013Technical LineOMB — proposed guidanceIn this issue:Overview ...........................................1Key changes for grant recipients.......2Cost principles................................2Administrative requirements...........5Audit requirements.........................6Reporting on the Schedule ofExpenditures of Federal Awards...8Indirect effects on grant recipients....8Circular A-133 audit thresholdwould increase to $750,000 .......8Changes to the major programdetermination process ................8Percentage of coverage changes...10Criteria for low-risk auditee...........10No more deviation from useof risk criteria to selectmajor programs........................10Reduction in types of compliancerequirements to be tested.........11Audit findings...............................12Appendix A: The proposed guidance..13Appendix B: Summary of proposedA-133 audit changes and effectson recipients................................14Changes proposed tofederal grant policies
  2. 2. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink2 22 April 2013 Technical Line Changes proposed to federal grant policies• A-110, Uniform Administrative Requirements for Awards and OtherAgreements with Institutions of Higher Education, Hospitals, and OtherNon-Profit Organizations• A-122, Cost Principles for Non-Profit OrganizationsThe proposed guidance would also supersede sections of A-50, Audit Follow-Up,related to Circular A-133 audits, and A-89, Federal Direct Program AssistanceInformation. The cost principles for hospitals currently contained in 45 CFRPart 74, Appendix E, would remain in effect, but the OMB is considering an updateto align them with the proposed guidance.With the proposal, the OBM is attempting to establish uniform cost principles andaudit requirements for federal awards to nonfederal entities and administrativerequirements for federal grants and cooperative agreements that total more than$600 billion annually. The OMB’s goal is to:• Reform grant policies to increase the efficiency and effectiveness of federalprograms• Eliminate unnecessary and duplicative requirements• Focus grant policies on areas that emphasize the achievement of better grantoutcomes at a lower costThe OMB and federal agencies have been talking for some time about how to makefederal programs more efficient and effective. The proposal follows an “advancenotice” published in the Federal Register on 28 February 2012, in which the OMBsought comments on a document entitled Reform of Federal Policies Relating toGrants and Cooperative Agreement; cost principles and administrative requirements(including Single Audit Act). The advance notice and the proposal were developed inresponse to presidential directives.If the proposal is finalized, the standards that affect the administration of grantsand cooperative agreements issued by federal agencies will be codified and becomeeffective within one year. The OMB will set an effective date for the audit provisionswhen it issues the final guidance.Key changes for grant recipientsCost principlesOMB has proposed consolidating the three circulars on cost principles intoSubchapter F of the proposed guidance, supplemented by appendices IV through IX.OMB’s goal is to eliminate duplicative language and clarify substantive policyvariances across entities.Indirect costsSection 616 of the proposed guidance would give entities the option of extendingthe negotiated rate for up to four years, with approval of the appropriate “indirectcost cognizant” agency. The proposal would allow entities to use the one-timeextension only if there have been no major changes to indirect costs. Entitieswouldn’t be able to renegotiate the rate during the extension period.
  3. 3. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink3 22 April 2013 Technical Line Changes proposed to federal grant policiesA minimum rate of 10% of modified total direct costs would be set to ensure thatentities that aren’t able to negotiate receive a minimum reimbursement (for nomore than four years until they develop negotiating capacity). The proposedguidance specifies the circumstances under which agencies would be able to makeexceptions to the negotiated rate. This may result in fewer requests by grantingagencies to establish rates below the entity-wide negotiated rate.In addition, pass-through entities would have to take one of the following actions:• Honor the indirect cost rates negotiated at the federal level• Negotiate a rate in accordance with federal guidelines• Provide a minimum flat rateHow we see itThe changes could reduce costs for grant recipients by eliminating the need fornegotiations on indirect cost rates during periods in which extensions are in effect.Time and effort reportingSection .621 Selected Items of Cost, C-10, Compensation-Personal Services, of theproposed guidance would consolidate reporting requirements and eliminate specificexamples. The OMB is trying to focus on broad principles of how an entity mayestablish internal controls to validate personnel-related costs.In a potentially far-reaching change from today’s guidance, the proposal would allowentities to document personnel costs by using performance-based reporting (basedon milestones) rather than time and effort reports. The appropriate agency wouldhave to approve the use of such an approach, but entities could use performance-oriented metrics to account for multiple awards and their combined use.This new option could significantly reduce the administrative burden ofdocumenting positions funded by multiple grants that essentially serve the samepopulation of program participants.The proposed guidance requires that:• Time and effort reports provide after-the-fact certification of the conformanceof payroll charges with the activity of each employee• Certification periods of up to 12 months be established to provide oversight offederal awards• Budget estimates made before services are performed do not qualify as support,but may be used for interim accounting purposes in certain circumstancesHow we see itOMB is especially interested in whether recipients believe the proposed guidanceon time and effort reporting provides enough flexibility and whether auditorsbelieve the requirements can be easily audited.The proposed guidancewould allow entities tovalidate personnel costsusing performance-basedreporting.
  4. 4. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink4 22 April 2013 Technical Line Changes proposed to federal grant policiesCollection of improper paymentsUnder the proposed guidance, recipients would be allowed to keep amounts collectedto cover the expense of collection efforts to recover improper payments. The costsmay be considered direct or indirect. Amounts in excess of the expense of collectionwould be treated in accordance with accepted cash management standards.Contingency provisionsBudgeting for contingency funds associated with a federal award for the constructionor upgrade of a large facility or instrument or for information technology systemswould be required, and the method by which contingency funds are managed andmonitored would be at the discretion of the federal funding agency. Recipients wouldno longer be allowed to draw on reserve funds, which they can now draw in advance.Cost accounting disclosure statementWhile institutions would still be required to document their cost accounting practices,OMB has proposed eliminating from A-21 the requirement to file a cost accountingdisclosure statement for approval by the funding agency. Certain institutions may stillneed to prepare such a disclosure statement based on the terms of their contracts.DepreciationRestrictions on the use of indirect costs recovered for depreciation or useallowance reimbursements would be eliminated.Idle facilities and idle capacityCosts associated with excess or idle capacity in consolidated data centers,telecommunications and public safety facilities would be allowable costs.Intangible assetsThe proposed guidance updates the cost principles to treat intangible assets suchas computer software capitalized in accordance with GASB Statement Number 51,Accounting and Financial Reporting for Intangible Assets, in a fashion similar toother fixed assets.Material and supply costsThe cost of computing devices not otherwise subject to inventory controls would beconsidered allowable direct cost supplies rather than equipment. The proposal setsa $5,000 threshold for allowable maximum residual inventory of on-hand suppliesas long as the cost was properly allocable to the original grant agreement at thetime of purchase.Utility costsThe proposal would replace the 1.3% Utility Cost Adjustment (which only certainhigher-education institutions receive) with two options for utility cost reimbursement.The first would allow any institution to meter its utility use at the sub-building levelinstead of by building. If this isn’t feasible, entities could calculate their utility costsas a multiple of their “effective” square footage used for research.
  5. 5. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink5 22 April 2013 Technical Line Changes proposed to federal grant policiesAdditional topicsThe proposed guidance would also make the following changes:• Charging directly allocable administrative support as a direct cost would beallowed as long as the work is allocable to only one award.• Requirements to conduct lease purchase analyses and to provide noticebefore moving federally sponsored activities into a debt-financed facilitywould be eliminated• Requirements for cost reasonableness studies for large research facilitieswould be eliminatedAdministrative requirementsOMB generally used language from Circular A-110 as the basis for the consolidatedproposed guidance on administrative requirements for grants and cooperativeagreements in Subchapters A–E. One exception is Section .504 on procurement,which is taken from Circular A-102.Agency review of merits of proposals and risk posed by applicantsBefore making an award, federal agencies would have to evaluate the risk anapplicant would pose to the program in addition to evaluating the applicantseligibility and the quality of its application. Items agencies could consider includethe applicant’s financial stability, quality of management systems, history ofperformance, eligibility and Circular A-133 audit reports. As a result, applicantsmay receive requests for more information before awards are granted.Announcement of funding opportunitiesFor each program that issues grants or cooperative agreements, federal agencieswould have to notify the public through an announcement on an OMB-designatedwebsite. The proposed guidance describes the information that would have to beincluded in the announcement.Interest earned on advancesThe threshold for requiring recipients to remit interest earned to the federalgovernment would increase to $500 from $250 for state and local governmentsand $100 for non-profit organizations and institutions of higher education.Property standardsInformation technology systems would be defined as equipment. The proposalwould allow equipment that is no longer needed for the federal program for which itwas purchased to be used to support other programs.Contractors would replace vendorsThe proposed guidance uses the term “contractor” instead of “vendor” to refer todealers, distributors, merchants, or other sellers that provide goods or servicesrequired for federal programs. These goods or services may be for an organization’sown use or for the use of beneficiaries of the program. Additional guidance ondistinguishing between a subrecipient and a contractor is provided in section .501of the proposed guidance.
  6. 6. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink6 22 April 2013 Technical Line Changes proposed to federal grant policiesHow we see itThe introduction of the term “contractor” could cause confusion. Pass-throughentities may use a document called a “subcontract” to pass funds to a subrecipient,but the use of this document would not make the recipient a contractor. Thedetermination of whether a recipient is a subrecipient or a contractor would bebased on the substance of the relationship between the two parties.Audit requirementsPublic accessibility of the Circular A-133 reporting packageUnder the proposal, the entire Circular A-133 reporting package including theaudited financial statements would be publicly available on the Federal AuditClearinghouse website. Currently, only the data collection form that summarizesthe contents of the package is publicly available.OMB has said it will work with the Federal Audit Clearinghouse to determinewhether privacy concerns over personally identifiable information and confidentialbusiness information can be overcome. Federal officials are also talking aboutmaking the information searchable so it can be used to develop audit-risk metricsfor types of entities, federal programs, findings and compliance requirements.Recipient certification about personally identifiable informationA senior-level representative of the auditee (e.g., state controller, director offinance, chief executive officer, chief financial officer) would have to sign astatement that would be included in the data collection form certifying, amongother things, that the reporting package does not include personally identifiableinformation and that the Federal Audit Clearinghouse is authorized to make thereporting package and the form publicly available. Recipients would have to reviewthe Circular A-133 reporting package to ensure that it doesn’t contain personallyidentifiable information. Such information often appears in the auditor’s findings,the Summary Schedule of Prior Audit Findings or the Corrective Action Plan.Submission of a separate Circular A-133 Corrective Action PlanThe proposed guidance would require the auditee to prepare in a documentseparate from the auditors findings a corrective action plan to address each auditfinding in the current-year auditor’s reports. The plan would have to provide:• The name(s) of the contact person(s) responsible for the corrective action• The corrective action planned• The anticipated completion dateIf the entity being audited does not agree with the audit findings or believes thatcorrective action is not required, the entity would have to explain this in thecorrective action plan.Circular A-133 currently does not explicitly say that the corrective action plan mustinclude these elements and must be presented separately from the “Management’sresponse and planned corrective actions” section of the auditor’s current-yearfindings, which often contain only brief responses. Federal officials believe thatrequiring recipients to provide a separate corrective action plan will make it clear tothem that it is their responsibility, not the auditor’s responsibility.The entire Circular A-133reporting packagewould be posted on agovernment website.
  7. 7. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink7 22 April 2013 Technical Line Changes proposed to federal grant policiesHow we see itThe requirement to develop a separate Corrective Action Plan may require moreeffort on the part of some entities.Summary Schedule of Prior Audit FindingsThe proposed guidance would require recipients to report on the status of previouslyissued financial statement audit findings in the Summary Schedule of Prior AuditFindings (Summary Schedule). The Summary Schedule would also have to identifyany prior-year findings that are repeated in the current year, along with the numberused to identify the finding. Current guidance requires recipients to report only thestatus of previously issued federal award findings on the Summary Schedule.Expansion of pass-through entity responsibilitiesPass-through entities would be required to provide more information in sub-awards,including:• The Code of Federal Financial Assistance title and number• Federal award name and number, federal award year, whether the award is forresearch and development (R&D), as defined in Appendix I of the proposedguidance, and the name of the federal awarding agency.The pass-through entity would have to provide this information to each subrecipientat the time of the federal award and with each annual continuation of thesub-award. If the disbursement contains funds from multiple federal awards ornonfederal funds, the pass-through entity would have to list the dollar amountmade available under each federal award. Today, many pass-through entities do notprovide this information.Pass-through entities would also have to monitor subrecipients by analyzing reportsthey submit and performing other procedures to ensure compliance with programrequirements and achievement of performance goals of the award.The proposed guidance says pass-through entities may take the following actions tomonitor subrecipients:• Perform on-site reviews of subrecipients’ program operations• Provide subrecipients with training and technical assistance on programrelated matters• Arrange for agreed-upon procedures engagementsIn evaluating the risk posed by subrecipients, pass-through entities could considerfactors such as the results of previous audits, whether the entity is a newsubrecipient, whether the entity has new personnel or has new or substantiallychanged systems and the extent of federal monitoring if the subrecipient alsoreceives direct awards.While many of these responsibilities are implicit today, the proposed guidancewould more clearly enumerate them. As a result, we would expect pass-throughentities to refocus their efforts, particularly in documenting risk assessments ofsubrecipients. This could result in more work to comply with grant requirements.
  8. 8. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink8 22 April 2013 Technical Line Changes proposed to federal grant policiesHow we see itRecipients that are pass-through entities should carefully compare theresponsibilities listed in the proposal with their current policies, procedures andpractices to determine whether they would need to take additional steps tocomply with the proposed requirements.Reporting on the Schedule of Expenditures of Federal AwardsThe proposed guidance would require recipients to report the amounts that theyhave passed through to subrecipients by program on the Schedule of Expendituresof Federal Awards (Schedule), which is part of the Circular A-133 reportingpackage. This could require significant effort for certain recipients. Under thecurrent Circular A-133, recipients are not required to report this information oneither the face of or in notes to the Schedule. Instead, they are required to reportthis information only to the extent practicable. Federal agencies believe thatrecipients should have in place adequate subrecipient monitoring systems toidentify and report this information on the Schedule.Indirect effects on grant recipientsCircular A-133 audit threshold would increase to $750,000The proposed guidance would raise the threshold for undergoing a Circular A-133audit to $750,000 in annual expenditures of federal awards from the current levelof $500,000, which was set in 2003. The OMB says this change would providerelief from audits for roughly 5,000 entities while maintaining audit coverage ofmore than 99% of the funds that are currently covered. However, pass-throughentities that rely partly on A-133 audits to monitor subrecipients may need tochange their monitoring processes for small grantees.The proposed guidance would require entities below the $750,000 threshold tomake records available for review or audit by appropriate officials of the federalagency, the pass-through entity and the Government Accountability Office.Changes to the major program determination processThe OMB is proposing to modify several key provisions of major programdetermination in ways that could reduce audit effort for some entities.Type A/B program thresholdThe threshold for distinguishing between Type A and Type B programs would beincreased to $500,000 from $300,000.Treatment of loan and loan guarantee programsThe guidance for loan and loan guarantee programs (loan programs) would bechanged in a way that could reduce costs for certain colleges.Currently, if a loan program exceeds four times the value of the largest non-loanprogram, the auditor is required to exclude the value of the loan and program whendetermining the Type A/B program threshold.Roughly 5,000entities would nolonger have to undergoCircular A-133 audits.
  9. 9. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink9 22 April 2013 Technical Line Changes proposed to federal grant policiesThis requirement has raised audit costs for entities whose auditors are required toidentify more programs that have to be audited as major programs. Consider acommunity college where loans represent only a small portion of the StudentFinancial Assistance (SFA) cluster because most students receive direct assistancesuch as Pell, federal work-study and federal supplementary educational opportunitygrants. In this situation, current rules would require the value of the entire SFAcluster to be excluded from the determination of the Type A/B program threshold,even though the true “loan” component is small. This has resulted in certaincommunity colleges having smaller Type A/B program thresholds and thereforehigher audit costs than colleges whose students rely less on direct grant andassistance programs.Under the proposed guidance, if the loan component is less than 50% of the SFAcluster, the value of the SFA cluster would not be excluded when determining theType A/B program threshold.High-risk Type A programsThe proposed guidance would significantly limit the types of findings that wouldcause a Type A program to be considered a high-risk program and therefore beaudited as a major program.Type A programs would be designated as high risk if they meet one of the followingcriteria in the most recent period:• Failed to receive an unqualified opinion on compliance• Had a material weakness in internal control over compliance• Had known or likely questioned costs exceeding 5% of the program’sexpendituresUnder current Circular A-133 rules, any finding that was required to be reported inthe prior year relating to a current-year Type A program generally makes theprogram high risk and requires it to be audited as a major program.The proposal wouldn’t change the requirement that a Type A program be audited asmajor at least once every three years, regardless of whether it is high or low risk.As a result, this change probably wouldn’t significantly reduce the number ofprograms that would have to be audited as major programs.Type B programsThe proposed guidance would:• Reduce the number of high-risk Type B programs that must be tested asmajor programs from at least one-half to at least one-fourth of the low-riskType A programs• Allow the auditor to stop the Type B program risk assessment process afterthis number of high-risk Type B programs is identified• Classify as small Type B programs that are 25% of the Type A/B programthreshold, which would result in fewer Type B program risk assessmentsby auditors
  10. 10. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink10 22 April 2013 Technical Line Changes proposed to federal grant policiesHow we see itReducing the number of high-risk Type B programs that would be tested as majorprograms could benefit larger entities that have the following characteristics:• Many federal programs that are roughly the same size• Few, if any, audit findings on Type A programs resulting in a potentially largenumber of low-risk Type A programs• A significant number of high-risk Type B programs due to factors such asprior-year Circular A-133 or federal agency oversight findings, known controldeficiencies and other risk indicatorsPercentage of coverage changesThe proposal would reduce the percentage of coverage required in any CircularA-133 audit to 40% from the current level of 50% for auditees that aren’t low riskand to 20% from 25% for low-risk auditees. This wouldn’t cause a significantdecrease in the number of major programs that an auditor may have to auditbecause a Type A program would still have to be audited as major at least onceevery three years, regardless of its risk level.The proposed changes to major program determination are intended to focus auditcoverage on programs with control deficiencies or material compliance issues. Thegoal is to provide relief for entities that materially comply with the requirements asdemonstrated by an unqualified opinion and no material weaknesses in internalcontrols or material noncompliance. Because large entities such as large stategovernments often have at least one finding in a program, almost all of their Type Aprograms currently may qualify as high risk and have to be audited as major programs.Criteria for low-risk auditeeThe criteria for low-risk auditees would be revised, making it slightly more difficultto qualify. One new criterion would require that the auditor did not report asubstantial doubt about the auditee’s ability to continue as a going concern. Thenew criteria also would indicate more clearly that submission of the data collectionform and related Circular A-133 audit reporting package within the required ninemonths after fiscal year-end is required. Auditees also would no longer be able toobtain waivers to qualify.No more deviation from use of risk criteria to select major programsFor first-year Circular A-133 audits, auditors currently may elect to classify asmajor programs all Type A programs, plus any Type B programs needed to meet thepercentage of coverage requirements. First-year audits are defined as the first yearof an entity being audited under Circular A-133 or the year of an auditor change.Under the proposed guidance, the auditor would not be able to make this election inany circumstance.The proposed guidanceprovides an incentive forlarge governmentalentities to focus oncorrecting audit findings.
  11. 11. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink11 22 April 2013 Technical Line Changes proposed to federal grant policiesReduction in types of compliance requirements to be testedThe proposed guidance would require seven types of compliance requirements tobe tested in a Circular A-133 audit rather than the current 14 types. In the tablebelow, we list the current and proposed compliance requirements.Current ProposedActivities allowed or unallowed — A Activities allowed or unallowed — AAllowable costs/cost principles — B Allowable costs/cost principles — BCash management — C Cash management — CDavis Bacon Act — D Eligibility — EEligibility — EMatching — G (included withinrequirement B )Equipment and real propertymanagement — FPeriod of availability of federal funds— H (included within requirement B )Matching, level of effort andearmarking — GReporting — LPeriod of availability of federal funds — H Subrecipient monitoring — MProcurement and suspension anddebarment — ISpecial tests and provisions — NProgram income — JReal property acquisition and relocationassistance — KReporting — LSubrecipient monitoring — MSpecial tests and provisions — NThis change is intended to allow federal agencies to concentrate on the requirementswith the highest risk of improper payments, waste, fraud and abuse.The proposed guidance would permit agencies to request that certain of thecompliance requirements that would be eliminated be added to the Special Testsand Provisions requirement for programs where they could be considered essentialto oversight. OMB would consider requests from agencies to add requirements.It is worth noting that auditors rarely had to test three of the seven compliancerequirements that would be eliminated (i.e., Davis Bacon Act, real propertyacquisition and relocation assistance related to federally funded construction andhighway-related activities, and program income). In addition, two of the requirements(equipment and real property management, and procurement and suspension anddebarment) applied only to certain auditees. Portions of the other two compliancerequirements that would be eliminated (period of availability of federal funds, andmatching, level of effort and earmarking) would be retained as part of the allowablecosts/cost principles compliance requirement.
  12. 12. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink12 22 April 2013 Technical Line Changes proposed to federal grant policiesHow we see itFor many audits, this change would eliminate the need to document and notethat the requirements were not applicable.Audit findingsAuditors would be required to report audit findings in more detail. In cases wherethe auditor uses statistical sampling techniques, the auditor would have to provideaudit documentation (1) to clearly show how the sample was drawn, (2) to supportthat the sample size is appropriate and proportional to any findings or conclusionsin the audit that are based on the sample and (3) to demonstrate that the samplerepresents the population.However, the threshold for reporting known or estimated likely questioned costs infindings would rise to $25,000 from $10,000. This change is intended to requirethe reporting of findings presenting the greatest risk.The auditor also would be required to identify current-year findings that repeatearlier findings and provide identifying numbers for those prior-year audit findings.Next steps• Entities should analyze the proposed guidance and determine whether itwould reduce their administrative efforts.• Entities also should consider commenting on the proposed guidance by2 June 2013.Ernst & YoungAssurance | Tax | Transactions | Advisory© 2013 Ernst & Young LLP.All Rights Reserved.SCORE No. EE0919About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our167,000 people are united by our shared values and an unwavering commitment to quality. We make adifference by helping our people, our clients and our wider communities achieve their potential.Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each ofwhich is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, doesnot provide services to clients. For more information about our organization, please visit www.ey.com.This publication has been carefully prepared but it necessarily contains information in summary form and is therefore intended for general guidance only; it isnot intended to be a substitute for detailed research or the exercise of professional judgment. The information presented in this publication should not beconstrued as legal, tax, accounting, or any other professional advice or service. Ernst & Young LLP can accept no responsibility for loss occasioned to anyperson acting or refraining from action as a result of any material in this publication. You should consult with Ernst & Young LLP or other professional advisorsfamiliar with your particular factual situation for advice concerning specific audit, tax or other matters before making any decision.
  13. 13. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink13 22 April 2013 Technical Line Changes proposed to federal grant policiesAppendix A: The proposed guidanceThe proposed guidance can be found on OMB’s website at www.whitehouse.gov/omb/grants_docs#proposed.Other documents available on the website that could be helpful include:• Federal Register notice• Crosswalk from existing to proposed guidance• Crosswalk from proposed guidance to predominant source in existing guidance• Administrative Requirements Text Comparison• Cost Principles Text Comparison• Audit Requirements Text Comparison• Definitions Text Comparison
  14. 14. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink14 22 April 2013 Technical Line Changes proposed to federal grant policiesAppendix B: Summary of proposed A-133 audit changes and effects on recipientsEntities with federal expenditures < $750,000Entities with less than$3 million in federalexpenditures (1)Entities with$3 million - $50 millionin federal expendituresEntities with more than$50 million in federalexpendituresA-133 Revision TopicExpendituresmaterial to entityExpenditures notmaterial to entityThreshold forA-133 auditEliminates A-133 audit, butaudit effort for federal grantrevenue recognition and toassess the risk related tounallowable costs willcontinue to be needed forentities that continue to havetheir financial statementsaudited. Likely savings willrelate to elimination ofA-133 reporting and datacollection form, and possiblyfrom focusing audit effortsdirectly on the impact ofmaterial misstatement onthe financial statementstaken as a whole rather thanon a particular program.Eliminates A-133 audit, butaudit effort for federal grantrevenue recognition and toassess the risk related tounallowable costs may stillbe needed as amountsbecome more material.Savings from elimination ofA-133 reporting and datacollection form.No direct effect, but may affect subrecipient monitoring process asnoted below.Threshold for A-133audit (continued)Elimination of A-133 auditfor subrecipients below theproposed $750,000threshold, and otherproposed changes mayaffect monitoring ofgrantees. The scope of theA-133 audit for largersubrecipients could changedepending on whether theprograms are audited asmajor programs at thesubrecipient level. A robustsubrecipient monitoringprocess for smaller granteeswill continue to be required.Elimination of A-133 audit for subrecipients below the proposed $750,000 threshold, and otherproposed changes may affect monitoring of grantees that will continue to be required. The scope of theA-133 audit for larger subrecipients could change depending on whether the programs are audited asmajor programs at the subrecipient level. A robust subrecipient monitoring process for smaller granteeswill continue to be required.Threshold for Type A/Bprograms to $500,000No direct effect, may affect subrecipient monitoring. May reduce totalnumber of Type Aprograms, which canreduce audit effort.Little effect but mayreduce total number ofType A programs.Likely little effect forthe largest entities.Effect of loans and loanguarantees on Type A/Bthreshold for granteeswith Student FinancialAssistance (SFA) loanprograms whereloan-related amountsare less than 50% of theSFA clusterNo direct effect, may affect subrecipient monitoring. No increase to Type A/Bthreshold with likely noeffect on audit effort.Would increase TypeA/B threshold anddecrease audit effortfor grantees such ascommunity collegeswhere annual SFAcluster amountsreported are currentlygreater than four timesthe largest non-loanprogram.Would not change TypeA/B threshold and notaffect audit effort forgrantees where annualSFA cluster amountsreported are currentlynot greater than fourtimes the largestnon-loan program.
  15. 15. Ernst & Young AccountingLinkwww.ey.com/us/accountinglink15 22 April 2013 Technical Line Changes proposed to federal grant policiesEntities with federal expenditures < $750,000Entities with less than$3 million in federalexpenditures (1)Entities with$3 million - $50 millionin federal expendituresEntities with more than$50 million in federalexpendituresA-133 Revision TopicExpendituresmaterial to entityExpenditures notmaterial to entityChange in criteria of afinding that requireshigh-risk designation ina Type A program in thefollowing yearNo direct effect, may affect subrecipient monitoring. Would likely result infewer high-risk Type Aprograms and reduceaudit effort at themargin but would allowfor more informedjudgments on programsthat merit audit effort.Entities with dominantfederal programs thathave to be audited eachyear to achievecoverage would seelittle impact.Likely would decrease high-risk Type A programsand reduce audit effort at the margin but allowfor more informed judgments on programs thatmerit audit effort.Reduction in coveragepercentagesNo direct effect, may affect subrecipient monitoring. Audit effort coulddecline for someentities. Those withdominant federalprograms would likelysee no change.Audit effort would likely decline.Change in selection ofhigh-risk Type BprogramsNo direct effect, may affect subrecipient monitoring. Audit effort would decrease for entities where auditor is required toperform Type B program risk assessments.Stop Type B programrisk assessmentprocess upon meeting1/4 thresholdNo direct effect, may affect subrecipient monitoring. Audit effort would decrease for entities where auditor is required toperform Type B program risk assessments.No program riskassessments/testing onsmall Type B programs< 25% of Type A/Bprogram thresholdNo direct effect, may affect subrecipient monitoring. Audit effort would decrease for entities where auditor is required toperform Type B program risk assessments.Criteria for low-riskauditee, a keydeterminant in % ofcoverage testing floorNo direct effect, may affect subrecipient monitoring. Audit effort would increase in specific situations.Change in compliancetesting criteria from14 to 7No direct effect, may affect subrecipient monitoring. Effect on audit effort would likely be minimal for most programs, buteffort required to document non-applicable compliance requirementswould be eliminated.(1) Effect would be similar for larger entities whose schedule of expenditures of federal awards contains or is dominated by a single or a few major programs.

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