Federal Register, Volume 78 Issue 22 (Friday, February 1, 2013)

[Federal Register Volume 78, Number 22 (Friday, February 1, 2013)]
[Proposed Rules]
[Pages 7282-7296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02113]

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Proposed Rules
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 78, No. 22 / Friday, February 1, 2013 /
Proposed Rules

[[Page 7282]]

OFFICE OF MANAGEMENT AND BUDGET

2 CFR Chapters I and II

Reform of Federal Policies Relating to Grants and Cooperative
Agreements; Cost Principles and Administrative Requirements (Including
Single Audit Act)

AGENCY: Executive Office of the President, Office of Management and
Budget (OMB).

ACTION: Proposed Guidance.

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SUMMARY: To deliver on President Obama's promise of a 21st-Century
government that is more efficient, transparent, and creative, the
Office of Management and Budget (OMB) is seeking to adjust the Federal
government's partnership with non-Federal stakeholders to best achieve
program outcomes while we ensure the financial integrity of the dollars
we spend. The goal of this effort is to transform our Federal financial
assistance framework so that it meets a higher standard of performance
on behalf of the American people.
OMB proposes these reforms to the guidance for Federal policies
relating to grants in order to ensure that Federal grants meet the high
standards of a 21st-Century government. Federal grant-making must be
streamlined to make the most of taxpayer dollars and ensure financial
integrity while delivering the right program outcomes. This proposal
provides this opportunity for the Federal government and its partners:
state, local, tribal governments, institutions of higher education, and
nonprofit organizations, to rethink and reform the rules that govern
our stewardship of Federal dollars.

DATES: To be assured of consideration, comments must be received by OMB
electronically through www.regulations.gov no later than midnight
Eastern Standard Time (E.S.T.) on May 2, 2013.

ADDRESSES: Comments on this proposal must be submitted electronically
at www.regulations.gov. In submitting comments, please search for
recent submissions by OMB to find docket OMB-2013-0001, which includes
the full text of this proposal, and submit comments there.
Comments will be most useful if they are presented in the same
sequence and with the same section number as the section of this
guidance to which they apply. Please also provide any information
regarding the cost implications of any particular proposal. If you are
submitting comments on behalf of an organization, please identify the
organization, and if that organization represents a number of entities,
please note the number of entities who endorse the organization's
comments. Finally, the public comments received by OMB will be posted
at http://www.regulations.gov (follow the search instructions on that
Web site to view public comments). Accordingly, please do not include
in your comments any confidential business information or information
of a personal-privacy nature.
To View This Proposal: The complete text of this proposal and a
crosswalk of policy changes from the existing guidance are available on
the OMB Web site at http://www.whitehouse.gov/omb/grants_docs under
``Proposed Policies'' and will also be available on www.regulations.gov
by searching for docket number OMB-2013-0001, or, in hard copy, by
contacting Victoria Collin of OMB at (202) 395-7791. Copies of the OMB
Circulars that are discussed in this notice are available on OMB's Web
site at http://www.whitehouse.gov/omb/circulars_default/.

FOR FURTHER INFORMATION CONTACT: For general information, please
contact Victoria Collin at (202) 395-7791. OMB will host an
informational Web cast with the Council on Financial Assistance Reform
and key stakeholders on Friday February 8th, 2013 at 11:00 a.m. EST
available at www.cfoc.gov. More information on the Council on Financial
Assistance Reform is available at www.cfo.gov/cofar.

SUPPLEMENTARY INFORMATION: With this proposal, OMB seeks to ensure the
highest integrity in the financial management and operation of Federal
programs and to strengthen accountability for Federal dollars by
improving policies that protect against waste, fraud, and abuse. At the
same time, OMB aims to increase the impact and accessibility of
programs by minimizing time spent complying with unnecessarily
burdensome administrative requirements, and so to re-orient recipients
toward achieving program objectives. Through close and sustained
collaboration with Federal and non-Federal partners, OMB has developed
ideas articulated in this proposal that would ensure that grants are
awarded based on merit; that management increases focus on performance
outcomes; and that rules governing the allocation of Federal fund are
streamlined, and better focus the Single Audit oversight tool to reduce
waste, fraud, and abuse.
This proposal--the complete text of which is available online, or
in hard copy by telephone request (see To View This Proposal section)--
follows the February 28, 2012 Advance Notice of Proposed Guidance
(ANPG) published in the Federal Register. Both that notice and this
proposal were developed in response to the November 23, 2009 Executive
Order 13520 on Reducing Improper Payments and his February 28, 2011
Presidential Memorandum on Administrative Flexibility, Lower Costs, and
Better Results for State, Local, and Tribal Governments. In those
documents, the President directed OMB to work with Executive Branch
agencies; state, local, and tribal governments; and other key
stakeholders to evaluate potential reforms to Federal grants policies.
The ANPG built on the work of those collaborations and discussed
initial ideas to meet those goals. OMB received over 350 responses to
the notice from across the spectrum of stakeholders in the grants
community. The notice and comments received in response are available
to the public at www.Regulations.gov under docket number OMB-2012-0002.
This proposal was developed after considering the comments received
in response to the ANPG. This preamble outlines the broad themes of
stakeholder feedback received and how that feedback influenced further
development of ideas mentioned in the ANPG into this proposal. With
this publication, the public is once again invited to comment on the
proposed reforms. Comments received in response to this proposal will
be used to further refine the reforms discussed prior to the issuance
of new guidance.

[[Page 7283]]

This proposed guidance would supersede and streamline requirements
from OMB Circulars A-21, A-87, A-110, and A-122 (which have been placed
in 2 CFR Parts 220, 225, 215, and 230); Circulars A-89, A-102, and A-
133; the guidance in Circular A-50 on Single Audit Act follow-up; and
pending further review, the Cost Principles for Hospitals at 45 CFR
Part 74, Appendix E. The proposal consolidates the guidance previously
contained in the aforementioned citations into a streamlined and
consolidated format that aims to improve both the clarity and
accessibility of the guidance. If and when this proposal is finalized,
OMB will integrate this guidance into Title 2 of the Code of Federal
Regulations.
Similar to existing guidance that this proposal would supersede,
the new guidance would be applicable to grants and cooperative
agreements that involve state, local, and tribal governments as well as
institutions of higher education, and nonprofit organizations. Parts of
it may also apply to for-profit entities in limited circumstances as
described in section .101 Applicability and the Federal Acquisition
Regulation. Single Audit Act requirements will continue to apply to all
Federal awards, including contracts, though cost-reimbursement
contracts may continue to be subject to additional audit requirements.
This guidance does not supersede any existing authority under law or by
Executive Order or the Federal Acquisition Regulation.

I. Objectives and Background

A. Objectives

OMB is proposing new streamlined guidance for grants in order to
meet the standards of a high-performing 21st-Century government. Only
by streamlining this guidance can we increase the efficiency and
effectiveness of the Federal grant-making process to ensure best use of
the more than $500 billion in Federal funds that are spent through
grants.
As the President articulated in Executive Order 13563 of January
18, 2011, on Improving Regulation and Regulatory Review (76 FR 3821;
January 21, 2011; http://www.gpo.gov/fdsys/pkg/FR-2011-01-21/pdf/2011-1385.pdf), each Federal agency must ``tailor its regulations to impose
the least burden on society, consistent with regulatory objectives,
taking into account, among other things, and to the extent practicable,
the costs of cumulative regulations.'' To that end, it is important
that Federal agencies identify those ``rules that may be outmoded,
ineffective, insufficient, or excessively burdensome,'' and ``modify,
streamline, expand, or repeal them in accordance with what has been
learned.'' The President reinforced his commitment in Executive Order
13579 of July 11, 2011 on Regulation and Independent Regulatory
Agencies (76 FR 41587; July 14, 2011; http://www.gpo.gov/fdsys/pkg/FR-2011-07-14/pdf/2011-17953.pdf).
As in other areas involving Federal requirements, the President is
committed to making government more accountable to the American people
while eliminating requirements that are unnecessary and reforming those
requirements that are overly burdensome. Eliminating unnecessary
requirements for financial assistance will allow recipients of Federal
awards to re-orient efforts spent on compliance with complex
requirements towards achievement of programmatic objectives. As part of
this commitment, the President believes that the Federal government has
an obligation to eliminate roadblocks to effective performance in
carrying out and completing grants and cooperative agreements.
Essential to this reform effort is reducing ``red tape'' that is
attached to the financial assistance the Federal government provides
annually in the form of grants and cooperative agreements. These awards
provide important benefits and services to the public, and most of the
awards go to state, local and tribal governments as well as to
institutions of higher education, hospitals, and non-profit
organizations. In order to ensure that the public receives the most
value, it is essential that these programs function as effectively and
efficiently as possible, and that there is a high level of
accountability to prevent waste, fraud, and abuse.
To this end, the President on February 28, 2011, issued his
Memorandum on Administrative Flexibility, Lower Costs, and Better
Results for State, Local, and Tribal Governments, (Daily Comp. Pres.
Docs.; http://www.gpo.gov/fdsys/pkg/DCPD-201100123/pdf/DCPD-201100123.pdf). In the Memorandum, the President explained that
``Federal program requirements over the past several decades have
sometimes been onerous, and they have not always contributed to better
outcomes. With input from our state, local, and tribal partners, we
can, consistent with law, reduce unnecessary regulatory and
administrative burdens and redirect resources to services that are
essential to achieving better outcomes at lower cost.'' In addition to
other actions, the President instructed the OMB Director to ``review
and where appropriate revise guidance concerning cost principles,
burden minimizations, and audits for state, local, and tribal
governments in order to eliminate, to the extent permitted by law,
unnecessary, unduly burdensome, duplicative, or low-priority
recordkeeping requirements and effectively tie such requirements to
achievement of outcomes.'' OMB has endeavored to deliver on that
mission with this proposal.
Equally as essential to a 21st-Century government as removing
unnecessary and overly burdensome requirements that interfere with
efficient and effective program performance is strengthening
accountability by ``intensifying efforts to eliminate payment error,
waste, fraud, and abuse'' in Federal programs, as the President
emphasized in Executive Order 13520 of November 20, 2009, on Reducing
Improper Payments (74 FR 62201; November 25, 2009; http://www.gpo.gov/fdsys/pkg/FR-2009-11-25/pdf/E9-28493.pdf). Accordingly, as the
President explained, it is important for Federal agencies ``to more
effectively tailor their methodologies for identifying and measuring
improper payments to those programs, or components of programs, where
improper payments are most likely to occur.'' This proposed guidance is
aimed at achieving these goals by focusing our Single Audit tool on the
programs and practices that pose the greatest risk of improper
payments, waste, fraud, and abuse.
This proposal would streamline the language from eight existing OMB
circulars into one document. This consolidation is aimed at eliminating
duplicative or almost duplicative language in order to clarify where
policy is substantively different across types of entities, and where
it is not. As a result, the proposed guidance includes sections and
parts of sections which are clearly delineated by the type of entity to
which they apply. For Federal agencies, auditors, and pass-through
entities that engage with multiple types of entities in the course of
managing grants, this consolidation is intended to clarify where
policies are uniform across entities or differ, protecting variances in
policy where required by the unique nature of each type of entity.
Accordingly, section .101 Applicability outlines how each
subchapter of the proposed circular will apply across types of
entities. All provisions of this circular 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 are described
within

[[Page 7284]]

this circular. The provisions of Subchapter G Audit Requirements will
apply to all awards made to the above-mentioned types of entities as
described in section .702 Basis for Determining Federal Award
Expenditures. These provisions would apply equally to recipients and
subrecipients receiving Federal awards. The proposal states that
Federal agencies may apply the provisions of Subchapters B through F to
commercial organizations, foreign governments, organizations under the
jurisdiction of foreign governments, and international organizations.
The provisions of subchapter G would not apply to non-U.S.-based
entities expending Federal awards. OMB may consider providing further
guidance in the future around best practices for applying the policies
in subchapters B-F to commercial and non-U.S. based entities.
OMB is interested in receiving broad public feedback to further
refine these ideas. Comments received will be considered as OMB
develops a refined final guidance document. Following the
implementation of these reforms, OMB will continue to monitor their
effects to evaluate whether (and the extent to which) the reforms are
achieving their desired results, and will consider making further
modifications as appropriate.

B. Background

This proposal reflects input from over a year of work by the
Federal and non-Federal financial assistance community. In response to
the President's direction that OMB and Federal agencies identify ways
to make the oversight of Federal funds more effective and more
efficient, OMB worked with the Office of Science and Technology Policy
(OSTP) to convene meetings with both Federal and non-Federal
stakeholders to discuss possible reform efforts. These meetings
resulted in OMB receiving a series of reform ideas in late 2011 that
were developed into the ANPG published on February 28th, 2012. That
notice and the more than 350 comments received in response to it are
available to the public on www.regulations.gov.
On October 27, 2011, the OMB Director issued Memorandum M-12-01,
Creation of the Council on Financial Assistance Reform (http://www.whitehouse.gov/sites/default/files/omb/memoranda/2012/m-12-01.pdf).
To ``create a more streamlined and accountable structure to coordinate
financial assistance,'' the Memorandum established the interagency
Council on Financial Assistance Reform (COFAR) as a replacement for two
Federal boards (the Grants Policy Council and the Grants Executive
Board). The 10-member COFAR is composed of OMB's Office of Federal
Financial Management (Co-Chair); the eight largest grant-making
agencies, which are the Departments of Health and Human Services (a Co-
Chair), Agriculture, Education, Energy, Homeland Security, Housing and
Urban Development, Labor, and Transportation; and one additional
rotating member to represent the perspectives of other agencies, which
for the first two-year term is the National Science Foundation.
As the COFAR begins to solidify its role in the grants community,
it has committed to engaging in outreach efforts with both Federal and
non-Federal stakeholders, both in response to this proposal and going
forward. Since the COFAR's first meeting on November 4, 2011, and
through its review of the comments received in response to the ANPG, it
has worked to formulate and further develop reform ideas to create the
21st-Century version of financial management policy for Federal
assistance awards. These reform ideas as presented originally in the
February notice, the broad themes of comments that were received in
response to them, and the refined proposals presented here are outlined
below in Part II of this notice. Part III is the actual draft text of
the proposed guidance.

II. Reform Ideas Discussed in the Advance Notice of Proposed Guidance

In the ANPG, OMB invited comments from the public on all issues
addressed in the advance notice, and further invited the public to
suggest additional reform suggestions. The goal of publishing the ANPT
was to provide the broadest possible collection of stakeholders in the
grants community with visibility on these ideas and the opportunity to
participate in the discussion.
In response to the notice, OMB received more than 350 comments
which were carefully considered in the development of this proposal.
Accordingly, this section will continue the discussion by outlining the
ideas that were proposed in the advance notice, the broad themes
identified in the comments that were received across stakeholders, and
the resulting reforms that OMB is proposing in this guidance. In
addition, this section addresses particularly popular ideas for reform
beyond the ANPG that were proposed by commenters and considered by OMB.
OMB views this proposal as an important opportunity to solicit
stakeholder feedback, and the first opportunity for the public to
comment on specific language under consideration. The language proposed
here is subject to revision; the feedback received will influence the
extent to which this language becomes final. In some cases, we have
noted in this section where there is language in the proposal that was
particularly difficult to craft, and where feedback on the policy
direction outlined will be especially useful in charting the future
path.
The reform ideas under discussion are outlined below in four main
categories:
1. Section A: Reforms to Administrative Requirements (the
government-wide Common Rule implementing Circular A-102; Circular A-
110; and Circular A-89).
2. Section B: Reforms to Cost Principles (Circulars A-21, A-87, and
A-122).
3. Section C: Reforms to Audit Requirements (Circulars A-133 and A-
50).
4. Section D: Additional Suggestions Outside of the Guidance
Reform.
In addition, more minor changes are listed in the crosswalk
provided on the OMB Web site with this proposal.

Section A: Reforms to Administrative Requirements (the Common Rule
Implementing Circular A-102); Circular A-110; and Circular A-89:
Subchapters A-E

This section discusses proposed changes to the government-wide
common rule implementing Circular A-102 on Grants and Cooperative
Agreements with State and Local Governments; Circular A-110 on Uniform
Administrative Requirements for Grants and Other Agreements with
Institutions of Higher Education, Hospitals and Other Non-Profit
Organizations (2 CFR part 215); and Circular A-89 on Catalog of Federal
Domestic Assistance. The following are ideas for reform that were
discussed in the February 28th Advance Notice of Proposed Guidance.
1. Creating a consolidated, uniform set of administrative requirements:
subchapters A-E
The ANPG solicited comments on consolidating the administrative
requirements in OMB Circulars A-102 and A-110 into a uniform set of
administrative requirements for all grant recipients.
The goal of this consolidation would be to eliminate duplicative
(or almost duplicative) language while clarifying where there are
important substantive policy variances across entities. This
consolidation is aimed at eliminating confusion for entities--such as
Federal

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agencies, auditors and pass-through entities--that deal with more than
one type of grant-recipient entity, and for whom greater clarity about
which language is universal and which is not could be useful. Further,
this language has been updated to reflect common 21st-Century business
practices, such as electronic submissions of information, and to
anticipate an even greater reliance on advances in information
technology to move, store, and share data in the future. Finally,
consolidation of the guidance aims to ensure that references across the
guidance to other topics and sections are streamlined to most
efficiently facilitate the understanding of complete policies.
Comments received in response to this idea in the ANPG fell broadly
into two categories. Those commenters who deal habitually with more
than one type of grant-recipient entity were generally in favor or open
to consolidation, noting that consolidating duplicative or similar
language and clarifying policy differences would relieve administrative
burden. Other entities were less likely to see any potential benefit
from the consolidation.
Some responders expressed concern that consolidation of circulars
could lead to the broader application of onerous policies that
previously had applied to a narrow set of entities. OMB has endeavored
to craft the proposed language in such a way as to avoid this outcome,
but will appreciate feedback if there are places where policies have
inadvertently been broadened in an unfavorable way. Other responders
worried that consolidation of the circulars might make it more
difficult to make future changes that may only be applicable to one set
of entities. OMB is sensitive to this concern, and believes that we
will be able to remain responsive to the needs of all stakeholders
through the ongoing outreach efforts of the COFAR, regardless of the
level of integration of guidance in the circulars.
In this proposal, Subchapters A-E consolidate the administrative
requirements as discussed. In drafting the consolidated version of the
administrative requirements, OMB for the most part used language from
OMB Circular A-110, and then endeavored to explicitly articulate where
there were separate provisions for state, local, and tribal governments
carried over from A-102, as described in the crosswalk published on the
OMB Web site with this notice. In section .504 Procurement standards,
sections .40- .41 of A-110 were replaced with section .36 of A-102. OMB
will be particularly interested in feedback from entities previously
subject to the provisions of A-110 as to whether the new provision
would result in increased administrative burden.
2. Requiring pre-award consideration of each proposal's merit and each
applicant's financial risk: section .205 Agency Review of Merit of
Proposals and Risk Posed by Applicants
The ANPG solicited comments on requiring agency consideration of
the merit of each proposal and the financial risk associated with each
applicant prior to making an award. The goal of this requirement would
be to articulate as a government-wide policy a set of policies that,
though widely practiced, have not previously been universally required
across Federal agencies. Requiring agencies to design and implement a
merit-based review process and to transparently disclose the criteria
for that review in notices of funding availability will help ensure
that all applicants for Federal assistance are guaranteed a fair and
consistent review, and that they have the information they need to
craft the strongest possible applications. Further requiring agencies
to review the financial risk posed by applicants will ensure that
agencies are able to take appropriate steps to provide oversight for
the award to mitigate any risks that may be present. This could
supplement the oversight provided by audit activities which take
corrective action well after the funds have been spent, and could
result in complementary pro-active prevention of waste, fraud, and
abuse.
Some of the comments received indicated concern that the proposal
could hamper effective review policies and practices that agencies
currently use. OMB has endeavored in crafting this language to ensure
that these requirements do nothing to constrict the policies of
agencies that already have robust review processes in place. As
drafted, the requirements for merit-based review and financial risk
review are separate and distinct, and each provides great flexibility
to agencies.
Tribal entities expressed concern that this policy could contravene
the requirements of the Indian Self-Determination and Education
Assistance Act (ISDEAA). OMB notes that where the requirements in this
guidance (and any OMB guidance) conflict with Federal statute, the
statute always governs. These proposals should be read as applicable
only when they do not conflict with existing statutes, as described in
section .101 Applicability.
Many commenters noted that the requirements of the Single Audit Act
should already provide agencies with all necessary information about
financial risk. Indeed, the proposed guidance includes Single Audit
reports as one type of information that agencies may use in these
reviews, but further options are available in the event that, for a
particular set of circumstances, the Single Audit is not the most
appropriate tool.
In this proposal, section .205 Agency Review of Merit of Proposals
and Risk Posed by Applicants includes this requirement as discussed.
The language in the proposal intentionally provides significant
flexibility to agencies with respect to how these requirements are
implemented. In particular, the requirement for an assessment of risk
may be conducted at any point prior to an agency making an award, and
therefore need only include review of applications likely to be
selected for funding. OMB believes that this flexibility is important
given the diverse nature of Federal programs and the types of
information that might be most appropriate in different cases.
Recognizing that these reviews can be equally burdensome for both
Federal agencies and for recipients, OMB expects that agencies will not
to use this latitude to design overly burdensome requirements.
3. Requiring agencies to provide 90-day notice of funding
opportunities: Sections .203 Requirement to Provide Public Notice of
Federal Financial Assistance Programs and .204 Announcements of Funding
Opportunities
The ANPG discussed requiring Federal agencies to provide 90-day
advance forecast of funding opportunities in an updated Catalog of
Federal Financial Assistance (CFFA) that would replace the existing
Catalog of Federal Domestic Assistance (CFDA). The goal of this reform
would be to provide applicants with enough time to prepare the best
possible applications. At the time of the Federal Register Notice, OMB
suggested that the CFFA, as an existing database of Federal programs,
might be the most efficient tool to implement this requirement.
Many Federal agencies noted that implementation of a 90-day advance
notice would be impossible in the event that appropriations take place
late in the fiscal year, in which case agencies need to publish funding
opportunities as soon as possible. Given the frequent need for agencies
to publish solicitations expeditiously after appropriations, OMB
proposes to help ensure that applicants have adequate time to apply by
instead articulating a minimum amount of time for the solicitation to
be open on grants.gov.

[[Page 7286]]

Generally, comments received from recipient entities were in favor of
providing applicants with as much time as possible to craft quality
applications.
This proposal replaces the idea of 90-day advance notice in the
CFFA with a requirement to ensure that all notices of funding
opportunity be open for a minimum of 30 days on grants.gov, unless
required by statute or unless exigent circumstances dictate otherwise
as determined by the agency head. This language is proposed in section
.204 Announcements of Funding Opportunities.
This proposal also refers to the Catalog of Federal Domestic
Assistance by using the new name of the Catalog of Federal Financial
Assistance. The final decision to change the name will be made in the
context of ongoing COFAR governance of the Integrated Acquisition
Environment and System for Award Management which currently hosts the
CFDA and other governmentwide systems that support the grants
community. This process will include consideration of any relevant
system-related consequences to a name change.
In addition to these proposed changes to guidance, OMB is working
with Federal agencies on the development of the Federal Program
Inventory (FPI) over the course of 2013-2014. The FPI uses a broader
definition of Federal Program than the definition proposed in this
guidance, which refers specifically to the CFFA. The Federal Program
Inventory will likely include linkages to CFFA. For more detail on the
FPI see A-11 Part 6 Section 280.
4. Providing a standard format for announcements of funding
opportunities: section .204 Announcements of Funding Opportunities
The ANPG discussed incorporating into circulars the existing
requirement for certain categories of information to be published in
announcements of public funding opportunities. See OMB Memorandum M-04-
01 of October 15, 2003 (http://www.whitehouse.gov/omb/memoranda_fy04_m04-01), which announced the Federal Register notice that OMB published
at 68 FR 58146 (October 8, 2003).
This is not a policy reform, but rather consolidation within the
circular of separate guidance implemented in 2003 to further
consolidate all applicable guidance for grants into one clear location.
Most comments received in response to the Advance Notice were
generally in favor or had no objections to this consolidation.
This proposal incorporates this requirement in section .204
Announcements of Funding Opportunities.
5. Reiterating that information collections are subject to Paperwork
Reduction Act approval: section .206 Standard Application Requirements
The ANPG discussed that information collection requests are limited
to standardized data elements approved by OMB, as required under the
Paperwork Reduction Act of 1995 (PRA), plus OMB-approved exceptions for
all applications and reports. This is not a policy reform, but rather
an indicator of the importance OMB places on compliance with the
requirements of the Paperwork Reduction Act of 1995, and an indication
that OMB will be using the PRA process to ensure that agencies make use
of standard approved collections wherever possible to encourage broader
goals of data standardization across government. As this standard of
review is implemented, Federal agencies may find that fewer non-
standard information collections are approved, if not required by
statute.
Comments in response to the ANPG generally did not object to
continued use of the Paperwork Reduction Act. Some comments emphasized
in particular that use of government-wide systems to support
information collections, such as Grants.gov, should be consistently
funded and supported as standardization of information collections
continues.
This proposal includes this language in section .206 Standard
Application Requirements. In addition, the proposed language eliminates
references to specific OMB-approved forms, and refers only broadly to
OMB-approved information collections. This proposed language is not
intended to have an immediate effect on the forms used, but is intended
to broaden applicability so that, as the Federal government replaces
forms with electronic collections of data elements, this guidance will
continue to apply. Final guidance will be accompanied by a full list of
the OMB-approved information collections that are available. For
example, where section ----.206 Standard Application Requirements
refers to ``the information approved by OMB for governmentwide use for
applications,'' the list accompanying final guidance will refer section
206 to the 424 family of forms and any other OMB-approved information
collections for applications, though in the future, the data currently
included in the 424 forms may be collected differently.
6. Additional Suggestions for Administrative Requirements
In response to the ANPG, OMB received a number of suggestions for
ways that existing guidance could be clarified. OMB reviewed these and
anticipates that clarifications made in the draft language in
subchapters A-E may address many of them. The most notable
clarifications are as follows:
A. Subchapter C Federal Award Notice and Subchapter D Inclusion of
Terms and Conditions in Federal Award Notice lay out mostly new uniform
requirements for the information that agencies are required to provide
to recipients at the time that an award is made. This language is based
on work done by the Grants Executive Board and Grants Policy Committee,
two interagency councils that preceded the COFAR in providing policy
leadership to the grants community. In particular, this language
includes the requirement to include a unique award identifier in the
notice. OMB will continue working with Federal agencies to provide
further guidance on the inclusion of this data element.
B. Section 501 Subrecipient Monitoring and Management is created to
co-locate guidance on oversight of subawards that previously was
located in different places in different OMB Circulars. This is an
attempt to provide greater clarity into the expectations for subaward
oversight across the Federal government.
C. Language in section 502 Standards for Financial and Program
Management and other minor language throughout the guidance is updated
to align the objectives for performance monitoring and measurement with
those described for Federal agencies in OMB Circular A-11.
D. Language in section .504 Procurement Standards (d) updates the
threshold for small purchase procedures to be consistent with the
simplified acquisition threshold at 41 U.S.C. 403(11) (currently at
$150,000).
E. Language in Section .506 Records and Retention (c)(1) is
simplified to clarify that the 3-year period for retention of documents
starts on the day the award recipient submits its final expenditure
report.
F. Section .808 on Closeout adds language that Federal agencies
complete all closeout actions for Federal awards no later than 180 days
after the final report is received. OMB will consider whether further
guidance on closeout is needed.
Finally, some state government entities asked that the threshold
for requirements applicable to equipment

[[Page 7287]]

be raised above $5,000, but further discussions indicated that the
level of that threshold varies significantly at the state level. In
order to provide for consistent award management across entities, OMB
considers $5,000 to continue to be the most appropriate level for this
degree of accountability.

B. Reforms to Cost Principles (Circulars A-21, A-87, and A-122, and the
Cost Principles for Hospitals): Subchapter F Cost Principles and
Appendices IV-IX

This section discusses proposed changes to the OMB cost-principle
circulars that have been placed at 2 CFR Parts 220, 225, and 215
(Circulars A-21, Cost Principles for Educational Institutions; Circular
A-87, Cost Principles for State, Local and Indian Tribal Governments;
and Circular A-122, Cost Principles for Non-Profit Organizations), and,
pending possible future review, to the Cost Principles for Hospitals
that are in the regulations of the Department of Health and Human
Services at 45 CFR Part 75, Appendix E (Principles for Determining
Costs Applicable to Research and Development Under Grants and Contracts
with Hospitals). The following ideas for reform were discussed in the
ANPG.
1. Consolidating the cost principles into a single document, with
limited variations by type of entity: Subchapter F and Appendices IV
through IX
The ANPG solicited comments on consolidating the cost principles in
OMB Circulars A-21, A-87, and A-122, and the Cost Principles for
Hospitals that are in the regulations of the Department of Health and
Human Services at 45 CFR Part 75, Appendix E, into a uniform set of
cost principles for all grant recipients.
The goal of this consolidation would be to eliminate duplicative
(or almost duplicative) language while clarifying where there are
important substantive policy variances across entities. This is aimed
at eliminating confusion for entities such as Federal agencies,
auditors, and pass-through entities that deal with more than one type
of grant recipient entity, and for whom greater clarity about which
language is universal and which is not could be useful. Further, the
goal is to provide updated language to reflect common 21st-Century
business practices, such as electronic submissions of information.
Finally, consolidation of the guidance aims to ensure that references
across the guidance to other topics and sections are streamlined to
most efficiently facilitate the complete understanding of each policy.
Comments received in response to this idea in the ANPG fell broadly
into the same two categories as those regarding consolidation of the
circulars for administrative requirements. Those commenters who deal
habitually with more than one type of grant recipient entity were
generally in favor or open to consolidation, noting that consolidating
duplicative or similar language and clarifying policy differences would
relieve administrative burden. Other entities, in particular in the
university community, who do not habitually deal with other types of
grant recipients, were less likely to see any potential benefit from
the consolidation.
Some responders expressed concern that consolidation of circulars
into one set of guidance could lead to the broader application of
onerous policies that previously had applied to a narrow set of
entities. OMB has endeavored to craft the proposed language in such a
way as to avoid this outcome, but will appreciate feedback if there are
places where policies have inadvertently been broadened in an
unfavorable way. Other responders worried that the proposed
consolidation might make it more difficult to make changes that would
only be applicable to one set of entities. OMB is sensitive to this
concern, and believes that we will be able to remain responsive to the
needs of all stakeholders through the ongoing outreach efforts of the
COFAR, regardless of the level of integration of guidance.
In this proposal, Subchapter F and Appendices IV-X consolidate the
cost principles except those for hospitals, as discussed below. The
majority of the consolidation is in Subchapter F, which outlines the
basic considerations and the selected items of cost. Appendices IV-X
provide specific guidance for negotiating indirect cost rates that
varies by specific type of entity. Based on initial feedback, OMB
proposes to conduct further review of the cost principles for
hospitals, and will make a future determination about the extent to
which they should be added in a reserved Appendix XI to this guidance
based on the outcome of the review.
OMB will be particularly interested in feedback from the public on
the language used in the consolidated cost principles, and whether any
particular entity perceives a change in policy that appears
unfavorable. OMB also notes that in response to concern from tribal
entities that the consolidated cost principles may conflict with the
cost principles provided in the ISDEAA, the subordination of this
guidance to that statute was specifically articulated in section .101
Applicability.
2. For indirect (``facilities and administrative'' or f&a) costs, using
flat rates instead of negotiated rates: section .616 Indirect (F&A)
Costs
The ANPG discussed two different possibilities for offering flat
indirect cost rates; one that would be a mandatory and universal
discount from a negotiated rate, and a second that would give entities
the option of choosing a flat discount from a previously negotiated
rate.
The goal of this discussion was to explore whether the savings that
could be accrued by avoiding the complexities of the negotiation
process could be recaptured both by recipients and Federal agencies
through a slightly lower rate that would split the difference in the
cost of the process evenly. It seemed that there could be a win-win
amount that allowed the Federal government to pay a lower rate, but
still provide an overall savings for recipients.
Commenters were universally against the idea of a mandatory flat
discounted rate. Some who responded were in favor of having an optional
flat rate, but almost all commenters indicated that if the flat rate
were below the negotiated rate, it would almost always be worth it to
negotiate for the difference.
Two new suggestions emerged that had not been discussed in the
ANPG. One was to provide the option for entities and Federal agencies
to agree to extend the period of utilization of a rate once negotiated.
The second idea was proposed by the nonprofit community, and entailed
explicitly requiring pass-through entities to honor rates that are
negotiated at the Federal level.
Finally, some expressed interest in the availability of a minimum
flat rate for entities that had never had a negotiated indirect cost
rate. Such entities could adopt this rate for an interim period, while
developing capacity to engage in negotiations.
As a result of this feedback, this proposal does not further
contemplate a flat negotiated rate, but rather provides in section .616
Indirect (F&A) costs for all types of entities the option of extending
negotiated rates for up to 4 years subject to approval of the indirect
cost cognizant agency. This one-time extension will only be approved if
there have been no major changes in indirect costs. If an extension is
granted the entity would not be allowed to request a rate review until
the extension period ends. OMB hopes that this extension of the
negotiated rate may provide a reduction in burden by reducing the
frequency of negotiations.

[[Page 7288]]

In addition, also in section .616 Indirect (F&A) Costs, a minimum
flat rate of 10% of modified total direct costs has been added to
ensure that entities without the capacity for a full negotiation
receive a minimum reimbursement for no more than four years while they
develop the capacity to engage in full negotiations. Finally, section
.501 Subrecipient Monitoring and Management explicitly requires pass-
through entities to either honor the indirect cost rates negotiated at
the Federal level, negotiate a rate in accordance with Federal
guidelines, or provide the minimum flat rate. This is aimed at ensuring
that entities who receive Federal funds primarily indirectly
nevertheless are appropriately reimbursed for the allowable costs
associated with the award.
3. Exploring alternatives to time-and-effort reporting requirements for
salaries and wages section .621 Selected Items of Cost, C-10
Compensation--Personal Services
The ANPG discusses OMB's intent to identify possible alternatives
to current reporting requirements for validating the costs of salaries
and wages. The discussion points to three pilots that are currently
ongoing as possibly instructive examples of alternatives.
Consideration of alternatives to time and effort reporting reflects
the long-term goal of tying assessment to the achievement of
programmatic objectives rather than measurement of effort (hours)
expended. OMB has learned that though this is an important long-term
goal, based on the diverse nature of programs across the Federal
government and related variations in methodologies for measuring
achievement and outcomes, time and effort reporting continues to be
viewed by the audit community as an important tool for confirming
appropriate use of funds.
In response to the ANPG, institutions of higher education in
particular pointed out that current requirements are particularly
restrictive because they include specific examples of compliance with
current requirements which, over time, have become the rule. These
commenters recommended broadening time and effort reporting language to
omit specific examples and instead feature the essential principles for
accountability based on strong internal controls that entities could
then implement however is most appropriate for them. Some in the
auditing community similarly commented that while open to streamlined
guidance, they recommend OMB ensure that the standards for appropriate
internal controls and audits remain clear.
This proposal addresses these ideas with language in section .621
Selected Items of Cost, item C-10 Compensation--Personal Services.
Within this language, OMB has consolidated reporting requirements that
previously differed across types of entities and eliminated specific
examples in order to clarify the broad principles of how an entity may
establish the internal controls that would allow them to validate these
costs. It recognizes the potential to integrate the necessary
information in automated payroll distribution systems where clear
internal controls govern those systems, thereby reducing duplication.
OMB will be interested in feedback from the audit community on
whether the draft language provides sufficient guidance to result in a
set of requirements that will be easily audited. Further, OMB will be
interested in feedback from the recipient community on whether the
language proposed adequately provides enough flexibility for entities
to meet these standards in the way most appropriate to their particular
organizations, and in ways that may change over time as technology
continues to advance.
4. Revisions to reimbursements for utility costs to institutions of
higher education. Appendix IV--Indirect (F&A) Costs Identification and
Assignment, and Rate Determination for Educational Institutions
The ANPG discusses expanding the application of the 1.3% indirect
(F&A) costs adjustment for utility costs of research to more
institutions of higher education.
The goal of this reform idea would be to eliminate unfairness
inherent in a policy that provides a benefit to a limited group of
institutions based on arbitrary criteria without consideration of
applicability to other institutions. The Utility Cost Adjustment (UCA)
currently provides an extra 1.3% percentage points in addition to the
negotiated indirect cost rate to 65 institutions of higher education
for research grants. The ANPG noted that OMB would work with Department
of Defense's Office of Naval Research and the Department of Health and
Human Services' Division of Cost Allocation to develop guidelines and a
format for entities to apply for this benefit in a streamlined way that
ensured the adjustment was only provided where real costs exist.
Further, the notice discussed requiring entities to demonstrate a plan
to bring utility costs down over time.
The need for action is a result of the fact that utility costs,
while included in indirect cost rate negotiations, are generally
recorded only at the building level, making it difficult to document
the utility cost that should be allocated to Federal awards as opposed
to other activities. This is particularly true for research, where
funded activities are likely to use more energy than teaching, for
example. The current situation is further complicated by the fact that
the 1.3% adjustment itself is long outdated and based on limited
information. Thus, there is a strong sense in the Federal community
that some additional way to verify the accuracy of the adjustment is
also overdue.
Commenters from the university community were in favor of expanding
the adjustment, but many who currently receive the adjustment preferred
that it not be expanded if the expansion would mean a reduction in
funds to those who currently receive it, or in other words, a cost
neutral expansion. Further, commenters argued strongly that the
expansion should not be linked to a burdensome application or
justification process, nor a burdensome process to document reductions
in cost over time.
OMB has received feedback from rate setting agencies that given the
complexities of documenting utility costs, it is likely that any type
of study or application done to justify costs would be difficult to
achieve with accuracy and without inducing significant administrative
burden and expense for both recipient entities and Federal agencies.
As a potential solution, language in Appendix IV of this proposal
would replace the 1.3% utility cost adjustment that is currently in
effect with two options for reimbursement of utility costs. The first
would allow any institution of higher education to meter their utility
usage at the sub-building level instead of by building. When metering
utility usage by function is not feasible, entities may add a
multiplier to their square footage used for research to calculate
``effective'' square footage for purposes of utility cost calculation.
Taken together, these two options should provide a more accurate
reimbursement of utility costs through the normal indirect cost rate
negotiation process than the current practice of metering by building
does. OMB will be interested in responses to this proposal from
institutions of higher education, particularly with regard to whether
metering at the sub-building level within buildings is a feasible
option for them or whether changes in metering practice are
prohibitively expensive, the extent to which the calculation of the

[[Page 7289]]

effective square footage is viewed as a fair proxy for utility costs,
and whether this is likely to significantly increase the accuracy of
utility cost reimbursements.
5. Charging directly allocable administrative support as a direct cost.
Section .615 Direct Costs
The ANPG discussed clarifying the circumstances under which
institutions of higher education and other entities where appropriate,
may charge directly allocable administrative support as a direct cost.
Included in this discussion were examples of appropriately direct
chargeable project-specific activities such as managing substances such
as chemicals, data and image management, complex project management,
and security.
The goal of this reform idea was to ensure that charges are
appropriately classified in order to provide support for all of the
costs directly associated with a Federal award. It is further aimed at
addressing a concern raised by institutions of higher education for
which administrative tasks directly associated with a research grant
routinely make up a significant proportion of directly allocable
activities and costs.
Comments received, including from the university community,
indicated a preference that any further guidance rely on the
overarching cost principles, which indicate that an item or activity
may be charged directly to a grant if it is clearly allocable to that
award, as opposed to an activity that supports multiple projects. This
principle remains true regardless of whether the work performed is
administrative in nature.
This proposal reflects that principle, and guidance proposed in
section .615 Direct Costs indicates that all work that is directly
allocable to one award may be charged to that award, regardless of the
type of task. With this proposal OMB hopes to provide consistently
across the cost principles that direct costs are those allocable to one
award, while indirect costs are those that cannot easily be so
allocated.
6. Including the costs of certain computing devices as allowable direct
cost supplies. Section .621 Selected items of cost, C-31 Material and
Supplies Costs, Including Costs of Computing Devices
The ANPG discussed explicitly including the cost of computing
devices not otherwise subject to inventory controls (i.e. cost less
than the organization's equipment threshold) as allowable direct cost
supplies. Applicants for Federal awards would be required to document
these items as a separate line-item in their budget requests, but would
not be required to conduct the more stringent inventory controls in
place for equipment.
The goal of this clarification would be to ensure that charges are
appropriately classified in order to provide support for all of the
costs directly associated with a Federal award, while reducing the
burdens of securing special permission to purchase what have become
routine supplies. This is not intended to result in a net cost
increase, but rather to provide clarity in how allowable costs are
routinely charged. The need for this clarification is a result of the
fact that while computing devices routinely cost less than the $5,000
equipment threshold, they are seen as highly valuable items. These
facts have led to diverse opinions as to whether these devices should
be treated as equipment versus supplies, and to audit findings of
incorrect documentation.
Commenters in the recipient community were generally in favor of
this reform, but specified a preference that these items not require
separate line items in budget requests as the ANPG contemplated. Those
with this preference noted that specifying separate line items would
limit existing rebudgeting authority in a way that would lead to less
efficient administration of grants. The audit community argued in
contrast that computing devices are both highly valuable and contain
highly sensitive data, and so should be subject to more detailed
inventory requirements as they would be if classified as equipment.
Others proposed that because these items may be used for more than one
award, they should be treated as indirect costs.
This proposal discusses this idea in section .621 Selected items of
cost, Item C-31 Material and Supplies Costs, Including Costs of
Computing Devices. The language proposed reflects feedback OMB received
from Federal agencies that the sensitivity of data stored on computing
devices should not be a factor in determining cost accounting, since
protection of that data is a separate area of internal control.
Recipient entities are responsible for the security and encryption of
their data regardless of how the devices are accounted for. Further,
the costs of documenting inventories for these items would be
significant and generally detrimental to the efficient administration
of the grant. Given the low cost of these items (generally far below
the $5,000 threshold) the proposed language anticipates that they fit
naturally within the category contemplated as supplies, and should be
explicitly included there, without further requirements to add a line
item in the budget. Further, OMB believes these items are similar in
their allocability to other items typically in the supply category,
which are directly allocable because of their programmatic relevance
for the execution of an award, but which may have some unavoidable
excess capacity.
7. Clarifying the threshold for an allowable maximum residual inventory
of unused supplies. Section .621 Selected items of Cost, C-31 Material
and Supplies Costs, Including Costs of Computing Devices
The ANPG discussed harmonizing cost principles with existing
language in Circulars A-110 and A-102 to clarify that $5,000 is the
threshold for an allowable maximum residual inventory of unused
supplies as long as the cost was properly allocable to the original
agreement at the time of purchase. The notice included language to the
effect that these supplies may be retained for use on another Federal
award at no cost, though that language did not align with existing
guidance found in Circulars A-110 and A-102.
The goal of this clarification is to minimize confusion about
appropriate disposal or re-expensing of unused inventories at the
conclusion of an award and at ensuring consistency in the application
of the cost principles. Federal agencies view this requirement as
important, because below this level the costs for the agency to
recover, inventory, store, and dispose of these items would exceed the
benefit of such efforts. Though the auditing community expressed some
concern, particularly about what would be done when the recipient did
not have another Federal award for which to retain the supplies, the
majority of comments received on this idea were in favor of it.
This proposal clarifies language in section .621 Selected Items of
Cost, Item C-31 Material and Supply Costs, including Costs of Computing
Devices. This language is harmonized with language in the draft
administrative requirements that states that $5,000 is the threshold
for an allowable maximum residual inventory of unused supplies as long
as the cost was properly allocable to the original agreement at the
time of purchase. Consistent with existing administrative requirements,
there is no requirement to retain the supplies for use on another
Federal award.

[[Page 7290]]

8. Eliminating requirements to conduct studies of cost reasonableness
for large research facilities. (No language in proposed guidance)
The ANPG discussed eliminating requirements for institutions of
higher education, and other entities where appropriate, to conduct
studies of cost reasonableness for large research facilities.
The goal of this reform would be to reduce paperwork that is costly
to generate and duplicative of more useful information that is
otherwise provided to the awarding agency. The cost reasonableness
studies mentioned compare a specific set of data compared against a
data set compiled by the National Science Foundation. This comparison
does not yield information that is as useful as the information that is
routinely reviewed by agencies any time a grant proposal includes a
proposal for construction of a new facility. These routine reviews
cover actual costs included in all aspects of the project, which
program managers are able to evaluate using their expertise and
knowledge of reasonableness of these proposals in comparison with
others and with market prices. The specific studies in question have
been found not to add additional value to this process.
Comments received in response to this idea were generally positive.
This proposal eliminates the previously existing language.
9. Eliminating restrictions on sse of indirect costs recovered for
depreciation or use allowances. (No language in proposed guidance)
The ANPG discussed eliminating the restrictions on the use of the
portion of indirect cost recoveries associated with depreciation or use
allowances. These restrictions are duplicative of the indirect cost
rate negotiation process, during which appropriate indirect costs are
documented, justified, and negotiated. This requirement put
restrictions on the use of funds which were received as reimbursements
for costs already incurred appropriately in accordance with negotiated
indirect cost rates. Articulating requirements for how recipients
should spend reimbursements is fundamentally duplicative.
Further, in this same item of cost, all references to use
allowances have been eliminated. Use allowance was an alternative
accounting method which was necessary at the time of the last update to
OMB circulars because not all entities were capable of using the
depreciation method. Now, however, the depreciation method is widely if
not universally used, and use allowance has become an obsolete
reference.
Comments received in response to this idea were generally positive.
As a result, this proposal eliminates restrictions on depreciation
reimbursements in section .621 Selected Items of Cost, item C-15
Depreciation.
10. Eliminating requirements to conduct a lease-purchase analysis for
interest costs and to provide notice before relocating federally-
sponsored activities from a debt-financed facility. (No language in
proposed guidance)
The ANPG discussed eliminating requirements for institutions of
higher education, and other entities where appropriate, to conduct a
lease-purchase analysis to justify interest costs, and to notify the
cognizant Federal agency prior to relocating federally sponsored
activities from a facility financed by debt. The goal of this reform
would be to reduce paperwork that is costly to generate and does not
yield information that is useful to the awarding agency.
Where recipient entities are required to invest equity of their own
in facilities they purchase, and where they must provide the up-front
financing and are reimbursed based on the ongoing costs of facilities,
OMB finds that entities have appropriate incentives to make the most
cost-effective decisions about whether to lease or purchase a facility
without providing additional paperwork to the Federal government.
Further, Federal agencies have provided feedback that such paperwork
does not meaningfully affect funding decisions.
Comments received in response to this reform idea were generally
positive. This proposal therefore eliminates this requirement.
11. Eliminate requirements that printed ``help-wanted'' advertising
comply with particular specifications. Section 621 Selected Items of
Cost, C-42 Recruiting Costs
The ANPG discussed updating the cost principles to reflect the
media now used for those notices. The goal of this reform would be to
update guidance to conform to 21st-Century business processes. Comments
received in response to this reform idea were generally positive.
This proposal updates this language accordingly, specifically in
section .621 Selected Items of Cost, and item C-42 Recruiting Costs.
12. Allowing for the budgeting for contingency funds for certain
awards. Section .621 Selected Items of Cost, C-12 Contingency
Provisions
The ANPG discussed clarifying that budgeting for contingency funds
associated with a Federal award for the construction or upgrade of a
large facility or instrument, or for IT systems, is an acceptable and
necessary practice, and that the method by which contingency funds are
managed and monitored is at the discretion of the Federal funding
agency. The goal of this reform would be to ensure that contingencies
inherent in grant-funded projects are planned for in accordance with
Generally Accepted Accounting Principles (GAAP) and with standard
project-management practices. The language seeks to accomplish this
while making clear that reserve funds which recipients would draw down
in advance of a particular event actually occurring, are unallowable.
Comments received in response to this reform idea were generally
positive. Some in the audit community suggested limiting contingency
budgets to a percentage of the total award; however, Federal agencies
considered that this would be contrary to GAAP, and difficult to do at
the government-wide level given the diverse nature of Federal programs.
OMB acknowledges Federal agencies' program managers as experts in the
particular needs of their programs, and expects them to look carefully
at all award budgets, including contingency budgets, to ensure that
they are appropriate to the scope and scale of the project at hand.
Some comments received indicated a preference for establishing advance
draw-down reserve funds, but OMB finds that this would result in undue
risk of improper payments, and additional administrative burden to
recover such funds if they were not needed.
This proposal includes language to this effect in section. 621
Selected Items of Cost, C-12 Contingency Provisions.
13. Strengthening requirements for all recipients to document cost
accounting practices and provide necessary paperwork to auditors while
eliminating cost accounting standards and requirement for institutions
of higher education to file a disclosure statement. Section .502
Standards for Financial and Program Management
The ANPG discussed whether OMB should request that the CASB
consider increasing from $25 million to $50 million in Federal awards
per year (based on the average of an entity's three most recent years)
the minimum

[[Page 7291]]

threshold for institutions of higher education to file a cost
accounting standards disclosure statement. Comments received in
response to this reform idea were generally positive, though members of
the university community argued that institutions of higher education
should not be subject to CAS requirements for financial assistance,
since in the intent of these standards is duplicative of OMB guidance
for grants but the language adds layers of complexity. Further,
comments argued that universities should be exempt from requirements to
file disclosure statements, on the basis that they are audited on the
compliance of their internal policies with cost-accounting standards
described in OMB guidance, making the added disclosure duplicative.
Further, they find the process to obtain approvals of updates to the
form itself to be often subject to frustrating delays. Comments from
the auditing community indicate that any audit finding would ultimately
rest on whether the entity's internal policies comply with OMB
guidance, though some noted that the form itself provides a useful
overview of cost accounting practices that have been pre-approved by
the Federal government, providing a helpful starting point for any
review. OMB recognizes that these requirements are applied solely to
universities, posing an additional requirement on a particular group of
entities without a clear justification for singling out that particular
group.
Ultimately, OMB finds it essential for all recipients to document
their cost accounting standards and to provide auditors with any and
all documentation required to satisfy audit inquiries. As a result, OMB
has reviewed the proposed language in section .502 Standards for
Financial and Program Management, paragraph (c). The existing
requirement from A-110 that all recipients document their cost
accounting practices remains sufficiently comprehensive and unchanged,
but this proposal adds a cross reference to section. 506 on Record
Retention and Access, which specifically authorizes awarding agencies,
Inspectors General, and the Comptroller General of the United States to
access these records. In addition, language has been added in section
.708 Auditee Responsibilities to require recipients to provide auditors
with any and all documentation required to complete the required audit.
Finally, in the Single Audit Compliance Supplement, OMB would add
language asking auditors to verify that recipients comply with the
documentation requirements and to report any non-compliance
appropriately as an audit finding.
OMB has also removed the CAS standards from the guidance, and
eliminated the requirement for universities to file a disclosure
statement that must be approved by the awarding agency. This change
applies only to the guidance for grants and cooperative agreements;
this in no way alters requirements under the Federal Acquisition
Regulation governed by the CASB that apply to entities receiving awards
of contracts.
14. Allowing for excess or idle capacity for certain facilities, in
anticipation of usage increases. Section .621 Selected Items of Cost,
C-24 Idle Facilities and Idle Capacity
The ANPG discussed allowing for excess or idle capacity in
consolidated data centers, telecommunications, and public safety
facilities. The goal of this reform is to acknowledge the unique
requirements inherent in consolidation of data centers as encouraged by
the President in order to deliver a 21st-Century government. Data
centers and other types of facilities require excess capacity at their
creation in order to accommodate increases and fluctuations in usage
later on. Other telecommunications facilities and public-safety
emergency-response facilities have similar characteristics.
Comments received in response to this idea were generally positive.
This proposal incorporates this idea in section .621 Selected Items of
Cost, item C-24 Idle Facilities and Idle Capacity.
15. Allowing costs for efforts to collect improper payment recoveries.
Section .621 Selected Items of Cost, C-8 Collections of Improper
Payments
The ANPG discussed adding a new item of cost specifically to allow
recipients to be reimbursed for expenses associated with the effort to
collect improper payment recoveries or related activities. The goal of
this reform is to better encourage recipient entities to assist the
Federal government to meet the President's directive to improve the
Federal government's ability to recover improper payments. The draft
language is intended to allow recipients to keep an amount of funds
collected to cover expenses of collection efforts, where the amount
collected is likely to exceed the expense of collection.
These costs may be considered either indirect or direct costs as
most appropriate for the entity in question. Amounts collected that
exceed the expense of collection shall be treated in accordance with
accepted cash management standards.
Though most comments received in response to this reform idea were
generally in favor of it, some in the university community noted that
where these are indirect costs, which are capped, additional
allowability would not affect them. This proposal includes language in
section .621 Selected items of cost, item C-8 Collections of Improper
Payments to clarify allowable treatment of these costs.
16. Specifying that gains and/or losses due to speculative financing
arrangements are unallowable. (No language in proposed guidance)
The ANPG discussed adding an item of cost to the guidance to
clarify that gains or losses related to debt arrangements on capital
assets due to speculative financing arrangements (such as hedges or
derivatives) are unallowable. The goal of this reform idea was to
protect the government from the scenario where recipients were charging
losses from financing arrangements to awards as direct costs, but not
crediting gains when accrued. Comments received in response to this
reform were generally negative. Many institutions argued that they
necessarily use these types of arrangements in order to balance
legitimate investment portfolios that are part of institution-wide
financial management plans, not exclusively for management of Federal
awards. Nonprofits operating internationally argued that these types of
financing arrangements are necessary in order to hedge against risk of
currency fluctuations.
OMB concurs with the observations in the comments, and notes that
OMB guidance governing grants is not intended to govern how an
institution manages its financial portfolio beyond the assets related
to Federal awards. Further, we find that the cases where recipients are
inappropriately charging losses directly to awards would already be
unallowable under existing guidance and would result in an audit
finding, so additional guidance is not needed to mitigate these risks.
Based on comments received, OMB has not included language to this
effect.
17. Providing non-profit organizations an example of the certificate of
indirect costs. Appendix V--Indirect (F&A) Costs Identification and
Assignment, and Rate Determination for Non-Profit Organizations
The ANPG discussed providing non-profit organizations an example of
the required certification (Certificate of Indirect Costs) similar to
the

[[Page 7292]]

information that is already provided for state, local, and tribal
governments. The goal of this reform idea would be to provide
uniformity in documentation requirements across different types of
entities.
Though comments from the nonprofit community were generally
favorable, the university community objected to this reform and argued
that the certificate of indirect costs should be eliminated for all
types of entities. They argued that there are other remedies available
to the Federal government if an institution is alleged to have
committed fraud, and the certification includes unfortunate language
that diminishes the spirit of the collaboration between these
organizations and the Federal government. Though OMB continues to see
value in the certification of indirect costs by a senior official of
the entity, this proposal modifies the language in the certification to
be aligned with the language in the state/local/tribal certification,
which articulates the certification using more positive language. This
proposal is included in Appendix V--Indirect (F&A) Costs Identification
and Assignment, and Rate Determination for Non-Profit Organizations,
and provides slightly modified language for institutions of higher
education in Appendix IV--Indirect (F&A) Costs Identification and
Assignment, and Rate Determination for Institutions of Higher
Education.
18. Providing non-profit organizations with an example of indirect cost
proposal documentation requirements. (No language in proposed guidance)
The ANPG discussed providing for non-profit organizations an
example of indirect cost proposal documentation requirements similar to
the information provided for state, local, and tribal governments. The
goal of this reform idea would be to provide uniformity in
documentation requirements across different types of entities. Comments
received in response to this idea as originally articulated were
generally neutral. However, a broader principle of this reform effort
has been to eliminate examples from the proposed guidance, as they can
ultimately cause more confusion than clarity as over time they tend to
be treated as the rule. Instead, OMB will provide guidance on
documentation for justification of indirect cost rates that will more
likely take the form of an instruction manual such as the one
previously published by the Department of Labor (found at http://www.dol.gov/oasam/programs/boc/costdeterminationguide/main.htm#toc)
rather than specific examples. As a result, this proposal does not
provide such an example, and further eliminates such examples for other
types of entities.
19. Additional ideas for cost principles
In response to the ANPG, OMB received a number of suggestions for
ways that existing guidance could be clarified beyond those articulated
in the ANPG. OMB reviewed these and anticipates that clarifications
made in the draft language in subchapter F may address many of them.
Particular examples of requests that may have significant policy
implications are:
A. Agency Exceptions to Use of Negotiated Cost Rates (Section .616
Indirect (F&A) costs)). Many entities, in particular institutions of
higher education, raised concern that Federal agencies do not always
honor negotiated indirect cost rates, despite existing language in
relevant circulars that appears to instruct them to do so. OMB
recognizes that agencies do make exceptions to the general policy of
reimbursing indirect costs at governmentwide negotiated rates. Further,
OMB recognizes that the current system calculates indirect cost rates
as an average across all Federal awards. As a result, for any given
award, the actual associated indirect cost will fall either above or
below the negotiated rates, theoretically in even proportions.
In this proposal section .616 provides draft language to clarify
the circumstances under which agencies may make exceptions to the
negotiated rate. These include where exceptions are provided for in
statute or regulation, or where the agency head has made a
determination that the exception is important to the success of the
program based on documented justification. Agency heads shall notify
OMB of any approved deviations, so that OMB maintains a governmentwide
view of the application of negotiated rates. OMB anticipates that
programs with longstanding historical exceptions, such as NIH training
grants, will continue within the new approval process. This stringent
requirement for agency head approval should provide better transparency
and understanding of these exceptions, and properly limit these
exceptions to help ensure they are justified when they occur.
In addition, new language in section .502 Standards for Financial
and Program Management provides that voluntary committed cost sharing
is not expected under Federal research proposals and is not to be used
as a factor in the review of applications or proposals, except where
otherwise required by statute. This is intended to ensure that research
proposals are evaluated on their merit, and that cost sharing
expectations where they exist are consistent for all applicants.
B. Clarifications of cost principles for information technology.
OMB received several suggestions from the National Association of State
Chief Information Officers (NASCIO) that requested clarification of the
cost principles for information-technology systems. The first of these
was a request that the item of cost for interest articulate that
financing costs are allowable for intangible assets as well as capital
assets such as large buildings. OMB has included proposed language to
this effect in section .621 Selected Items of Cost. In addition, NASCIO
requested that OMB clarify guidance on whether provisions in section
.503 Property Standards (d) Equipment may apply to equipment for
information technology systems which have been consolidated. In
particular, NASCIO requested including IT systems among the equipment
which, when no longer needed by the Federal program for which it was
originally purchased, may be used to support other Federally-funded
activities. OMB has included proposed language to this effect in the
above mentioned section.
C. Clarification of costs related to family-related leave and
dependent care. Existing guidance has long allowed recipient
institutions to establish their own documented institutional policies
around fringe benefits and travel, and to fund external meetings and
conferences provided they meet the conditions established by the
relevant item of cost. However, OMB received suggestions from the
American Association of University Women and other organizations
indicating that because family-related leave and dependent care are not
discussed specifically in OMB guidance, there may be confusion over the
documentation required to establish their allowability. In response, we
have included specific language in section .621, item C-11
Compensation--Fringe Benefits, C-32 Meetings and Conferences (external)
and C-53 Travel Costs to clarify the requirements for documentation of
these costs. This language does not require adoption of any new
practices, and best mitigates risk of abuse of these policies by
clearly aligning them with the existing requirement that any such costs
are only allowable to the extent they are reasonable and consistent
with written institution-wide policy and practice.
D. Participant support costs. Existing guidance that applies only
to nonprofit entities states that participant support costs are
allowable when approved by

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the awarding agencies, and also notes that these costs are generally
not included in calculations of modified total direct costs. This
proposal would expand that language to all recipient entities in order
to eliminate ambiguity in the guidance and to ensure appropriate
Federal oversight and reimbursement for these types of expenses.
Proposed language is in section .621, item C35 Participant Support
Costs.

C. Reforms to Audit Requirements (Circulars A-133 and A-50) Subchapter
G: Audit Requirements

This section discusses ideas for changes that would be made to the
audit guidance that is contained in Circular A-133 on Audits of States,
Local Governments, and Non-Profit Organizations and in Circular A-50 on
Audit Follow-up. The following ideas for reform were discussed in the
ANPG.
1. Concentrating audit resolution and oversight resources on higher
dollar, higher risk awards. Sections .701 Audit Requirements and .719
Major Program Determinations
The ANPG discussed whether changing the Single Audit framework
could enable agencies to focus their oversight and follow-up resources
in the most efficient and effective way for targeting improper
payments, waste, fraud, and abuse. The notice discussed options to
raise the threshold for single audits from $500,000 to $1 million.
Further, the notice discussed whether audits for entities expending
between $1 million-$3 million could be streamlined to only two types of
compliance requirements.
The goal of these reform ideas was to allow agencies to concentrate
their audit oversight and follow-up resources more closely on areas of
highest risk of waste, fraud, and abuse, consistent with EO 13520. For
this purpose, OMB considers degree of risk as a combination of the
likelihood that there is an internal control weakness multiplied by the
possible consequence in dollars if there is. This calculation
recognizes that an entity spending the greatest amount of money with
the greatest likelihood of an internal control weakness poses the
greatest risk to integrity of Federal funds.
One of the questions OMB posed to commenters in the ANPG was the
extent to which entities make use of the Single Audit in order to
manage programs and provide oversight over subrecipients. The answer to
this question in a great majority of responses was that entities do
make use of the Single Audit as an important oversight tool, and if the
threshold were significantly raised entities would have to make use of
different tools to provide oversight over Federal funds. Entities who
would fall below the raised threshold inquired about what types of
oversight could replace the Single Audit if it were no longer in place.
OMB received significant feedback from the audit community (e.g.
certified public accountants, state auditors, and their professional
organizations) that argued against a streamlined audit for entities
expending between $1 million and $3 million in Federal awards. This
community argued that inconsistencies in the types of entities
receiving funds within a particular program would make it difficult to
specify the one or two types of compliance requirements that would
universally apply. Further, pass-through entities expressed concern
that varying requirements significantly by program and size of entity
would make it more administratively burdensome to oversee over
subawards.
OMB also received several additional suggestions about how to re-
configure the single audit coverage framework in order to best target
risk. These suggestions included raising the threshold for
determinations of major programs, changing the requirement for auditors
to evaluate type B programs, raising the threshold for the amount of
questioned costs, and requiring audited financial statements for all
entities that fall below a new, higher single audit threshold.
As a result, this proposal contains the following changes in
Subchapter G, Audit Requirements:
(A) Audit threshold. The threshold for the Single Audit Requirement
would be raised from $500,000 to $750,000. This change would allow
agencies to focus audit-follow-up resources on higher-risk entities.
Further, this provides administrative burden relief to the roughly
5,000 non-Federal entities expending less than $750,000 in Federal
awards while maintaining single audit coverage over more than 99
percent of the funds that are currently covered.
(B) Major Program Determination. This proposal includes changes to
all four steps of the risk-based approach to focus on the areas of
highest risk and reduce the number of major programs tested. Under the
risk-based approach the auditor calculates a threshold (based on amount
of Federal dollars expended) above which programs are designated ``Type
A'' and below which they are ``Type B''; and follows a prescribed
process to assess program risk to identify which programs will be
audited as major programs. The auditor uses the guidance in the
Compliance Supplement to test major program requirements and provides
opinion level audit assurance on each major program. (See section .719
Major Program Determination) The proposed changes to this process are
as follows:
1. Increase the minimum threshold for a program to be Type A from
$300,000 to $500,000 (but do not change the alternative three percent
of total Federal awards expended). (Step 1)
2. Refocus the criteria for a Type-A program to qualify as high-
risk. Revised criteria would result in a Type A program being
designated as high-risk only when in the most recent period the program
failed to receive an unqualified opinion; had a material weakness in
internal controls; or had questioned costs exceeding five percent of
the program's expenditures. This change puts the focus of the risk
determination on the most central questions of whether the program
received a qualified opinion or had weak internal controls, as opposed
to whether the program may have received any minor finding that may or
may not have been essential to the financial integrity of the program.
The requirement that a Type-A program be audited as major at least once
every three years, regardless of whether it is high- or low-risk
remains unchanged. (Step 2)
3. Reduce the number of high-risk Type-B programs that must be
tested as major programs from at least one half to at least one fourth
of the number of the low-risk Type A programs and allow the auditor to
stop the Type-B program risk assessment process after this number of
high risk Type-B programs are identified. (Steps 3 and 4)
4. Simplify the calculation to determine relatively small Type-B
programs for which the auditor is not required to perform a risk
assessment from the current stepped approach to a flat 25 percent of
the Type A/B threshold. The change allows more Type-B programs to be
classified as relatively small. (Step 3)
5. Reduce the minimum coverage required under the percentage-of-
coverage rule from the current 50 percent for a regular auditee and 25
percent for a low-risk auditee to at least 40 percent for a regular and
20 percent for a low-risk auditee. (Step 4)
These changes to the major program determination will result in
more targeted audit coverage of programs with internal control
weaknesses. They provide appropriate burden relief for non-Federal
entities that materially comply as evidenced by an unqualified audit
opinion, and no material weaknesses in internal controls or material
questioned costs. Because large

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non-Federal entities (such as a larger state government) often have at
least one audit finding in a program, under existing guidance, for
these entities, almost all Type A programs may qualify as high-risk.
The proposed changes provide an incentive for these non-Federal
entities to focus on correcting the deficiencies that indicate
underlying weaknesses in internal controls.
(C) Questioned Costs. Increase the minimum threshold for reporting
questioned costs from $10,000 to $25,000 to focus on the audit findings
presenting the greatest risk. This will eliminate smaller audit
findings which require the investment of follow-up resources yet are
unlikely to indicate significant weaknesses in internal controls. (See
section .717 Audit Findings)
In addition, to address questions about the required level of
subrecipient oversight, OMB has consolidated and clarified relevant
guidance on subrecipient monitoring requirements in section .501
Subrecipient Monitoring and Management.
If these reforms to the audit threshold were implemented, OMB would
consider issuing further guidance about the transition to the GAGAS-
only audit and the extent to which recipients with known weaknesses
would be required to resolve them before being subject to it.
2. Streamlining the types of compliance requirements in the Circular A-
133 Compliance Supplement. Some language in Section ----.713
Responsibilities, but more to be added in Single Audit Compliance
Supplement
The ANPG discussed streamlining the types of compliance
requirements found in the OMB Circular A-133 Compliance Supplement. The
notice discussed streamlining these requirements by targeting a subset
for increased testing, larger sample sizes, or lower levels of
materiality, while de-emphasizing others, with an exception allowing
Federal agencies on a program-specific basis to place higher emphasis
on those other specific types of requirements believed to prevent
waste, fraud, or abuse.
The goal of this reform idea would be to refocus the Compliance
Supplement to better target areas of risk, thereby reducing the audit
burden on non-Federal entities and allowing agencies to concentrate
their oversight and audit follow-up resources on the requirements
targeting the highest risk of improper payments, waste, fraud, and
abuse.
Comments on this section from the audit community pointed out that
to specify the amount of testing done for a particular type of
compliance requirement would be incredibly complex across programs, and
would likely conflict with the generally accepted auditing standards,
which require auditors to use their professional judgment about the
level of testing necessary for any particular entity. Moreover,
recipients were concerned that the exception that allowed Federal
agencies to add back requirements that they felt were necessary for the
program would result in even more administrative burden.
One popular observation, particularly from state governments, was
that in earlier iterations of discussions on these topics a reform idea
was to eliminate certain types of compliance requirements altogether;
many of these commenters argued that this elimination could be a clean
way to reduce burden across programs.
As a result of this feedback, OMB proposes to limit the types of
compliance requirements in the compliance supplement to the following
group of key compliance requirements which, if violated, are most
likely to result in improper payments, waste, fraud, or abuse. This
approach is consistent with early recommendations received and OMB's
October 2009 Single Audit Internal Control Project for American
Recovery and Reinvestment Act (ARRA), which limited testing to the
following basic types of compliance requirements: \1\
---------------------------------------------------------------------------

\1\ The letter references are to the references used for the
types of compliance requirements in the OMB Circular A-I33
Compliance Supplement.
---------------------------------------------------------------------------

A. Activities Allowed or Unallowed and B. Allowable Costs/Cost
Principles (combined)--The amounts reported as expenditures and claimed
for matching will be tested for allowable activities and charges that
were reasonable, allowable, and allocable under applicable OMB guidance
and terms and conditions of award or grant agreement. Some review of H.
Period of Availability of Federal Funds would likely be incorporated in
a determination of allowability under this requirement. The Matching
part of G. Matching, Level of Effort, and Earmarking would also be
covered, since testing under this requirement will include a
determination of whether costs claimed for matching are allowable,
allocable, and reasonable. Documentation of appropriate matching
claimed would still be reviewed under L. Reporting.
C. Cash Management--The non-federal entity followed procedures to
minimize the time elapsing between the transfer of funds from the U.S.
Treasury, or pass-through entity, and their disbursement.
E. Eligibility--The records show that those who received services
or benefits, either directly or on behalf of someone else, were
eligible to receive them: benefits were provided in the right amount,
to the right person, for the right purpose, and at the right time.
L. Reporting--Federal financial reports, performance reporting,
claims for advances and reimbursement, and amounts claimed as matching
are accurate and include all activity of the reporting period, are
supported by applicable accounting records, and are fairly presented in
accordance with program requirements. As noted above, this would
include review of documentation of amount reported for matching.
M. Subrecipient Monitoring--The pass-through entity (1) Made sub-
awards only to eligible entities, (2) identified awards, compliance
requirements, and payments to the subrecipient prior to disbursement,
(3) monitored subrecipient activities to ensure subrecipient
compliance, and (4) performed the audit resolution function (e.g.,
ensured proper audit submitted on time, followed up on audit findings,
including issuance of a management decision, and ensuring that
subrecipients took timely and appropriate corrective action).
N. Special Tests and Provision--Requirements that are unique to
each federal program and are found in the laws, regulations, and the
provisions of contract or grant agreements pertaining to the program
which could have a direct and material effect on a major program.
The seven compliance requirements that would be eliminated from the
compliance supplement would be D. Davis Bacon, F. Equipment and Real
Property Management, the latter two components of G. Matching, Level of
Effort, and Earmarking, H. Period of Availability of Federal Funds
except where tested to verify allowable/unallowable costs, I.
Procurement and Suspension and Debarment, J. Program Income and K. Real
Property Acquisition and Relocation Assistance.
In order to accommodate programs where these requirements are
essential to the oversight of the program and required by statute or
regulation, OMB will consider requests from agencies to add one or more
of these requirements back under special tests and provisions. Such
requests for inclusion would only be accepted when compliance is
required by statute or regulation, and when the federal agency (1)
makes a strong case for how non-compliance

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with these types of requirements could result in increased risk of
improper payments, waste, fraud, or abuse; and (2) provides a targeted
compliance supplement write-up identifying improper-payment risks and
focusing audit tests to address these risks. If adopted, OMB will take
appropriate steps to ensure consistency between programs for the same
compliance requirement.
OMB believes that this approach will focus Single Audit resources
where the risks to financial integrity are greatest and eliminate the
more minute detail from audit reports that distracts agencies from
identifying and addressing significant weaknesses in programs. This
change is not reflected in the draft proposal but would be implemented
through the first Compliance Supplement to be issued after the proposed
change becomes final.
3. Strengthening the guidance on audit follow-up for Federal awarding
agencies. Section----.713 Responsibilities
The ANPG discussed various policy options to strengthen audit
follow-up at the Federal agency level. Ideas contemplated included:
Requiring agencies to designate a senior accountable
agency official to oversee the audit resolution process;
Requiring agencies to implement audit-risk metrics
including timeliness of report submission, number of audits that did
not have an unqualified auditor opinion on major programs, and number
of repeat audit findings;
Encouraging agencies to engage in cooperative audit
resolution with recipients; and
Encouraging agencies to take a pro-active approach to
resolving weaknesses and deficiencies, whether they are identified with
single specific programs or cut across the systems of an audited
recipient.
Further, to improve audit follow-up, the notice contemplated
digitizing Single Audit reports into a searchable database to support
analysis of audit results by Federal agencies and pass-through
entities.
The goal of these reforms is to strengthen audit resolution
policies to result in agencies taking a more pro-active and
collaborative approach towards following-up on audit findings, which
should result in a decrease in audit findings and program risk over
time. Combined with the reforms above to focus the Single Audit on the
major programs and types of compliance requirements likely to result in
the greatest risk of waste, fraud, and abuse, this reform would
strengthen the oversight and response to those high-risk findings that
were identified. As underlying programmatic weaknesses are resolved and
repeat findings reduced, both recipients' and agencies' audit burdens
would be lessened.
Comments received in response to these ideas were generally
positive, and this proposal includes language on these ideas in section
.713 Responsibilities. One additional suggestion OMB received was to
consider making audit reports publicly available through the Federal
Audit Clearinghouse. OMB acknowledges that making these reports public
would reduce burden on the pass-through entities as they work to
follow-up with subrecipients to obtain reports needed for oversight.
OMB will work with the Federal Audit Clearinghouse to determine if
privacy concerns over personally-identifiable information and
confidential-business information can be overcome. One idea is that
these concerns could be addressed by explicitly placing the
responsibility on non-Federal entity uploading the reports to ensure
that no such information is included. OMB has included draft language
in this proposal section. 713 Responsibilities to reflect the
possibility that these concerns will be sufficiently resolved.
OMB will consider providing additional guidance on agency use of
cooperative audit-resolution mechanisms and metrics to track audit
effectiveness in order to ensure agencies are held accountable for
improvements to use of the Single Audit process. OMB believes that
taken together these steps will result in a more robust single audit
framework providing strong oversight over high-risk programs, entities,
and findings and providing incentives for prompt corrective action to
strengthen the overall integrity of our Federal financial-assistance
programs.
4. Reducing burden on pass-through entities and subrecipients by
ensuring across-agency coordination. Section .713 Responsibilities
The ANPG discussed strengthening language that would reinforce
cross-agency coordination of audits and audit follow-up.
The goal is to reduce redundancy and burden by making more explicit
the existing requirement that the Federal cognizant or oversight agency
coordinate audits or reviews by other Federal awarding agencies that
are made in addition to the Single Audit. This proposed change would
not affect the ability of Inspectors General to conduct audit work as
deemed necessary in accordance with the Inspector General Act of 1978,
as amended.
This proposal includes language to this effect in section .713
Responsibilities, which, though not a change in policy, makes clear
that it is the responsibility of the cognizant or oversight agency to
coordinate audits or reviews by other Federal agencies that are made in
addition to the Single Audit.
5. Reducing burdens on pass-through entities and subrecipients from
audit follow-up. Section .713 Responsibilities
The ANPG discussed the idea that for subrecipients receiving a
majority of their awards directly from the Federal government, the
Federal cognizant or oversight agency might be the most appropriate
entity to conduct follow-up on audit findings that cut across multiple
programs.
The goal of this reform is to eliminate duplicative audit follow-up
work performed by a pass-through entity without providing significant
additional work to Federal agencies that already will be following up
on these same audit findings, as well as to simplify the follow-up for
the subrecipient.
Comments received in response to this reform were generally
positive, though some commenters particularly in the university
community argued that pass-through entities should not be at all
responsible for conducting audit follow-up for subrecipients that
receive a majority of their funds directly.
This proposal attempts to address this issue at both the Federal
and pass-through level by making management decisions available through
the Federal Audit Clearinghouse, on the possibility that privacy-
related concerns articulated above can be resolved. This proposal
articulates that the cognizant or oversight agency will provide
management decisions for all findings in which it has funds directly
implicated, and will make those management decisions publicly available
so that other Federal awarding agencies and pass-through entities may
decide to rely on them, or may decide to issue their own decisions, as
appropriate. This should streamline the audit-resolution process and
result in relieved administrative burden both for the Federal awarding
agencies and pass-through entities as well as for the subrecipient.
6. Additional ideas for audit requirements
In response to the ANPG, OMB received a number of additional
suggestions for ways that existing guidance on audit requirements could
be clarified. OMB reviewed these and anticipates that clarifications
made in

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the draft language in Subchapter G--Audit Requirements will address
many of them.
One additional idea for reform suggested by many in the Federal
agency and audit community was to reduce the amount of time for audit
submission from the current nine months down to three months or six
months. OMB supports this idea, but notes that it will require changes
to legislation to accomplish.

D. Additional Suggestions Outside of the Scope of This Proposed
Guidance

In addition to the ideas discussed above, OMB received many ideas
for reforms to Federal grant policies which have merit but are not
properly addressed through changes to governmentwide guidance. Some of
these ideas include better coordination of regulations that are
applicable or have an impact on Federal grant; use of the Federal rule-
making process for agency grants policies; improvements in data quality
across systems that support the Federal grants community; looking at
regulations governing electronic imaging for documents for both grants
and contracts; facilitating better coordination, consistency, and
transparency between indirect cost rate setting agencies; and improving
the training available to Federal grants professionals. OMB is
committed to continuing improvements in the policies, practices, and
systems that support the Federal grants community under the continuing
leadership of the COFAR. OMB and the COFAR will continue to work
together to reach out to stakeholders to continue these discussions and
to evaluate where further improvements may continue to be made.

Daniel I. Werfel,
Controller.
[FR Doc. 2013-02113 Filed 1-31-13; 8:45 am]
BILLING CODE P