The Office of Management and Budget (“OMB”) recently implemented new rules known as “Uniform Guidance” that now combines what was eight different sets of rules related to federal grant administration (known as OMB Circulars) into a single set of rules. The idea was to simplify, clarify and make compliance easier for Federal grant recipients and to reduce the complexity and cost of the Single Audit (formerly A-133).
One major change is the definition around indirect costs and the opportunity to negotiate an indirect cost rate. Indirect costs, which may include non-programmatic activities, infrastructure and administrative costs, previously could be excluded or grossly under-funded. Under the new rules, Federal grant recipients (including recipients of pass-through funds) are entitled to a minimum 10% indirect cost rate with the option to negotiate a rate higher if it can be substantiated.
Other changes and clarifications include a reclassification of computer hardware purchases under $5,000 as supplies versus a capital expenditure, clarification of the difference between a sub-grantee and a vendor. The entire set of Uniform Guidance rules can be found here.
Having the right financial management tools in place can greatly improve your ability to properly account for costs and report back to funders in a prescribed manner. Your general ledger system and chart of accounts should provide the necessary mechanisms for collecting and reporting on data at the right level of granularity. Can you segregate costs by funder/grant/program? Can you differentiate between direct and indirect costs, even if they are the same type of cost? Do you have timely and complete access to where you stand with each of your grants to allow for appropriate coding decisions as transactions are recorded?
All of these issues and more were discussed at INNOVATE 2016 in a session I co-presented with Paul Konigstein from Accounting Management Solutions. We will be reprising this session at events later in 2016. Keep an eye on our Executive Seminars page for more information.
By Tom Thornton, Chief Operating Officer for JMT Consulting Group, a national consulting firm serving the needs of nonprofit organizations in the US.