Not-for-Profits Receive Revised Guidance from the Office of Management and Budget

On December 26, 2014, not-for-profit organizations working on government contracts received revised guidance from the Office of Management and Budget (OMB) related to costs incurred when completing federal contracts. The changes simplify many of the rules affecting administrative requirements, cost principles and audit requirements.

Background and New Rights

The new guidance merges separate OMB circulars into a single code of regulations. The aim was to develop consistency between government units and not-for-profit contractors to reduce administrative burdens, increase efficiency, improve effectiveness of the awards process, and eliminate waste and fraud.

The revised Guidance includes the following:

• More costs will be reimbursed as direct costs. For example, in some cases the costs of administering a special program — such as assigning a separate staff to the project — may be reported as a direct expense and be fully reimbursed.
• Pass-through entities using federal funds must reimburse reasonable indirect costs incurred in related activities. If a not-for-profit has not used a federally approved indirect cost rate, it can rely on a de minimis ten percent rate of modified total direct costs or it can negotiate a higher rate. Generally, the mandate to pay indirect costs applies to federal discretionary funds, but any federal statute capping the reimbursement rate will continue to apply.
• The threshold for compliance audits of entities that receive federal award money has been raised from to $750,000 from $500,000 per fiscal year. These audits, commonly called single audits, require comprehensive testing of compliance and internal controls.
• Consistently documented procurement processes are required when purchases are made using federal funds. This applies to government and non-government units alike.

Action Steps

The Uniform Guidance is an important step forward, but it is not the final step. Not-for-Profits can have an impact on future developments. Consider the following three actions:

1. Fully understand the rules, learn all your rights and responsibilities and protect your interests through continued advocacy.
2. Work hand-in-hand with state and local governments to promote consistent and equitable interpretations and application of the Uniform Guidance. These collaborations may help further streamline procedures and improve efficiency, saving more time and money.
3. Be a leader, not a follower. Move to the forefront of efforts to strengthen relationships and increase funding to help further your organization’s mission and objectives. Take steps that are likely to reduce the need to fill the types of gaps in government funding that have occurred in the past.

By doing the necessary homework, not-for-profit managers may be able to secure reimbursements for more administrative expenses than they could previously. And by understanding the intricacies of the OMB Guidance, you can put your organization in a better position to negotiate an indirect cost rate greater than the ten percent de minimis rate.

© 2015