In this article, the authors discuss a rule proposed by the Office of Management and Budget that would affect recipients and subrecipients of federal financial assistance by changing everything from basic definitions of terms such as "federal financial assistance" to the standard for mandatory disclosures, the threshold for the disposition of equipment and supplies, audit requirements, socioeconomic policies, prior approval requirements, the treatment of indirect costs, and more.
The Office of Management and Budget (OMB) has issued a proposed rule1 to revise sections of OMB Guidance for Grants and Agreements. OMB's proposed guidance provides detailed insight on the changes OMB plans to implement. The changes included therein reflect comments OMB received from federal agencies and the public in response to its Notice of Request for Information.2
OMB is proposing changes to 2 C.F.R. Parts:
- 1 (About Title 2 of the Code of Federal Regulations and Subtitle A);
- 25 (Universal Identifier and System for Award Management);
- 170 (Reporting Subaward and Executive Compensation Information);
- 175 (Award Term for Trafficking in Persons);
- 180 (OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Non-procurement));
- 182 (Governmentwide Requirements for Drug-Free Workplace (Financial Assistance));
- 183 (Never Contract with the Enemy); and
- 200 (Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards).
As a whole, OMB's revisions intend to advance the following objectives:
- Incorporating statutory requirements and administration priorities;
- Reducing agency and recipient burden;
- Clarifying sections that recipients or agencies have interpreted in different ways; and
- Rewriting applicable sections in plain language, improving flow, and addressing consistent use of terms
These changes seek to make the rules more flexible and make compliance with the rules easier. This article discusses the major categories of proposed changes.
PLAIN LANGUAGE REVISIONS
Many of OMB's proposed changes alter the guidance language used to increase clarity and consistency. For example, in Part 200 Subpart A, OMB proposes to alter the definition of the term "Federal financial assistance" to include assistance received or administered by "recipients or subrecipients" rather than "non-Federal entities."
MANDATORY DISCLOSURES
Under current guidance, recipients and subrecipients (i.e., non-federal entities) or federal award applicants must disclose all violations of federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the federal award.3 OMB proposes to incorporate the Federal Acquisition Regulation (FAR) "credible evidence" standard to the mandatory disclosure requirement for grants and cooperative agreements.
Under the proposed guidance, recipients or subrecipients would be required to disclose any credible evidence of a violation of federal criminal law potentially affecting the federal award, or a violation of the civil False Claims Act. The disclosure would need to be in writing to the federal awarding agency and pass-through entity (if applicable) as well as that agency's Office of Inspector General.
THRESHOLDS
The proposed guidance raises the threshold amount for the disposition of equipment and supplies. Current guidance provides that post award, equipment with a current fair market value of $5,000 or less may be retained by the non-federal entity.4 The proposed guidance raises this threshold to $10,000. Current guidance also provides that the non-federal entity must retain or sell residual supplies exceeding $5,000 in aggregate value that are not needed for another federal award.5 The proposed guidance also raises this threshold to $10,000.
OMB also intends to make an upwards adjustment on the exclusion threshold of subawards for modified total direct cost base calculations used in allocating recipients' indirect costs. Currently, modified total direct costs only include up to the first $25,000 of each subaward, specifically excluding the portion of each subaward in excess of $25,000. The proposed guidance increases the threshold for exclusion from $25,000 to $50,000.
OMB also proposes to remove the Simplified Acquisition Threshold (SAT) limit for fixed amount subawards. Under the current rule, pass-through entities were limited to providing subawards based on fixed amounts up to the SAT with prior written approval from the agency.6 While a recipient's use of fixed amount subawards would remain subject to the prior written approval of the agency, the proposed revision would provide agencies and recipients with more flexibility in making programmatic and budgetary decisions.
Under current guidance, a non-federal entity that expends $750,000 or more in federal awards during the entity's fiscal year must have an Single Audit (or program-specific audit) conducted for that year.7 OMB proposes to raise the audit threshold from $750,000 to $1,000,000.
AUDIT REQUIREMENTS
In addition to increasing the Single Audit threshold, OMB proposes several other changes to audit requirements. Auditees are required to prepare a schedule of expenditures of federal awards (SEFA) for the period covered by the auditee's financial statements.8 Current guidance dictates what the schedule must include. OMB proposes to add a requirement that, for audits covering multiple recipients, the schedule must identify the recipient of the federal award. The awarding federal agency is responsible for certain audit-related functions for the awards it makes, including submitting annual updates to the compliance supplement to OMB.9 OMB proposes updating the awarding federal agency responsibilities to encourage agencies to engage with external audit stakeholders and NSAC prior to submitting compliance supplement drafts to OMB.
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* The authors, attorneys with Wiley Rein LLP, may be contacted at bwalsh@wiley.law, gpetel@wiley.law and mhuston@wiley.law, respectively.
Footnotes
1. https://www.federalregister.gov/documents/2023/10/05/2023-21078/guidance-for-grants-and-agreements.
2. 88 FR 8480 (Feb. 9, 2023).
3. 2 C.F.R. § 200.113.
4. 2 C.F.R. § 200.313.
5. 2 C.F.R. § 200.314.
6. 2 C.F.R. § 200.333.
7. 2 C.F.R. § 200.501.
8. 2 C.F.R. § 200.510.
9. 2 C.F.R. § 200.513.
Previously published in Pratt's Government Contracting Law Report
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