The Office of Management and Budget (OMB) issued its “Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements” report in February 2013.

While the proposed changes for Administrative Requirements and Cost Principles have not been enacted yet, here is what may be coming in the near future:

Part II: 19 Reforms to Cost Principles

#1 Create a consolidated, uniform set of cost principles with minimal variation between types of entities

Status: Consolidated regulations being drafted, but still soliciting comments on the potential impact particularly with regard to negative effects.

#2 Use flat rates for indirect costs rather than negotiated rates

Status: Based on feedback the OMB is looking at the following changes:

• Allow the option of a one-time extension of negotiated rates for an additional four years

• Provide for a minimum 10% flat rate of MTDC for organizations that haven’t yet entered into a negotiated indirect cost rate

• Require pass-through entities to honor negotiated rates, or minimum flat rates as appropriate.

#3 Review alternatives to time and effort reporting

Status: Eliminate some examples and update to reflect automated payroll processing and its effect on internal controls. They are soliciting comments from both recipients and auditors on the potential changes.

#4 Revise reimbursements to institutions of higher learning for utility costs

Status: Looking at changing the current method to allow the choice of 2 new methods to improve accuracy.

More Changes:

#5 Clarify that directly allocable administrative support costs can be classified as direct costs

#6 Clarify that certain costs such as computers which do not meet the $5000 federal threshold for equipment can be properly classified as supplies

#7 Harmonize that $5,000 is the allowable maximum residual inventory of unused supplies (including computers) as long as the cost was properly allocable to the original agreement at the time of purchase

#8 Eliminate the requirements to run cost reasonableness studies for large research facilities

#9 Eliminate restrictions concerning recovering depreciation costs or use allowances as part of indirect costs

#10 Eliminate the requirements for an interest cost lease-purchase analysis and notice requirement for moving federally- sponsored activities from a debt-financed facility

#11 Eliminate particular specification for printed ‘‘help-wanted’’ advertising to reflect 21st century conditions

#12 Allow for budgeting of contingency funds for certain awards to be consistent with GAAP treatment

#13 Eliminate the requirement for institutions of higher learning to file a separate cost accounting disclosure and beef up the requirements for all recipients to document cost accounting practices

#14 Allow costs for excess or idle capacity of certain facilities, in anticipation of usage increases

#15 Allow costs for efforts to collect improper payment recoveries

#16 Disallow costs for gains and/or losses due to speculative financing arrangements The Minimalist Guide

#17 Provide an example of the certificate of indirect costs for non-profit organizations

#18 Provide an example of the indirect costs proposal documentation requirements for non-profit organizations The Minimalist Guide

#19 Additional areas for consideration:

• Recognize that federal agencies do make exceptions to the policy of reimbursing indirect costs at the same rate for all agencies

• Provide that voluntary cost-sharing should not be a factor in evaluating research proposals and state cost sharing requirements (when they exist) should be consistent for all applicants

• Provide additional specifics regarding cost principles for information technology systems and intangible property interest The Minimalist Guide

• Explicitly allow family-related leave and dependent care which follows the organization’s policy and are consistent with the basics of cost principles regulations

• Broaden the application of participant support requirements beyond non-profit organizations to cover other types of entities.

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Author:

Lucy Morgan CPA, MBA

CEO, Compliance Warrior

Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.