It’s not every day the federal government institutes guidance to improve effectiveness, efficiency and outcomes; but that’s exactly what happened on December 26, 2013 when the Office of Management and Budget (OMB) passed the Uniform Grant Guidance. Under this guidance OMB created the Council on Financial Assistance Reform (COFAR) to ensure effective implementation and to establish a suite of metrics to gauge how the guidance has improved audit and administrative efficiencies.
Following is an overview of the first round of metrics compiled by COFAR, and some best practices and suggestions to federal grant recipients on how to implement efficiencies granted in the Uniform Grant Guidance. (Please note that reporting of these statistics is on a 1-year lag and that calendar year 2014 and 2015 information is the most current information available.)
Fixed Amount Awards
Uniform Grant Guidance allows agencies and pass-through entities to provide fixed amount awards and subawards. This grant type is appropriate if the project scope is specific and there is adequate information to establish a fixed award amount based on a reasonable estimate of actual cost. Fixed amount awards can be beneficial to both the awarding agency and the recipient if implemented appropriately. The awarding agency benefits by only paying for established performance milestones and ensuring no federal funds are expended until performance is met. The grant recipient should see added efficiency during the audit and monitoring process as there is no governmental review of the actual costs incurred by the recipient in achieving the performance objectives.
The number of fixed amount awards issued from calendar year 2014 to 2015 increased by 43.5% and this is expected to continue to increase as agencies and pass-through organizations become more familiar with these awards. Awarding agencies and recipients should be aware of the following:
Considerations of awarding and pass-through agencies:
- Pro: Money will only be spent for successful program outcomes.
- Pro: Monitoring activities are more efficient due to lack of review of actual costs.
- Con: During performance negotiation process, award recipient is incentivized to “low-ball” expected outcomes and has little incentive to achieve outcomes over and beyond the base expectations.
Considerations of recipients and sub-recipients:
- Pro: Reduced monitoring and audit burden due to lack of review of actual costs.
- Pro: Ability to negotiate program outcomes and payment milestones.
- Con: Underperformance could result in not receiving payments to cover costs of operating the program.
Indirect Costs
Uniform Grant Guidance provided for some new efficiencies for entities that allocate indirect costs to federal cost objectives. One of the biggest changes provides the option for a grant recipient to apply for a one-time extension of its current federally negotiated indirect cost rate for a period of up to four years. This extension is subject to the approval of the cognizant agency. If used by a federal grant recipient, the extension process permits the recipient to negotiate indirect cost rates once every five years. The federal grant recipient will be able to free up time spent on these negotiations to focus on the performance objectives of the grant and operate all federal grants more efficiently.
The number of extensions to indirect cost rate agreements more than doubled from calendar year 2014 to 2015. All grant recipients with indirect cost rates that haven’t already done so should consider asking for this extension.
Another change to indirect costs involves the ability for a grant recipient that has never had an indirect cost rate to apply a de minimis indirect cost rate of 10% to all grants. Switching to this method of allocating indirect costs would put less administrative burden on grant recipients that currently use a cost allocation plan. While this change has the ability to create efficiencies, grant recipients should be cautious when implementing this change to ensure the 10% indirect cost rate will be sufficient to cover all of the entity’s indirect costs.
Personnel Activity Tracking
One of the most talked about changes in the Uniform Grant Guidance was the removal of prescriptive guidance on the tracking and charging of salaries to federal grants. The new grant guidance migrates the requirements away from the old prescriptive guidance of employees completing and signing personnel activity reports to a principles-based concept that allows all federal grant recipients to develop a system of internal controls to track and allocate personnel activity. This new system of internal controls does not have to include personnel activity reports, but must adhere to standards of documentation that are outlined in the Uniform Grant Guidance.
All grant recipients should review the areas and departments in their organizations where personnel charge time to federal grants. Recipients should be on the lookout for duplicative time entry or systems that are already in place that track activity of personnel, and where they exist, consider changing the process of tracking and allocating time to federal grants. When making a change, the recipient should ensure they adhere to the standards of documentation outlined in the Uniform Guidance. Since the guidance is no longer prescriptive, recipients must develop written policies and procedures documenting the tracking and allocation process.
It is important to note it is not necessary to change processes in order to conform with the Uniform Grant Guidance. Recipients may find the current method of completing personnel activity reports is the most efficient process for them. If this process has complied with the old guidance it will continue to comply with the Uniform Grant Guidance. However, it will still be necessary for recipients to have a process to track actual time spent on grants and to document this process with written policies and procedures that are incorporated into the recipient’s internal controls.
Risk Assessment of Subrecipients
Pass-through entities can generate efficiency in the subrecipient monitoring process through a new requirement to perform risk assessments of subrecipients prior to issuing sub awards. The Uniform Grant Guidance requires pass-through entities to evaluate each subrecipient’s risk of noncompliance with grant requirements. The Uniform Grant Guidance is silent on the exact methods of the risk assessment, but great efficiencies can be gained by pass-through entities that appropriately establish a good risk assessment process and use those assessments in the subrecipient monitoring process.
Currently, most pass-through entities monitor all subrecipients the same. All subrecipients are placed on a monitoring schedule and each monitoring visit uses the same compliance checklists. By embracing this new risk assessment process, pass-through entities can reduce the amount of time monitoring low-risk subrecipients and focus the majority of their monitoring time assisting high-risk subrecipients in meeting compliance requirements and program objectives.
For example, pass-through entities could place subrecipients into three pools and tailor activities to each of those subrecipients:
High-Risk Subrecipients
- More frequent monitoring
- Apply specific grant conditions identified in the Uniform Grant Guidance
- Provide technical assistance
Moderate-Risk Subrecipients
- Maintain normal monitoring schedule
- Possible specific grant conditions
Low-Risk Subrecipients
- Limited monitoring/desk review
- Visit to observe and report on best practices
By defining and implementing a risk assessment process and incorporating the process into subrecipient monitoring, a pass-through agency can achieve overall efficiency while also using focused monitoring to improve program compliance and outcomes.
The Uniform Grant Guidance includes many opportunities for recipients, subrecipients and pass-through entities to improve the efficiency of their grants management. If you would like to discuss your specific grants management process and identify key improvement areas, professionals at Clark Schaefer Hackett are ready to help.
