GM 12-046

OMB Advance Notice of Proposed Guidance on Reform of Federal Grant Policies, Including Single Audit Act and Cost Principles

The Office of Management and Budget (OMB) has published in the attached February 28, 2012, FEDERAL REGISTER notice an Advance Notice of Proposed Guidance (Proposed Guidance) regarding the possible reform of federal grant policies, including audits and cost principles. We refer you especially to Section B of the notice which would reform Circular A-87 which applies to tribes. The OMB is requesting feedback from the public on the attached preliminary reform ideas by March 29, 2012. Based on this feedback and ongoing discussions with federal agencies on this matter, OMB will publish for comment an amended version of the Proposed Guidance later this year.

The OMB undertook this effort in response to direction provided in Executive Order 13520 of November 23, 2009, Reducing Improper Payments and the Presidential Memorandum of February 28, 2011, Administrative Flexibility, Lower Costs, and Better Results for State, Local, and Tribal Governments. The OMB explains that the goals of any reforms are to: strengthen federal oversight of federal grant dollars; eliminate unnecessary and duplicative requirements; standardize information collections across agencies; adopt a risk-based model for Single Audits; and provide new administrative approaches for determining and monitoring the allocation of funds.

Section A – Reforms to Audit Requirements (Circulars A-133 and A-50)

Under Section A of the Proposed Guidance it is unclear whether the OMB intends the Proposed Guidance to apply to Indian tribal governments. At present, OMB Circular A- 87 governs cost principles for federal awards to state, local and tribal governmental units. Section A does not refer to Circular A- 87 but proposes to reform the audit requirements under OMB Circulars A-133 and A-50. The reform would establish three levels of scrutiny (one for awards less than $1,000,000, one for awards between $1,000,000 and $3,000,000 and one for awards more than $3,000,000).

Section 5(a)(2) of the Indian Self-Determination and Education Assistance Act (ISDEAA) requires each tribe receiving funds under that Act to comply with the annual audit required by the Single Audit Act. It appears that the Proposed Guidance would not change this requirement but it could be changed by later regulations which would extend the three tier approach to tribes. In that case, federal requirements could relieve the first group of tribes from the audit requirement and impose a more stringent set of requirements on the third group (with awards greater than $3,000,000). In any event, the impact of the Proposed Guidance is not clear and the intent should be clarified as to its application to tribal governments. (See page 11780 of the attached notice.)

Section B – Reform Principles (CircularsA-21, A-87, and A-122,
and Cost Principles for Hospitals)

OMB proposes to combine Circulars A-21, A-87, and A-122 in a single consolidated document. This carries through on the point noted above that tribes might face different audit requirements as the Proposed Guidance says that there will be only “limited variations by types of entity.” No longer would tribes and their accountants be able to rely only on Circular A-87. In addition, under Section B flat rates can be used for indirect costs instead of negotiated rates which might also be detrimental for some tribes (but possibly not for others). Tribes are urged to comment on how this new rule would be applied. (See page 11781 of the attached notice.) The Proposed Guidance indicates that the overall goal is to reduce indirect costs. We attended a Question and Answer session with OMB on March 15, 2012, and OMB stated that it wants to reduce the cost of negotiating indirect costs with the intent of reducing costs to both the tribes and the federal government. They urge tribal feedback on this idea. The flat rate would not apply to contract support costs as a whole but only to indirect costs. If tribes are allowed to opt for a flat rate the opt-in would be for a specific time period. OMB has indicated that it is too early to say whether the right to opt for negotiations, instead of a flat rate, would continue indefinitely.

Also under Section B allocable administrative support for specific projects would be charged as a direct cost. OMB indicates this is not intended to result in a net increase in costs. Use of indirect costs for depreciation or use allowances would be permitted in order to reduce paperwork. Budgeting for contingency funding for construction, facility upgrade or for intelligence technology systems would be permitted. OMB would allow for excess or idle capacity in consolidated data centers, telecommunications and public safety facilities in anticipation of future increases provided the grantee has a multi-year plan for reaching full capacity.

Section C – Reforms to Administrative Requirements (the Government-wide Common Rule Implementing Circular A-102; Circular A-110; and Circular A-89)

It is unclear whether the changes proposed in Section C are meant to apply to Indian tribes. If they do, or are made applicable to them in the future, there is a serious conflict with the provisions of the Indian Self Determination and Education Assistance Act (ISDEAA) in that Section C would require pre-award consideration of each proposal’s merit and each applicant’s financial risk. (See page 11784 of the attached notice.) Under the ISDEAA a tribal proposal can only be turned down by the Interior Department or the Indian Health Service based on declination requirements spelled out in that Act. (25 USC 450f (a)(2)). These do not include the grounds stated in Section C.

The last page of the notice lists questions on which OMB is requesting comment. In addition, OMB welcomes comments on related matters.

Please let us know if we may provide additional information on the OMB Advance Notice of Proposed Guidance on Reform of Federal Grant Policies or assistance in preparing comments.