Proposed Changes from the OMB

In 2014, the Office of Management and Budget (OMB) issued the Uniform Guidance and well let’s just say it took us a while to adapt. Lo and behold, more changes are on the horizon. In late January of 2020, the OMB released proposed changes to Title 2 of the Code of Regulations (CFR), which is more commonly known as 2 CFR. The proposed changes were released in a Federal Register (FR) notice of Proposed Guidance entitled, Guidance for Grants and Agreements. The proposed guidance revises 2 CFR Part 25 – Universal Identifier and System for Award Management; Part 170 – Reporting Subawards and Executive Compensation Information; Part 200 (Uniform Guidance) – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; and adds Part 183 – Never Contract with the Enemy. School districts and charter schools will need to pay close attention to 2 CFR 200 (i.e. EDGAR) changes and consider the effects on its federal grant compliance.

According to the guidance in 2 CFR 200.109, the OMB must review the Uniform Guidance every five years for changes that should be made to the existing guidance. The objectives of the proposed revisions are to reduce the burden on the recipients, provide additional guidance on implementing new statutory requirements and improve the management, transparency, and oversight of Federal financial assistance.

The proposed changes are divided into three main sections:

• Part I – Support Implementation of the President’s Management Agenda and Other Administrative Priorities;
• Part II – Meeting Statutory Requirements and Aligning 2 CFR with Other Authoritative Source Requirements; and
• Part III – Clarifying Requirements Regarding Areas of Misinterpretation

This article provides a brief summary of some of the proposed changes that might be of interest to readers.

Changes to Procurement

One of the most anticipated changes included in the OMB’s proposed changes is to revise the procurement thresholds that were provided by the 2017 and the 2018 National Defense Authorization Acts (NDAA). The NDAA 2017 and 2018 increased the micro-purchase threshold from $3,500 to $10,000, and increased the simplified acquisition threshold from $100,000 to $250,000. These changes would help alleviate some of the burden associated with the Uniform Guidance procurement standards. Procurement by micro-purchase (2 CFR 200.67) allows recipients to make purchases of supplies or services, below the proposed $10,000 threshold, without soliciting price or rate quotes if the recipient organization considers the price reasonable. The simplified acquisition threshold (2 CFR 200.88) allows recipients to make purchases of property or services using small purchase methods not to exceed the proposed threshold of $250,000. Note, that the Texas Education Agency had already adopted these thresholds. The only requirement was that entities had to update their procurement manuals if they wished to take advantage of the new thresholds.

Merit Review

The proposed changes from the OMB will help strengthen the merit review and notices of funding opportunities found in 2 CFR 200.203 and 2 CFR 200.204. Agencies will be required to extend their merit review process to all grants and cooperative agreements, including discretionary grants. The proposed changes also clarify the objective of the merit review processes by indicating the recipients should be selected that are most likely to be successful in delivering results based on the program objectives and the merit review process should be designed accordingly. Additionally, Federal award agencies are required to review their selection criteria for effectiveness.

Domestic Preferences for Procurement

To support the policies expressed in Executive Order 13788 (Buy American and Hire American) and Executive Order 13858 (Strengthening Buy American Preferences for Infrastructure Projects, the OMB is proposing to add 2 CFR 200.321, Domestic Preferences for Procurements. Two CFR 200.321 encourages Federal award recipients, if appropriate and to the extent permitted by law, to utilize goods, products, and materials produced in the United States.

Changes in Terminology

The OMB’s proposed changes include changes to terms used throughout 2 CFR 200 in order to standardize terminology and promote consistency in the terminology used by Federal awarding agencies. Some examples include amending the definition of period of performance, Compliance Supplement, management decision, questioned costs, and termination; adding a definition of budget period, renewal, discretionary award, highest level owner, notice of funding opportunity, and subsidiary. The proposed changes also include replacing the term obligationwith financial obligation or responsibility and replacing the term standard form with common form. Additionally, the definitions Catalog for Federal Domestic Assistance (CFDA) number and CFDA program title have been replaced with Assistance listing number and Assistance listing program title. The complete list of definitions can be found in 2 CFR 200.1.

Improving the Approach to Performance and Risk

One of the goals of the President’s Management Agenda is to shift the balance between compliance and performance by streamlining compliance requirements for programs that recipients may find burdensome. The OMB’s proposed changes emphasize the importance of focusing on performance throughout the lifecycle of an award to achieve program results. Section 2 CFR 200.202, Program Planning and Design, was added to explicitly require practices that are already expected of Federal awarding agencies. Those requirements include: establishing clear program goals and objectives in order to achieve the intended results. The program goals, objectives, and indicators must be published in the assistance listing. Additionally, program design must occur, to the extent permitted by law, before the applications are solicited. Along with the changes in planning and design, the OMB proposed changes to specific conditions listed in 2 CFR 200.207. Those changes allow Federal awarding agencies to apply less restrictive conditions, based on risk, and require the Federal awarding agencies to ensure the specific conditions included in the Federal award are consistent with the program design and include clear performance expectations of the recipients.

Removing Non-Authoritative Guidance

The OMB has added 2 CFR 200.211(e), which prohibits Federal awarding agencies to include references to non-binding guidance (guidance that has not gone through appropriate public notice and comments) in the terms and conditions of the award. The reference to non-binding guidance includes references to promising practices and other documents that the inclusion, or reference to, implies threat of enforcement action. Although the non-binding guidance may not be included in the terms and conditions of the awards, they may be provided outside the terms and conditions and used for reference purposes.

Closeout Provisions

With so many lessons learned from the implementation of 2 CFR part 200 and the Grants Oversight and New Efficiency Act (GONE Act), there are several proposed changes to 2 CFR 200.343. The OMB’s proposed changes were made to promote timely closeout and to improve the accuracy of the final closeout reports. The changes increase the number of days from 90 to 120 for recipients to submit closeout reports and liquidate all financial obligations. However, sub-recipients will still be required to submit their closeout reports to the pass-through entity within 90 days. Federal awarding agencies are also required to make every effort to complete closeout actions (including closeout actions in the grants management and payment systems) no later than one year after the end of the period of performance unless otherwise directed by authorizing statutes. Additionally, the proposed changes indicate, when a recipient does not submit their final closeout reports, the Federal awarding agency reports the recipient as a failure to comply with the terms and conditions of the award to the OMB-designated integrity and performance system (currently FAPIIS).

Audit Quality Project

Due to the substantial changes in the 2019 Compliance Supplements, the OMB has proposed to change the date of the government-wide audit quality project that must be performed every 6 years beginning with audits submitted in 2021. Prior to the proposed changes, this project was to begin with audits submitted in 2018. The project was established to determine the quality of single audits by estimating the number of single audits that conform to applicable requirements, standards, and procedures. Additionally, recommendations will be made to address any audit quality issues, in addition to, recommendations for any changes to applicable requirements, standards and procedures indicated by the results of the project.

Use of the De Minimus Rate

Currently, the de minimus rate included in 2 CFR 200.414(f) can only be used by recipients that have never received a negotiated indirect cost rate. The proposed revision to 2 CFR 200.414(f) allows the use of the de minimus rate of 10% of modified total of direct cots (MTCD) to all non-Federal entities (with the exception of those described in Appendix VII to Part 200) and clarifies that when a non-Federal entity is using the de minimus rate, it is not required to provide proof of cots that are covered under that rate. The OMB’s changes also adds 2 CFR 200.414(h), which indicates that all rate agreements from non-Federal entities must be available publicly on an OMB-Designated Federal website.

Prohibition of Certain Telecommunication and Video Surveillance Services or Equipment

To align with provisions of the NDAA 2019, OMB proposed changes add 2 CFR 200.216, Prohibition on Certain Telecommunication and Video Surveillance Services or Equipment. This section prohibits Federal award recipients from using government funds to enter into contracts (or extend or renew contracts) with entities that use covered telecommunications equipment or services, as described in section 889 of the NDAA of 2019. This prohibition applies even if the contract is not intended to procure or obtain, any equipment, system, or service that uses covered telecommunications equipment or services.

Never Contract with the Enemy

The OMB’s proposed changes adds 2 CFR Part 183, Never Contract with the Enemy, which only applies to grant and cooperative agreements that exceed $50,000, are performed outside the United States to a person or an entity that is actively opposing the United States or coalition forces involved in a contingency operation in which the Armed Forces are actively engaged in hostilities.

Information on a Non-Federal Entity’s Parent, Subsidiary, or Successor Entity

In order to meet statutory requirements, the OMB is proposing changes to 2 CFR Part 25 and 200. These changes will require financial assistance applicants to provide information in the System for Award Management (SAM) about their immediate owner and highest-level owner and subsidiaries, as well as on all predecessors that have been awarded any Federal contract, grant, or cooperative agreement within the last 3 years, if applicable. Additionally, prior to awarding any grant or cooperative agreements, Federal agencies must consider all of the information in the Federal Awardee Performance and Integrity Information System (FAPIIS) with regard to an applicant’s immediate owner.

Increase Transparency

To increase transparency of Federal spending, OMB is proposing that 2 CFR part 25 and 170 be applicable to other types of financial assistance that Federal agencies receive or administer, such as loans, insurance, contributions, and direct appropriations; to raise the reporting thresholds for sub-awards that equal or exceed from $25,000 to $30,000; and allow agencies to exempt from the registration requirements, a foreign entity applying for or receiving and award, less than $100,000 (up from $25,000), for a project or program performed outside the United States.

Aligning 2 CFR with Authoritative Sources

The OMB’s proposed changes will align the guidance from 2 CFR 200 to recent GASB pronouncements. The changes in 2 CFR 200.431 were due to the issuance of GASB Statement No. 68, Accounting and Financial Reporting for Pensions which amends GASB Statement No. 27 and allows non-Federal entities (NFE) to claim only estimated pension costs in their financial statements. The proposed changes will allow non-Federal entities to continue to claim pension costs that are both actual and funded. The changes in the definitions in 2 CFR 200.12, 200.59, and 200.449 are due to the changes in GASB Statement No. 87, Leases.

Clarifying Requirements

In addition to the changes discussed in the paragraphs above, the OMB proposes a number of clarifications about key aspects of the guidance contained in the Uniform Guidance. The following clarifications are included in the proposed changes to ensure consistent interpretation of the guidance and reduce the burden on recipients:

• Responsibilities of the Pass-Through Entity To Address Only a Sub-recipient's Audit Findings Related to Their Subaward (2 CFR 200.331);
• Response to Frequently Asked Questions Related to the Prior Release of 2 CFR; and
• Applicability of Guidance to Federal Agencies (2 CFR 200.101)

Readers can find a complete discussion of the proposed changes located in the Federal register at https://www.federalregister.gov/documents/2020/01/22/2019-28524/guidance-for-grants-and-agreements. Additionally, the OMB has provided readers a document with tracked changes of the proposed guidance at https://www.performance.gov/CAP/innovation-sessions/Grants-CAP-Goal-Proposed-2CFR-Revision1.pdf. Remember that the changes are merely proposed changes and the OMB is asking for feedback, which is due electronically by March 23, 2020.

Editor's Note - When the proposed changes are adopted, TASBO will provide training in the appropriate areas to members.