OMB Uniform Guidance: Focus on Effort Reporting
Anne Sullivan Pifer, Nick Gallegos
The recently released Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards from the Office of Management and Budget (2 C.F.R. § 200) is intended to ease the administrative burden and cost of compliance for entities that receive Federal awards, including Institutions of Higher Education. While the final guidance contains some ambiguity given its broad intended application, this breadth also provides some relief to entities with regard to documenting compensation costs charged to federal grants – typically referred to as effort reporting. To achieve these goals the guidance contains several significant changes and instead emphasizes an overall system of internal control to ensure compliance.
The three most significant changes:
- Streamline the requirements and standards across most entities that receive Federal awards
- Eliminate specific methodologies and other requirements
- Emphasize an overall system of internal control
Streamlined Effort Reporting Requirements and Documentation Standards
Streamlining the effort reporting requirements and standards for documentation across the majority of entities (all entities except hospitals) that receive Federal awards is mostly an administrative move that is intended to simplify auditing by agencies and reporting for entities. This reform does not impose any changes on entities and could have little practical impact on their operations since the guidance parallels previous circulars and regulations. There is no indication that institutions that had an acceptable process in place need to change that process. However, in an age of increased collaboration among grant recipients and when individuals may have joint or multiple appointments across entities, this change makes it easier for institutions and individuals to understand and comply with the requirements.
Elimination of Specific Methodologies and Other Requirements
OMB stated its desire to have auditors focus on an institution’s controls rather than on the entity’s adherence to the strict procedural requirements of a prescribed methodology. Eliminating specific methodologies and frequencies, as previously outlined in OMB Circulars A-21, A-87, and A-122, provides entities with more operational flexibility to meet the standards of documentation. The guidance no longer requires that entities state and adhere to one of the specific methodologies outlined in previous regulations (i.e., plan confirmation, after the fact, multiple confirmation) nor must entities perform effort certifications on a specific schedule for different classes of employees. Requirements about certifiers having first-hand knowledge or suitable means of verification have been eliminated, as well.
However, the new standards for documentation incorporate many of the same requirements and guidance from the previously accepted methodologies. As a result, entities have more flexibility in devising their internal controls, such as documented policies and procedures, provided they consistently apply and adhere to those controls to meet the standards.
Emphasis on Internal Controls
As mentioned earlier, OMB stated in the narrative accompanying the published Uniform Guidance its desire to establish clear high standards to ensure that grantee entities have sufficiently strong controls to ensure personnel costs are justifiable and that auditors focus on those controls rather than adherence to the strict procedural requirements of a prescribed methodology. While the vast majority of the newly defined standards are codification of previous requirements, the system of internal control requirements outlined in §200.303 states that acceptable systems of control must comply with the “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States and the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This requirement gives institutions a clear framework to follow when designing their systems of control and provides auditors with the same framework against which to evaluate those systems. While the elimination of specific requirements seems to provide more tactical flexibility for entities to design and implement processes that best fit their own needs and capabilities, the system of internal controls requirements still establishes clear standards for acceptability of those controls.
The issuance of the Uniform Guidance ends the uncertainty around the fate of effort reporting that has existed since early 2011. The final guidance reaffirms many of the previous requirements and expectations, while the stated expectations for internal controls very clearly places the burden on institutions to have well documented policies and procedures to ensure their effort reporting practices satisfy the Federal requirements. The end result is that those institutions that had good practices and systems in place prior to the issuance of the final Uniform Guidance probably should likely not have to make any significant changes to their practices. Those institutions that needed to improve their effort reporting practices did not get a reprieve with the new guidance and should take advantage of this opportunity to shore up their processes and tighten their controls. This would include a comprehensive assessment of their policies, procedures, training, and systems, all of which contribute to a compliant effort reporting program.