Spring 2015 issue of Horizons

PUBLIC SECTOR

Cost Principles Two of the most critical elements involved in managing federal awards are the determination of the extent to which indirect costs may be charged to an award, and the tracking of time incurred by employees for the purpose of charging salaries and benefits to the award. The UGG simplifies the requirements governing both of these areas and contains other minor changes to cost principles governing federal awards. ∙ Entities that have a negotiated indirect cost rate may obtain an extension of the rate for up to four years. This extension is only permitted once per negotiated rate cycle, requires approval of the entity’s cognizant agency and assumes there have been no major changes to the entity’s indirect cost rate structure. ∙ Entities that have never had a negotiated indirect cost rate may utilize a flat rate of 10%. This flat rate is only available to entities with less than $35 million in federal expenditures. ∙ Greater flexibility has been provided regarding time and effort reporting requirements. Instead of mandating the specific types of records that must be maintained, the UGG instead sets forth the internal control elements that must exist within an entity’s time and effort reporting structure. As long as these internal control elements are present, the entity’s time and effort records may be in whatever form the entity sees fit. ∙ Time and effort records may express an employee’s distribution of time in terms of percentage as opposed to hours. However, as has always been the case, budgeted estimates of an employee’s time distribution are unacceptable; the distribution must be based on actual results. The following represent the key changes in the UGG to cost principle requirements:

∙ The threshold below which interest earnings on federal awards may be retained has been increased from $250 to $500. Additionally, for interest earnings above this threshold, the process of remitting the earnings to the federal government has been streamlined. All remittances must be made annually to the Department of Health and Human Services. Previously, entities were required to remit the interest “promptly” to the respective federal awarding agency for each grant. ∙ The UGG defines protected personally identifiable information (PII) and requires grantees to take reasonable steps to safeguard this information. In response to these changes to administrative requirements, your organization should take the following action steps: ∙ Determine that your procurement procedures are in compliance with the UGG. It should be noted that the OMB has granted a one-year extension for compliance with the new procurement requirements, in other words, until the entity’s first fiscal year end after December 26, 2015. ∙ Using the new criteria in the UGG, make contractor versus sub-recipient determinations. ∙ Determine whether you are providing sub-recipients the required information and that you are performing required monitoring steps. ∙ Evaluate your internal control structure and whether it measures up to COSO or the Green Book. ∙ Evaluate whether you are managing property purchased with federal awards in compliance with the revised property management standards.

∙ Evaluate whether you are safeguarding PII as required.

page 44 | horizons Spring 2015