Rose Report: Issue 25

Changes in the OMB Circular A-33

issue-25-pic-story2Some of the most important federal guidance for organizations receiving funds from the government is the Office of Management and Budget’s (OMB) Circular A-133, Audits of States, Local Governments and Nonprofits, which recently underwent a series of revisions. Also known as the Single Audit, OMB Circular A-133 was created in 1996 to ensure that organizations receiving $500,000 or more in federal assistance were spending the funds properly. The organizations included state and local governments, nonprofits, universities, and other institutions. The new revisions are documented in “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” and will go into effect December 26, 2014.

The Single Audit is a thorough examination of an organization’s financial records, transactions, expenses, operations, internal controls, personnel and general workflow. Organizations are categorized as high-risk and low-risk to determine who will receive an audit.

There were several changes made last December to the circular in an effort to streamline compliance processes, including the consolidation of several other circulars with A-133 into a single document. Of the major changes, two are of particular importance. One raises the threshold for single audits from $500,000 to $750,000. This refocuses the audit procedures to fewer organizations, but entities receiving less than $750,000 should still be prepared to have their records examined or audited by other federal agencies and the Government Accountability Office.

Those who are receiving less than $750,000 may not totally be off the hook for the Single Audit. If an organization is working with a sub-recipient, it needs to calculate the total amount received in federal awards. For example, an organization may be getting only $400,000, but if the sub-recipient is receiving $350,000, totaling $750,000 between the two, both are subject to a Single Audit.

Another change that affects organizations governed by the OMB Circular A-133 is the change in indirect rates. Organizations subject to OMB Circular A-133 must negotiate indirect cost rates, which are essential because they make up a large portion of reimbursed grant money from government agencies. Indirect rates are calculated based off indirect costs, which include fringe benefits, overhead and administrative costs. The new change extends the negotiated rates for up to four years or sets a default of 10 percent if there is no negotiated rate. It also requires pass-through entities to honor the indirect cost rate, negotiate a new rate according to federal guidelines, or provide a minimum flat rate. This change ensures that those receiving funds through pass-through entities are also being reimbursed properly.

In addition, vendors will now be referred to as “contractors” going forward, and transparency of an organization bidding on a project will increase. A-133 audits will be posted online to allow grantors to view an organization’s past history and compliance track record. Contractors should prepare for these changes by reviewing their records and taking the time to straighten up their files in case of audit or review by a government agency.