Key Takeaways:
- Non-profits must adhere to the Administrative Requirements, Cost Principles, and Audit Requirements (Uniform Guidance) set forth by the Office of Management and Budget.
- Allocate direct and indirect costs appropriately when dealing with government contracts.
- Report time and effort accurately when allocating salaries, wages, and benefits to a federal award.
- Supervise subrecipients by conducting a pre-award assessment and implementing proportionate monitoring procedures.
- Anticipate close examination as single audits may be required if $750,000 or more in federal awards is expended during a fiscal year.
If your non-profit organization receives substantial financial assistance from the federal government, it might be required to adhere to the Administrative Requirements, Cost Principles, and Audit Requirements (Uniform Guidance) set forth by the Office of Management and Budget. Additionally, if your organization expends $750,000 or more in federal awards during a fiscal year, it is likely to undergo a single audit. This audit entails an annual examination of your organization’s financial statements and its adherence to federal grant fund requirements. So, it’s crucial to ensure that you are in compliance with the regulations governing government grants and contracts.
Allocate Direct and Indirect Costs
Government agencies that pay non-profits to deliver services must reimburse them for direct and reasonable indirect costs. Direct costs are specifically associated with a defined “final cost objective” or assigned to activities with a high level of accuracy. On the other hand, indirect costs are related to common or shared objectives and cannot be easily attributed to a specific final cost objective.
Consistency is key when treating costs incurred for the same purpose under similar circumstances, whether they are classified as direct or indirect. If a particular cost is considered direct for one federal contract, it can’t be categorized as indirect for another contract.
It’s important to exercise caution when dealing with indirect cost rates, regardless of whether they are negotiated or based on the de minimis rate of 10% of modified total direct costs (MTDC). You’re not allowed to charge more than the actual amount incurred for indirect costs, even if it falls below the assigned percentage of MTDC.
Report Time and Effort carefully
Accurate documentation of “time and effort” is essential when charging salaries, wages, and benefits to a federal award. It is important to ensure that the documentation aligns with the actual work performed, rather than relying on budgeted amounts. Your reporting should accurately reflect the time and effort expended by individuals.
When recording time and effort, it is crucial to do so for specific cost objectives, not just for the overall award. It’s not permissible for an employee to report, for example, 80% of their time for one objective and 40% for another, even when considering overtime.
Note that 100% of an employee’s time charges must equal the employee’s compensated time. This requirement applies even in cases of overtime, where the distribution of time across objectives should still align with the actual work performed.
Supervise Subrecipients
If your non-profit organization acts as a pass-through entity, distributing a portion of a federal award to other entities, you must oversee and monitor those subrecipients. Before granting the subaward, you’ll need to conduct a pre-award assessment to evaluate the subrecipient’s likelihood of complying with the requirements associated with the subaward.
Subsequently, appropriate monitoring procedures should be determined to ensure compliance. It’s crucial to tailor the assessment individually, rather than relying solely on the subaward’s monetary value as a basis for assigning risk levels. Factors such as the location of the work, the subrecipient’s internal controls, and their existing relationship with your organization should be taken into account. The monitoring procedures should be proportionate to the level of risk involved.
Anticipate Close Examination
While adhering to the regulations outlined in the Uniform Guidance may appear burdensome, it holds significant importance. If you receive notification of a single audit, please reach out to us for assistance in preparing for the scrutiny. It’s crucial to understand that even if your organization does not pass the audit, you will likely be granted a sufficient period to rectify any issues that are identified.
