If your organization receives federal funding, you’re probably aware that those funds are by no means “free money.” Federal funding nearly always imposes significant compliance requirements on recipient organizations, which may or may not line up with your organization’s current policies and procedures. Even if your organization has been receiving federal funding for years, the compliance requirements are changing. If you haven’t already, now is the time to familiarize yourself with the impact of the new OMB Super Circular (2 CFR Part 200) rules that became effective for federal funding awarded after December 26, 2014.
The new Super Circular introduces changes to standards on procurement, fixed price awards, time records, internal controls, indirect cost rates and the single audit threshold. If your organization’s federal funding is below $500,000, you may not need an audit. However, you do still need to comply with the new rules and make sure your organization’s internal policies and procedures reflect the federal requirements. Here are a few highlights, in general terms:
- Procurement procedures must demonstrate fair practices that promote competitive bids for purchases over $3,000 and prevent conflicts of interest. Purchases in excess of $150,000 are subject to some very specific procedures for how competitive bids should be acquired and evaluated.
- Computers and similar devices will be considered supplies instead of equipment if the acquisition cost is less than the lesser of the organization’s capitalization threshold or $5,000.
- Internal controls are specifically addressed and require that organizations establish measures for safeguarding personally identifiable information and other confidential information.
- A higher level of subrecipient monitoring and risk assessment is expected.
- Guidance on charging certain administrative costs directly to grants is provided.
- A de minimis 10% indirect cost rate is allowed for organizations that have never negotiated an indirect cost rate.
- Time and effort reporting for wage/benefit reimbursement by federal grants should be adequate to substantiate the charges to each grant. A timesheet system is not necessary, but is certainly a good idea.
- Paperless data storage is encouraged.
In addition to the Super Circular requirements, some government funding comes with cash balance requirements to ensure the organization is not dependent on a single funding source and will not experience significant hardship if funding is delayed. Most funders want organizations to obtain funding from multiple sources in order to support a particular program. Other grant-specific requirements may be imposed as well – be sure to read the expectations outlined in the grant award letter before the funding begins!
Financial policies and procedures will typically be subject to review during periodic desk reviews or program audits by the funding source. Organizations should update policies and procedures at least annually as a best practice measure, but be aware that grant reviewers will likely request access to policies as well. Be sure you are doing what the policies say you should be doing! It’s not enough to just write a policy, it must be enforced for everyone in the organization.
Government funding is typically restricted for a specific purpose and often requires matching funds. Systems, both procedural and software, must be in place to adequately track all financial activity so that you can identify which expenses are being paid with which funds and which expenses are matching funding for each grant. Don’t wait until you have a list of audit or review findings to create a more robust chart of accounts that can handle your reporting needs.
Accounting and finance personnel should work closely with the development department and program managers to be aware of all funding requirements, whether the funding is from a federal source or not. Many local government and private foundation funders will impose additional restrictions and compliance requirements on recipient organizations, especially related to outcomes measures. With more emphasis placed on outcomes, many organizations are trying to incorporate non-financial outcomes measures into financial performance reporting for a complete picture of the organization’s sustainability. In the nonprofit world, sustainability is always a balance of money and mission.
