The White House Office of Management and Budget (OMB) released its long-anticipated overhaul of federal grants policies and procedures, and charitable nonprofits achieved several important goals that will strengthen organizations performing work in communities on behalf of governments and the nonprofit community.
Titled "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards," the final guidance will require state and local governments using federal funds to reimburse nonprofit contractors and grantees for reasonable indirect costs, sometimes called administrative or overhead expenses. The guidance will allow nonprofits to focus more on delivering services in their communities, and spend less money on wasteful paperwork by raising the Single Audit threshold to $750,000, eliminating duplicative and unnecessary audit criteria, and clarifying cost allocation rules.
In a statement, the National Council of Nonprofits summarized the significance of the new OMB guidance this way:
"The new guidance means that nonprofits should be able to focus more on their missions and should be under less pressure to raise additional funds to essentially subsidize governments. In turn, charities with no government contracts or grants could see less competition for scarce philanthropic dollars. This is a major win for the entire charitable nonprofit community."
Highlights from the Grants Guidance:
Indirect Costs: The OMB Guidance explicitly requires pass-through entities (typically states and local governments receiving federal funding) to either honor a nonprofit's negotiated indirect cost rate if one already exists or negotiate a rate in accordance with federal guidelines. Nonprofits will be empowered to elect an automatic indirect cost rate of 10 percent of modified total direct costs (MTDC) - which can be used indefinitely if they so choose - or negotiate a higher rate.
Direct Costs: The guidance makes clear that, in certain circumstances, program administration (e.g., secretarial staff dedicated to a specific program) can be reported as direct, rather than as indirect, costs.
Audit Rules: The new guidance also raises the threshold for a single audit (A-133) requirement from $500,000 to $750,000, thus reducing costs for smaller contracts and grants.
Streamlining Federal Guidance: The new guidance consolidates and streamlines eight OMB circulars, including OMB Circulars 110 and 122 that relate to charitable nonprofits. As a result, applications and reporting will be standardized and streamlined to provide more consistency across various federal agencies.
Effective Date: Unclear, but presumably a year after publication in the Federal Register on December 26, 2013.